HERNDON, Va., April 27, 2016 (GLOBE NEWSWIRE) -- K12 Inc. (NYSE:LRN), a technology-based education company and leading provider of proprietary curriculum and online school programs for students in pre-K through high school, today announced its results for the third fiscal quarter ended March 31, 2016.
Financial Highlights for the Three Months Ended March 31, 2016 (Third Quarter Fiscal Year 2016)
- Revenues of $221.3 million, compared to $244.6 million in the third quarter of FY 2015.
- EBITDA, a non-GAAP measure (see reconciliation below), of $36.7 million, compared to $45.2 million in the third quarter of FY 2015.
- Operating income of $19.1 million, compared to $27.4 million in the third quarter of FY 2015.
- Net income attributable to common stockholders of $14.3 million, compared to $17.0 million in the third quarter of FY 2015.
- Diluted net income attributable to common stockholders per share of $0.37, compared to $0.45 in the third quarter of FY 2015.
Financial Highlights for the Nine Months Ended March 31, 2016
- Revenues of $651.4 million, compared to $712.6 million for the first nine months of FY 2015.
- EBITDA, a non-GAAP measure (see reconciliation below), of $64.0 million, compared to $87.0 million for the first nine months of FY 2015.
- Operating income of $13.4 million compared to $34.7 million for the first nine months of FY 2015.
- Net income attributable to common stockholders of $10.0 million, compared to $22.6 million for the first nine months of FY 2015.
- Diluted net income attributable to common stockholders per share of $0.26, compared to $0.60 for the first nine months of FY 2015.
Changes to the year-over-year financial results, for the three and nine months ended March 31, 2016, are primarily due to the transition of the Agora Cyber Charter School contract from a managed to a non-managed program.
Comments from Management
“We continue to achieve financial results in line with the guidance we provided for the year,” said Stuart Udell, Chief Executive Officer. “I am also extremely proud of this year’s academic accomplishments and the extraordinary efforts of our dedicated teachers and school teams. While we have made great strides in the last few years, we will continue to work with our partners to further improve the academic outcomes for all the students we serve,” added Udell.
Cash, Capital Expenditures and Capital Leases
As of March 31, 2016, the Company had cash and cash equivalents of $199.5 million, an increase of $3.6 million compared to the $195.9 million reported at June 30, 2015. This increase is largely the result of normal seasonal trends.
Capital expenditures for the nine months ended March 31, 2016 were $41.0 million, a decrease of $4.3 million from the prior year’s first nine months, and was comprised of:
- $2.5 million for property and equipment,
- $26.3 million for capitalized software development, and
- $12.2 million for capitalized curriculum.
Capital leases financed additional purchases of $6.9 million during the nine months ended March 31, 2016, primarily for student computers. This compares to capital leases financed during the nine months ended March 31, 2015 of $12.1 million.
Revenue
The following table sets forth the Company’s revenues -- Managed Public School Programs (curriculum and services sold to managed public schools), Institutional (curriculum, technology and services provided to school districts, public schools and other educational institutions that the Company does not manage), and Private Pay Schools and Other (private schools for which the Company charges student tuition and makes direct consumer sales) – for the periods indicated.
Beginning in fiscal 2016, the Company has presented revenue from Non-managed Programs as part of the Institutional line of business, along with the Institutional Software and Services, which together constitute total Institutional revenue. In the prior year these revenues were presented as part of the Public School Programs line of business, which included both Managed and Non-managed Public School Programs. We believe this revised presentation clarifies and better aligns the disclosure of Non-Managed Program revenues with the Company’s operational and sales structure.
