K12 Inc. Reports Full Fiscal Year 2013 Financial Results

K12 Inc. Reports Full Fiscal Year 2013 Financial Results

EPS Increases 60.0% to $0.72 on Revenue Growth of Nearly 20.0% to $848.2 Million

HERNDON, Va.--(BUSINESS WIRE)-- K12 Inc. (NYS: LRN) , a leading provider of proprietary, technology-based curriculum, software and education services created for individualized learning for students primarily in kindergarten through 12th grade, today announced its results for the fourth fiscal quarter and full fiscal year ended June 30, 2013.


Financial Highlights for the Fiscal Year Ended June 30, 2013

  • Revenues for the fiscal year ended June 30, 2013 grew 19.7% to $848.2 million, primarily due to a 12.7% increase in average student enrollments and an increase in average revenue per student in our managed public schools business.

  • EBITDA, a non-GAAP measure (see reconciliation below), for the fiscal year ended June 30, 2013 increased 28.0% to $111.4 million and EBITDA margin grew to 13.1%.

  • Operating income grew 57.6% to $45.7 million.

  • Net income attributable to common and Series A stockholders grew by 60.6% to $28.1 million.

  • Diluted net income attributable to common stockholders per share, which reflects a pro rata allocation of net income to Series A stockholders, grew 60.0% to $0.72.

Financial Highlights for the Three Months Ended June 30, 2013 (Fourth Quarter Fiscal Year 2013)

  • Revenues for the fourth quarter of FY 2013 increased 19.2% to $203.1 million, primarily due to organic revenue growth of 20.8% in our core Managed Public Schools business.

  • EBITDA, a non-GAAP measure (see reconciliation below), for the fourth quarter of FY 2013 grew 7.3% to $19.0 million.

  • Operating income decreased 30.0% to $1.4 million.

  • Net income attributable to common and Series A stockholders grew by 27.8% to $2.3 million.

  • Diluted net income attributable to common stockholders per share, which reflects a pro rata allocation of net income to Series A stockholders, grew by 20.0% to $0.06.

Comments from Management

Nate Davis, Executive Chairman of the Board, commented: "I am very pleased with the financial results K12 delivered in fiscal 2013. We remain intensely focused on improving academics and, to that end, we have introduced innovative academic pilots to improve our learning model and have launched new diagnostic assessment tools. We are excited about the new school year and grateful to have the opportunity to offer an individualized and adaptive education to students around the world."

Cash, Capital Expenditures and Capital Leases

As of June 30, 2013, the Company had cash and cash equivalents of $181.5 million, reflecting an increase of $36.8 million from June 30, 2012.

Capital expenditures for the fiscal year ended June 30, 2013 were $50.3 million, reflecting an increase of $1.7 million, and was comprised of:

  • $8.3 million for property and equipment,

  • $23.4 million for capitalized software development, and

  • $18.6 million for capitalized curriculum.

Capital leases financed additional purchases of $24.7 million during the fiscal year ended June 30, 2013, primarily for computers and software for students.

Revenue and Enrollment Data

Revenue by Business Line

The following table sets forth revenue for the Company's three lines of business -- Managed Public Schools (turn-key management services provided to public schools), Institutional Sales (educational products and services provided to school districts, public schools and other educational institutions that it does not manage), and International and Private Pay Schools (private schools for which it charges student tuition and makes direct consumer sales) -- for the periods indicated:

Year Ended June 30,

2013 / 2012

2012 / 2011

($ in thousands)

2013

2012

2011

Change

Change%

Change

Change%

Managed Public Schools

$

730,800

$

596,142

$

454,001

$

134,658

22.6

%

$

142,141

31.3

%

Institutional Business

73,269

73,150

46,756

119

0.2

%

26,394

56.5

%

International and Private Pay Business

44,151

39,115

21,677

5,036

12.9

%

17,438

80.4

%

Total

$

848,220

$

708,407

$

522,434

$

139,813

19.7

%

$

185,973

35.6

%

Enrollment Data

The following table sets forth average enrollment data for students in Managed Public Schools and total enrollment data for students in the International and Private Pay Schools for the periods indicated. These figures exclude enrollments from classroom pilot programs and consumer programs.

Year Ended June 30,

2013 / 2012

2012 / 2011

2013

2012

2011

Change

Change %

Change

Change %

Average Student Enrollments*

117,563

104,289

74,755

13,274

12.7

%

29,534

39.5

%

Year Ended June 30,

2013 / 2012

2012 / 2011

2013

2012

2011

Change

Change %

Change

Change%

Student Enrollments

31,619

31,830

28,777

(211

)

-0.7

%

3,053

10.6

%

Semester Course Enrollments

84,642

83,519

68,230

1,123

1.3

%

15,289

22.4

%

* The Managed Public Schools average student enrollments include enrollments for which we received no public funding.

Fiscal Year 2014 Outlook

The Company intends to issue guidance for the current fiscal year in mid-October 2013.

