Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Mar. 31, 2018 | Apr. 19, 2018 | |
Document and Entity Information | ||
Entity Registrant Name | K12 INC | |
Entity Central Index Key | 1,157,408 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --06-30 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 41,172,030 | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q3 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Mar. 31, 2018 | Jun. 30, 2017 |
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 |
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 |
Commitments and contingencies | ||
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 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Mar. 31, 2018 | Jun. 30, 2017 |
CONSOLIDATED BALANCE SHEETS | ||
Accounts receivable, allowance | $ 9,978 | $ 14,791 |
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 44,664,798 | 44,325,772 |
Common stock, shares outstanding | 41,162,200 | 40,823,174 |
Treasury stock, shares | 3,502,598 | 3,502,598 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Mar. 31, 2018 | Mar. 31, 2017 | Mar. 31, 2018 | Mar. 31, 2017 | ||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||
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 | [1] | $ 6,934 |
Net income attributable to common stockholders per share: | |||||
Basic (in dollars per share) | $ 0.33 | $ 0.24 | $ 0.46 | $ 0.18 | |
Diluted (in dollars per share) | $ 0.32 | $ 0.23 | $ 0.45 | $ 0.18 | |
Weighted average shares used in computing per share amounts: | |||||
Basic (in shares) | 39,644,074 | 38,376,984 | 39,366,497 | 38,145,671 | |
Diluted (in shares) | 40,766,203 | 39,328,127 | 40,771,437 | 38,956,081 | |
[1] | Net income excludes $0.2 million due to the redeemable noncontrolling interest related to LearnBop, which is reported outside of permanent equity in the accompanying unaudited condensed consolidated balance sheets. |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2018 | Mar. 31, 2017 | Mar. 31, 2018 | Mar. 31, 2017 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||
Net income | $ 13,043 | $ 8,882 | $ 18,073 | $ 6,144 |
Other comprehensive income, net of tax: | ||||
Foreign currency translation adjustment | (198) | (61) | (392) | 329 |
Total other comprehensive income, net of tax | 12,845 | 8,821 | 17,681 | 6,473 |
Comprehensive loss attributable to noncontrolling interest | 27 | 233 | 200 | 790 |
Comprehensive income attributable to common stockholders | $ 12,872 | $ 9,054 | $ 17,881 | $ 7,263 |
CONDENSED CONSOLIDATED STATEME6
CONDENSED CONSOLIDATED STATEMENT OF EQUITY - 9 months ended Mar. 31, 2018 - USD ($) $ in Thousands | Common Stock | Additional Paid-in Capital | Other Accumulated Comprehensive Loss | Accumulated Deficit | Treasury Stock | Total | |
Balance at Jun. 30, 2017 | $ 4 | $ 690,488 | $ (170) | $ (40,976) | $ (75,000) | $ 574,346 | |
Balance (in shares) at Jun. 30, 2017 | 44,325,772 | (3,502,598) | |||||
Increase (Decrease) in Stockholders' Equity | |||||||
Adjustment related to new stock-based compensation guidance | 112 | (69) | 43 | ||||
Net income | [1] | 18,273 | 18,273 | ||||
Foreign currency translation adjustment | (392) | (392) | |||||
Stock-based compensation expense | 16,741 | 16,741 | |||||
Exercise of stock options | 184 | 184 | |||||
Exercise of stock options (in shares) | 13,600 | ||||||
Vesting of performance share units | 149,676 | ||||||
Issuance of restricted stock awards (in shares) | 1,011,605 | ||||||
Forfeiture of restricted stock awards (in shares) | (331,263) | ||||||
Repurchase of restricted stock for tax withholding | (9,763) | (9,763) | |||||
Repurchase of restricted stock for tax withholding (in shares) | (504,592) | ||||||
Balance at Mar. 31, 2018 | $ 4 | $ 697,762 | $ (562) | $ (22,772) | $ (75,000) | $ 599,432 | |
Balance (in shares) at Mar. 31, 2018 | 44,664,798 | (3,502,598) | |||||
[1] | Net income excludes $0.2 million due to the redeemable noncontrolling interest related to LearnBop, which is reported outside of permanent equity in the accompanying unaudited condensed consolidated balance sheets. |
CONDENSED CONSOLIDATED STATEME7
CONDENSED CONSOLIDATED STATEMENT OF EQUITY (Parenthetical) $ in Millions | 9 Months Ended |
Mar. 31, 2018USD ($) | |
CONDENSED CONSOLIDATED STATEMENT OF EQUITY | |
Redeemable noncontrolling interest related to LearnBop | $ 0.2 |
CONDENSED CONSOLIDATED STATEME8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 9 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
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 |
Description of the Business
Description of the Business | 9 Months Ended |
Mar. 31, 2018 | |
Description of the Business | |
Description of the Business | 1. Description of the Business K12 Inc., together with its subsidiaries (“K12” or the “Company”), is a technology-based education company. The Company offers proprietary and third party curriculum, software systems and educational services designed to facilitate individualized learning for students primarily in kindergarten through 12th grade, or K-12. The Company’s learning systems combine curriculum, instruction, and related support services to create an individualized learning approach well-suited for virtual and blended public schools, school districts, charter schools and private schools that utilize varying degrees of online and traditional classroom instruction, and other educational applications. These products and services are provided primarily to three lines of business: Managed Public School Programs (curriculum and services sold to 75 managed public schools in a majority of states throughout the United States and the District of Columbia), Institutional (curriculum, technology and services provided to school districts, public schools and other educational institutions that the Company does not manage), and Private Pay Schools and Other (private schools for which the Company charges student tuition and makes direct consumer sales). The Company works closely as a partner with public schools, school districts, charter schools, and private schools enabling them to offer their students an array of solutions, including full-time virtual programs, semester courses, and supplemental solutions. In addition to curriculum, systems, and programs, the Company provides teacher training, teaching services, and other academic and technology support services. |
Basis of Presentation
Basis of Presentation | 9 Months Ended |
Mar. 31, 2018 | |
Basis of Presentation | |
Basis of Presentation | 2. Basis of Presentation The accompanying condensed consolidated balance sheet as of March 31, 2018, the condensed consolidated statements of operations and comprehensive income for the three and nine months ended March 31, 2018 and 2017, the condensed consolidated statements of cash flows for the nine months ended March 31, 2018 and 2017, and the condensed consolidated statement of stockholders’ equity for the nine months ended March 31, 2018 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position and results of operations for the periods presented. The results for the three and nine months ended March 31, 2018 are not necessarily indicative of the results to be expected for the year ending June 30, 2018 or for any other interim period or for any other future fiscal year. The condensed consolidated balance sheet as of June 30, 2017 has been derived from the audited consolidated financial statements at that date. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Accordingly, the Company does not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of the Company’s condensed consolidated results of operations, financial position and cash flows. Preparation of the Company’s financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and footnotes. Actual results could differ from those estimates. This quarterly report on Form 10-Q should be read in conjunction with the financial statements and the notes thereto included in the Company’s latest annual report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on August 9, 2017, which contains the Company’s audited financial statements for the fiscal year ended June 30, 2017. The Company operates in one operating and reportable business segment as a technology-based education company providing proprietary and third party curriculum, software systems, and educational services designed to facilitate individualized learning for students primarily in kindergarten through 12th grade. The Chief Operating Decision Maker evaluates profitability based on consolidated results. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 9 Months Ended |
Mar. 31, 2018 | |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | 3. Summary of Significant Accounting Policies Revenue Recognition and Concentration of Revenues Revenues are principally earned from long-term contractual agreements to provide online curriculum, books, materials, computers and management services to virtual and blended schools, traditional public schools, school districts, and private schools. In addition to providing the curriculum, books, and materials, under most contracts, the Company provides management services and technology to virtual and blended public schools, including monitoring academic achievement, teacher recommendations and hiring, teacher training, compensation of school personnel, financial management, enrollment processing, and development and procurement of curriculum, equipment, and required services. The schools receive funding on a per student basis from the state in which the public school or school district is located. Shipments of materials for schools that occur in the fourth fiscal quarter and for the upcoming school year are recorded in deferred revenue. Where the Company has determined that it is the primary obligor for substantially all expenses under these contracts, the Company records the associated per student revenues received by the school from its state funding school district or from other sources up to the expenses incurred in accordance with Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”). As a result of being the primary obligor, amounts recorded as revenues and school operating expenses for the three months ended March 31, 2018 and 2017 were $81.4 million and $75.1 million, respectively, and for the nine months ended March 31, 2018 and 2017 were $221.0 million and $212.5 million, respectively. For contracts where the Company is not the primary obligor, the Company records revenues based on its net fees earned under the contractual agreement. The Company generates revenues under turnkey management contracts with virtual and blended public schools which include multiple elements. These elements typically include: · providing each of a school’s students with access to the Company’s online school and lessons; · offline learning kits, which include books and materials to supplement the online lessons, where required; · the use of a personal computer and associated reclamation services, where required; · internet access and technology support services; · instruction by a state-certified teacher, where required; and · management and technology services necessary to operate a virtual public or blended school. In certain managed school contracts, revenues are determined directly by per enrollment funding. The Company has determined that the elements of its contracts are valuable to schools in combination, but do not have standalone value. As a result, the elements within the Company’s multiple-element contracts do not qualify as separate units of accounting. Accordingly, the Company accounts for revenues under multiple element arrangements as a single unit of accounting and recognizes the entire arrangement based upon the approximate rate at which it incurs the costs associated with each element. Revenues from certain managed schools are recognized ratably over the period services are performed. To determine the pro rata amount of revenues to recognize in a fiscal quarter, the Company estimates the total funds each school will receive in a particular school year. Total funds for a school are primarily a function of the number of students enrolled in the school and established per enrollment funding levels, which are generally published on an annual basis by the state or school district. The Company reviews its estimates of funding periodically, and revises as necessary, amortizing any adjustments to earned revenues over the remaining portion of the fiscal year. Actual school funding may vary from these estimates and the impact of these differences could impact the Company’s results of operations. Since the end of the school year coincides with the end of the Company’s fiscal year, annual revenues are generally based on actual school funding and actual costs incurred (including costs for the Company’s services to the schools plus other costs the schools may incur) in the calculation of school operating losses. The Company’s schools’ reported results are subject to annual school district financial audits, which incorporate enrollment counts, funding and other routine financial audit considerations. The results of these audits are incorporated into the Company’s monthly funding estimates for the three and nine months ended March 31, 2018 and 2017. Under the contracts where the Company provides turnkey management services to schools, the Company has generally agreed to absorb any operating losses of the schools in a given school year. These school operating losses represent the excess of costs incurred over revenues earned by the virtual or blended public school as reflected on its respective financial statements, including Company charges to the schools. To the extent a school does not receive funding for each student enrolled in the school, the school would still incur costs associated with serving the unfunded enrollment. If losses due to unfunded enrollments result in a net operating loss for the year that loss is reflected as a reduction in the revenues and net receivables that the Company collects from the school. A school net operating loss in one year does not necessarily mean the Company anticipates losing money on the entire contract with the school. However, a school operating loss may reduce the Company’s ability to collect its management fees in full and recognized revenues are reduced accordingly to reflect the expected cash collections from such schools. The Company amortizes the estimated school operating loss against revenues based upon the percentage of actual revenues in the period to total estimated revenues for the fiscal year. For turnkey service contract revenues, a school operating loss may reduce the Company’s ability to collect its management fees in full, though as noted it does not necessarily mean that the Company incurs a loss during the period with respect to its services to that school. The Company recognizes revenues, net of its estimated portion of school operating losses, to reflect the expected cash collections from such schools. Revenues are recognized based on the Company’s performance of services under the contract, which it believes is proportionate to its incurrence of costs. The Company incurs costs directly related to the delivery of services. Most of these costs are recognized throughout the year; however, certain costs related to upfront delivery of printed materials, workbooks, laboratory materials and other items are provided at the beginning of the school year and are recognized as expenses when shipped. Each state or school district has variations in the school funding formulas and methodologies that it uses to estimate funding for revenue recognition at its respective schools. As the Company builds the funding estimates for each school, it is mindful of the state definition for count dates on which reported enrollment numbers will be used for per pupil funding. The parameters the Company considers in estimating funding for revenue recognition purposes include school district count definitions, withdrawal rates, average daily attendance, special needs enrollment, student demographics, academic progress and historical completion, student location, funding caps and other state specified categorical program funding. Management periodically reviews its estimates of full-year school revenues and operating expenses, and amortizes the net impact of any changes to these estimates over the remainder of the fiscal year. Actual school operating losses may vary from these estimates or revisions, and the impact of these differences could have a material impact on results of operations. Since the end of the school year coincides with the end of the Company’s fiscal year, annual revenues are generally based on actual school funding and actual costs incurred (including costs for the Company’s services to the schools plus other costs the schools may incur) in the calculation of school operating losses. For the three months ended March 31, 2018 and 2017, the Company’s revenues included a reduction for these school operating losses of $18.7 million and $12. 5 million, respectively, and $50.2 million and $40. 8 million for the nine months ended March 31, 2018 and 2017, respectively. The Company provides certain online curriculum and services to schools and school districts under subscription and perpetual license agreements. Revenues under these agreements are recognized when all of the following conditions are met: there is persuasive evidence of an arrangement; delivery has occurred or services have been rendered; the amount of fees to be paid by the customer is fixed and determinable; and the collectability of the fee is probable. Revenues from the licensing of curriculum under subscription arrangements are recognized on a ratable basis over the subscription period. Revenues from the licensing of curriculum under non-cancelable perpetual arrangements are recognized when all revenue recognition criteria have been met. Revenues from professional consulting, training and support services are deferred and recognized ratably over the service period. Other revenues are generated from individual customers who prepay and have access for one to two years to company-provided online curriculum. The Company recognizes these revenues pro rata over the maximum term of the customer contract. Revenues from associated offline learning kits are recognized upon shipment. During the three and nine months ended March 31, 2018, the Company had one contract that represented approximately 10% of revenues. Consolidation The condensed consolidated financial statements include the accounts of the Company, its wholly-owned and affiliated companies that the Company owns, directly or indirectly, and all controlled subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Inventories Inventories consist primarily of textbooks and curriculum materials, a majority of which are supplied to virtual public schools and blended public schools and utilized directly by students. Inventories represent items that are purchased and held for sale and are recorded at the lower of cost (first-in, first-out method) or net realizable value. The provision for excess and obsolete inventory is established based upon the evaluation of the quantity on hand relative to demand. The excess and obsolete inventory reserve was $3.5 million and $2.3 million at March 31, 2018 and June 30, 2017, respectively. Other Current Assets Other current assets consist primarily of textbooks, curriculum materials and other supplies which are expected to be returned upon the completion of the school year. Materials not returned are expensed as part of instructional costs and services. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is calculated using the straight-line method over the estimated useful life of the asset (or the lesser of the term of the lease and the estimated useful life of the asset under capital lease). Amortization of assets capitalized under capital lease arrangements is included in depreciation expense. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful life of the asset. The Company determines the lease term in accordance with ASC 840, Leases (“ASC 840”) , as the fixed non-cancelable term of the lease plus all periods for which failure to renew the lease imposes a penalty on the lessee in an amount such that renewal appears, at the inception of the lease, to be reasonably assured. Property and equipment are depreciated over the following useful lives: Useful Life Student and state testing computers 3 - 5 years Computer hardware 3 years Computer software 3 - 5 years Web site development 3 years Office equipment 5 years Furniture and fixtures 7 years Leasehold improvements 3 - 12 years The Company makes an estimate of unreturned student computers based on an analysis of recent trends of returns. In addition, during the three months ended March 31, 2017, the Company accelerated depreciation on property and equipment associated with the operating leases that were exited during that period, see Note 10, “Restructuring.” The Company recorded accelerated depreciation of $0.8 million and $1.8 million for the three months ended March 31, 2018 and 2017, respectively, and $1.7 million and $2.8 million for the nine months ended March 31, 2018 and 2017, respectively, related to the leases exited and unreturned student computers. Depreciation expense for property and equipment, including accelerated depreciation, for the three months ended March 31, 2018 and 2017 was $4.8 million and $5.5 million, respectively, and $13.7 million and $14.1 million for the nine months ended March 31, 2018 and 2017, respectively. The Company fully expenses computer peripheral equipment (e.g. keyboards, mouses) upon shipment as recovery has been determined to be uneconomical. These expenses totaled $0.8 million and $0.7 million for the three months ended March 31, 2018 and 2017, respectively, and $3.3 million and $3.4 million for the nine months ended March 31, 2018 and 2017, respectively, and are recorded as instructional costs and services. Capitalized Software Costs The Company develops software for internal use. Software development costs incurred during the application development stage are capitalized in accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”) . The Company amortizes these costs over the estimated useful life of the software, which is generally three years. Capitalized software development costs are stated at cost less accumulated amortization. Capitalized software additions totaled $18.9 million and $19.3 million for the nine months ended March 31, 2018 and 2017, respectively. Amortization expense for the three months ended March 31, 2018 and 2017 were $8.2 million and $8.4 million, respectively, and $26.9 million and $25.2 million for the nine months ended March 31, 2018 and 2017, respectively. During the three months ended September 30, 2017, the Company recorded an out of period adjustment related to the capitalization of software and curriculum development. The adjustment increased capitalized software development costs and capitalized curriculum development costs by $2.3 million and $0.6 million, respectively, and decreased net loss by $1.4 million for the period. The Company assessed the materiality of these errors on its prior quarterly and annual financial statements, assessing materiality both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 99 and SAB No. 108 and concluded that the errors were not material to any of its previously issued financial statements. Capitalized Curriculum Development Costs The Company internally develops curriculum, which is primarily provided as online content and accessed via the Internet. The Company also creates textbooks and other materials that are complementary to online content. The Company capitalizes curriculum development costs incurred during the application development stage in accordance with ASC 350. The Company capitalizes curriculum development costs during the design and deployment phases of the project. As a result, a significant portion of the Company’s courseware development costs qualify for capitalization due to the concentration of its development efforts on the content of the courseware. Capitalization ends when a course is available for general release to its customers, at which time amortization of the capitalized costs begins. The period of time over which these development costs are amortized is generally five years. Total capitalized curriculum development additions were $7.8 million and $12.4 million for the nine months ended March 31, 2018 and 2017, respectively. These amounts are recorded on the accompanying condensed consolidated balance sheets net of amortization charges. Amortization is recorded in instructional costs and services on the accompanying condensed consolidated statements of operations. Amortization expense for the three months ended March 31, 2018 and 2017 was $4.7 million and $5.2 million, respectively, and $14.8 million and $14.8 million for the nine months ended March 31, 2018 and 2017, respectively. As mentioned above, capitalized curriculum development additions included an out of period adjustment of $0.6 million. Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”) . Under ASC 740, deferred tax assets and liabilities are computed based on the difference between the financial reporting and income tax bases of assets and liabilities using the enacted marginal tax rate. ASC 740 requires that the net deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized. Redeemable Noncontrolling Interests Earnings or losses attributable to minority shareholders of a consolidated affiliated company are classified separately as “noncontrolling interest” in the Company’s condensed consolidated statements of operations. Noncontrolling interests in subsidiaries that are redeemable outside of the Company’s control for cash or other assets are classified outside of permanent equity at redeemable value, which approximates fair value. If the redemption amount is other than fair value (e.g. fixed or variable), the redeemable noncontrolling interest is accounted for at the fixed or variable redeemable value. The redeemable noncontrolling interests are adjusted to their redeemable value at each balance sheet date. The resulting increases or decreases in the estimated redemption amount are affected by corresponding charges against retained earnings, or in the absence of retained earnings, additional paid-in capital. Goodwill and Intangible Assets The Company records as goodwill the excess of the purchase price over the fair value of the identifiable net assets acquired. Finite-lived intangible assets acquired in business combinations subject to amortization are recorded at their fair value. Finite-lived intangible assets include trade names, acquired customers and non-compete agreements. Such intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense for the three months ended March 31, 2018 and 2017 was $0.7 million and $0.8 million, respectively, and for the nine months ended March 31, 2018 and 2017 was $2.2 million and $2.2 million, respectively. Future amortization of intangible assets is $0.8 million, $3.0 million, $2.9 million, $2.4 million and $2.2 million in the fiscal years ending June 30, 2018 through June 30, 2022, respectively, and $7.2 million thereafter. At March 31, 2018 and June 30, 2017, the goodwill balance was $90.2 million and $87.2 million, respectively. The Company reviews its recorded finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. During the nine months ended March 31, 2018 and 2017, there were no events or changes in circumstances that would indicate that the carrying amount of the goodwill was impaired. ASC 350 prescribes a two-step process for impairment testing of goodwill and intangible assets with indefinite lives, which is performed annually, as well as when an event triggering impairment may have occurred. ASC 350 also allows preparers to qualitatively assess goodwill impairment through a screening process which would permit companies to forgo Step 1 of their annual goodwill impairment process. This qualitative screening process will hereinafter be referred to as “Step 0”. The Company performs its annual assessment on May 31st. Goodwill and intangible assets deemed to have an indefinite life are tested for impairment on an annual basis, or earlier when events or changes in circumstances suggest the carrying amount may not be fully recoverable. During the year ended June 30, 2017, the Company performed “Step 0” of the impairment test and determined that there were no facts and circumstances that indicated that the fair value of the reporting unit may be less than its carrying amount and as a result, the Company determined that no impairment was required. During the nine months ended March 31, 2018 and 2017, there were no events or changes in circumstances that would indicate that the carrying amount of the goodwill was impaired. The following table represents the balance of the Company’s intangible assets as of March 31, 2018 and June 30, 2017: March 31, 2018 June 30, 2017 ($ in millions) Gross Accumulated Net Gross Accumulated Net Trade names $ 17.6 $ (8.3) $ 9.3 $ 17.6 $ (7.6) $ 10.0 Customer and distributor relationships 20.5 (13.0) 7.5 20.1 (12.0) 8.1 Developed technology 3.2 (2.1) 1.1 2.9 (1.7) 1.2 Other 1.4 (0.6) 0.8 1.4 (0.5) 0.9 Total $ 42.7 $ (24.0) $ 18.7 $ 42.0 $ (21.8) $ 20.2 Impairment of Long-Lived Assets Long-lived assets include property, equipment, capitalized curriculum and software developed or obtained for internal use. In accordance with ASC 360, Property, Plant and Equipment (“ASC 360”) , management reviews the Company’s recorded long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company determines the extent to which an asset may be impaired based upon its expectation of the asset’s future usability as well as on a reasonable assurance that the future cash flows associated with the asset will be in excess of its carrying amount. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. During the three and nine months ended March 31, 2018, there was no such impairment charge. Fair Value Measurements ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1: Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date. Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation. The carrying values reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, receivables, and short and long term debt approximate their fair values. The held for sale asset is discussed in more detail in Note 12, “Investments.” The lease exit liability is discussed in more detail in Note 10, “Restructuring.” The redeemable noncontrolling interest includes the Company’s joint venture with Middlebury College to form Middlebury Interactive Languages (“MIL”). Under the agreement, Middlebury College had an irrevocable election to sell all of its membership interest to the Company (put right). Middlebury College exercised its put right on May 4, 2015 and a transaction to acquire the remaining 40% noncontrolling interest for $9.1 million in cash was consummated on December 27, 2016. T he following table summarizes certain fair value information at March 31, 2018 for assets or liabilities measured at fair value on a nonrecurring basis: Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Lease exit liability $ 3,120 $ — $ — $ 3,120 T he following table summarizes certain fair value information at June 30, 2017 for assets and liabilities measured at fair value on a nonrecurring basis: Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Held for sale asset $ 1,200 $ — $ — $ 1,200 Lease exit liability 4,841 — — 4,841 T he following table summarizes certain fair value information at March 31, 2018 for assets or liabilities measured at fair value on a recurring basis: Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Contingent consideration associated with acquisitions $ 1,342 $ — $ — $ 1,342 T he following table summarizes certain fair value information at June 30, 2017 for assets and liabilities measured at fair value on a recurring basis: Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Contingent consideration associated with acquisitions $ 2,806 $ — $ — $ 2,806 The following tables summarize the activity during the three and nine months ended March 31, 2018 and 2017 for assets and liabilities measured at fair value on a recurring basis: Three Months Ended March 31, 2018 Purchases, Fair Value Issuances, Unrealized Fair Value Description December 31, 2017 and Settlements Gains/(Losses) March 31, 2018 (In thousands) Contingent consideration associated with acquisitions $ 1,340 $ — $ 2 $ 1,342 Total $ 1,340 $ — $ 2 $ 1,342 Three Months Ended March 31, 2017 Purchases, Fair Value Issuances, Unrealized Fair Value Description December 31, 2016 and Settlements Gains (Losses) March 31, 2017 (In thousands) Contingent consideration associated with acquisitions $ 2,963 $ — $ 8 $ 2,971 Total $ 2,963 $ — $ 8 $ 2,971 Nine Months Ended March 31, 2018 Purchases, Fair Value Issuances, Unrealized Fair Value Description June 30, 2017 and Settlements Gains (Losses) March 31, 2018 (In thousands) Contingent consideration associated with acquisitions $ 2,806 $ (1,319) $ (145) $ 1,342 Total $ 2,806 $ (1,319) $ (145) $ 1,342 Nine Months Ended March 31, 2017 Purchases, Fair Value Issuances, Unrealized Fair Value Description June 30, 2016 and Settlements Gains (Losses) March 31, 2017 (In thousands) Redeemable noncontrolling interest in Middlebury Interactive Learning $ 6,801 $ (9,134) $ 2,333 $ — Contingent consideration associated with acquisitions 2,947 — 24 2,971 Total $ 9,748 $ (9,134) $ 2,357 $ 2,971 Net Income (Loss) Per Common Share The Company calculates net income (loss) per share in accordance with ASC 260, Earnings Per Share (“ASC 260”). Under ASC 260, basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. The weighted average number of shares of common stock outstanding includes vested restricted stock awards. Diluted net income (loss) per share (“EPS”) reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock options. The dilutive effect of stock options and restricted stock awards was determined using the treasury stock method. Under the treasury stock method, the proceeds received from the exercise of stock options and restricted stock awards, the amount of compensation cost for future service not yet recognized by the Company and the amount of tax benefits that would be recorded as income tax expense when the stock options become deductible for income tax purposes are all assumed to be used to repurchase shares of the Company’s common stock. Stock options and restricted stock awards are not included in the computation of diluted net income (loss) per share when they are antidilutive. Common stock outstanding reflected in the Company’s condensed consolidated balance sheets includes restricted stock awards outstanding. Securities that may participate in undistributed net income with common stock are considered participating securities. Three Months Ended Nine Months Ended March 31, March 31, 2018 2017 2018 2017 (In thousands except share and per share data) Basic net income per share computation: Net income attributable to common stockholders $ 13,070 $ 9,115 $ 18,273 $ 6,934 Weighted average common shares — basic 39,644,074 38,376,984 39,366,497 38,145,671 Basic net income per share $ 0.33 $ 0.24 $ 0.46 $ 0.18 Diluted net income per share computation: Net income attributable to common stockholders $ 13,070 $ 9,115 $ 18,273 $ 6,934 Share computation: Weighted average common shares — basic 39,644,074 38,376,984 39,366,497 38,145,671 Effect of dilutive stock options and restricted stock awards 1,122,129 951,143 1,404,940 810,410 Weighted average common shares — diluted 40,766,203 39,328,127 40,771,437 38,956,081 Diluted net income per share $ 0.32 $ 0.23 $ 0.45 $ 0.18 For the three months ended March 31, 2018 and 2017 and nine months ended March 31, 2018 and 2017, shares issuable in connection with stock options and restricted stock of 1,422,500, 1,283,168, 1,086,880, and 2,064,498, respectively, were excluded from the diluted income per share calculation because the effect would have been antidilutive. As of March 31, 2018, the Company had 44,664,798 shares issued and 41,162,200 shares outstanding. Reclassification Certain previous year amounts have been reclassified to conform with current year presentations, as related to the statement of cash flows. Recent Accounting Pronouncements Accounting Standards Adopted In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation (Topic 718) (“ASU 2016‑09”) . This update was issued as part of the FASB’s simplification initiative and affects all entities that issue share-based payment awards to their employees. The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies and an accounting policy election for forfeitures. As part of the new guidance: · Excess tax benefits or deficiencies arising from share-based awards will be reflected in the condensed consolidated statements of operations as income tax expense rather than within stockholders’ equity. The adoption of this guidance may result in volatility within a company’s results of operations, primarily due to changes in the stock price. · Excess tax benefits will be presented as an operating activity on the statement of cash flows rather than as a financing activity. · A forfeiture election will be made to either estimate forfeitures (similar to today’s requirement) or recognize actual forfeitures as they occur. Entities will apply the forfeiture election provision using a modified retrospective transition approach, with a cumulative effect adjustment recorded to retained earnings as of the beginning of the period of adoption. · Statutory tax withholding requirements for employers who withhold shares upon settlement of an award on behalf of an employee to cover tax obligations are broadened to allow for a range of withholding from the minimum to the maximum statutory allowable amounts. The Company adopted this guidance during the |
Income Taxes
Income Taxes | 9 Months Ended |
Mar. 31, 2018 | |
Income Taxes | |
Income Taxes | 4. Income Taxes The provision for income taxes is based on earnings reported in the condensed consolidated financial statements. A deferred income tax asset or liability is determined by applying currently enacted tax laws and rates to the expected reversal of the cumulative temporary differences between the carrying value of assets and liabilities for financial statement and income tax purposes. Deferred income tax expense or benefit is measured by the change in the deferred income tax asset or liability during the period. For the three months ended March 31, 2018 and 2017, the Company’s effective income tax rate was 34.7% and 33.7%, respectively, and for the nine months ended March 31, 2018 and 2017, the rate was (11.5)% and 36.4%, respectively. On December 22, 2017, the Tax Cuts and Job Act (the “Tax Act”) was enacted into law, which among other provisions, reduced the U.S. statutory federal income tax rate from 35% to 21%. The Company has estimated and included the provisional amount for the potential impact of the re-measurement of the Company’s net U.S. deferred tax liabilities and the transition tax on the Company’s accumulated unremitted foreign earnings in the Company’s financial statements for the nine months ended March 31, 2018. The analysis of the foreign earnings that is required to be completed for the transition tax is an estimate at this time and an updated transition tax will be reflected in subsequent periods once the final amounts are determined. The provisional amount for the impact of the rate change on the net deferred tax liabilities was based on an estimate which the Company will continue to refine as the year progresses. The effective income tax rate for the nine months ended March 31, 2018 was predominantly impacted by the Tax Act as well as the adoption of ASU 2016-09 related to stock compensation. The Company will continue to analyze the Tax Act to determine the full effects of the new law. |
Long-term Obligations
Long-term Obligations | 9 Months Ended |
Mar. 31, 2018 | |
Long-term Obligations | |
Long-term Obligations | 5. Long-term Obligations Capital Leases The Company incurs capital lease obligations for student computers under a non-revolving lease line of credit with PNC Equipment Finance, LLC. As of March 31, 2018 and June 30, 2017, the outstanding balance of capital leases under the current and former lease lines of credit (as discussed in more detail below) was $27.7 million and $21.9 million, respectively, with lease interest rates ranging from 1.95% to 3.12%. Individual leases under the lease lines of credit include 36-month payment terms with a $1 purchase option at the end of each lease term. The Company has pledged the assets financed to secure the outstanding leases. The gross carrying value of leased student computers as of March 31, 2018 and June 30, 2017 was $42.8 million and $39.1 million, respectively. The accumulated depreciation of leased student computers as of March 31, 2018 and June 30, 2017 was $24.9 million and $25.1 million, respectively. The Company had $24.2 million and $31.9 million of remaining availability under its lease line of credit as of March 31, 2018 and June 30, 2017, respectively. Interest on unpaid principal under the lease line of credit is at a fluctuating rate of LIBOR plus 1.2%. The following is a summary as of March 31, 2018 of the present value of the net minimum lease payments on capital leases under the Company’s commitments: As of June 30, Capital Leases (in thousands) 2018 (remaining three months) $ 3,840 2019 13,440 2020 7,997 2021 3,368 Total minimum payments 28,645 Less amount representing interest (imputed weighted average capital lease interest rate of 2.74%) (935) Net minimum payments 27,710 Less current portion (13,727) Present value of minimum payments, less current portion $ 13,983 |