| Three Months Ended | Change | Nine Months Ended | Change | ||||||||||||||||||||||||
| March 31, | 2016 / 2015 | March 31, | 2016 / 2015 | ||||||||||||||||||||||||
| ($ in thousands) | 2016 | 2015 | $ | % | 2016 | 2015 | $ | % | |||||||||||||||||||
| Managed Public School Programs (1) | $ | 185,832 | $ | 213,230 | $ | (27,398 | ) | -12.8 | % | $ | 533,633 | $ | 612,344 | $ | (78,711 | ) | -12.9 | % | |||||||||
| Institutional | |||||||||||||||||||||||||||
| Non-managed Public School Programs (1) | 13,145 | 9,324 | 3,821 | 41.0 | % | 44,441 | 31,009 | 13,432 | 43.3 | % | |||||||||||||||||
| Institutional Software & Services | 10,645 | 10,954 | (309 | ) | -2.8 | % | 36,134 | 35,670 | 464 | 1.3 | % | ||||||||||||||||
| Total Institutional | 23,790 | 20,278 | 3,512 | 17.3 | % | 80,575 | 66,679 | 13,896 | 20.8 | % | |||||||||||||||||
| Private Pay Schools and Other | 11,718 | 11,115 | 603 | 5.4 | % | 37,173 | 33,617 | 3,556 | 10.6 | % | |||||||||||||||||
| Total | $ | 221,340 | $ | 244,623 | $ | (23,283 | ) | -9.5 | % | $ | 651,381 | $ | 712,640 | $ | (61,259 | ) | -8.6 | % | |||||||||
| (1) Managed Programs include schools where K12 provides substantially all of the management, technology and academic support services in addition to curriculum, learning systems and instructional services. Non-managed Programs include schools where K12 provides curriculum and technology, and the school can also contract for instruction or other educational services. Non-managed programs, however, do not offer primary administrative oversight. | |||||||||||||||||||||||||||
Enrollment Data
The following table sets forth enrollment data for students in Managed Public School Programs and our Non-managed Public School Programs for the periods indicated. These figures exclude enrollments from classroom pilot programs and consumer programs.
| Three Months Ended March 31, | 2016 / 2015 | Nine Months Ended March 31, | 2016 / 2015 | ||||||||||||||||||||
| 2016 | 2015 | Change | Change % | 2016 | 2015 | Change | Change % | ||||||||||||||||
| Managed Public School Programs (1,2) | 104,640 | 115,330 | (10,690 | ) | -9.3 | % | 104,229 | 116,198 | (11,969 | ) | -10.3 | % | |||||||||||
| Non-managed Public School Programs (1) | 26,816 | 20,165 | 6,651 | 33.0 | % | 27,326 | 20,341 | 6,985 | 34.3 | % | |||||||||||||
| (1) If a school changes from a Managed to a Non-managed program, the corresponding enrollment classification would change in the period in which the contract arrangement changed. | |||||||||||||||||||||||
| (2) Managed Public School Programs include enrollments for which K12 receives no public funding or revenue. | |||||||||||||||||||||||
Revenue per Enrollment Data
The following table sets forth revenue per average enrollment data for students in Public School Programs for the periods indicated.
| Three Months Ended | Change | Nine Months Ended | Change | ||||||||||||||||||||||||||||
| March 31, | 2016 / 2015 | March 31, | 2016 / 2015 | ||||||||||||||||||||||||||||
| 2016 | 2015 | $ | % | 2016 | 2015 | $ | % | ||||||||||||||||||||||||
| Managed Public School Programs | $ | 1,776 | $ | 1,849 | $ | (73 | ) | -3.9 | % | $ | 5,120 | $ | 5,270 | $ | (150 | ) | -2.8 | % | |||||||||||||
| Non-managed Public School Programs | 490 | 462 | 28 | 6.0 | % | 1,626 | 1,524 | 102 | 6.7 | % | |||||||||||||||||||||
Fourth Quarter Outlook
The Company is forecasting the following for the fourth quarter of FY 2016:
- Revenue in the range of $205 million to $215 million.
- Operating income in the range of $5 million to $9 million.
- Capital expenditures, which includes curriculum and software development, computers and infrastructure, of $22 million to $27 million.
Special Note on Forward-Looking Statements
This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We have tried, whenever possible, to identify these forward-looking statements using words such as “anticipates,” “believes,” “estimates,” “continues,” “likely,” “may,” “opportunity,” “potential,” “projects,” “will,” “expects,” “plans,” “intends” and similar expressions to identify forward looking statements, whether in the negative or the affirmative. These statements reflect our current beliefs and are based upon information currently available to us. Accordingly, such forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, such statements. These risks, uncertainties, factors and contingencies include, but are not limited to: reduction of per pupil funding amounts at the schools we serve; inability to achieve sufficient levels of new enrollments to sustain or to grow our business model; failure of the schools we serve to comply with regulations resulting in a loss of funding or an obligation to repay funds previously received; declines or variations in academic performance outcomes as curriculum and testing standards evolve; harm to our reputation resulting from poor performance or misconduct by operators or us in any school in our industry and in any school in which we operate; legal and regulatory challenges from opponents of virtual public education, public charter schools or for-profit education companies; discrepancies in interpretation of legislation by regulatory agencies that may lead to payment or funding disputes; termination of our contracts with schools due to a loss of authorizing charter; failure to enter into new school contracts or renew existing contracts, in part or in their entirety; unsuccessful integration of mergers, acquisitions and joint ventures; failure to further develop, maintain and enhance our technology, products, services and brands; inadequate recruiting, training and retention of effective teachers and employees; infringement of our intellectual property; non-compliance with laws and regulations related to operating schools in a foreign jurisdiction; entry of new competitors with superior competitive technologies and lower prices; and other risks and uncertainties associated with our business described in the Company’s filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of April 27, 2016, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.