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: our potential inability to further develop, maintain and enhance our products and brands; the reduction of per pupil funding amounts at the schools we serve; reputation harm resulting from poor performance or misconduct by operators in any school in our industry and in any school in which we operate; challenges from virtual public school or hybrid school opponents; failure of the schools we serve to comply with regulations resulting in a loss of funding or an obligation to repay funds previously received; 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 contracts or renew existing contracts with schools; risks associated with entering into and executing mergers, acquisitions and joint ventures; failure to successfully integrate mergers, acquisitions and joint ventures; inability to recruit, train and retain quality teachers and employees; uncertainty regarding our ability to protect our proprietary technologies; risks of new, changing and competitive technologies; increased competition in our industry; 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 August 29, 2013, 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 fourth quarter 2013 financial results during a conference call scheduled for Thursday, August 29, 2013 at 8:30 a.m. eastern time (ET).

The conference call will be webcast and available on the K12 web site at www.k12.com through the Investor Relations link. Please access the web site at least 15 minutes prior to the start of the call to register and download and install any necessary software.

To participate in the live call, investors and analysts should dial (866) 825-1709 (domestic) or (617) 213-8060 at 8:20 a.m. (ET). The participant pass code is 82179632. A replay of the call will be available starting on August 29, 2013, through September 5, 2013, at (888) 286-8010 (domestic) or (617) 801-6888 (international) pass code 35861153. It will also be archived at www.k12.com in the Investor Relations section for 60 days.

Financial Statements

The financial statements set forth below are not the complete set of K12 Inc.'s financial statements for the quarter and year and are presented below without footnotes. Readers are encouraged to obtain and carefully review K12 Inc.'s Annual Report on Form 10-K for the year ended June 30, 2013, including all financial statements contained therein and the footnotes thereto, filed with the SEC. The Form 10-K may be retrieved from the SEC's website at www.sec.gov or from K12 Inc.'s website at www.k12.com.

K12 INC.

CONSOLIDATED BALANCE SHEETS

June 30,

2013

2012

(In thousands, except share and per share data)

ASSETS

Current assets

Cash and cash equivalents

$

181,480

$

144,652

Restricted cash and cash equivalents

-

1,501

Accounts receivable, net of allowance of $2,560 and $1,624 at June 30, 2013 and June 30, 2012, respectively

186,459

160,922

Inventories, net

44,395

37,853

Current portion of deferred tax asset

11,368

16,140

Prepaid expenses

10,331

11,173

Other current assets

23,916

14,598

Total current assets

457,949

386,839

Property and equipment, net

56,142

55,903

Capitalized software, net

43,504

34,709

Capitalized curriculum development costs, net

64,599

60,345

Intangible assets, net

32,139

36,736

Goodwill

61,413

61,619

Investment in Web International

-

10,000

Deposits and other assets

3,150

2,684

Total assets

$

718,896

$

648,835

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

Current liabilities

Accounts payable

$

21,838

$

23,951

Accrued liabilities

17,027

13,802

Accrued compensation and benefits

21,970

17,355

Deferred revenue

28,567

25,410

Current portion of capital lease obligations

19,395

15,950

Current portion of note payable

390

1,145

Total current liabilities

109,187

97,613

Deferred rent, net of current portion

8,833

6,974

Capital lease obligations, net of current portion

16,107

15,124

Note payable, net of current portion

-

777

Deferred tax liability

33,299

31,591

Other long term liabilities

2,512

1,908

Total liabilities

169,938

153,987

Commitments and contingencies

-

-

Redeemable noncontrolling interest

15,200

17,200

Equity:

K12 Inc. stockholders' equity

Common stock, par value $0.0001; 100,000,000 shares authorized; 37,440,662 and 36,436,933 shares issued and outstanding at June 30, 2013 and June 30, 2012, respectively

4

4

Additional paid-in capital

548,390

519,439

Series A Special Stock, par value $0.0001; 2,750,000 shares issued and outstanding at June 30, 2013 and 2012

63,112

63,112

Accumulated Other Comprehensive Income (Loss)

(294

)

100

Accumulated deficit

(81,050

)

(109,161

)

Total K12 Inc. stockholders' equity

530,162

473,494

Noncontrolling interest

3,596

4,154

Total equity

533,758

477,648

Total liabilities, redeemable noncontrolling interest and equity

$

718,896

$

648,835

K12 INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended June 30,

Year Ended June 30,

2013

2012

2013

2012

(In thousands, except share and per share data)

Revenues

$

203,087

$

170,402

$

848,220

$

708,407

Cost and expenses

Instructional costs and services

129,192

102,617

498,398

408,560

Selling, administrative and other operating expenses

66,206

60,970

283,032

245,274

Product development expenses

6,268

4,783

21,084

25,593

Total costs and expenses

201,666

168,370

802,514

679,427

Income from operations

1,421

2,032

45,706

28,980

Interest income (expense), net

1,657

(267

)

851

(989

)

Income before income tax expense and noncontrolling interest

3,078

1,765

46,557

27,991

Income tax expense

(1,828

)

(571

)

(20,023

)

(11,882

)

Net income

1,250

1,194

26,534