Line of Credit
Line of Credit | 9 Months Ended |
Mar. 31, 2018 | |
Line of Credit | |
Line of Credit | 6. Line of Credit On January 31, 2014, the Company executed a $100.0 million unsecured line of credit to be used for general corporate operating purposes with Bank of America, N.A. (“BOA”). The line has a five-year term, bears interest at the higher of the Bank’s prime rate plus 0.25%, the Federal Funds Rates plus 0.75%, or LIBOR plus 1.25%; and incorporates customary financial and other covenants, including but not limited to a maximum debt leverage and a minimum fixed charge coverage ratio. As of March 31, 2018 and June 30, 2017, the Company was in compliance with these covenants. During the nine months ended March 31, 2018, there was no borrowing activity on this line of credit, and the Company had no borrowings outstanding on the line of credit as of March 31, 2018. The BOA credit agreement contains a number of financial and other covenants that, among other things, restrict the Company and its subsidiaries’ ability to incur additional indebtedness, grant liens or other security interests, make certain investments, make specified restricted payments including dividends, dispose of assets or stock including the stock of its subsidiaries, make capital expenditures above specified limits and engage in other matters customarily restricted in senior credit facilities. |
Equity Transactions
Equity Transactions | 9 Months Ended |
Mar. 31, 2018 | |
Equity Transactions | |
Equity Transactions | 7. Equity Transactions On December 15, 2016 (the “Effective Date”), the Company’s stockholders approved the 2016 Incentive Award Plan (the “Plan”). The Plan is designed to attract, retain and motivate persons who make important contributions to the Company by providing such individuals with equity ownership opportunities. Awards granted under the Plan may include stock options, stock appreciation rights, restricted stock, restricted stock units, and other stock-based awards. Under the Plan, the following types of shares go back into the pool of shares available for issuance: · unissued shares related to forfeited or cancelled restricted stock and stock options from Plan awards and Prior Plan awards (that were outstanding as of the Effective Date) and; · shares tendered to satisfy the tax withholding obligation related to the vesting of restricted stock (but not stock options). Unlike the Company’s 2007 Equity Incentive Award Plan (the “Prior Plan”), the Plan has no evergreen provision to increase the shares available for issuance; any new shares would require stockholder approval. The Prior Plan was set to expire in October 2017; however, with the approval of the Plan, the Company will no longer award equity from the Prior Plan. As of March 31, 2018, the remaining aggregate number of shares of the Company’s common stock authorized for future issuance under the Plan was 4,420,455. As of March 31, 2018, there were 3,536,981 shares of the Company’s common stock that remain outstanding or nonvested under the Plan and Prior Plan. Stock Options Stock option activity including stand-alone agreements during the nine months ended March 31, 2018 was as follows: Weighted Weighted Average Average Remaining Aggregate Exercise Contractual Intrinsic Shares Price Life (Years) Value Outstanding, June 30, 2017 1,356,528 $ 20.19 4.46 $ 1,481,585 Granted — — Exercised (13,600) 13.53 Forfeited or canceled (109,971) 22.45 Outstanding, March 31, 2018 1,232,957 20.06 3.70 190,004 Stock options exercisable at March 31, 2018 1,091,726 $ 20.75 3.51 $ 120,305 The aggregate intrinsic value of options exercised during the nine months ended March 31, 2018 and 2017 was $0.0 million and $0.2 million, respectively. As of March 31, 2018, there was $0.9 million of total unrecognized compensation expense related to nonvested stock options granted. The cost is expected to be recognized over a weighted average period of 1.2 years. During the three months ended March 31, 2018 and 2017, the Company recognized $0.2 million and $0.5 million, respectively, of stock-based compensation expense related to stock options. During the nine months ended March 31, 2018 and 2017, the expense was $1.0 million and $1.6 million, respectively. Restricted Stock Awards Restricted stock award activity during the nine months ended March 31, 2018 was as follows: Weighted- Average Grant-Date Shares Fair Value Nonvested, June 30, 2017 2,141,047 $ 12.34 Granted 1,011,605 17.34 Vested (1,309,775) 12.22 Canceled (331,263) 14.52 Nonvested, March 31, 2018 1,511,614 $ 15.45 Performance Based Restricted Stock Awards (included above) During the nine months ended March 31, 2018, 398,442 new performance based restricted stock awards were granted and 474,141 remain nonvested at March 31, 2018. During the nine months ended March 31, 2018, 275,135 performance-based restricted stock awards vested. Vesting of the performance-based restricted stock awards is contingent on the achievement of certain financial performance goals and service vesting conditions. Included above are 34,760 performance based restricted stock awards that were granted to Company executives with a weighted average grant date fair value of $17.70 per share. These awards were granted pursuant to the Plan and are subject to the achievement of a target free cash flow metric in fiscal year 2018 and will be adjusted upwards or downwards based on the Company’s relative total shareholder return for fiscal year 2018 ranked against other companies in the Russell 2000 Index. If the performance goals are achieved, 20% of the shares granted vest immediately, and the remaining 80% vest ratably in semi-annual intervals until the three year anniversary from grant date. Equity Incentive Market Based Restricted Stock Awards (included above) During fiscal year 2017, the Company granted equity incentive market based restricted stock awards which were subject to the attainment of an average stock price of $14.35 for 30 consecutive days after the date of the Company’s earnings release for the fourth quarter and fiscal year ended June 30, 2017. During the nine months ended March 31, 2018, 18,400 of these equity incentive market based awards vested. Additionally, during fiscal year 2017, the Company granted equity incentive market based awards which were subject to the attainment of average prices of $13, $16 and $19 per share. These targets were achieved during fiscal year 2017. During the nine months ended March 31, 2018, 257,075 of these equity incentive market based awards vested. As of March 31, 2018, 25,200 equity incentive market based restricted stock awards remain nonvested. Service-Based Restricted Stock Awards (included above) During the nine months ended March 31, 2018, 613,163 new service-based restricted stock awards were granted and 1,012,273 remain nonvested at March 31, 2018. During the nine months ended March 31, 2018, 759,165 service-based restricted stock awards vested. Summary of All Restricted Stock Awards As of March 31, 2018, there was $16.8 million of total unrecognized compensation expense related to nonvested restricted stock awards. The cost is expected to be recognized over a weighted average period of 1.6 years. The fair value of restricted stock awards granted for the nine months ended March 31, 2018 and 2017 was $17.5 million and $14.6 million, respectively. The total fair value of shares vested for the nine months ended March 31, 2018 and 2017 was $21.7 million and $13.5 million, respectively. During the three months ended March 31, 2018 and 2017, the Company recognized $3.9 million and $4.8 million, respectively, of stock-based compensation expense related to restricted stock awards. During the nine months ended March 31, 2018 and 2017, the expense was $11.7 million and $13.0 million, respectively. Included in the stock-based compensation expense related to restricted stock awards for the three and nine months ended March 31, 2018 was $1.4 million and $1.7 million, respectively, associated with the accelerated vesting of equity awards pursuant to the exit of the former CEO, see Note 11, “Severance.” The expense related to the acceleration of equity awards for the three and nine months ended March 31, 2017 was $0.8 million and $0.8 million, respectively. Performance Share Units (“PSU”) The PSUs vest upon achievement of certain performance criteria associated with a Board-approved Long Term Incentive Plan (“LTIP”) and continuation of employee service over a two to three year period. The level of performance will determine the number of PSUs earned as measured against threshold, target and stretch achievement levels of the LTIP. Each PSU represents the right to receive one share of the Company’s common stock, or at the option of the Company, an equivalent amount of cash, and is classified as an equity award in accordance with ASC 718. In addition to the LTIP performance conditions, there is a service vesting condition which stipulates that thirty percent of the earned award (“Tranche #1”) will vest quarterly beginning November 15, 2017 and seventy percent of the earned award (“Tranche #2”) will vest on August 15, 2018, in both cases dependent upon continuing service by the grantee as an employee of the Company, unless the grantee is eligible for earlier vesting upon a change in control and qualifying termination, as defined by the PSU agreement. For equity performance awards, including the PSUs, subject to graduated vesting schedules for which vesting is based on achievement of a performance metric in addition to grantee service, stock-based compensation expense is recognized on an accelerated basis by treating each vesting tranche as if it was a separate grant. For the year ended June 30, 2017, the Company determined the achievement of the performance condition was probable on Tranche #1. Achievement was believed to be probable at the highest level which equals 150% of the target award. Therefore, during the fourth quarter of fiscal 2017, the Company recorded $3.8 million of expense for the period of grant date (September 2015) through June 2017. On August 2, 2017, the Compensation Committee of the Company’s Board of Directors certified that as of August 1, 2017, 97% of the MPS schools were not in academic jeopardy, as determined by the independent members of the Academic Committee of the Board of Directors on that date, and that the Academic Metric for