Conference Call
The Company will discuss its third quarter fiscal year 2016 financial results during a conference call scheduled for Wednesday, April 27, 2016 at 8:30 a.m. eastern time (ET).
The conference call will be webcast and available at http://public.viavid.com/index.php?id=119013. Please access the web site at least 15 minutes prior to the start of the call.
To participate in the live call, investors and analysts should dial (877) 407-4019 (domestic) or (201) 689-8337 (international) at 8:15 a.m. (ET). No passcode is required.
A replay of the call will be available starting on April 27, 2016 at 11:00 a.m. ET through May 27, 2016 at 11:00 a.m. ET, at (877) 660-6853 (domestic) or (201) 612-7415 (international) using conference ID 13634573. A webcast replay of the call will be available at http://public.viavid.com/index.php?id=119013 for 30 days.
Financial Statements
The financial statements set forth below are not the complete set of K12 Inc.’s financial statements for the three months and nine months ended March 31, 2016, and are presented below without footnotes. Readers are encouraged to obtain and carefully review K12 Inc.’s Form 10-Q for the quarter ended March 31, 2016, including all financial statements contained therein and the footnotes thereto, filed with the SEC. The Form 10-Q may be retrieved from the SEC's website at www.sec.gov or from K12 Inc.’s website at www.k12.com.
| K12 INC. | |||||||
| UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
| March 31, | June 30, | ||||||
| 2016 | 2015 | ||||||
| (In thousands, except share and per share data) | |||||||
| ASSETS | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 199,508 | $ | 195,852 | |||
| Accounts receivable, net of allowance of $9,949 and $9,657 at March 31, 2016 and June 30, 2015, respectively | 222,884 | 188,246 | |||||
| Inventories, net | 16,146 | 29,571 | |||||
| Deferred tax asset | 8,406 | 8,989 | |||||
| Prepaid expenses | 16,837 | 11,428 | |||||
| Other current assets | 24,797 | 24,877 | |||||
| Total current assets | 488,578 | 458,963 | |||||
| Property and equipment, net | 26,717 | 34,407 | |||||
| Capitalized software, net | 67,710 | 62,683 | |||||
| Capitalized curriculum development costs, net | 58,345 | 58,696 | |||||
| Intangible assets, net | 19,347 | 21,195 | |||||
| Goodwill | 66,160 | 66,160 | |||||
| Deposits and other assets | 7,049 | 6,495 | |||||
| Total assets | $ | 733,906 | $ | 708,599 | |||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY | |||||||
| Current liabilities | |||||||
| Current portion of capital lease obligations | $ | 13,453 | $ | 16,635 | |||
| Accounts payable | 15,745 | 29,819 | |||||
| Accrued liabilities | 14,209 | 12,486 | |||||
| Accrued compensation and benefits | 26,898 | 26,790 | |||||
| Deferred revenue | 50,898 | 24,927 | |||||
| Total current liabilities | 121,203 | 110,657 | |||||
| Capital lease obligations, net of current portion | 9,660 | 13,022 | |||||
| Deferred rent, net of current portion | 6,958 | 7,692 | |||||
| Deferred tax liability | 27,654 | 22,456 | |||||
| Other long-term liabilities | 6,475 | 8,233 | |||||
| Total liabilities | 171,950 | 162,060 | |||||
| Commitments and contingencies | - | - | |||||
| Redeemable noncontrolling interest | 9,801 | 9,601 | |||||
| Stockholders’ equity | |||||||
| Common stock, par value $0.0001; 100,000,000 shares authorized; 42,593,095 and 41,837,894 shares issued and 39,090,497 and 38,335,296 shares outstanding at March 31, 2016 and June 30, 2015, respectively | 4 | 4 | |||||
| Additional paid-in capital | 668,238 | 663,461 | |||||
| Accumulated other comprehensive loss | (643 | ) | (1,065 | ) | |||
| Accumulated deficit | (40,444 | ) | (50,462 | ) | |||
| Treasury stock of 3,502,598 shares at cost at March 31, 2016 and June 30, 2015 | (75,000 | ) | (75,000 | ) | |||
| Total stockholders’ equity | 552,155 | 536,938 | |||||
| Total liabilities, redeemable noncontrolling interest and equity | $ | 733,906 | $ | 708,599 | |||
