Stride (LRN) 8-K K12 Inc. Reports Third Quarter Fiscal 2018 with Revenues of $232.9 Million

Exhibit 99.1

K12 Inc. Reports Third Quarter Fiscal 2018 with Revenues of $232.9 Million

Enrollments for Managed Public School Programs Rise to 110.8 Thousand

HERNDON, Va.--(BUSINESS WIRE)--April 24, 2018--K12 Inc. (NYSE: LRN), a technology-based education company and leading provider of online curriculum and online school programs for students in pre-K through high school, today announced its results for the third fiscal quarter ended March 31, 2018.

Financial Highlights for the Three Months Ended March 31, 2018 (Third Quarter Fiscal Year 2018)

• Revenues of $232.9 million, compared to $222.5 million in the third quarter of FY 2017.
• Operating income of $19.7 million, compared to $12.8 million in the third quarter of FY 2017.
• Net income attributable to common stockholders of $13.1 million, compared to $9.1 million in the third quarter of FY 2017.
• Diluted net income attributable to common stockholders per share of $0.32, compared to $0.23 in the third quarter of FY 2017.

To supplement our financial statements presented in accordance with Generally Accepted Accounting Principles (GAAP), we are also presenting adjusted operating income and adjusted EBITDA. Management believes that these additional metrics provide useful information to our investors as an indicator of performance because they exclude non-cash stock-based compensation expense. Non-GAAP Financial Highlights for the three months ended March 31, 2018 (Third Quarter Fiscal Year 2018) are as follows.

• Adjusted operating income of $24.3 million, compared to $18.0 million in the third quarter of FY 2017.
• Adjusted EBITDA of $42.7 million, compared to $38.0 million in the third quarter of FY 2017.

Financial Highlights for the Nine Months Ended March 31, 2018 (Year-to-Date Fiscal 2018)

• Revenues of $678.9 million, compared to $672.8 million for the first nine months of FY 2017.
• Operating income of $15.7 million, compared to $8.4 million for the first nine months of FY 2017.
• Net income attributable to common stockholders of $18.3 million, compared to $6.9 million for the first nine months of FY 2017.
• Diluted net income attributable to common stockholders per share of $0.45, compared to $0.18 for the first nine months of FY 2017.

Non-GAAP Financial Highlights for the Nine Months Ended March 31, 2018 (Year-to-Date Fiscal 2018) are as follows.

• Adjusted operating income of $30.5 million, compared to $23.0 million for the first nine months of FY 2017.
• Adjusted EBITDA of $88.1 million, compared to $79.3 million for the first nine months of FY 2017.

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

Liquidity

As of March 31, 2018, the Company had cash and cash equivalents of $227.9 million, an increase of $33.2 million compared to the third quarter of FY 2017.

Capital Expenditures

Capital expenditures for the nine months ended March 31, 2018 were $33.3 million, largely unchanged from the prior year’s first nine months, and was comprised of:

• $6.6 million for property and equipment,
• $18.9 million for capitalized software development, and
• $7.8 million for capitalized curriculum.

Revenue and Enrollment Data

Revenue

The Company’s revenues are generally in three categories -- Managed Public School Programs (where K12 provides substantially all management, technology and academic support services in addition to curriculum, learning systems and instructional services), Institutional (Non-managed Public School Programs – curriculum, technology and other educational services where K12 does not provide primary administrative oversight, and Institutional Software and Services – educational software and services provided to school districts, public schools and other educational institutions), and Private Pay Schools and Other (private schools for which it charges student tuition and makes direct consumer sales) – The following table sets forth the Company’s revenues for the periods indicated:

	Three Months Ended March 31,				Change 2018 / 2017					Nine Months Ended March 31,				Change 2018 / 2017
	2018		2017		$			%		2018		2017		$			%
	(In thousands, except percentages)
Managed Public School Programs	$	200,580	$	187,418	$	13,162		7.0	%	$	572,478	$	554,353	$	18,125		3.3	%
Institutional
Non-managed Public School Programs		13,250		16,031		(2,781	)	-17.3	%		44,401		51,960		(7,559	)	-14.5	%
Institutional Software & Services		9,605		10,234		(629	)	-6.1	%		34,500		38,968		(4,468	)	-11.5	%
Total Institutional		22,855		26,265		(3,410	)	-13.0	%		78,901		90,928		(12,027	)	-13.2	%
Private Pay Schools and Other		9,429		8,850		579		6.5	%		27,481		27,480		1		0.0	%
Total	$	232,864	$	222,533	$	10,331		4.6	%	$	678,860	$	672,761	$	6,099		0.9	%

Enrollment Data

The following table sets forth average enrollment data for the periods indicated. These figures exclude enrollments from classroom pilot programs and consumer programs.

	Three Months Ended March 31,		2018 / 2017				Nine Months Ended March 31,		2018 / 2017
(in thousands)	2018	2017	Change		Change %		2018	2017	Change		Change %
Managed Public School Programs (1,2)	110.8	103.8	7.0		6.7	%	109.8	105.5	4.3		4.1	%
Non-managed Public School Programs (1)	24.3	29.3	(5.0	)	-17.1	%	24.1	28.8	(4.7	)	-16.3	%

(1)	If a school changes from a Managed Public School Program to a Non-managed Public School Program, the corresponding enrollment classification would change in the period in which the contract arrangement changed.
(2)	Managed Public School Programs may include enrollments for which K12 receives no public funding or revenue.

Revenue per Enrollment Data

The following table sets forth revenue per average enrollment data for students in Public School Programs for the periods indicated.

	Three Months Ended March 31,				Change 2018 / 2017					Nine Months Ended March 31,				Change 2018 / 2017
	2018		2017		$			%		2018		2017		$			%
Managed Public School Programs	$	1,810	$	1,806	$	4		0.2	%	$	5,214	$	5,255	$	(41	)	-0.8	%
Non-managed Public School Programs		545		547		(2	)	-0.4	%		1,842		1,804		38		2.1	%

Outlook

The Company is reaffirming, and tightening, the forecast for the full year, fiscal 2018:

• Revenue in the range of $906 million to $912 million.
• Adjusted operating income of $46 million to $50 million ⁽¹⁾.
• Capital expenditures of $43 million to $47 million.

(1) These amounts exclude the costs associated with transitioning the company’s former CEO in the third quarter of FY 2018.

Special Note on Forward-Looking Statements

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We have tried, whenever possible, to identify these forward-looking statements using words such as “anticipates,” “believes,” “estimates,” “continues,” “likely,” “may,” “opportunity,” “potential,” “projects,” “will,” “expects,” “plans,” “intends” and similar expressions to identify forward looking statements, whether in the negative or the affirmative. These statements reflect our current beliefs and are based upon information currently available to us. Accordingly, such forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, such statements. These risks, uncertainties, factors and contingencies include, but are not limited to: reduction of per pupil funding amounts at the schools we serve; inability to achieve sufficient levels of new enrollments to sustain or to grow our business model; failure of the schools we serve to comply with regulations resulting in a loss of funding, an obligation to repay funds previously received or contractual remedies; declines or variations in academic performance outcomes as curriculum and testing standards evolve; harm to our reputation resulting from poor performance or misconduct by operators or us in any school in our industry and in any school in which we operate; legal and regulatory challenges from opponents of virtual public education, public charter schools or for-profit education companies; discrepancies in interpretation of legislation by regulatory agencies that may lead to payment or funding disputes; termination of our contracts with schools due to a loss of authorizing charter; failure to enter into new school contracts or renew existing contracts, in part or in their entirety; unsuccessful integration of mergers, acquisitions and joint ventures; failure to further develop, maintain and enhance our technology, products, services and brands; inadequate recruiting, training and retention of effective teachers and employees; declines in enrollments due to teacher union activities; infringement of our intellectual property; entry of new competitors with superior competitive technologies and lower prices; disruptions to our Internet-based learning and delivery systems resulting from cyber-attacks; and other risks and uncertainties associated with our business described in the Company’s filings with the Securities and Exchange Commission. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. All information in this release is as of March 31, 2018, and the Company undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in the Company’s expectations.

Conference Call

The Company will discuss its third quarter fiscal year 2018 financial results during a conference call scheduled for Tuesday, April 24, 2018 at 5:00 p.m. eastern time (ET).

The conference call will be webcast and available at http://public.viavid.com/index.php?id=129020. Please access the web site at least 15 minutes prior to the start of the call.

To participate in the live call, investors and analysts should dial (877) 407-4019 (domestic) or (201) 689-8337 (international) at 4:45 p.m. (ET). No passcode is required.

A replay of the call will be available starting on April 24, 2018 at 8:00 p.m. ET through May 31, 2018 at 8:00 p.m. ET, at (877) 660-6853 (domestic) or (201) 612-7415 (international) using conference ID 13678222. A webcast replay of the call will be available at http://public.viavid.com/index.php?id=129020 for 30 days.

