K12 Inc. (LRN) Releases Quarterly Earnings Results

Posted by Andrew Walz on Aug 9th, 2016 // 0 Comments

K12 Inc. (NYSE:LRN) announced its quarterly earnings results on Tuesday. The company reported $0.09 earnings per share (EPS) for the quarter, missing the consensus estimate of $0.13 by $0.04. The business earned $221.30 million during the quarter, compared to the consensus estimate of $210.13 million. During the same period in the prior year, the business earned $0.18 EPS. K12’s quarterly revenue was down 6.1% on a year-over-year basis.

K12 (NYSE:LRN) opened at 12.83 on Tuesday. The company’s market capitalization is $481.02 million. The company’s 50 day moving average price is $12.70 and its 200-day moving average price is $11.13. K12 has a 12-month low of $7.11 and a 12-month high of $15.00.

Several equities research analysts have issued reports on LRN shares. Barrington Research restated a “market perform” rating on shares of K12 in a report on Friday, July 15th. TheStreet upgraded K12 from a “sell” rating to a “hold” rating in a report on Friday, July 8th.

K12 Inc (K12) is a technology-based education company. The Company offers curriculum, software systems and educational services designed to facilitate individualized learning for students in kindergarten through 12th grade (K-12). It provides a range of technology-based educational products and solutions to public school districts, public schools, virtual charter schools, private schools and families.

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K12 Inc.: California Virtual Academies’ operator exploits charter, charity laws for money, records show

By Jessica Calefati, jcalefati@bayareanewsgroup.com© Copyright 2016, Bay Area News Group

Posted:
 
04/18/2016 04:48:09 AM PDT

Frustrated with the quality of their neighborhood schools, parents, teachers and civic leaders have founded hundreds of California charter schools, combining locally sourced ingenuity with the public funding that state law allows them to command.

California’s largest network of online academies is different: Although the schools are set up like typical charters, records show they’re established and run by Virginia-based K12 Inc., whose claims of parental involvement and independent oversight appear to be a veneer for the moneymaking enterprise.

The company — the subject of a two-part investigative series by this newspaper — says the schools operate independently and are locally controlled. But the academies’ contracts, tax records and other financial information suggest something entirely different: K12 calls the shots, operating the schools to make money by taking advantage of laws governing charter schools and nonprofit organizations.

“What this company has done may make sense from a business perspective, but to me, it’s a sham,” said Renee Nash, a business and tax attorney and a member of the Eureka Union School District’s Board of Trustees.

“K12 is clearly taking advantage of the laws in California,” she said, “and the Legislature needs to put a stop to it.”

California law is silent on whether for-profit firms are even allowed to run charter schools. So before applying 14 years ago to open the state’s first online academies, K12 treaded cautiously into a new market, creating a series of nonprofit organizations whose names match those of the schools.

That means each California Virtual Academy is considered by the IRS to be a charitable organization that need not pay taxes, even though K12 effectively controls the schools by providing them with all academic services.

The structure, accounting experts say, makes it tough to tell where the nonprofit ends and where the company begins.

Mike Kraft, K12’s vice president for finance and communication, disputes that characterization. He said the nature of the relationship between the company and the schools is articulated clearly in documents.

“The contracts between K12 and each (academy) outline the parties’ obligations and expressly provide that the governing body of the school retains final decision-making authority and full control,” he said. Still, Kraft acknowledged that K12 personnel “may at times provide newly forming boards that lack any staff with administrative assistance on the organizational documents.”

Tax and education records show that K12 employees started each of more than a dozen online academies in California, even though the applications they filed to open the schools described the founders as a “group of parents,” none of whom were named. For several years, company employees even signed the nonprofit schools’ tax filings.

‘The law is clear’

Federal tax law prohibits charitable organizations from operating to benefit a person or company. And to that end, the online academies’ articles of incorporation vow that the schools’ money won’t be used to enrich “any shareholder or individual.”

“The law is clear: Charities may not use their resources to promote a business, even if that business’ services are helpful,” Eric Gorovitz, a San Francisco attorney who specializes in nonprofit tax law, said, speaking generally about charitable organizations. “And if the violation is bad enough, a charity could lose its exemption.”

According to the nonprofit’s application for tax-exempt status, California Virtual Academy at San Mateo has a board of directors whose members should be willing to cut ties with the company if they feel the school is getting a raw deal. Indeed, the application specifies that all agreements between K12 and the school are the result of “arm’s-length” negotiations.

IS AN ONLINE SCHOOL CASHING IN ON FAILURE?

Bay Area News Group

IS AN ONLINE SCHOOL CASHING IN ON FAILURE?

Bay Area News Group

But a review of minutes from the 2014-15 school year’s board meetings and records of the board’s relationship to administrators hand-picked by K12 suggest the board has little or no independence from the company. A K12 employee led the board meetings, and all 35 resolutions she encouraged the board to endorse won unanimous approval.

The board’s open public meetings are held during the workday in a conference room or around an administrator’s desk in the Daly City-based Jefferson Elementary School District, which authorized the academy’s charter. And board members rarely attend the meetings in person. They usually just call in from home.

All told, the board spent an average of 13 minutes in each meeting.

The board has four members. Two of them, President Don Burbulys, a resident of Soquel, in Santa Cruz County, and Stephen Warren, the board’s secretary, who lives in Riverside County, are related to high-ranking school administrators, who, under K12’s contract with the academy, are selected by the company.

Burbulys is married to Laura Terrazas, dean of student services, and Warren is related to Academic Administrator April Warren, according to a brief filed by teachers. Terrazas and April Warren on Sunday did not return calls or emails seeking comment. Burbulys, Stephen Warren and the board’s other two members have also declined requests for comment.

When K12 sought approval in 2009 to open a charter school for Contra Costa County students that featured a mix of online schooling and traditional classes in a brick-and-mortar setting, Mt. Diablo Unified School District denied the application, citing concerns about the company’s role in running the proposed school day to day.

“Not only does the charter school delegate all charter school-related operations, management and administrative functions to K12 California, but it inappropriately gives K12 California control over areas that should be the responsibility of school site staff and the charter school’s governing board,” the Mt. Diablo school board wrote in a report.

But Contra Costa County, as well as Alameda County residents, can still enroll in a K12 school because there’s a California Virtual Academy in San Joaquin County, and the state allows online students from adjoining counties to enroll.