Tranche #1 of the LTIP was achieved at the Outperform level. This resulted in 446,221 PSUs (including 138,241 additional PSUs due to the Outperform level) earned by the participants, consisting of 90,000 PSUs for Mr. Davis and 70,021 PSUs for Mr. Udell. During the three months ended December 31, 2017, the Company determined the achievement of the performance conditions was probable on a portion of Tranche #2. Tranche #2 is comprised of two performance measures, an academic measure (similar to Tranche #1) and a lifetime value measure. The Company believes that achievement is probable only as it relates to the academic measure and is currently expected to meet the threshold level. Therefore, during the second quarter of fiscal year 2018, the Company recorded $2.5 million of expense for the period of grant date (September 2015) through December 2017. For the nine months ended March 31, 2018, the Company determined the achievement of the performance conditions associated with the lifetime value measure of Tranche #2 was not probable and therefore no expense was recorded. As of March 31, 2018, there was $3.5 million of total unrecognized compensation expense related to the lifetime value measure of Tranche #2 assuming achievement at the target level. Additionally, if actual performance exceeds the target criteria for all of Tranche #2, then additional expense of $5.6 million of expense would be incurred. As of March 31, 2018, there was $0.7 million of total unrecognized compensation expense related to nonvested PSUs for Tranches #1 and #2. During the three months ended March 31, 2018 and 2017, the Company recognized $0.6 million and zero, respectively, of stock-based compensation expense related to PSUs. During the nine months ended March 31, 2018 and 2017, the expense was $4.1 million and zero, respectively. Performance share unit activity during the nine months ended March 31, 2018 was as follows: Weighted- Average Grant-Date Shares Fair Value Nonvested, June 30, 2017 1,043,602 $ 13.16 Granted 138,241 18.07 Vested (242,383) 12.35 Canceled (147,050) 14.02 Nonvested, March 31, 2018 792,410 $ 13.52 |
Related Party Transactions
Related Party Transactions | 9 Months Ended |
Mar. 31, 2018 | |
Related Party Transactions | |
Related Party Transactions | 8. Related Party Transactions On September 11, 2013, the Company issued a mortgage note (“Mortgage”) lending $2.1 million to a managed school partner (“Partner”). The note bore interest at a fixed rate of 5.25% per year with a five year maturity date and it was secured by the underlying property. During fiscal year 2016, the borrower defaulted on the loan payment, and in March 2017 the Company received the deed of ownership to the property. See Note 12, “Investments – Investment in School Mortgage.” |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Mar. 31, 2018 | |
Commitments and Contingencies | |
Commitments and Contingencies | 9. Commitments and Contingencies Litigation In the ordinary conduct of the Company’s business, the Company is subject to lawsuits, arbitrations and administrative proceedings from time to time. The Company believes that the outcome of any existing or known threatened proceedings, even if determined adversely, should not have a material adverse effect on the Company’s business, financial condition, liquidity or results of operations. On July 20, 2016, a securities class action lawsuit captioned Babulal Tarapara v. K12 Inc. et al was filed against the Company, two of its officers and one of its former officers in the United States District Court for the Northern District of California, Case No. 3:16-cv-04069 (“Tarapara Case”). The plaintiff purports to represent a class of persons who purchased or otherwise acquired the Company’s common stock between November 7, 2013 and October 27, 2015, inclusive, and alleges violations by the Company and the individual defendants of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated under the Exchange Act, and violations by the individual defendants of Section 20(a) of the Exchange Act. The complaint sought unspecified monetary damages and other relief. Additionally, on September 15, 2016, a second securities class action lawsuit captioned Gil Tuinenburg v. K12 Inc. et al was filed against the Company, two of its officers and one of its former officers in the United States District Court for the Northern District of California, Case No. 3:16-cv-05305 (“Tuinenburg Case”). On October 6, 2016, the Court consolidated the Tarapara Case and the Tuinenburg Case, appointed Babul Tarapara and Mark Beadle as lead plaintiffs, and recaptioned the matter as In Re K12 Inc. Securities Litigation , Master File No. 4:16-cv-04069-PJH. On December 2, 2016, the lead plaintiffs filed an amended complaint against the Company. The amended complaint named an additional former officer as a defendant and specified a class period start date of October 10, 2013. The amended complaint alleges materially false or misleading statements and omissions regarding the decision of the Agora Cyber Charter School not to renew its managed public school agreement with the Company, student academic and Scantron results, and other statements regarding student academic performance and K12’s academic services and offerings. On January 30, 2017, the Company filed its motion to dismiss the amended complaint. On August 30, 2017, as a result of a hearing on April 19, 2017, the Court granted with prejudice the Company’s motion to dismiss the allegations of false statements regarding Scantron scores, but denied the motion on the allegations pertaining to non-disclosure of Agora’s 2012 notice of non-renewal and other statements regarding the Company’s replacement contract with Agora, and permitted the plaintiffs to amend their complaint with respect to certain statements on the quality and effectiveness of the Company’s programs. The plaintiffs were given until October 2, 2017 to amend. On October 2, 2017, the plaintiffs filed a second amended complaint and elected not to pursue their claims regarding the statements pertaining to the quality and effectiveness of the Company’s academic programs, and further dismissed two of the Company’s former officers as defendants in the case. The Court accepted these stipulations on October 4, 2017. On November 16, 2017, the Company filed its answer denying the allegations and asserting its affirmative defenses. Discovery with respect to this matter is proceeding. The Company intends to continue to defend vigorously against each and every allegation and claim set forth in the second amended complaint. Employment Agreements The Company has entered into employment agreements with certain executive officers that provide for severance payments and, in some cases other benefits, upon certain terminations of employment. Except for the agreement with the Company’s Chairman and Chief Executive Officer with an amended extended term to September 30, 2019, all other agreements provide for employment on an “at-will” basis. If the employee resigns for “good reason” or is terminated without cause, the employee is entitled to salary continuation, and in some cases benefit continuation, for varying periods depending on the agreement. Off-Balance Sheet Arrangements As of March 31, 2018, the Company provided guarantees of approximately $2.2 million related to lease commitments on the buildings for certain of the Company’s schools. In addition, the Company contractually guarantees that certain schools under the Company’s management will not have annual operating deficits and the Company’s management fees from these schools may be reduced accordingly to cover any school operating deficits. Other than these lease and operating deficit guarantees, the Company did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. |
Restructuring
Restructuring | 9 Months Ended |
Mar. 31, 2018 | |
Restructuring | |
Restructuring | 10. Restructuring In the third quarter of fiscal year 2017, the Company exited three facilities that were no longer being utilized, which were subject to operating leases. The present value of the remaining lease payments was calculated using a credit adjusted risk-free rate and estimated sublease rentals for each lease. In aggregate, the Company recorded an impairment of $5.4 million for the three leases. The current portion of the liability of $1.7 million was included in accrued liabilities and the long-term portion of $3.7 million was included in other long-term liabilities on the condensed consolidated balance sheet. In addition to the lease impairment, the Company accelerated the useful life of each lease’s property and equipment to the cease-use date and recorded accelerated depreciation of $1.4 million. The Company also wrote off the deferred rent and the liability for tenant improvements associated with each lease which resulted in income of $1.9 million. The $4.9 million net impact of these actions was recorded in s elling, administrative, and other operating expenses in the condensed consolidated statements of operations. The following table summarizes the activity during the nine months ended March 31, 2018: Balance at Payments, net of Accretion Balance at Description Initial Value June 30, 2017 sublease income Expense Adjustments March 31, 2018 (In thousands) Lease #1 $ 1,652 $ 1,421 $ (295) $ 27 $ — $ 1,153 Lease #2 1,311 1,138 (545) 14 47 654 Lease #3 2,443 2,282 (545) 44 (468) 1,313 Total $ 5,406 $ 4,841 $ (1,385) $ 85 $ (421) $ 3,120 |
Severance
Severance | 9 Months Ended |
Mar. 31, 2018 | |
Severance | |
Severance | 11. Severance During the three months ended March 31, 2018, the Company provided severance to its former CEO pursuant to his employment agreement in the form of compensation and an acceleration of certain equity awards. During the three and nine months ended March 31, 2018, the Company recorded severance of $3.5 million and $4.5 million, respectively. During the three and nine months ended March 31, 2017, the Company recorded severance of $2.3 million and $3.3 million. |
Investments
Investments | 9 Months Ended |
Mar. 31, 2018 | |
Investments | |