Financial Statements

The financial statements set forth below are not the complete set of K12 Inc.’s financial statements for the three and nine months ended March 31, 2018, and are presented below without footnotes. Readers are encouraged to obtain and carefully review K12 Inc.’s Form 10-Q for the quarter ended March 31, 2018, including all financial statements contained therein and the footnotes thereto, filed with the SEC. The Form 10-Q may be retrieved from the SEC's website at www.sec.gov or from K12 Inc.’s website at www.k12.com.

K12 INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
	March 31, 2018			June 30, 2017
				(audited)
	(In thousands except share and per share data)
ASSETS
Current assets
Cash and cash equivalents	$	227,907		$	230,864
Accounts receivable, net of allowance of $9,978 and $14,791 at March 31, 2018 and June 30, 2017, respectively		207,998			192,205
Inventories, net		18,051			30,503
Prepaid expenses		14,422			8,006
Other current assets		13,767			12,004
Total current assets		482,145			473,582
Property and equipment, net		29,468			26,297
Capitalized software, net		55,729			62,695
Capitalized curriculum development costs, net		53,299			59,213
Intangible assets, net		18,694			20,226
Goodwill		90,197			87,214
Deposits and other assets		31,592			6,057
Total assets	$	761,124		$	735,284
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligations	$	13,727		$	11,880
Accounts payable		17,548			30,052
Accrued liabilities		13,304			21,622
Accrued compensation and benefits		29,489			29,367
Deferred revenue		49,039			24,830
Total current liabilities		123,107			117,751
Capital lease obligations, net of current portion		13,983			10,025
Deferred rent, net of current portion		3,511			4,157
Deferred tax liability		11,572			16,726
Other long-term liabilities		9,519			11,579
Total liabilities		161,692			160,238
Redeemable noncontrolling interest		—			700
Stockholders’ equity
Common stock, par value $0.0001; 100,000,000 shares authorized; 44,664,798 and 44,325,772 shares issued, and 41,162,200 and 40,823,174 shares outstanding at March 31, 2018 and June 30, 2017, respectively		4			4
Additional paid-in capital		697,762			690,488
Accumulated other comprehensive loss		(562	)		(170	)
Accumulated deficit		(22,772	)		(40,976	)
Treasury stock of 3,502,598 shares at cost at March 31, 2018 and June 30, 2017		(75,000	)		(75,000	)
Total stockholders’ equity		599,432			574,346
Total liabilities, redeemable noncontrolling interest and stockholders' equity	$	761,124		$	735,284

K12 INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
	Three Months Ended March 31,						Nine Months Ended March 31,
	2018			2017			2018		2017
	(In thousands except share and per share data)
Revenues	$	232,864		$	222,533		$	678,860	$	672,761
Cost and expenses
Instructional costs and services		148,878			136,431			435,408		418,072
Selling, administrative, and other operating expenses		62,267			69,828			220,507		236,826
Product development expenses		2,002			3,511			7,276		9,446
Total costs and expenses		213,147			209,770			663,191		664,344
Income from operations		19,717			12,763			15,669		8,417
Interest income, net		261			641			535		1,247
Income before income taxes and noncontrolling interest		19,978			13,404			16,204		9,664
Income tax benefit (expense)		(6,935	)		(4,522	)		1,869		(3,520	)
Net income		13,043			8,882			18,073		6,144
Add net loss attributable to noncontrolling interest		27			233			200		790
Net income attributable to common stockholders	$	13,070		$	9,115		$	18,273	$	6,934
Net income attributable to common stockholders per share:
Basic	$	0.33		$	0.24		$	0.46	$	0.18
Diluted	$	0.32		$	0.23		$	0.45	$	0.18
Weighted average shares used in computing per share amounts:
Basic		39,644,074			38,376,984			39,366,497		38,145,671
Diluted		40,766,203			39,328,127			40,771,437		38,956,081