A close look at the contract between California Virtual Academy at San Mateo and K12 raises questions about why a truly independent board of directors would ever agree to the terms, said Luis Huerta, a Columbia University expert on online schools.

Under the contract, which Huerta reviewed for this newspaper, K12 handles almost every aspect of the public school’s operations. It’s responsible for writing curricula, hiring principals, recruiting students and much more. In exchange, the company is entitled to compensation that can amount to as much as 75 percent of the school’s public funding.

Jefferson Elementary school trustees and administrators are tasked with reviewing the contract, but no state agency is required to examine it.

The school’s application for tax-exempt status states “the charter school determined that it paid no more than fair market rate for the services.” Yet in a bizarre twist, the rates outlined in the contract routinely exceed what the school can afford — by more than 25 percent.

K12 requires all its California academies to pay only what they can without going into debt. The company then issues “credits” to cover the balance.

California Virtual Academy at San Mateo, for example, hasn’t been able to pay its bill in full in a decade. So since 2007, K12 has given the school $8 million in credits. Over the past 10 years, the company has doled out more than $130 million in credits to all the California schools it operates.

Unique arrangement

Accountants and financial analysts interviewed by this newspaper, including several who specialize in school finance, say they’ve never seen anything quite like the arrangement between K12 and the public online academies.

“If the schools can’t cover their expenses and need K12 credits every year to balance their budgets, then the contingent liability to K12 just keeps growing,” said Charlene Podlipna, an accountant who works for Freeman & Mills, a Los Angeles-based litigation consulting firm.

Writing down the operating losses of the schools it manages in California and across the country has allowed K12 to reduce its taxable income by $179.5 million over the past three years, according to the company’s most recent annual report. That raises questions about why K12 consistently charges more than the schools can pay.

Kraft insisted the company doesn’t receive a tax deduction for forgiving the debts of the schools it operates. But when the newspaper presented Kraft with K12’s most recent Securities and Exchange Commission filing and asked him to explain whether K12 wrote off the losses, his answer was hardly straightforward: “A company’s tax provision is based on its net income. A component of net income is the revenue that a company records. Anything that increases or decreases revenue, and ultimately impacts net income, would therefore impact the taxes owed by that company. K12 is no different than any other company in this respect.”

Katrina Abston, K12’s senior head of schools for the academies, defended the credits, saying they “provide a high level of protection” for the schools against financial uncertainties.

Huerta, however, said taxpayers could lose out in the end.

Typically, he said, any extra taxpayer funding on hand when a charter school shuts its doors is returned to the state’s general fund. But tucked away on one of the final pages of the K12 contracts is a clause that requires a school that’s closing to repay the company with any money it has left — meaning it’s highly unlikely the state would recoup anything.

“These companies are exploiting the gray in the law and using clever legal teams to skirt public accountability,” Huerta said. “Taxpayers and policymakers should be alarmed.”

To address some of the thorny problems that can crop up when for-profit companies run nonprofit public schools, the Legislature last year approved Assembly Bill 787, authored by Assemblyman Roger Hernández, D-West Covina, that would have banned the practice.

But Gov. Jerry Brown rejected it, writing in his veto message: “I don’t believe the case has been made to eliminate for-profit charter schools in California.”

Read Part 1 of the investigation: Is online charter school network cashing in on failure?

Contact Jessica Calefati at 916-441-2101. Follow her at Twitter.com/calefati.

What our investigation found

  • Teachers employed by K12 Inc.’s charter schools may be asked to inflate attendance and enrollment records used to determine taxpayer funding.
  • Fewer than half of the students who start the online high schools earn diplomas, and almost none of them are qualified to attend the state’s public universities.
  • K12’s heavily marketed online model has helped the company reap more than $310 million in state funding over the past 12 years.
  • Students who spend as little as one minute during a school day logged in to K12’s school software may be counted as present in records used to calculate the amount of funding the schools get from the state.
  • About half of the schools’ students are not proficient in reading, and only a third are proficient in math — levels that fall far below statewide averages.
  • School districts that are supposed to oversee the company’s schools have a strong financial incentive to turn a blind eye to problems: They get a cut of the academies’ revenue, which largely comes from state coffers.
  • Option Market: K12 Inc Risk Hits An Elevated Level

    K12 Inc (NYSE:LRN) Risk

    Date Published:

    2016-07-18

    PREFACE

    This is a proprietary risk rating for the next 30-days built by Capital Market Laboratories (CMLviz) based on a large number of interactions of data points, many of which
    come directly from the option market for K12 Inc (NYSE:LRN) .

    Risk as reflected by the option market has hit
    a slightly elevated level relative to the company’s past. The option market reflects a 95% confidence interval stock price range of
    ($11.90, $15.00) within the next 30 calendar days.

    LRN OPTION MARKET RISK

    The short-term risk for a stock is reflected in the option market by a measure called the 30-day implied volatility or IV30®.
    The IV30 is the risk reflected by the option market in the stock price for the next 30 calendar days — it’s forward looking.
    K12 Inc shows an IV30 of 50.1%, which is a slightly elevated level for the company relative to its past.

    The option market for LRN has shown an IV30 annual low of
    38.6% and an annual high of 72.8%, meaning that LRN is at the 34% percentile right now. Here’s a table of the data before we dig into the risk rating further.

    LRN
    Current IV30    
    LRN
    Low IV30    
    LRN
    High IV30   
    50.1% 38.6% 72.8%

    01020304050607080Current IV30Low IV30High IV30

    The option market reflects less risk in the next 30 calendar days for K12 Inc (NYSE:LRN) than on average.

    Further, if we look backwards, the stock has a realized 30-day historical volatility, called the HV30, of 39.03%.

    We have an unusual situation now where the IV30 is depressed relative to the past, but even with that risk pricing, the option market reflects the likelihood of a greater stock movement in the next 30-days than the stock has realized in the last 30-days.

    Let’s turn to a chart to see what’s going on.

     0510152025303540455055Next 30 DaysLast 30 Days

    Note how much higher the future risk for K12 Inc is priced (50.1%) compared to what happened just in the last 30-days (39.0%).

    K12 Inc Risk Rating

    The LRN risk rating is at 3.5, where the rating goes from one (the lowest risk) to five (the highest risk). The driving factors for the 3.5 rating are:

    ↪ The IV30 is below the annual average.

