BusinessWire

K12 Inc. Reports Third Quarter Fiscal 2020 with Revenues of $257.2 Million

Results Beat Company Guidance and Analyst Consensus

HERNDON, Va.--(BUSINESS WIRE)--K12 Inc. (NYSE: LRN), one of the nation’s leading tech-enabled education companies, today announced its results for the third fiscal quarter ended March 31, 2020.


Financial Highlights for the Three Months Ended March 31, 2020 (Third Quarter Fiscal Year 2020)

  • Revenues of $257.2 million, compared to revenues of $253.3 million in the third quarter of FY 2019.
  • Income from operations of $14.5 million, compared to $23.3 million in the third quarter of FY 2019.
  • Net income attributable to common stockholders of $8.8 million, compared to $18.5 million in the third quarter of FY 2019.
  • Diluted net income attributable to common stockholders per share of $0.22, compared to $0.44 per share in the third quarter of FY 2019.

To supplement our financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), we are also presenting adjusted operating income and adjusted EBITDA. Management believes that these additional metrics provide useful information to our investors as an indicator of performance because they exclude stock-based compensation expense. Non-GAAP Financial Highlights for the three months ended March 31, 2020 (Third Quarter Fiscal Year 2020) are as follows:

  • Adjusted operating income of $20.6 million, compared to $27.2 million in the third quarter of FY 2019.
  • Adjusted EBITDA of $39.0 million, compared to $44.3 million in the third quarter of FY 2019.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is provided below.

CEO Commentary

“During these unprecedented times for our country, K12-powered schools remain open. I am proud of our teachers and school leaders for the support they have provided students to continue learning,” said K12 CEO and Chairman Nate Davis. “Looking forward, K12 now sits squarely in the middle of one of the most important changes in our society – distance and digital learning will become an even more important part of how our children learn. Our core competency in helping public school districts, private schools, and charter schools operate their online programs positions us well given how the education market is likely to change.”

Financial Highlights for the Nine Months Ended March 31, 2020 (Year-to-Date Fiscal 2020)

  • Revenues of $771.8 million, compared to $759.4 million for the first nine months of FY 2019.
  • Income from operations of $25.4 million, compared to $42.8 million for the first nine months of FY 2019.
  • Net income attributable to common stockholders of $19.6 million, compared to $33.9 million for the first nine months of FY 2019.
  • Diluted net income attributable to common stockholders per share of $0.48, compared to $0.84 for the first nine months of FY 2019.

Non-GAAP Financial Highlights for the Nine Months Ended March 31, 2020 (Year-to-Date Fiscal 2020) are as follows:

  • Adjusted operating income of $43.2 million, compared to $54.9 million for the first nine months of FY 2019.
  • Adjusted EBITDA of $96.0 million, compared to $108.2 million for the first nine months of FY 2019.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is provided below.

Liquidity

As of March 31, 2020, the Company had cash, cash equivalents, and restricted cash, inclusive of the $100 million credit facility, of $151.5 million, a decrease of $133.1 million compared to $284.6 million reported at June 30, 2019. K12 borrowed $100.0 million from its revolving credit facility as a pre-emptive measure against potential capital market disruptions. The company has evaluated its financial covenants under the credit facility agreement and continues to be in compliance with all requirements.

On a year-over-year basis, cash, cash equivalents, and restricted cash decreased $84.5 million compared to March 31, 2019. The decrease in cash year-over-year is the result of several items, the largest of which being K12’s all cash acquisition of Galvanize in January 2020.

In order to further improve short term liquidity, the company will utilize provisions in The Coronavirus Aid, Relief, and Economic Security (CARES) Act to defer withholding of payroll taxes.

Capital Expenditures

Capital expenditures for the nine months ended March 31, 2020 were $35.8 million, a decrease of $0.9 million from the prior year’s first nine months, and was comprised of:

  • $1.5 million for property and equipment,
  • $18.8 million for capitalized software development, and
  • $15.5 million for capitalized curriculum development.