| K12 INC. | |||||||||||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||
| March 31, | March 31, | ||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||
| (In thousands, except share and per share data) | |||||||||||||||
| Revenues | $ | 221,340 | $ | 244,623 | $ | 651,381 | $ | 712,640 | |||||||
| Cost and expenses | |||||||||||||||
| Instructional costs and services | 134,755 | 148,985 | 403,374 | 440,857 | |||||||||||
| Selling, administrative, and other operating expenses | 64,888 | 64,871 | 225,598 | 226,972 | |||||||||||
| Product development expenses | 2,563 | 3,337 | 9,004 | 10,065 | |||||||||||
| Total costs and expenses | 202,206 | 217,193 | 637,976 | 677,894 | |||||||||||
| Income from operations | 19,134 | 27,430 | 13,405 | 34,746 | |||||||||||
| Interest expense, net | (101 | ) | (315 | ) | (596 | ) | (134 | ) | |||||||
| Income before income tax expense and noncontrolling interest | 19,033 | 27,115 | 12,809 | 34,612 | |||||||||||
| Income tax expense | (5,368 | ) | (10,586 | ) | (3,924 | ) | (12,711 | ) | |||||||
| Net income | 13,665 | 16,529 | 8,885 | 21,901 | |||||||||||
| Adjust net loss attributable to noncontrolling interest | 608 | 484 | 1,133 | 667 | |||||||||||
| Net income attributable to common stockholders | $ | 14,273 | $ | 17,013 | $ | 10,018 | $ | 22,568 | |||||||
| Net income attributable to common stockholders per share | |||||||||||||||
| Basic | $ | 0.38 | $ | 0.46 | $ | 0.27 | $ | 0.60 | |||||||
| Diluted | $ | 0.37 | $ | 0.45 | $ | 0.26 | $ | 0.60 | |||||||
| Weighted average shares used in computing per share amounts: | |||||||||||||||
| Basic | 37,692,826 | 37,211,634 | 37,562,106 | 37,334,598 | |||||||||||
| Diluted | 38,999,871 | 37,408,911 | 38,559,204 | 37,574,665 | |||||||||||
| K12 INC. | |||||||
| UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
| Nine Months Ended March 31, | |||||||
| 2016 | 2015 | ||||||
| (In thousands) | |||||||
| Cash flows from operating activities | |||||||
| Net income | $ | 8,885 | $ | 21,901 | |||
| Adjustments to reconcile net income to net cash provided by operating activities | |||||||
| Depreciation and amortization expense | 50,622 | 52,273 | |||||
| Stock-based compensation expense | 13,759 | 13,471 | |||||
| Excess tax benefit from stock-based compensation | (6 | ) | (8 | ) | |||
| Deferred income taxes | (552 | ) | 4,128 | ||||
| Provision for doubtful accounts | 2,895 | 1,442 | |||||
| Provision for excess and obsolete inventory | 543 | 541 | |||||
| Benefit for student computer shrinkage and obsolescence | (422 | ) | (262 | ) | |||
| Expensed leased computer peripherals | 2,532 | - | |||||
| Changes in assets and liabilities: | |||||||
| Accounts receivable | (37,521 | ) | (81,421 | ) | |||
| Inventories | 12,882 | 15,532 | |||||
| Prepaid expenses | (5,409 | ) | (4,226 | ) | |||
| Other current assets | 79 | (3,719 | ) | ||||
| Deposits and other assets | (159 | ) | (425 | ) | |||
| Accounts payable | (14,074 | ) | (10,979 | ) | |||
| Accrued liabilities | 3,483 | (1,974 | ) | ||||
| Accrued compensation and benefits | 110 | 4,619 | |||||
| Deferred revenue | 25,971 | 32,336 | |||||
| Deferred rent and other liabilities | (2,496 | ) | 2,510 | ||||
| Net cash provided by operating activities | 61,122 | 45,739 | |||||
| Cash flows from investing activities | |||||||
| Purchase of property and equipment | (2,458 | ) | (7,656 | ) | |||
| Capitalized software development costs | (26,321 | ) | (25,430 | ) | |||
| Capitalized curriculum development costs | (12,206 | ) | (12,194 | ) | |||
| Investment in LearnBop, Inc. | - | (6,512 | ) | ||||
| Net cash used in investing activities | (40,985 | ) | (51,792 | ) | |||
| Cash flows from financing activities | |||||||
| Repayments on capital lease obligations | (13,428 | ) | (16,743 | ) | |||
| Purchase of treasury stock | - | (26,452 | ) | ||||
| Proceeds from exercise of stock options | 14 | 513 | |||||