    ↪ The IV30 is above 50%.

    ↪ The HV30 is below the 20th percentile.

    ↪ The IV30 is above the HV30.

    ↪ The stock has moved +33.0% over the last 3-months which does indicate some elevated risk.

    WHY THIS MATTERS

    Understanding short-term risk is important, but it is not the silver bullet of investing. At Capital Market Labs we identify thematic trends that will revolutionize our futures and the companies that will benefit most from them to find the “next Apple” or the “next Google.” Our research sits side-by-side with Goldman Sachs, Morgan Stanley and the rest on professional terminals, but we are the anti-institution. Our purpose is to break the information monopoly held by the top .1%.
    Each company in our ‘Top Picks’ is the single winner in an exploding thematic shift like artificial intelligence, Internet of Things, drones, biotech and more. In fact, here is just one of the trends that will radically affect the future that we are ahead of:

    Virtual reality is one of the fundamental shifts coming in the very near future that will change how we live, work, and play. This is a technology whose consumer base looks increasingly like all of humanity. This is the opportunity so many investors say they welcome – that say they search for. The opportunity to find the “Next Apple,” or the “next Google.” Friends, it’s coming right now, and it lies in the depths of technology’s core. It’s not artificial intelligence, it’s artificial super intelligence and there is one company that will rule all of it.

    This just one of the themes we have identified and this is just one of the fantastic reports CML Pro members get along with all the visual tools, the precious few thematic top picks for 2016, research dossiers and alerts. For a limited time we are offering CML Pro at a 90% discount for $10/mo. with a lifetime guaranteed rate.

    Join Us: Get the most advanced premium research delivered to your inbox along with access to visual tools and data that until now has only been made available to the top 1%.

    Grand Canyon Education, Inc. and K12, Inc. Head to Head Compare

    Grand Canyon Education, Inc. versus K12, Inc. Head to Head Compare

    This is a head to head comparison of Grand Canyon Education, Inc. (NASDAQ:LOPE) and K12, Inc. (NYSE:LRN) . We will compare the two companies on revenue growth, earnings, revenue per employee, operating margins, free cash flow and valuation. The head to head scorecard assigns 100 points in total.

    Before we dive into the analysis, we will look at the stock returns for each company over the last three months, six months and the last year. The stock returns do not impact the head to head comparison scores which are focused on the fundamentals of each company, but ultimately stock returns are are still a critical piece to a full analysis.

    Stock Returns
    Symbol 3-Months 6-Months One-Year Fundamentals
    LOPE -1.4% +7.9% -2.8%
    LRN +12.8% +27.6% -14.3%

    Grand Canyon Education, Inc. has a substantially higher fundamental rating then K12, Inc. which has an impact on the head-to-head comparison. The CML Star Rating is an objective, quantifiable measure of a company’s operating and financial condition. The rating is computed by measuring numerous elements of the company’s current financial data and their associated changes over time.

    Now, let’s dive into the two companies to compare them.

    ➤ Income Statement

    ↪ LRN has larger revenue in the last year than LOPE. Raw revenue comps do not affect the head to head rating.

    ↪ Both LOPE and LRN show positive earnings over the last year with the edge to LOPE.

    ➤ Margins

    ↪LOPE generates $1.41 in revenue for every $1 of expense, while LRN generates an operating loss of $0.94 in revenue per $1 of expense.

    LRN generates $0.06 in levered free cash flow for every $1 of revenue, while LOPE generates a cash flow loss of $-0.00 per $1 of revenue.

    ➤ Growth

    ↪ Both companies are growing revenue. LOPE is growing revenue massively faster than LRN.

    ↪ For every $1 in revenue, the stock market prices in $2.82 in market cap for LOPE and $0.51 in market cap for LRN.

    Grand Canyon Education, Inc. (NASDAQ:LOPE) defeats K12, Inc. (NYSE:LRN) : 84 to 16

    WHY THIS MATTERS

    At Capital Market Labs we identify trends and the companies that will benefit most from them to find the “next Apple” or the “next Google.” Our research sits side-by-side with Goldman Sachs, Morgan Stanley and the rest on professional terminals, but we are the anti-institution. Our purpose is to break the information monopoly held by the top .1%.

    Each company in our ‘Top Picks’ is the single winner in an exploding thematic shift like artificial intelligence, Internet of Things, drones, biotech and more. In fact, here are just two of the trends that will radically affect the future that we are ahead of:

    Virtual reality is one of the fundamental shifts coming in the very near future that will change how we live, work, and play. This is a technology whose consumer base looks increasingly like all of humanity. This is the opportunity so many investors say they welcome – that say they search for. The opportunity to find the “Next Apple,” or the “next Google.” Friends, it’s coming right now, and it lies in the depths of technology’s core. It’s not artificial intelligence, it’s artificial super intelligence and there is one company that will rule all of it.

    This just one of the themes we have identified and this is just one of the fantastic reports CML Pro members get along with all the visual tools, the precious few thematic top picks for 2016, research dossiers and alerts. For a limited time we are offering CML Pro at a 90% discount for $10/mo. with a lifetime guaranteed rate.

    Join Us: Get the most advanced premium research delivered to your inbox along with access to visual tools and data that until now has only been made available to the top 1%.

    K12 Inc.: California Virtual Academies’ operator exploits charter, charity laws for money, records show

    By Jessica Calefati, jcalefati@bayareanewsgroup.com© Copyright 2016, Bay Area News Group

    Posted:
     
    04/18/2016 04:48:09 AM PDT

    Frustrated with the quality of their neighborhood schools, parents, teachers and civic leaders have founded hundreds of California charter schools, combining locally sourced ingenuity with the public funding that state law allows them to command.

    California’s largest network of online academies is different: Although the schools are set up like typical charters, records show they’re established and run by Virginia-based K12 Inc., whose claims of parental involvement and independent oversight appear to be a veneer for the moneymaking enterprise.

    The company — the subject of a two-part investigative series by this newspaper — says the schools operate independently and are locally controlled. But the academies’ contracts, tax records and other financial information suggest something entirely different: K12 calls the shots, operating the schools to make money by taking advantage of laws governing charter schools and nonprofit organizations.

    “What this company has done may make sense from a business perspective, but to me, it’s a sham,” said Renee Nash, a business and tax attorney and a member of the Eureka Union School District’s Board of Trustees.