Revenue and Enrollment Data

Revenue

The Company’s lines of business are: Managed Public School Programs (programs which offer an integrated package of systems, services, products, and professional expertise that K12 administers to support an online or blended public school, including administrative support, information technology and provisioning, academic support services, curriculum, learning systems, and instructional services), Institutional (Non-managed Public School Programs – programs which provide instruction, curriculum, supplemental courses, marketing, enrollment and other educational services where K12 does not provide primary administrative support services and Institutional Software and Services – educational software and services provided to school districts, public schools and other educational institutions), and Private Pay Schools and Other (private schools for which the Company charges student tuition and makes direct consumer sales). The following table sets forth the Company’s revenues for the periods indicated:

 

 
Three Months Ended
March 31,
Change 2020 / 2019 Nine Months Ended
March 31,
Change 2020 / 2019

2020

2019

$

%

2020

2019

$

%

(In thousands, except percentages)
 
Managed Public School Programs

$

228,335

$

222,645

$

5,690

 

2.6

%

$

685,446

$

665,981

$

19,465

 

2.9

%

 
Institutional
Non-managed Public School Programs

 

8,173

 

12,776

 

(4,603

)

-36.0

%

 

26,792

 

37,398

 

(10,606

)

-28.4

%

Institutional Software & Services

 

8,580

 

8,530

 

50

 

0.6

%

 

30,246

 

29,515

 

731

 

2.5

%

Total Institutional

 

16,753

 

21,306

 

(4,553

)

-21.4

%

 

57,038

 

66,913

 

(9,875

)

-14.8

%

Private Pay Schools and Other

 

12,066

 

9,301

 

2,765

 

29.7

%

 

29,350

 

26,544

 

2,806

 

10.6

%

Total Revenues

$

257,154

$

253,252

$

3,902

 

1.5

%

$

771,834

$

759,438

$

12,396

 

1.6

%

 
 

Enrollment Data

The following table sets forth average enrollment data for the period indicated.

 
Three Months Ended
March 31,
2020 / 2019 Nine Months
Ended March 31,
2020 / 2019

2020

2019

Change Change %

2020

2019

Change Change %
(In thousands, except percentages)
 
Managed Public School Programs (1,2)

119.7

117.1

2.6

 

2.2

%

119.1

117.0

2.1

 

1.8

%

Non-managed Public School Programs (1)

16.2

24.5

(8.3

)

-33.9

%

15.9

24.0

(8.1

)

-33.8

%

 
 

(1) If a school changes from a Managed Public School Program to a Non-managed Public School 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 period indicated.

 
Three Months Ended Change Nine Months Ended Change
March 31, 2020 / 2019 March 31, 2020 / 2019

2020

2019

$

%

2020

2019

$

%
Managed Public School Programs

$

1,908

$

1,901

 

7

 

0.4

%

$

5,755

$

5,692

 

63

1.1

%

Non-managed Public School Programs

 

505

 

521

 

(16

)

-3.1

%

 

1,685

 

1,558

 

127

8.2

%

 
 

Outlook

The Company is reaffirming its forecast for the full year, fiscal 2020.

  • Revenue in the range of $1,033.0 million to $1,040.0 million.
  • Capital expenditures of $45.0 million to $49.0 million. Note: Capital expenditures include the purchase of property and equipment, and capitalized software and curriculum development costs as defined on our Statement of Cash Flows.
  • Tax rate of 28.0% to 30.0%.
  • Adjusted operating income in the range of $48.0 million to $52.0 million. (3)

(3) In addition to providing an outlook for revenue and capital expenditures, adjusted operating income is provided as a supplemental non-GAAP financial measure as management believes that it provides useful information to our investors.