Investments | 12. Investments Investment in Web International Education Group, Ltd. (“Web”) In January 2011, the Company invested $10.0 million to obtain a 20% minority interest in Web International Education Group, Ltd. (“Web”), a provider of English language learning centers in cities throughout China. On May 6, 2013, the Company exercised its right to put its investment back to Web for return of its original $10.0 million investment. The Company reclassified this $10.0 million investment, recording it in other current assets. During the fourth quarter of fiscal 2017, the Company recorded an impairment of $10.0 million in the condensed consolidated statement of operations. The Company continues to work with Web, and to the extent it collects in a subsequent period, the Company will record the amount collected in other income in the period received. Investment in School Mortgage On September 11, 2013, the Company issued a mortgage note (“Mortgage”) lending $2.1 million to a managed school partner (“Partner”). The note bore interest at a fixed rate of 5.25% per year with a five year maturity and it was secured by the underlying property. During fiscal year 2016, the borrower defaulted on the loan payment, and in March 2017 the Company received the deed of ownership to the property. In the third quarter of fiscal year 2017, the Company decided to dispose of the property and classified it as an asset held for sale, and included it in other current assets on the condensed consolidated balance sheet. The Company reduced the property’s estimated carrying value to $1.2 million, resulting in an impairment loss of $0.6 million, which was included in selling, administrative and other operating expenses on the condensed consolidated statements of operations. As of March 31, 2018, the property had been classified as a held for sale asset for greater than one year. As such, the Company reclassified the property as a held and used asset, subject to depreciation, and is included in property and equipment, net on the condensed consolidated balance sheet. |
Supplemental Disclosure of Cash
Supplemental Disclosure of Cash Flow Information | 9 Months Ended |
Mar. 31, 2018 | |
Supplemental Disclosure of Cash Flow Information | |
Supplemental Disclosure of Cash Flow Information | 13. Supplemental Disclosure of Cash Flow Information Nine Months Ended March 31, 2018 2017 (In thousands) Cash paid for interest $ 546 $ 575 Cash paid for taxes $ 11,211 $ 4,741 Supplemental disclosure of non-cash financing activities: Property and equipment financed by capital lease obligations, including student peripherals $ 16,119 $ 13,969 Supplemental disclosure of non-cash investing activities: Stock-based compensation expense capitalized on software development $ 1,053 $ — Stock-based compensation expense capitalized on curriculum development $ 835 $ — Business combinations: Current assets $ 209 $ — Intangible assets 695 — Goodwill 2,983 — Assumed liabilities (234) — Deferred revenue (361) — Contingent consideration (500) — |
Summary of Significant Accoun22
Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Mar. 31, 2018 | |
Summary of Significant Accounting Policies | |
Revenue Recognition and Concentration of Revenues | Revenue Recognition and Concentration of Revenues Revenues are principally earned from long-term contractual agreements to provide online curriculum, books, materials, computers and management services to virtual and blended schools, traditional public schools, school districts, and private schools. In addition to providing the curriculum, books, and materials, under most contracts, the Company provides management services and technology to virtual and blended public schools, including monitoring academic achievement, teacher recommendations and hiring, teacher training, compensation of school personnel, financial management, enrollment processing, and development and procurement of curriculum, equipment, and required services. The schools receive funding on a per student basis from the state in which the public school or school district is located. Shipments of materials for schools that occur in the fourth fiscal quarter and for the upcoming school year are recorded in deferred revenue. Where the Company has determined that it is the primary obligor for substantially all expenses under these contracts, the Company records the associated per student revenues received by the school from its state funding school district or from other sources up to the expenses incurred in accordance with Accounting Standards Codification (“ASC”) 605, Revenue Recognition (“ASC 605”). As a result of being the primary obligor, amounts recorded as revenues and school operating expenses for the three months ended March 31, 2018 and 2017 were $81.4 million and $75.1 million, respectively, and for the nine months ended March 31, 2018 and 2017 were $221.0 million and $212.5 million, respectively. For contracts where the Company is not the primary obligor, the Company records revenues based on its net fees earned under the contractual agreement. The Company generates revenues under turnkey management contracts with virtual and blended public schools which include multiple elements. These elements typically include: · providing each of a school’s students with access to the Company’s online school and lessons; · offline learning kits, which include books and materials to supplement the online lessons, where required; · the use of a personal computer and associated reclamation services, where required; · internet access and technology support services; · instruction by a state-certified teacher, where required; and · management and technology services necessary to operate a virtual public or blended school. In certain managed school contracts, revenues are determined directly by per enrollment funding. The Company has determined that the elements of its contracts are valuable to schools in combination, but do not have standalone value. As a result, the elements within the Company’s multiple-element contracts do not qualify as separate units of accounting. Accordingly, the Company accounts for revenues under multiple element arrangements as a single unit of accounting and recognizes the entire arrangement based upon the approximate rate at which it incurs the costs associated with each element. Revenues from certain managed schools are recognized ratably over the period services are performed. To determine the pro rata amount of revenues to recognize in a fiscal quarter, the Company estimates the total funds each school will receive in a particular school year. Total funds for a school are primarily a function of the number of students enrolled in the school and established per enrollment funding levels, which are generally published on an annual basis by the state or school district. The Company reviews its estimates of funding periodically, and revises as necessary, amortizing any adjustments to earned revenues over the remaining portion of the fiscal year. Actual school funding may vary from these estimates and the impact of these differences could impact the Company’s results of operations. Since the end of the school year coincides with the end of the Company’s fiscal year, annual revenues are generally based on actual school funding and actual costs incurred (including costs for the Company’s services to the schools plus other costs the schools may incur) in the calculation of school operating losses. The Company’s schools’ reported results are subject to annual school district financial audits, which incorporate enrollment counts, funding and other routine financial audit considerations. The results of these audits are incorporated into the Company’s monthly funding estimates for the three and nine months ended March 31, 2018 and 2017. Under the contracts where the Company provides turnkey management services to schools, the Company has generally agreed to absorb any operating losses of the schools in a given school year. These school operating losses represent the excess of costs incurred over revenues earned by the virtual or blended public school as reflected on its respective financial statements, including Company charges to the schools. To the extent a school does not receive funding for each student enrolled in the school, the school would still incur costs associated with serving the unfunded enrollment. If losses due to unfunded enrollments result in a net operating loss for the year that loss is reflected as a reduction in the revenues and net receivables that the Company collects from the school. A school net operating loss in one year does not necessarily mean the Company anticipates losing money on the entire contract with the school. However, a school operating loss may reduce the Company’s ability to collect its management fees in full and recognized revenues are reduced accordingly to reflect the expected cash collections from such schools. The Company amortizes the estimated school operating loss against revenues based upon the percentage of actual revenues in the period to total estimated revenues for the fiscal year. For turnkey service contract revenues, a school operating loss may reduce the Company’s ability to collect its management fees in full, though as noted it does not necessarily mean that the Company incurs a loss during the period with respect to its services to that school. The Company recognizes revenues, net of its estimated portion of school operating losses, to reflect the expected cash collections from such schools. Revenues are recognized based on the Company’s performance of services under the contract, which it believes is proportionate to its incurrence of costs. The Company incurs costs directly related to the delivery of services. Most of these costs are recognized throughout the year; however, certain costs related to upfront delivery of printed materials, workbooks, laboratory materials and other items are provided at the beginning of the school year and are recognized as expenses when shipped. Each state or school district has variations in the school funding formulas and methodologies that it uses to estimate funding for revenue recognition at its respective schools. As the Company builds the funding estimates for each school, it is mindful of the state definition for count dates on which reported enrollment numbers will be used for per pupil funding. The parameters the Company considers in estimating funding for revenue recognition purposes include school district count definitions, withdrawal rates, average daily attendance, special needs enrollment, student demographics, academic progress and historical completion, student location, funding caps and other state specified categorical program funding. Management periodically reviews its estimates of full-year school revenues and operating expenses, and amortizes the net impact of any changes to these estimates over the remainder of the fiscal year. Actual school operating losses may vary from these estimates or revisions, and the impact of these differences could have a material impact on results of operations. Since the end of the school year coincides with the end of the Company’s fiscal year, annual revenues are generally based on actual school funding and actual costs incurred (including costs for the Company’s services to the schools plus other costs the schools may incur) in the calculation of school operating losses. For the three months ended March 31, 2018 and 2017, the Company’s revenues included a reduction for these school operating losses of $18.7 million and $12. 