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Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM  10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to          

Commission File Number: 001-33883

K12 Inc .

(Exact name of registrant as specified in its charter)

Delaware

95-4774688

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

2300 Corporate Park Drive

Herndon , VA

20171

(Address of Principal Executive Offices)

(Zip Code)

( 703 483-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.0001 par value

LRN

New York Stock Exchange ( NYSE )

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.   Yes    No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes    No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 

As of April 17, 2020, the Registrant had 40,991,727 shares of common stock, $0.0001 par value per share outstanding.

Table of Contents

K12 Inc.

Form 10-Q

For the Quarterly Period Ended March 31, 2020

Index

Page

 

Number

PART I.

Financial Information

Item 1.

Financial Statements (Unaudited)

3

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

33

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

41

PART II.

Other Information

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2.

Issuer Purchases of Equity Securities

44

Item 3.

Defaults Upon Senior Securities

44

Item 4.

Mine Safety Disclosures

44

Item 5.

Other Information

44

Item 6.

Exhibits

44

Signatures

46

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Table of Contents

PART I — FINANCIAL INFORMATION

Item 1.     Financial Statements (Unaudited).

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.

See accompanying notes to unaudited condensed consolidated financial statements.

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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

See accompanying notes to unaudited condensed consolidated financial statements.

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K12 INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended

Nine Months Ended

March 31, 

March 31, 

    

2020

    

2019

    

2020

    

2019

(In thousands)

Net income

$

8,754

$

18,462

$

19,618

$

33,892

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment

237

( 122 )

89

71

Comprehensive income attributable to common stockholders

$

8,991

$

18,340

$

19,707

$

33,963

See accompanying notes to unaudited condensed consolidated financial statements.

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K12 INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

K12 Inc. Stockholders' Equity

(In thousands except share data)

Common Stock

Additional 
Paid-in

Accumulated Other
Comprehensive

Retained

Treasury Stock

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Earnings

    

Shares

    

Amount

    

Total

Balance, June 30, 2019

45,575,236

$

4

$

713,436

$

( 40 )

$

22,447

( 5,334,743 )

$

( 102,482 )

$

633,365

Net loss

( 9,730 )

( 9,730 )

Foreign currency translation adjustment

139

139

Stock-based compensation expense

5,594

5,594

Exercise of stock options

2,500

42

42

Issuance of restricted stock awards

918,702

Forfeiture of restricted stock awards

( 34,090 )

Repurchase of restricted stock for tax withholding

( 171,778 )

( 4,698 )

( 4,698 )

Balance, September 30, 2019

46,290,570

$

4

$

714,374

$

99

$

12,717

( 5,334,743 )

$

( 102,482 )

$

624,712

Net income

20,594

20,594

Foreign currency translation adjustment

( 287 )

( 287 )

Stock-based compensation expense

6,256

6,256

Exercise of stock options

500

6

6

Issuance of restricted stock awards

18,000

Forfeiture of restricted stock awards

( 18,019 )

Repurchase of restricted stock for tax withholding

( 8,878 )

( 185 )

( 185 )

Balance, December 31, 2019

46,282,173

$

4

$

720,451

$

( 188 )

$

33,311

( 5,334,743 )

$

( 102,482 )

$

651,096

Net income

8,754

8,754

Foreign currency translation adjustment

237

237

Stock-based compensation expense

6,162

6,162

Exercise of stock options

Issuance of restricted stock awards

108,959

Forfeiture of restricted stock awards

( 23,900 )

Repurchase of restricted stock for tax withholding

( 92,962 )

( 1,621 )

( 1,621 )

Balance, March 31, 2020

46,274,270

$

4

$

724,992

$

49

$

42,065

( 5,334,743 )

$

( 102,482 )

$

664,628

See accompanying notes to unaudited condensed consolidated financial statements.

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Table of Contents

K12 Inc. Stockholders' Equity

(In thousands except share data)

Common Stock

Additional 
Paid-in

Accumulated Other
Comprehensive

Retained Earnings (Accumulated

Treasury Stock

    

Shares

    

Amount

    

Capital

    

Loss

    

Deficit)

    

Shares

    

Amount

    

Total

Balance, June 30, 2018

44,902,567

$

4

$

703,351

$

( 252 )

$

( 13,432 )

( 5,334,743 )

$

( 102,482 )

$

587,189

Adjustment related to new revenue recognition guidance

( 1,330 )

( 1,330 )

Net loss

( 8,282 )

( 8,282 )

Foreign currency translation adjustment

72

72

Stock-based compensation expense

4,109

4,109

Exercise of stock options

687

10

10

Vesting of performance share units, net of tax withholding

258,263

Issuance of restricted stock awards

722,809

Forfeiture of restricted stock awards

( 122,242 )

Repurchase of restricted stock for tax withholding

( 188,804 )

( 6,072 )

( 6,072 )

Balance, September 30, 2018

45,573,280

$

4

$

701,398

$

( 180 )

$

( 23,044 )

( 5,334,743 )

$

( 102,482 )

$

575,696

Net income

23,712

23,712

Foreign currency translation adjustment

121

121

Stock-based compensation expense

4,235

4,235

Exercise of stock options

51,050

1,025

1,025

Issuance of restricted stock awards

26,000

Forfeiture of restricted stock awards

( 54,054 )

Repurchase of restricted stock for tax withholding

( 45,960 )

( 833 )

( 833 )

Balance, December 31, 2018

45,550,316

$

4

$

705,825

$

( 59 )

$

668

( 5,334,743 )

$

( 102,482 )

$

603,956

Net income

18,462

18,462

Foreign currency translation adjustment

( 122 )

( 122 )

Stock-based compensation expense

4,047

4,047

Exercise of stock options

54,753

1,148

1,148

Issuance of restricted stock awards

73,524

Forfeiture of restricted stock awards

( 51,435 )

Repurchase of restricted stock for tax withholding

( 85,132 )

( 2,751 )

( 2,751 )

Balance, March 31, 2019

45,542,026

$

4

$

708,269

$

( 181 )

$

19,130

( 5,334,743 )

$

( 102,482 )

$

624,740

See accompanying notes to unaudited condensed consolidated financial statements.

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Table of Contents

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: