- Revenues for first quarter FY 2013 grew to $221.1 million, an increase of $27.8 million, or 14.4 percent, over the prior year.
- EBITDA for Q1 FY 2013 (see GAAP reconciliation below) was $24.3 million, an increase of $3.0 million, or 14.1 percent, as compared to $21.3 million for the prior year.
- Operating income was $8.7 million, an increase of $0.4 million, or 4.8 percent, as compared to $8.3 million for the prior year.
- Net income to common and Series A stockholders was $4.4 million as compared to $4.6 million in the prior year, a decrease of 4.3 percent.
- Diluted earnings per share were $0.11 as compared to $0.12 in the prior year.
Financial Results for the Three Months ended September 30, 2012 (First Quarter Fiscal Year 2013)
- Revenues for the first quarter of FY 2013 were $221.1 million, an increase of $27.8 million, or 14.4 percent, over the prior year period. This increase was primarily due to solid organic revenue growth in our core business of providing curriculum, technology and academic services to K-12 managed public schools, partially offset by a decline in Institutional Business revenue, primarily as a result of the perpetual license revenue in the prior year period.
- Instructional costs and services expenses for the first quarter of FY 2013 were $118.6 million, representing an increase of $17.5 million, or 17.3 percent, from $101.1 million for the prior year period. The increase as percentage of revenue was associated primarily with advance hiring during the first quarter of fiscal 2013.
- Selling, administrative, and other operating expenses for the first quarter of FY 2013 were $89.6 million, representing an increase of $11.8 million, or 15.2 percent, as compared to $77.8 million for the prior year period. This increase was primarily attributable to increases in personnel costs related to growth in headcount, related benefits and recruiting costs. This was partially offset by a decrease in ERP implementation costs.
- Product development expenses for the first quarter of FY 2013 were $4.2 million, a decrease of $2.0 million, or 32.3 percent, over the same period in the prior year. The decrease was primarily due to more development projects that qualify for cost capitalization than in the prior year and a decrease in ERP implementation costs. Our cash expenditures, including capitalized costs, however, increased year over year by 4 percent.
- EBITDA, a non-GAAP measure (see reconciliation below), for the first quarter of FY 2013 was $24.3 million, an increase of 14.1 percent. EBITDA in the current year period reflected growth in revenue in the core Managed Public Schools business and a decrease in ERP implementation costs, offset partially by a decrease in Institutional Business revenue.
- Operating income was $8.7 million for the first quarter of FY 2013 as compared to operating income of $8.3 million for the same period in the prior year, an increase of $0.4 million or 4.8 percent. Depreciation and amortization were $15.7 million, an increase of $2.7 million or 20.8 percent, primarily due to investments in curriculum and systems to support growth.
- Income tax expense was $3.9 million for the first quarter of FY 2013, representing an effective tax rate of 46.1 percent. Income tax expense for the first quarter of FY 2012 was $3.7 million, an effective tax rate of 46.1 percent. The increase in the income tax expense was primarily due to the impact of losses generated by our foreign operations during the period.
- Net income attributable to common and Series A stockholders was $4.4 million as compared to net income of approximately $4.6 million in the prior year due to the factors mentioned above.
- Diluted net income attributable to common stockholders per share was $0.11 for the first quarter of FY 2013 as compared to $0.12 in the prior year due to the factors described above. Diluted net income per share reflects a pro rata allocation of net income to Series A Special Stock.
- Capital expenditures for the first quarter FY 2013, which were $15.2 million and was comprised of:
- $10.1 million for property and equipment, including capitalized software development, and
- $5.1 million for capitalized curriculum; and
- Capital leases financed additional purchases of $14.3 million during the first quarter, primarily for computers and software for students.
|($ in thousands)||1Q FY 2013||1Q FY 2012||Change||Change %|
|Managed Public Schools||$187,761||$159,449||$28,312||17.8%|
|International and Private Pay Business||$11,363||$10,399*||$964||9.3%|
|FY 2012||FY 2011|
|($ in thousands)||4Q2012||3Q2012||2Q2012||1Q2012||4Q2011||3Q2011||2Q2011||1Q2011|
|Managed Public Schools||$144,162||$151,885||$140,645||$159,449||$107,557||$114,163||$113,411||$118,870|
|International and Private Pay Business||$9,644||$9,878||$9,193||$10,399||$7,741||$5,182||$4,225||$4,529|
Enrollment DataManaged Public Schools The following table sets forth average enrollment data for students in Managed Public Schools for the periods indicated. These figures exclude enrollments from classroom pilot programs.
