Business Headlines

K12 Inc. Reports Third Quarter 2008 Results

K12’s Quarterly Revenue Up 61 Percent on Strong Enrollment Growth 
 
HERNDON, Va.--(via BUSINESS WIRE/5/8/08)--K12 Inc. (NYSE:LRN), a leading provider of proprietary, technology-based curriculum and education services created for online delivery to students in kindergarten through 12th grade, today announced its results for the third quarter of its 2008 fiscal year.

Revenues for the quarter grew to $56.0 million, an increase of 60.8 percent over the third quarter of the previous year, primarily due to strong enrollment growth. EBITDA for the third quarter of 2008 grew 88.1 percent over the prior year, increasing to $8.1 million from $4.3 million. Net income for third quarter was $2.5 million, representing an increase of $0.5 million, compared to net income of $2.0 million in the prior year. Pretax income more than doubled to $4.7 million for the third quarter compared with the third quarter of fiscal year 2007.

“We are pleased with our third quarter financial results and equally pleased with the favorable events this quarter that will aid our long term growth. These events include the legislative action in Wisconsin which will benefit all children in that state and the approvals received in South Carolina and Hawaii by virtual public schools who intend to offer the K12 curriculum,” said Ron Packard, chief executive officer of K12 Inc.

For the three months ended March 31, 2008
Revenues increased by 60.8 percent for the third quarter of fiscal year 2008 (FY 2008) over the same quarter last year due to strong enrollment growth.

Average enrollments for the third quarter of FY 2008 were 42,048, an increase of 50.7 percent over the third quarter of FY 2007.

Operating income for the third quarter grew to $4.4 million compared with $2.2 million for the third quarter of FY 2007. Operating margins increased to 7.8 percent of revenue for the third quarter as compared to 6.3 percent for the same period in FY 2007. This was primarily attributable to increased leverage on selling, administrative and other operating expenses.

Pretax income increased 125.1 percent to $4.7 million compared with the third quarter of fiscal year 2007.
Income tax expense for the third quarter of FY 2008 was $2.2 million, or 47.5 percent of pretax income. Income tax expense recorded in the third quarter of FY 2007 was less than $0.1 million as the Company utilized net operating loss carry-forwards that were fully reserved for in prior periods.

Net income for third quarter was $2.5 million, an increase of 21.1 percent, from $2.0 million in the prior year.
Diluted net income per share for the third quarter of FY 2008 was $0.09.

EBITDA for the third quarter was $8.1 million, an increase of 88.1 percent, compared to EBITDA of $4.3 million for the same period in 2007. EBITDA as a percentage of revenues increased to 14.4 percent from 12.3 percent for the same period in 2007.

John Baule, the Company’s Chief Financial Officer and Chief Operating Officer commented, “We are pleased that we were able to increase enrollment levels this quarter, and at the same time leverage our corporate infrastructure to expand EBITDA margins.”

For the nine months ended March 31, 2008
Revenues increased by 61.8 percent for the first nine months of FY 2008 over the same period last year due to strong enrollment growth.

Average enrollments for the first nine months of FY 2008 were 41,095, an increase of 50.8 percent over the first nine months of FY 2007.

Operating income for the first nine months of FY 2008 grew 54.0 percent to $13.7 million, compared with $8.9 million for the first nine months of FY 2007.

Pretax income increased 58.1 percent to $13.3 million compared with the first nine months of FY 2007.

Income tax benefit for the first nine months of FY 2008 was $3.3 million. The income tax provision for the first nine months of FY 2008 was $6.4 million or 47.6 percent of pretax income. This was offset by a $9.7 million tax benefit recognized from net deferred tax assets that were fully reserved for in prior periods. Income tax expense was $0.2 million for the first nine months of FY 2007 as the Company was able to utilize net operating loss carry-forwards that were fully reserved for in prior periods.

Net income for the first nine months of FY 2008 was $16.7 million, representing an increase of $8.5 million, or 103.0 percent, compared to net income of $8.2 million for the first nine months of FY 2007. Net income as a percentage of revenues increased to 9.8 percent from 7.8 percent for the same period in FY 2007.

Diluted net income per share for the first nine months of FY 2008 was $0.11. On a pro forma basis, assuming the conversion of preferred stock at the beginning of the nine months ended March 31, 2008 and excluding the impact of preferred stock dividends and accretion, diluted net income per share for the first nine months of FY 2008 was $0.66.

EBITDA for the first nine months of FY 2008 was $22.6 million, an increase of 66.9 percent compared to EBITDA of $13.5 million for the same period in FY 2007.

Capital expenditures for the first nine months of FY 2008 included $8.5 million for investments in capitalized curriculum and $5.1 million in property and equipment. In addition, the company financed purchases of $10.7 million of computers and software, primarily for use by students, through capital leases.

Outlook
For full fiscal year 2008, the Company is forecasting revenues of between $216 and $218 million, operating income of approximately $10.1 - $10.5 million and depreciation and amortization of approximately $12 million.

The Company’s estimated tax rate for fiscal year 2008 is 47.6 percent excluding the impact of the reversal of the deferred tax asset valuation allowance of $9.7 million in the first quarter of FY 2008.

Conference Call
The Company will discuss the results of Q3 2008 and its outlook for fiscal year 2008 during a conference call scheduled for May 9, 2008 at 9:00 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 should dial 888-679-8040 (domestic) or 617-213-4851 (international) at 8:50 a.m. (ET). The participant passcode is 36845511.

Participants may also pre-register for the conference call at https://www.theconferencingservice.com/prereg/key.process?key= PRRHBPNX6 (Due to its length, this URL may need to be copied and pasted into your Internet browser's address field. Remove the extra space if one exists.).

A replay of the call will be available from May 9, 2008, through May 16, 2008, at 888-286-8010 (domestic) or 617-801-6888 (international) passcode 92451653. It will also be archived at www.K12.com in the investor relations section for 60 days.

Investor Contact: Keith Haas, VP, Financial Planning & Analysis and Investor Relations, 703-483-7077, khaas@k12.com