    “K12 is clearly taking advantage of the laws in California,” she said, “and the Legislature needs to put a stop to it.”

    California law is silent on whether for-profit firms are even allowed to run charter schools. So before applying 14 years ago to open the state’s first online academies, K12 treaded cautiously into a new market, creating a series of nonprofit organizations whose names match those of the schools.

    That means each California Virtual Academy is considered by the IRS to be a charitable organization that need not pay taxes, even though K12 effectively controls the schools by providing them with all academic services.

    The structure, accounting experts say, makes it tough to tell where the nonprofit ends and where the company begins.

    Mike Kraft, K12’s vice president for finance and communication, disputes that characterization. He said the nature of the relationship between the company and the schools is articulated clearly in documents.

    “The contracts between K12 and each (academy) outline the parties’ obligations and expressly provide that the governing body of the school retains final decision-making authority and full control,” he said. Still, Kraft acknowledged that K12 personnel “may at times provide newly forming boards that lack any staff with administrative assistance on the organizational documents.”

    Tax and education records show that K12 employees started each of more than a dozen online academies in California, even though the applications they filed to open the schools described the founders as a “group of parents,” none of whom were named. For several years, company employees even signed the nonprofit schools’ tax filings.

    ‘The law is clear’

    Federal tax law prohibits charitable organizations from operating to benefit a person or company. And to that end, the online academies’ articles of incorporation vow that the schools’ money won’t be used to enrich “any shareholder or individual.”

    “The law is clear: Charities may not use their resources to promote a business, even if that business’ services are helpful,” Eric Gorovitz, a San Francisco attorney who specializes in nonprofit tax law, said, speaking generally about charitable organizations. “And if the violation is bad enough, a charity could lose its exemption.”

    According to the nonprofit’s application for tax-exempt status, California Virtual Academy at San Mateo has a board of directors whose members should be willing to cut ties with the company if they feel the school is getting a raw deal. Indeed, the application specifies that all agreements between K12 and the school are the result of “arm’s-length” negotiations.

    But a review of minutes from the 2014-15 school year’s board meetings and records of the board’s relationship to administrators hand-picked by K12 suggest the board has little or no independence from the company. A K12 employee led the board meetings, and all 35 resolutions she encouraged the board to endorse won unanimous approval.

    The board’s open public meetings are held during the workday in a conference room or around an administrator’s desk in the Daly City-based Jefferson Elementary School District, which authorized the academy’s charter. And board members rarely attend the meetings in person. They usually just call in from home.

    All told, the board spent an average of 13 minutes in each meeting.

    The board has four members. Two of them, President Don Burbulys, a resident of Soquel, in Santa Cruz County, and Stephen Warren, the board’s secretary, who lives in Riverside County, are related to high-ranking school administrators, who, under K12’s contract with the academy, are selected by the company.

    Burbulys is married to Laura Terrazas, dean of student services, and Warren is related to Academic Administrator April Warren, according to a brief filed by teachers. Terrazas and April Warren on Sunday did not return calls or emails seeking comment. Burbulys, Stephen Warren and the board’s other two members have also declined requests for comment.

    When K12 sought approval in 2009 to open a charter school for Contra Costa County students that featured a mix of online schooling and traditional classes in a brick-and-mortar setting, Mt. Diablo Unified School District denied the application, citing concerns about the company’s role in running the proposed school day to day.

    “Not only does the charter school delegate all charter school-related operations, management and administrative functions to K12 California, but it inappropriately gives K12 California control over areas that should be the responsibility of school site staff and the charter school’s governing board,” the Mt. Diablo school board wrote in a report.

    But Contra Costa County, as well as Alameda County residents, can still enroll in a K12 school because there’s a California Virtual Academy in San Joaquin County, and the state allows online students from adjoining counties to enroll.

    A close look at the contract between California Virtual Academy at San Mateo and K12 raises questions about why a truly independent board of directors would ever agree to the terms, said Luis Huerta, a Columbia University expert on online schools.

    Under the contract, which Huerta reviewed for this newspaper, K12 handles almost every aspect of the public school’s operations. It’s responsible for writing curricula, hiring principals, recruiting students and much more. In exchange, the company is entitled to compensation that can amount to as much as 75 percent of the school’s public funding.

    Jefferson Elementary school trustees and administrators are tasked with reviewing the contract, but no state agency is required to examine it.

    The school’s application for tax-exempt status states “the charter school determined that it paid no more than fair market rate for the services.” Yet in a bizarre twist, the rates outlined in the contract routinely exceed what the school can afford — by more than 25 percent.

    K12 requires all its California academies to pay only what they can without going into debt. The company then issues “credits” to cover the balance.

    California Virtual Academy at San Mateo, for example, hasn’t been able to pay its bill in full in a decade. So since 2007, K12 has given the school $8 million in credits. Over the past 10 years, the company has doled out more than $130 million in credits to all the California schools it operates.

    Unique arrangement

    Accountants and financial analysts interviewed by this newspaper, including several who specialize in school finance, say they’ve never seen anything quite like the arrangement between K12 and the public online academies.

    “If the schools can’t cover their expenses and need K12 credits every year to balance their budgets, then the contingent liability to K12 just keeps growing,” said Charlene Podlipna, an accountant who works for Freeman & Mills, a Los Angeles-based litigation consulting firm.

    Writing down the operating losses of the schools it manages in California and across the country has allowed K12 to reduce its taxable income by $179.5 million over the past three years, according to the company’s most recent annual report. That raises questions about why K12 consistently charges more than the schools can pay.

    Kraft insisted the company doesn’t receive a tax deduction for forgiving the debts of the schools it operates. But when the newspaper presented Kraft with K12’s most recent Securities and Exchange Commission filing and asked him to explain whether K12 wrote off the losses, his answer was hardly straightforward: “A company’s tax provision is based on its net income. A component of net income is the revenue that a company records. Anything that increases or decreases revenue, and ultimately impacts net income, would therefore impact the taxes owed by that company. K12 is no different than any other company in this respect.”

    Katrina Abston, K12’s senior head of schools for the academies, defended the credits, saying they “provide a high level of protection” for the schools against financial uncertainties.

    Huerta, however, said taxpayers could lose out in the end.

    Typically, he said, any extra taxpayer funding on hand when a charter school shuts its doors is returned to the state’s general fund. But tucked away on one of the final pages of the K12 contracts is a clause that requires a school that’s closing to repay the company with any money it has left — meaning it’s highly unlikely the state would recoup anything.