   
  Year Ended June 30, 2020
  Low High
  (In millions)
Income from operations  

$

23.9

$

27.9

Stock-based compensation expense  

 

24.1

 

24.1

Adjusted operating income  

$

48.0

$

52.0

   
   

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 a sufficient level of new enrollments to sustain our business model; failure to enter into new school contracts or renew existing contracts, in part or in their entirety; failure of the schools we serve or us to comply with federal, state and local regulations, resulting in a loss of funding, an obligation to repay funds previously received or contractual remedies; governmental investigations that could result in fines, penalties, settlements, or injunctive relief; declines or variations in academic performance outcomes of the students and schools we serve as curriculum standards, testing programs and state accountability metrics evolve; harm to our reputation resulting from poor performance or misconduct by operators or us in any school in our industry and/or in any school in which we operate; changes in national and local economic and business conditions and other factors such as natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as COVID-19; legal and regulatory challenges from opponents of virtual public education 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, or a reduction in the scope of services with schools; failure to develop the career readiness education business; entry of new competitors with superior technologies and lower prices; 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; disruptions to our Internet-based learning and delivery systems, including but not limited to our data storage systems, resulting from cybersecurity attacks; misuse or unauthorized disclosure of student and personal data; 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 March 31, 2020, 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 2020 financial results during a conference call scheduled for Monday, April 27, 2020 at 5:00 p.m. eastern time (ET).

The conference call will be webcast and available at http://public.viavid.com/index.php?id=138677. 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 4:45 p.m. (ET). No passcode is required.

A replay of the call will be available starting on April 27, 2020 at 8:00 p.m. ET through May 27, 2020 at 8:00 p.m. ET, at (877) 660-6853 (domestic) or (201) 612-7415 (international) using conference ID 13700754. A webcast replay of the call will be available at http://public.viavid.com/index.php?id=138677 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 and nine months ended March 31, 2020 and are presented below without footnotes. Readers are encouraged to obtain and carefully review K12 Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, including all financial statements contained therein and the footnotes thereto, filed with the SEC, which 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,

2020

2019

(audited)
(In thousands except share and
per share data)
 
ASSETS
Current assets
Cash and cash equivalents

$

 

150,034

 

283,121

 

Accounts receivable, net of allowance of $4,981 and $11,766 at March 31, 2020 and June 30, 2019, respectively

284,326

 

191,639

 

Inventories, net

19,579

 

29,946

 

Prepaid expenses

18,945

 

12,643

 

Other current assets

13,814

 

12,307

 

Total current assets

486,698

 

529,656

 

Operating lease right-of-use assets, net (1)

106,929

 

Property and equipment, net (1)

44,174

 

31,980

 

Capitalized software, net

48,304

 

51,165

 

Capitalized curriculum development costs, net

51,717

 

53,297

 

Intangible assets, net

43,893

 

14,981

 

Goodwill

197,803

 

90,197

 

Deposits and other assets

56,487

 

48,330

 

Total assets

$

 

1,036,005

 

819,606

 

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable

$

 

25,235

 

50,488

 

Accrued liabilities

25,953

 

20,685

 

Accrued compensation and benefits

28,384

 

41,998

 

Deferred revenue

39,618

 

22,828

 

Credit facility

100,000

 

Current portion of finance lease liability

17,988

 

19,588

 

Current portion of operating lease liability (1)

20,441

 

Total current liabilities

257,619

 

155,587

 

Long-term finance lease liability

5,265

 

5,060

 

Long-term operating lease liability (1)

100,803

 

Deferred tax liability

1,252

 

16,670

 

Other long-term liabilities

6,438

 

8,924

 

Total liabilities

371,377

 

186,241

 

Commitments and contingencies
Stockholders’ equity
Common stock, par value $0.0001; 100,000,000 shares authorized; 46,274,270 and 45,575,236 shares issued; and 40,939,527 and 40,240,493 shares outstanding at March 31, 2020 and June 30, 2019, respectively

4

 

4

 

Additional paid-in capital

724,992

 

713,436

 

Accumulated other comprehensive income (loss)

49

 

(40

)

Retained earnings

42,065

 

22,447

 

Treasury stock of 5,334,743 shares at cost at March 31, 2020 and June 30, 2019

(102,482

)

(102,482

)

Total stockholders’ equity

664,628

 

633,365

 

Total liabilities and stockholders' equity

$

 

1,036,005

 

819,606

 

 

(1) Reflects the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), which the Company adopted on July 1, 2019.