K12 INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	Nine Months Ended March 31,
	2018			2017
	(In thousands)
Cash flows from operating activities
Net income	$	18,073		$	6,144
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense		57,612			56,325
Stock-based compensation expense		14,853			14,557
Excess tax benefit from stock-based compensation		—			(250	)
Deferred income taxes		(4,978	)		(259	)
Provision for doubtful accounts		605			4,196
Provision for excess and obsolete inventory		1,319			395
Provision for student computer shrinkage and obsolescence		103			256
Impairment loss on other assets		—			586
Expensed computer peripherals		3,335			3,412
Changes in assets and liabilities:
Accounts receivable		(16,220	)		(61,000	)
Inventories		11,134			13,149
Prepaid expenses		(6,416	)		(7,516	)
Other current assets		(2,963	)		(2,781	)
Deposits and other assets		(25,893	)		9,811
Accounts payable		(9,215	)		(9,813	)
Accrued liabilities		(9,183	)		(7,608	)
Accrued compensation and benefits		111			(5,922	)
Deferred revenue		23,848			24,833
Deferred rent and other liabilities		(2,714	)		(1,140	)
Net cash provided by operating activities		53,411			37,375
Cash flows from investing activities
Purchase of property and equipment		(6,580	)		(1,391	)
Capitalized software development costs		(18,852	)		(19,345	)
Capitalized curriculum development costs		(7,770	)		(12,427	)
Acquisition of Big Universe, Inc., net of cash acquired		(2,774	)		—
Purchase of noncontrolling interest		(500	)		(9,134	)
Net cash used in investing activities		(36,476	)		(42,297	)
Cash flows from financing activities
Repayments on capital lease obligations		(10,313	)		(11,879	)
Proceeds from exercise of stock options		184			1,518
Excess tax benefit from stock-based compensation		—			250
Repurchase of restricted stock for income tax withholding		(9,763	)		(4,236	)
Net cash used in financing activities		(19,892	)		(14,347	)
Effect of foreign exchange rate changes on cash and cash equivalents		—			(12	)
Net change in cash and cash equivalents		(2,957	)		(19,281	)
Cash and cash equivalents, beginning of period		230,864			213,989
Cash and cash equivalents, end of period	$	227,907		$	194,708

Non-GAAP Financial Measures

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

• Adjusted operating income (loss) is defined as income (loss) from operations as adjusted for stock-based compensation.
• Adjusted EBITDA is defined as net income (loss) attributable to common stockholders as adjusted for interest income (expense), net; impairment of investment in Web International Education Group, Ltd.; income tax benefit (expense); noncontrolling interest; stock-based compensation; and depreciation and amortization. Interest income (expense) primarily consists of interest expense for capital leases and interest income on customer receivables.
• Adjusted EBITDA and adjusted operating income (loss) exclude stock-based compensation, which consists of expenses for stock options, restricted stock, restricted stock units, and performance stock units.

This information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. Management believes that the presentation of these non-GAAP measures provides useful information to investors regarding our results of operations because it is an indicator of performance with the removal of stock-based compensation which assists both investors and management in analyzing and benchmarking the performance and value of our business.

We believe adjusted EBITDA is useful to an investor in evaluating our operating performance because it is both 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 adjusted EBITDA and adjusted operating income (loss):

• 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
• as consistent with lending covenants on our line of credit.

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

Adjusted EBITDA and adjusted operating income (loss) should be considered in addition to, and not as a substitute for, income or loss from operations, net income or loss, and earnings or loss per share prepared in accordance with GAAP as a measure of performance. Adjusted EBITDA is not intended to be a measure of liquidity. You are cautioned not to place undue reliance on these non-GAAP measures.

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

	Three Months Ended March 31,						Nine Months Ended March 31,
	2018			2017			2018			2017
	(In thousands)
Net income attributable to common stockholders	$	13,070		$	9,115		$	18,273		$	6,934
Interest income, net		(261	)		(641	)		(535	)		(1,247	)
Income tax (benefit) expense		6,935			4,522			(1,869	)		3,520
Noncontrolling interest		(27	)		(233	)		(200	)		(790	)
Stock-based compensation expense		4,557			5,265			14,853			14,557
Adjusted operating income		24,274			18,028			30,522			22,974
Depreciation and amortization		18,426			19,950			57,612			56,325
Adjusted EBITDA	$	42,700		$	37,978		$	88,134		$	79,299

About K12 Inc.

K12 Inc. (NYSE: LRN) is driving innovation and advancing the quality of education by delivering state-of-the-art, digital learning platforms and technology to students and school districts across the globe. K12’s award winning curriculum serves over 2,000 schools and school districts and has delivered millions of courses over the past decade. K12 is a company of educators providing online and blended education solutions to charter schools, public school districts, private schools, and directly to families. The K12 program is offered through more than 70 partner public schools, and through school districts and public and private schools serving students in all 50 states and more than 100 countries. More information can be found at K12.com.

CONTACT:
K12 Inc.
Investor and Press Contact:
Mike Kraft, 571-353-7778
VP Finance and Communications
mkraft@k12.com