    “These companies are exploiting the gray in the law and using clever legal teams to skirt public accountability,” Huerta said. “Taxpayers and policymakers should be alarmed.”

    To address some of the thorny problems that can crop up when for-profit companies run nonprofit public schools, the Legislature last year approved Assembly Bill 787, authored by Assemblyman Roger Hernández, D-West Covina, that would have banned the practice.

    But Gov. Jerry Brown rejected it, writing in his veto message: “I don’t believe the case has been made to eliminate for-profit charter schools in California.”

    Read Part 1 of the investigation: Is online charter school network cashing in on failure?

    Contact Jessica Calefati at 916-441-2101. Follow her at Twitter.com/calefati.

    What our investigation found

  • Teachers employed by K12 Inc.’s charter schools may be asked to inflate attendance and enrollment records used to determine taxpayer funding.
  • Fewer than half of the students who start the online high schools earn diplomas, and almost none of them are qualified to attend the state’s public universities.
  • K12’s heavily marketed online model has helped the company reap more than $310 million in state funding over the past 12 years.
  • Students who spend as little as one minute during a school day logged in to K12’s school software may be counted as present in records used to calculate the amount of funding the schools get from the state.
  • About half of the schools’ students are not proficient in reading, and only a third are proficient in math — levels that fall far below statewide averages.
  • School districts that are supposed to oversee the company’s schools have a strong financial incentive to turn a blind eye to problems: They get a cut of the academies’ revenue, which largely comes from state coffers.
  • Home » Analyst Views » K12 Inc (NYSE:LRN) Costs Of Goods Sold Stands At $607.756 Millions

    K12 Inc (NYSE:LRN) Costs Of Goods Sold Stands At $607.756 Millions

    on May 28, 2016

    For the fiscal ended 2015-06-30, K12 Inc (NYSE:LRN) comprehensive income was $-1.065 millions and for the quarter ended 2015-06-30, it was $-1.065 millions.

    K12 Inc (NYSE:LRN) posted $9.326 millions on net loss/income for the fiscal closed 2015-06-30. For the quarter ended 2015-06-30, it came at $9.326 millions.

    Cost of goods sold

    For the year ended 2015-06-30, K12 Inc (NYSE:LRN) costs of goods sold was $607.756 millions. This figure came at $607.756 for the quarter ended 2015-06-30.

    The cost of goods sold is posted on the income statement and is stated as cost of the accounting period. By comparing the revenues from the goods sold and cost of the goods sold, the matching concept of accounting is achieved. Also, cost of goods sold deducted from the sales revenues represents gross profit. By adjusting the cost of the goods manufactured or purchased by the change in record of finished goods gives cost of goods sold.

    Deferred revenue

    K12 Inc (NYSE:LRN) current deferred revenue was $24.927 millions, for the year ending on 2015-06-30. It was $24.927 millions for the quarter closed 2015-06-30.

    K12 Inc (NYSE:LRN) posted $7.692 millions for the fiscal ended 2015-06-30, which was $7.692 millions for the quarter closed 2015-06-30.

    EBIT and EBIT margins

    K12 Inc (NYSE:LRN) EBIT for the year ended 2015-06-30 and quarter 2015-06-30 came at $18.4271 millions and $18.4271 millions, respectively.

    K12 Inc (NYSE:LRN) announced EBIT margin of 18.4271% and 18.4271% for the year ended 2015-06-30 and quarter ended 2015-06-30, respectively.

    EBIT is a measure of a firm’s earning capacity from ongoing businesses, equal to earnings before subtraction of income taxes and interest. It excludes expenditure and income from unusual, discontinued or non-recurring activities. In event of a firm with minimal amortization activities and depreciation, EBIT is tracked closely by creditors, because it indicates the amount of funds that such a firm will be able to deploy to pay off creditors, also termed operating profit.

    EBITDA and EBITDA margins

    K12 Inc (NYSE:LRN) reported EBITDA of $18.4271 millions for the year closed 2015-06-30. EBITDA for the quarter closed 2015-06-30 was 18.4271 millions. For the fiscal ended 2015-06-30 EBITDA margin was 18.4271%

    Book value

    K12 Inc (NYSE:LRN) book value for the fiscal ended 2015-06-30 was $14.0065. The book value was $14.0065 for the quarter ended 2015-06-30.

    Common shares count

    K12 Inc (NYSE:LRN) common shares for the fiscal closing 2015-06-30 was 38.335. For the quarter ended 2015-06-30, there were 38.335 common shares outstanding.

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    Hugh Jackson wrote this disturbing article for Nevada NPR. It demonstrates the extent to which the charter industry is expanding, bringing in lucrative real estate deals, speculation, and for-profit entrepreneurs from out of state. More than 35,000 students have enrolled in charters, at a cost to taxpayers of a quarter billion dollars.

     

    He writes:

     

    “Charter schools are publicly funded, but privately operated. The result is a charter-school industry, encompassing what can be a dizzying array of arrangements and contracts between the schools, their unelected boards, state agencies, property developers, for-profit management companies, nonprofit arms of private companies, hedge funds and investment firms, and myriad consultants, contractors and education-industry vendors. Virtually every dollar everyone in the charter-school industry makes is provided by the taxpaying public….

     

    “Of the quarter-billion dollars Nevada taxpayers provided to charter schools in 2014-15, more than a fifth of it — $54 million, according to state data — went to schools managed by a single for-profit company, a Florida-based firm called Academica. Established in 1996 and boasting close ties to then-Florida Gov. Jeb Bush, Academica has been the center of numerous controversies in that state, particularly after the Miami Herald reported that the firm used public money to lease real estate from development companies owned by the same people who own Academica, brothers Fernando and Ignacio Zulueta. Academica has also come under fire in Florida for, among other things, setting up a separate “college” in one of its charter high schools and charging taxpayers hundreds of thousands of dollars to provide students with two-year “degrees” of dubious worth.

     

    “Academica is not a publicly traded company, and any financial information about the firm is difficult to come by, let alone the type of granular financial reporting that might indicate how much of Academica’s Nevada revenue stays in Nevada, as opposed to flying out of the state as profit.