 

 

K12 INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
Three Months Ended March 31, Nine Months Ended March 31,

2020

2019

2020

2019

(In thousands except share and per share data)
Revenues

$

 

257,154

 

$

 

253,252

 

$

 

771,834

 

$

 

759,438

 

Instructional costs and services

178,968

 

168,260

 

515,796

 

487,574

 

Gross margin

78,186

 

84,992

 

256,038

 

271,864

 

Selling, general, and administrative expenses

63,687

 

61,725

 

230,622

 

229,059

 

Income from operations

14,499

 

23,267

 

25,416

 

42,805

 

Interest income (expense), net

(76

)

754

 

1,275

 

1,547

 

Other income (expense), net

(1,093

)

556

 

(736

)

(40

)

Income before income taxes and loss from equity method investments

13,330

 

24,577

 

25,955

 

44,312

 

Income tax expense

(4,419

)

(5,842

)

(5,993

)

(9,858

)

Loss from equity method investments

(157

)

(273

)

(344

)

(562

)

Net income attributable to common stockholders

$

 

8,754

 

$

 

18,462

 

$

 

19,618

 

$

 

33,892

 

Net income attributable to common stockholders per share:
Basic

$

 

0.22

 

$

 

0.47

 

$

 

0.50

 

$

 

0.87

 

Diluted

$

 

0.22

 

$

 

0.44

 

$

 

0.48

 

$

 

0.84

 

Weighted average shares used in computing per share amounts:
Basic

39,539,791

 

39,008,990

 

39,426,121

 

38,753,236

 

Diluted

39,938,898

 

41,753,323

 

40,461,290

 

40,548,959

 

 

 

K12 INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
Nine Months Ended March 31,

2020

2019

(In thousands)
Cash flows from operating activities
Net income

$

 

19,618

 

$

 

33,892

 

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense

52,790

 

53,259

 

Stock-based compensation expense

17,785

 

12,114

 

Deferred income taxes

1,151

 

5,327

 

(Recovery of) provision for doubtful accounts

(88

)

2,854

 

Other

11,605

 

5,291

 

Changes in assets and liabilities:
Accounts receivable

(76,187

)

(58,726

)

Inventories, prepaid expenses, deposits and other current and long-term assets

240

 

4,620

 

Accounts payable

(20,066

)

(3,134

)

Accrued liabilities

6,260

 

5,211

 

Accrued compensation and benefits

(15,543

)

(5,501

)

Operating lease liability

(8,151

)

Deferred revenue and other liabilities

13,611

 

18,089

 

Net cash provided by operating activities

3,025

 

73,296

 

Cash flows from investing activities
Purchase of property and equipment

(1,493

)

(2,397

)

Capitalized software development costs

(18,825

)

(20,580

)

Capitalized curriculum development costs

(15,463

)

(13,746

)

Sale of long-lived assets

389

 

Acquisition of Galvanize, Inc., net of cash acquired

(167,995

)

Acquisitions and investments, net of distributions

(4,277

)

(11,652

)

Net cash used in investing activities

(208,053

)

(47,986

)

Cash flows from financing activities
Repayments on finance lease obligations (1)

(21,603

)

(13,898

)

Borrowing from credit facility

105,000

 

Repayments on credit facility

(5,000

)

Payments of contingent consideration

(1,027

)

Proceeds from exercise of stock options

48

 

2,183

 

Repurchase of restricted stock for income tax withholding

(6,504

)

(9,656

)

Net cash provided by (used in) financing activities

71,941

 

(22,398

)

Net change in cash, cash equivalents and restricted cash

(133,087

)