| Excess tax benefit from stock-based compensation | 6 | 8 | |||||
| Retirement of restricted stock for income tax withholding | (3,056 | ) | (2,388 | ) | |||
| Net cash used in financing activities | (16,464 | ) | (45,062 | ) | |||
| Effect of foreign exchange rate changes on cash and cash equivalents | (17 | ) | (2,144 | ) | |||
| Net change in cash and cash equivalents | 3,656 | (53,259 | ) | ||||
| Cash and cash equivalents, beginning of period | 195,852 | 196,109 | |||||
| Cash and cash equivalents, end of period | $ | 199,508 | $ | 142,850 | |||
Non-GAAP Financial Measures
EBITDA
EBITDA consists of net income plus net interest expense, plus income tax expense, minus income tax benefit, plus depreciation and amortization and non-controlling interest. Interest expense primarily consists of interest expense for capital leases. We use EBITDA in addition to income from operations and net income as a measure of operating performance. However, EBITDA is not a recognized measurement under U.S. generally accepted accounting principles, or GAAP, and when analyzing our operating performance, investors should use EBITDA in addition to, and not as an alternative for, net income as determined in accordance with GAAP. Not all companies use identical calculations for EBITDA, therefore our presentation of EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, EBITDA is not intended to be a measure of free cash flow for our management's discretionary use, as it does not consider certain cash requirements such as capital expenditures, tax payments, interest payments, or other working capital.
We believe EBITDA is useful to an investor in evaluating our operating performance because it is widely used to measure a company's operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of corporate performance exclusive of our capital structure and the method by which assets were acquired. Our management uses EBITDA:
- as an additional measurement of operating performance because it assists us in comparing our performance on a consistent basis; and
- in presentations to the members of our Board of Directors to enable our Board to have the same measurement basis of operating performance as is used by management to compare our current operating results with corresponding prior periods and with the results of other companies in our industry.
The following tables provide a reconciliation of net income to EBITDA:
| Three Months Ended March 31, | Nine Months Ended December 31, | |||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||
| (In thousands) | (In thousands) | |||||||||||||
| Net income — K12 Inc. | $ | 14,273 | $ | 17,013 | $ | 10,018 | $ | 22,568 | ||||||
| Interest expense (income), net | 101 | 315 | 596 | 134 | ||||||||||
| Income tax expense | 5,368 | 10,586 | 3,924 | 12,711 | ||||||||||
| Depreciation and amortization | 17,586 | 17,764 | 50,622 | 52,273 | ||||||||||
| Noncontrolling interest | (608 | ) | (484 | ) | (1,133 | ) | (667 | ) | ||||||
| EBITDA | $ | 36,720 | $ | 45,194 | $ | 64,027 | $ | 87,019 | ||||||
About K12 Inc.
K12 Inc. (NYSE:LRN) is driving innovation and advancing the quality of education by delivering state-of-the-art, digital learning platforms and technology to students and school districts across the globe. K12’s award winning curriculum serves over 2,000 schools and school districts and has delivered more than four million courses over the past decade. K12 is a company of educators with the nation's largest network of K-12 online school teachers, providing instruction, academic services, and learning solutions to public schools and districts, traditional classrooms, blended school programs, and directly to families. The K12 program is offered through K12 partner public schools in 33 states and the District of Columbia, and through school districts and public and private schools serving students in all 50 states and more than 100 countries. More information can be found at K12.com.