     

    “As a practical matter, Academica is not only relied upon every step of the way, but the instigator. No doubt some charter schools are the result of concerned citizens and parents banding together, from the bottom up, as it were, to fill what they perceive to be a particular educational niche or void. With a new Academica school, the far more likely scenario involves a for-profit company making market-based decisions on location, timing, demographics and such, not unlike Walmart determining where to open a new Sam’s Club. Upon determining that a new project pencils out, Academica finds the statutorily requisite citizen’s charter school board. (The state does not require a charter school board to take competitive bids before selecting a management firm, and such a bidding process would be unthinkable in schools being spearheaded by Academica….).

     

    “Enter the investment funds

     

    “To be eligible for state funding to build or improve a charter school facility, the school has to have been opened for three years. So it needs financing to bridge the gap between the school’s opening and its eligibility for state facility financing (it’s already receiving operating funds from the state).

     

    “The Turner-Agassi Charter School Facilities Fund is one of several for-profit investment funds in the nation that have attracted capital from a) foundations, institutional investors and individuals who are “for” education; and b) hedge funds, investment banks and other investors drawn to generous federal tax credits on income earned from the public through charter-school profits.

     

    “Started by Southern California financier Bobby Turner in partnership with long-time Las Vegas charter-school champion Andre Agassi, Turner-Agassi has provided bridge financing for at least four Academica building projects in Nevada and is doing the same for most of Academica’s aggressive expansion in the state.

     

    “Here’s more or less how it works:

     

    “Turner-Agassi puts up money to develop property for a charter school. After three years, during which time the school, which is to say the public, rents the property from the investment fund, the charter is eligible for state financing to buy the property from Turner-Agassi.

     

    “The school is purchased from the investment fund with money raised by revenue bonds issued through the state Division of Business and Industry —
    public debt. Charter-school bonds in Nevada are so-called limited-obligation bonds, backed by the school’s revenue (which comes from the state education budget), as opposed to general obligation bonds, backed by revenue from a tax increase. Limited obligation bonds typically pay higher interest rates than general obligation bonds, which translates into higher interest payments for the public when it pays off the debt….

     

    “Project dates listed on Turner-Agassi’s portfolio online indicate Academica will be eligible for a first batch of state loans to purchase the investment fund’s developments in 2017.

     

    “Meanwhile, regardless of who owns the property the charter school is in, the management company is charging the school, which is to say the public, for management/professional fees on top of salaries, insurance, energy and other operating costs. Those fees can be spread through various categories of school balance sheets provided to the state, but those reports show that in Academica’s case, management fees totaled, at the very least, $3 million in the 2014-15 school year.

     

    “The arrangement between Turner-Agassi and Academica is only one model that might be used to finance construction in the charter-school industry.

     

    “For instance, a few years ago, Imagine Schools, one of the nation’s largest charter firms, made national headlines at its 100 Academy of Excellence in North Las Vegas when 40 percent of the school’s state-provided revenue was spent on lease payments to a real-estate investment trust. As a Nevada Education Department official told the New York Times in 2010, “After paying for real estate and management, 100 Academy has very little left over for education.”

     

    “Shenanigans and accountability

     

    “Academica is the undisputed heavyweight of Nevada’s charter-school industry and has the most aggressive expansion plans in the state. But practices at other charter operations have been attracting more — or at least more critical — official scrutiny.

     

    “The state of Nevada provided Silver State High School in Carson City nearly $5 million in the 2014-15 school year. Along with all the ways a school might spend the public’s money, Silver State decided one of them was investing in the Wall Street derivatives market. When a member of the school’s board brought the investment to the attention of the State Public School Charter Authority (SPSCA), the authority ruled the investment a no-no and ordered the school closed at the end of the current school year.

     

    “Quest Academy, with four campuses in Southern Nevada, received more than $10 million from the state in 2014-15. In October the SPSCA documented how members of the school’s board had hired family members in violation of nepotism regulations. The SPSCA has subsequently dissolved the board, appointed a receiver to oversee school finances, and the SPSCA could ultimately revoke or refuse to renew the school’s charter. This comes three years after the SPSCA forced Quest to restructure its board and fire a principal upon discovering staff was paid thousands of dollars in unauthorized bonuses, and the principal was spending a bunch of unauthorized money on travel and shopping.

     

    “As for charter schools being the cradle of innovation, the pedagogical emphasis for which charters are perhaps most renowened is “teaching to the test” even more intensely than testing-obsessed public schools.

     
    “And then there are the cyber schools. Yes, in Nevada, online schools are charter schools, too. The largest, Nevada Virtual Academy, operated by the corporate giant K12 Inc., received nearly $30 million in public funds in 2014-15 to provide online education to 2,600 students, a per-student cost of $11,500. Per-student spending at Academica schools averaged, by contrast, less than $8,000.

     

    “Higher per-student spending at an online school seems counterintuitive. After all, there is no property to develop, no classrooms or desks. But as cyber schools have emerged as one of the largest segments of the charter-school industry, they’ve become renowned not only for poor performance, but also for frenetic enrollment churn. Online schools market heavily to attract students, but online learning isn’t for everyone, and many students withdraw to return to brick-and-mortar schools. That churn could manifest itself as higher costs in lots of ways. The state can be charged for students who are no longer in the schools (as was found in a Colorado audit of K12 a few years ago). Or the state gets saddled for up-front student costs even if those students leave later. Or in K12’s case, maybe the company just isn’t very good at holding down costs: Nevada Virtual Academy spent more than $2 million for textbooks last year. Academica, with nearly three times as many students, spent $219,000. State data indicates K12’s management fees, at least $4 million, were also larger than Academica’s.

     

    “Proposed rules would effectively give the SPCSA additional authority to force a charter school to fire its management organization and make it easier for the authority to deny a charter school’s renewal.

     

    “The most adamant objections to those rules have been filed by Nevada Virtual Academy and the state’s second largest cyber charter school, Nevada Connections, owned by the international corporate education giant Pearson Inc.

     

    “The cases of Silver State and Quest, as well as the proposed regulations, appear to reflect a commitment of the SPCSA and its executive director, Patrick Gavin, to try to hold charter schools accountable.

     

    “It might be a tall order. Although Nevada’s charter-accountability regulations were hailed as improved in a recent national report, that report noted that the SPSCA does not have the requisite staff to conduct consistent monitoring crucial to effective regulation. The standard recommended staff is roughly one monitor for every 1,000 charter-school students. In Nevada, Gavin estimates it is closer to one for every 5,000. The SPSCA is funded by fees charged to authority-sponsored schools, currently about one percent of a school’s operating budget. Boosting those fees will be a top SPCSA priority when the Legislature meets next year.