|1Q FY 2013||1Q FY 2012||Change||Change %|
|Managed Public Schools Average Student Enrollments||121,665||106,665||15,000||14.1%|
|International and Private Pay Business||1Q FY 2013||1Q FY 2012||Change||Change %|
|Cumulative Student Enrollments||12,996||12,415||581||4.7%|
|Cumulative Semester Course Enrollments||36,032||34,692||1,340||3.9%|
- Revenue of $840 million to $870 million
- EBITDA of $107 million to $115 million (see GAAP reconciliation below)
- Operating income of $45 million to $50 million
- Depreciation and amortization expense of $60 million to $65 million
- Capital expenditures including capitalized curriculum, capitalized software development, and property and equipment of approximately $55 million to $60 million
- Capitalized leases for student computers of approximately $20 million to $25 million
- Income tax rate of 42% to 44%
- Revenue of $205 million to $215 million
- EBITDA of $30 million to $33 million
The conference call will be webcast and available on the K 12 web site at www.k12.com through the Investor Relations link. Please access the web site at least 15 minutes prior to the start of the call to register and download and install any necessary software.To participate in the live call, investors and analysts should dial (866) 730-5765 (domestic) or (857) 350-1589 at 7:50 a.m. (ET). The participant pass code is 88254755. A replay of the call will be available starting on November 9, 2012, through November 16, 2012, at (888) 286-8010 (domestic) or (617) 801-6888 (international) pass code 18717833. It will also be archived at www.k12.com in the Investor Relations section for 60 days. Financial Statements The financial statements set forth below are not the complete set of K12 Inc.’s financial statements for the quarter and year and are presented below without footnotes. Readers are encouraged to obtain and carefully review K12 Inc.’s Annual Report on Form 10-K for the year ended June 30, 2012, including all financial statements contained therein and the footnotes thereto, filed with the SEC. The Form 10-K may be retrieved from the SEC's website at www.sec.gov or from K12 Inc.’s website at www.k12.com.
|Condensed Consolidated Balance Sheets|
|September 30,||June 30,|
|(In thousands, except share|
|and per share data)|
|Cash and cash equivalents||$||107,938||$||144,652|
|Restricted cash and cash equivalents||-||1,501|
|Accounts receivable, net of allowance of $2,242 and $1,624 at September 30, 2012 and June 30, 2012, respectively||258,832||160,922|
|Current portion of deferred tax asset||14,673||16,140|
|Other current assets||20,440||14,598|
|Total current assets||444,617||386,839|
|Property and equipment, net||65,864||55,903|
|Capitalized software, net||37,674||34,709|
|Capitalized curriculum development costs, net||61,944||60,345|
|Intangible assets, net||35,587||36,736|
|Investment in Web International||10,000||10,000|
|Deposits and other assets||2,384||2,684|
|LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY|
|Accrued compensation and benefits||12,219||17,355|
|Current portion of capital lease obligations||19,525||15,950|
|Current portion of notes payable||1,153||1,145|
|Total current liabilities||152,425||97,613|
|Deferred rent, net of current portion||8,493||6,974|
|Capital lease obligations, net of current portion||21,231||15,124|
|Notes payable, net of current portion||390||777|
|Deferred tax liability||32,525||31,591|
|Other long term liabilities||1,987||1,908|
|Commitments and contingencies||-||-|
|Redeemable noncontrolling interest||17,200||17,200|
|K12 Inc. stockholders’ equity|
|Common stock, par value $0.0001; 100,000,000 shares authorized; 36,844,093 and 36,436,933 shares issued and outstanding at September 30, 2012 and June 30, 2012, respectively||4||4|
|Additional paid-in capital||523,081||519,439|
|Series A Special Stock, par value $0.0001; 2,750,000 shares authorized, issued and outstanding at September 30, 2012 and June 30, 2012||63,112||63,112|
|Accumulated other comprehensive income (loss)||(214||)||100|
|Total K12 Inc. stockholders’ equity||481,179||473,494|