2,912

 

Cash, cash equivalents and restricted cash, beginning of period

284,621

 

233,113

 

Cash, cash equivalents and restricted cash, end of period

$

 

151,534

 

$

 

236,025

 

 
Reconciliation of cash, cash equivalents and restricted cash to balance sheet as of March 31st:
Cash and cash equivalents

$

 

150,034

 

$

 

234,025

 

Other current assets (restricted cash)

500

 

Deposits and other assets (restricted cash)

1,000

 

2,000

 

Total cash, cash equivalents and restricted cash

$

 

151,534

 

$

 

236,025

 

 
 
 

(1) Previously referred to as repayments on capital lease obligations.

Non-GAAP Financial Measures

To supplement our financial statements presented in accordance with GAAP, we have presented adjusted operating income (loss), and adjusted EBITDA. These measures are not measurements recognized under GAAP.

  • Adjusted operating income (loss) is defined as income (loss) from operations as adjusted for stock-based compensation.
  • Adjusted EBITDA is defined as income (loss) from operations as adjusted for stock-based compensation and depreciation and amortization.
  • Adjusted EBITDA and adjusted operating income (loss) exclude stock-based compensation, which consists of expenses for stock options, restricted stock, restricted stock units, and performance stock units.

Management believes that the presentation of these non-GAAP financial measures provides useful information to investors relating to our financial performance. These measures remove such things as stock-based compensation, which is a non-cash charge that varies based on market volatility and the terms and conditions of the awards. Adjusted EBITDA also removes depreciation and amortization, which can vary depending upon accounting methods and the book value of assets. Adjusted EBITDA provides a measure of corporate performance exclusive of capital structure and the method by which assets were acquired.

Our management uses these non-GAAP financial measures:

  • as additional measures of operating performance because they assist 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 review the same measures used by management to compare our current operating results with corresponding prior periods.

Other companies may define these non-GAAP financial measures differently and, as a result, our use of these non-GAAP financial measures may not be directly comparable to similar non-GAAP financial measures used by other companies. Although we use these non-GAAP financial measures to assess the performance of our business, the use of non-GAAP financial measures is limited as they include and/or do not include certain items not included and/or included in the most directly comparable GAAP financial measure.

These non-GAAP financial measures should be considered in addition to, and not as a substitute for, income or loss from operations, net income or loss attributable to common stockholders, and net income or loss attributable to common stockholders per share or other related financial information prepared in accordance with GAAP. Adjusted EBITDA is not intended to be a measure of liquidity. You are cautioned not to place undue reliance on these non-GAAP financial measures.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is provided below.

 

 
Three Months Ended March 31, Nine Months Ended March 31,

2020

2019

2020

2019

(In thousands)
Income from operations

$

14,499

$

23,267

$

25,416

$

42,805

Stock-based compensation expense

 

6,086

 

3,950

 

17,785

 

12,114

Adjusted operating income

 

20,585

 

27,217

 

43,201

 

54,919

Depreciation and amortization

 

18,414

 

17,038

 

52,790

 

53,259

Adjusted EBITDA

$

38,999

$

44,255

$

95,991

$

108,178

 
 

About K12 Inc.

K12 Inc. (NYSE: LRN) helps students of all ages reach their full potential through inspired teaching and personalized learning. The company provides innovative, high-quality online and blended education solutions, curriculum, and programs to students, schools and enterprises in primary, secondary and post-secondary settings. K12 is a premier provider of career readiness education services and a leader in skills training, technology staffing and talent development. The company provides programs which combine traditional high school academics with career technical education through its Destinations Career Academies. Adult learning is delivered through K12’s subsidiary, Galvanize, a leader in developing capabilities for individuals and corporations in technical fields such as software engineering and data science.


Contacts

K12 Inc.
Investor and Press Contact:
Mike Kraft, 571-353-7778
Senior Vice President, Corporate Communications
mkraft@k12.com


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