     

    “Why are we doing this, anyway?

     
    “Everyone is in favor of choice in education,” Ryan Reeves, director of Academica’s Nevada operations, told the Review-Journal in 2014.

     

    “It’s a seductive argument in an era when identity and self-worth are often shaped by where one shops.

     

    “And charters are breaking down barriers erected by decades of entrenched education bureaucracy, thus reinvigorating education with a spirit and dedication that just can’t be found in tired public schools lumbering along under the weight of oppressive administrative bloat. Indeed, charter schools are the heart of education innovation.

     

    “Or so the argument goes.

     

    “Independent analysis suggests otherwise. Assessments conducted by the Center for Research on Education Outcomes (CREDO) at Stanford University are frequently cited by the media and charter-school supporters. Yet even the results of CREDO’s most recent national study were mixed at best, finding charter schools performing slightly, if at all, better than traditional schools at reading, and performing, if anything, worse than traditional schools in math. Critics charge that even CREDO’s modest findings overstate the performance of charter schools.

     

    “As for charter schools being the cradle of innovation, the pedagogical emphasis for which charters are perhaps most renowned is “teaching to the test” even more intensely than testing-obsessed public schools — test scores being the key, if not the only, means of assessing educational outcomes in a publicly funded but privately run school….

     

    “A good portion of the public acceptance of charters is attributed to what is sometimes called “sector agnosticism” — the view that how a school is managed, or who makes money from it, is irrelevant so long as the results are good.

     

    “But charter companies and pro-charter politicians and advocates are anything but agnostic. The rapid growth of the charter-school industry has been accompanied by relentless and disingenuous attacks on public schools and the people who work in them. The interest groups, ideologues and politicians who most zealously promote “school choice” are often the most eager to malign public institutions.

     

    “Charter schools emerged on the scene more than a quarter century ago as laboratories where public-school systems could test methods, and the most promising results could be implemented elsewhere in public schools. Some charter supporters, parents and charter-industry executives and investors obviously mean well and still view charters as an overall benefit to the public good.

     

    “But today’s charter industry, much like Nevada’s voucher plan, reflects a chronic civic defeatism. Echoing the perverse social Darwinism of more than a century ago, faith in free-market education is a surrender to pessimism. Society really isn’t incapable of providing a fair educational opportunity to every citizen. Some people are doomed to fail, that’s just the way it is, so best to segregate those with promise, the achievers, in separate schools. As for everyone else, well, too bad for them.

     

    “In the meantime, capitalizing on politically correct disdain for public institutions and a consumer culture’s visceral embrace of “choice,” and truly impressed by the steady flow of public money through the public-education revenue stream, the private sector is working feverishly … maybe to create quality schools, but definitely to drain more and more money from that stream.”

     

    via Diane Ravitch’s blog http://ift.tt/1WajiBo

    K-12 Dealmaking: Ariz. State Launches Ed Tech Partnership; K12 Inc. Acquires LTS Education Systems

    In recent dealmaking news, K12 Inc. purchased a publisher of digital game-based learning technology while Arizona State University partnered with investors to get new ed tech to the market faster.

    K12 Inc. Buys LTS Education Systems: The online education provider recently acquired ed-tech company LTS Education Systems for $20 million, according to a transcript of the company’s third quarter earnings call last week.

    CEO Stuart Udell said K12 has been looking to make multiple strategic acquisitions and partnerships that expand the company’s distribution, enhance its product set and improves K12’s technology platform, and that LTS fits these requirements, according to the call transcript from Seeking Alpha.

    Udell called LTS a “proven educational technology company that provides flexible learning solutions at 1,500 school and afterschool sites” with a core product, Stride Academy, an SaaS offering that “blends instruction, assessments and games into a mobile field practice and test readiness solution.”

    “It is adaptive, it’s gamified, it’s engaging and it’s mobile, all of which we know works and it’s where we’re heading as an organization,” Udell said about the product.

    LTS’s customer base has very minimal state or client overlap with K12’s current FuelEd customer base, Udell noted. “Therefore, we will be able to take advantage of cross-sell opportunities with FuelEd solution set,” he said, referring to Fuel Education, a personalized learning solutions provider which operates as a separate legal entity owned by K12. Click here to read more about the 2014 rebranding.

    Udel added that “while LTS is an already profitable company with $8 million in revenues at the onset, we believe the growth prospects for Stride Academy and the cross-sell potential for FuelEd’s product set will make this acquisition a strong growth driver for K12 in the future.”

    Fuel Education and LTS last week announced an exclusive partnership that will aim to enable FuelEd to deliver schools and districts supplemental options for skills practice, assessment, and test readiness across all core subjects, according to a press statement.

    ASU Launches Ed Tech Partnership: Arizona State University has launched an initiative with venture capital firm Draper Associates and GSV, a consortium of education-technology investors, to help get education technology to the market faster, according to a statement from the university.

    The initiative — the ASU Draper GSV Accelerator — will source, fund, pilot and credential new products created by higher-education technology companies and allowing new ventures to be tested by students and faculty.

    Applications to join the program will be available on EdTechAccel.com on May 1.

    Other higher education institutions have become involved in trying to shape the ed tech market, and ease the path for companies that have difficulty finding educators willing to test their products.

    The Curry School of Education at the University of Virginia, for instance, is advising the Jefferson Education Accelerator, a commercial project that gives ed-tech companies that ability to have their products tested in K-12 systems and colleges.

    Pearson to Sell GlobalEnglish Corp.: Education and publishing company Pearson is planning to sell GlobalEnglish Corp., a cloud-based software to teach English to business users, according to Sky News. Pearson purchased the company in 2012 for $90 million in cash.

    Spin Master Acquires Toca Boca and Sago Mini: Canadian children’s entertainment company Spin Master Corp. has agreed to acquire digital toy company Toca Boca and Sago Mini, a creator of mobile apps for children ages 2-5 from the Bonnier Group of Sweden. Terms of the deal were not disclosed.

    Be sure to check back on Marketplace K-12 for updates on mergers, acquisitions, fundraising, and other dealmaking. Also see EdWeek Market Brief, a service that gives companies operating in the market insights on the needs and priorities of school officials.