|Total liabilities, redeemable noncontrolling interest and equity||$||719,498||$||648,835|
|Condensed Consolidated Statements of Operations|
|Three Months Ended September 30,|
|(In thousands, except share|
|and per share data)|
|Cost and expenses|
|Instructional costs and services||118,648||101,079|
|Selling, administrative, and other operating expenses||89,619||77,760|
|Product development expenses||4,168||6,224|
|Total costs and expenses||212,435||185,063|
|Income from operations||8,661||8,267|
|Interest expense, net||(228||)||(221||)|
|Income before income tax expense and noncontrolling interest||8,433||8,046|
|Income tax expense||(3,889||)||(3,697||)|
|Adjust net (income) loss attributable to noncontrolling interest||(187||)||251|
|Net income attributable to common stockholders, including Series A stockholders||$||4,357||$||4,600|
|Net income attributable to common stockholders per share, excluding Series A stockholders:|
|Weighted average shares used in computing per share amounts:|
|Condensed Consolidated Statements of Cash Flows|
|Three Months Ended September 30,|
|Cash flows from operating activities|
|Adjustments to reconcile net income to net cash used in operating activities:|
|Depreciation and amortization expense||15,661||12,992|
|Stock based compensation expense||2,872||2,194|
|Excess tax benefit from stock based compensation||(1,086||)||(711||)|
|Deferred income taxes||3,488||2,301|
|Provision for doubtful accounts||397||201|
|Provision for inventory obsolescence||42||39|
|Provision for student computer shrinkage and obsolescence||373||377|
|Changes in assets and liabilities:|
|Other current assets||(5,842||)||(8,788||)|
|Deposits and other assets||299||933|
|Accrued compensation and benefits||(5,134||)||3,388|
|Release of restricted cash||1,501||-|
|Net cash used in operating activities||(17,214||)||(34,961||)|
|Cash flows from investing activities|
|Purchase of property and equipment||(3,863||)||(2,172||)|
|Capitalized software development costs||(6,289||)||(2,739||)|
|Capitalized curriculum development costs||(5,092||)||(3,706||)|
|Purchase of acquired entity||-||(12,641||)|
|Net cash used in investing activities||(15,244||)||(21,258||)|
|Cash flows from financing activities|
|Repayments on capital lease obligations||(4,622||)||(3,959||)|
|Repayments on notes payable||(380||)||(703||)|
|Proceeds from exercise of stock options||56||1,042|
|Excess tax benefit from stock based compensation||1,086||711|
|Repurchase of restricted stock for income tax withholding||(645||)||(581||)|
|Net cash used in financing activities||(4,505||)||(3,490||)|
|Effect of foreign exchange rate changes on cash and cash equivalents||249||82|
|Net change in cash and cash equivalents||(36,714||)||(59,627||)|
|Cash and cash equivalents, beginning of period||144,652||193,099|
|Cash and cash equivalents, end of period||$||107,938||$||133,472|
We believe EBITDA is useful to an investor in evaluating our operating performance because it is widely used to measure a company's operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, and to present a meaningful measure of corporate performance exclusive of our capital structure and the method by which assets were acquired. Our management uses EBITDA:
- as an additional measurement of operating performance because it assists us in comparing our performance on a consistent basis;
- in presentations to the members of our Board of Directors to enable our Board to have the same measurement basis of operating performance as is used by management to compare our current operating results with corresponding prior periods and with the results of other companies in our industry; and
- on an adjusted basis in determining compliance with the terms of our credit agreement.
|Three Months Ended|
|Net income-K12 Inc.||$||4,357||$||4,600|
|Interest expense, net||228||221|
|Income tax expense||3,889||3,697|
|Depreciation and amortization||15,661||12,992|
|Forecasted Year Ending|
|June 30, 2013|
|Low End of||High End of|
|Operating income - K12 Inc.||47||50|
|Depreciation and amortization||60||65|