    Hot News: K12, Inc. (NYSE:LRN), Barnes & Noble, Inc. (NYSE:BKS), Media General Inc (NYSE:MEG), SolarCity Corporation (NASDAQ:SCTY), Marketo, Inc. (NASDAQ:MKTO)

    Hot News: K12, Inc. (NYSE:LRN), Barnes & Noble, Inc. (NYSE:BKS), Media General Inc (NYSE:MEG), SolarCity Corporation (NASDAQ:SCTY), Marketo, Inc. (NASDAQ:MKTO)

    K12, Inc. (NYSE:LRN) on Wednesday reported fiscal third-quarter earnings of $14.3 million. On a per-share basis, the Herndon, Virginia-based company said it had profit of 37 cents. The online education company posted revenue of $221.3 million in the period. K12 expects full-year revenue in the range of $205 million to $215 million.
    K12, Inc. (NYSE:LRN)’s stock on 27 April traded at beginning with a price of $11.05 and when day-trade ended the stock finally increased 15.90% to end at $12.10. K12, Inc. (NYSE:LRN)’s showed weekly performance of 18.16%.

    Barnes & Noble, Inc. (NYSE:BKS) Founder & Chairman, Leonard Riggio, said he will retire as chairman of the company following the annual shareholder meeting currently planned for September, and intends to remain on its board of directors. “I’ve done everything I have wanted to do in business and now it is time for me to pursue the many other endeavors related to my philanthropic and social interests,” Riggio said.
    On Wednesday Barnes & Noble, Inc. (NYSE:BKS)’s shares closed at $12.36. Barnes & Noble, Inc. (NYSE:BKS) monthly performance stands at 0.53% while its year to date performance is 46.13%.

    Media General Inc (NYSE:MEG) will report its first quarter 2016 earnings results before the market opens on May 6, 2016. The Company will host a conference call to discuss the earnings release that morning at 10:00 a.m. (ET). The conference call-in number is 1-888-218-8172 for U.S. callers and 1-913-312-0391 for international callers.
    Media General Inc (NYSE:MEG) shares decreased -0.34% on last trading day to close the day at $17.35. Company price to sale ratio is 1.70 and has 0.90% insider ownership. Media General Inc (NYSE:MEG) belongs to Services sector.

    SolarCity Corporation (NASDAQ:SCTY) announced that it will issue its first quarter 2016 earnings report after the market’s close on Monday, May 9, 2016. A conference call has been scheduled to discuss these results at 2:00 p.m. (Pacific Time).

    On last trading day SolarCity Corporation (NASDAQ:SCTY) increased 0.94% to close at $33.31. SCTY is -5.00% away from its 52 week high and is moving 47.30% ahead of its 52 week low. SolarCity Corporation (NASDAQ:SCTY) return on investment (ROI) is -17.40% while return on equity (ROE) is -7.30%.

    Marketo, Inc. (NASDAQ:MKTO) on Tuesday reported a loss of $18.4 million in its first quarter. The San Mateo, California-based company said it had a loss of 42 cents per share. Losses, adjusted for stock option expense and amortization costs, came to 17 cents per share. The results matched Wall Street expectations. The average estimate of seven analysts surveyed by Zacks Investment Research was also for a loss of 17 cents per share.
    Marketo, Inc. (NASDAQ:MKTO) on Wednesday closed at $20.73. Stock institutional ownership is 96.00% while insider ownership includes 1.40%. Marketo, Inc. (NASDAQ:MKTO) distance from 50-day simple moving average (SMA50) is 13.13%.

    K12 Inc (NYSE:LRN) Reported Basic Consolidated EPS Of $0.2498

    April 21, 2016 1:55 pm

    The yearly basic consolidated EPS for K12 Inc (NYSE:LRN) for the period ended 2015-06-30 was $0.2498. For the quarter ended 2015-06-30, the basis consolidated EPS was $0.2498.

    EPS from continuing operations

    The basic EPS from continuing operations as reported by K12 Inc (NYSE:LRN) for the period ended 2015-06-30 was $0.2498. For the quarter ended 2015-06-30, the respective number stood at $0.2498.

    For any stock there may be numerous brokerage analysts tracking the company and releasing EPS projections. For over 20 years, Zacks has been following individual sell-side analyst projections and setting consensus EPS targets. The consensus projection is the mean of all the current projections made available by brokerages. Consensus estimates are considerably advantageous because they mitigate the risk of any single market analyst making an inaccurate forecast.

    EPS contribution from parent

    For the annual period closed 2015-06-30, K12 Inc (NYSE:LRN) received basic EPS of $0.2943 from its parent firm. On quarterly basis, the contribution from the parent firm for the period ended 2015-06-30 was $0.2943.

    Basic net EPS

    For the annual period closed 2015-06-30, K12 Inc (NYSE:LRN) posted basic net EPS of $0.29. On quarterly basis, the firm’s basic net per-share earnings for the quarter closed 2015-06-30 stood at $0.29.

    Consolidated diluted EPS

    The annual consolidated diluted per-share earnings reading for the period closed 2015-06-30 stood at $0.2479. For the quarter ended 2015-06-30, consolidated diluted EPS was $0.2479.

    Basic diluted EPS

    For the period ended 2015-06-30, diluted EPS number from continuing operation was $0.2479. For the quarter ended 2015-06-30, the respective number stood at $0.2479.

    Net diluted EPS

    Net diluted EPS number for the annual period closed 2015-06-30 was $0.29. For the quarter ended 2015-06-30, net diluted EPS was $0.29.

    Diluted EPS from parent

    From the parent company, K12 Inc (NYSE:LRN) obtained diluted EPS of $0.292 for the period ended 2015-06-30. On quarterly basis, the diluted EPS payment from the parent firm for the quarter ended 2015-06-30 was $0.292.

    K12 Inc (NYSE:LRN) posted net basic EPS of $0.29 for the annual period closed 2015-06-30. For the quarter, this basic net EPS came at $0.29 for the quarter closed 2015-06-30.

    The average basic shares outstanding for the fiscal ended 2015-06-30 is 37.331 while for the quarter closed 2015-06-30 is 37.331.

    The diluted shares outstanding for the twelve-monthly period ended 2015-06-30 is 37.625 while for the quarter closed 2015-06-30 is 37.625.

    Author: Enterprise Staff