5 million, respectively, and $50.2 million and $40. 8 million for the nine months ended March 31, 2018 and 2017, respectively. The Company provides certain online curriculum and services to schools and school districts under subscription and perpetual license agreements. Revenues under these agreements are recognized when all of the following conditions are met: there is persuasive evidence of an arrangement; delivery has occurred or services have been rendered; the amount of fees to be paid by the customer is fixed and determinable; and the collectability of the fee is probable. Revenues from the licensing of curriculum under subscription arrangements are recognized on a ratable basis over the subscription period. Revenues from the licensing of curriculum under non-cancelable perpetual arrangements are recognized when all revenue recognition criteria have been met. Revenues from professional consulting, training and support services are deferred and recognized ratably over the service period. Other revenues are generated from individual customers who prepay and have access for one to two years to company-provided online curriculum. The Company recognizes these revenues pro rata over the maximum term of the customer contract. Revenues from associated offline learning kits are recognized upon shipment. During the three and nine months ended March 31, 2018, the Company had one contract that represented approximately 10% of revenues. |
Consolidation | Consolidation The condensed consolidated financial statements include the accounts of the Company, its wholly-owned and affiliated companies that the Company owns, directly or indirectly, and all controlled subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. |
Inventories | Inventories Inventories consist primarily of textbooks and curriculum materials, a majority of which are supplied to virtual public schools and blended public schools and utilized directly by students. Inventories represent items that are purchased and held for sale and are recorded at the lower of cost (first-in, first-out method) or net realizable value. The provision for excess and obsolete inventory is established based upon the evaluation of the quantity on hand relative to demand. The excess and obsolete inventory reserve was $3.5 million and $2.3 million at March 31, 2018 and June 30, 2017, respectively. |
Other Current Assets | Other Current Assets Other current assets consist primarily of textbooks, curriculum materials and other supplies which are expected to be returned upon the completion of the school year. Materials not returned are expensed as part of instructional costs and services. |
Property and Equipment | Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is calculated using the straight-line method over the estimated useful life of the asset (or the lesser of the term of the lease and the estimated useful life of the asset under capital lease). Amortization of assets capitalized under capital lease arrangements is included in depreciation expense. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful life of the asset. The Company determines the lease term in accordance with ASC 840, Leases (“ASC 840”) , as the fixed non-cancelable term of the lease plus all periods for which failure to renew the lease imposes a penalty on the lessee in an amount such that renewal appears, at the inception of the lease, to be reasonably assured. Property and equipment are depreciated over the following useful lives: Useful Life Student and state testing computers 3 - 5 years Computer hardware 3 years Computer software 3 - 5 years Web site development 3 years Office equipment 5 years Furniture and fixtures 7 years Leasehold improvements 3 - 12 years The Company makes an estimate of unreturned student computers based on an analysis of recent trends of returns. In addition, during the three months ended March 31, 2017, the Company accelerated depreciation on property and equipment associated with the operating leases that were exited during that period, see Note 10, “Restructuring.” The Company recorded accelerated depreciation of $0.8 million and $1.8 million for the three months ended March 31, 2018 and 2017, respectively, and $1.7 million and $2.8 million for the nine months ended March 31, 2018 and 2017, respectively, related to the leases exited and unreturned student computers. Depreciation expense for property and equipment, including accelerated depreciation, for the three months ended March 31, 2018 and 2017 was $4.8 million and $5.5 million, respectively, and $13.7 million and $14.1 million for the nine months ended March 31, 2018 and 2017, respectively. The Company fully expenses computer peripheral equipment (e.g. keyboards, mouses) upon shipment as recovery has been determined to be uneconomical. These expenses totaled $0.8 million and $0.7 million for the three months ended March 31, 2018 and 2017, respectively, and $3.3 million and $3.4 million for the nine months ended March 31, 2018 and 2017, respectively, and are recorded as instructional costs and services. |
Capitalized Software Costs | Capitalized Software Costs The Company develops software for internal use. Software development costs incurred during the application development stage are capitalized in accordance with ASC 350, Intangibles – Goodwill and Other (“ASC 350”) . The Company amortizes these costs over the estimated useful life of the software, which is generally three years. Capitalized software development costs are stated at cost less accumulated amortization. Capitalized software additions totaled $18.9 million and $19.3 million for the nine months ended March 31, 2018 and 2017, respectively. Amortization expense for the three months ended March 31, 2018 and 2017 were $8.2 million and $8.4 million, respectively, and $26.9 million and $25.2 million for the nine months ended March 31, 2018 and 2017, respectively. During the three months ended September 30, 2017, the Company recorded an out of period adjustment related to the capitalization of software and curriculum development. The adjustment increased capitalized software development costs and capitalized curriculum development costs by $2.3 million and $0.6 million, respectively, and decreased net loss by $1.4 million for the period. The Company assessed the materiality of these errors on its prior quarterly and annual financial statements, assessing materiality both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 99 and SAB No. 108 and concluded that the errors were not material to any of its previously issued financial statements. |
Capitalized Curriculum Development Costs | Capitalized Curriculum Development Costs The Company internally develops curriculum, which is primarily provided as online content and accessed via the Internet. The Company also creates textbooks and other materials that are complementary to online content. The Company capitalizes curriculum development costs incurred during the application development stage in accordance with ASC 350. The Company capitalizes curriculum development costs during the design and deployment phases of the project. As a result, a significant portion of the Company’s courseware development costs qualify for capitalization due to the concentration of its development efforts on the content of the courseware. Capitalization ends when a course is available for general release to its customers, at which time amortization of the capitalized costs begins. The period of time over which these development costs are amortized is generally five years. Total capitalized curriculum development additions were $7.8 million and $12.4 million for the nine months ended March 31, 2018 and 2017, respectively. These amounts are recorded on the accompanying condensed consolidated balance sheets net of amortization charges. Amortization is recorded in instructional costs and services on the accompanying condensed consolidated statements of operations. Amortization expense for the three months ended March 31, 2018 and 2017 was $4.7 million and $5.2 million, respectively, and $14.8 million and $14.8 million for the nine months ended March 31, 2018 and 2017, respectively. As mentioned above, capitalized curriculum development additions included an out of period adjustment of $0.6 million. |
Income Taxes | Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”) . Under ASC 740, deferred tax assets and liabilities are computed based on the difference between the financial reporting and income tax bases of assets and liabilities using the enacted marginal tax rate. ASC 740 requires that the net deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized. |
Redeemable Noncontrolling Interests | Redeemable Noncontrolling Interests Earnings or losses attributable to minority shareholders of a consolidated affiliated company are classified separately as “noncontrolling interest” in the Company’s condensed consolidated statements of operations. Noncontrolling interests in subsidiaries that are redeemable outside of the Company’s control for cash or other assets are classified outside of permanent equity at redeemable value, which approximates fair value. If the redemption amount is other than fair value (e.g. fixed or variable), the redeemable noncontrolling interest is accounted for at the fixed or variable redeemable value. The redeemable noncontrolling interests are adjusted to their redeemable value at each balance sheet date. The resulting increases or decreases in the estimated redemption amount are affected by corresponding charges against retained earnings, or in the absence of retained earnings, additional paid-in capital. |
Goodwill and Intangible Assets | Goodwill and Intangible Assets The Company records as goodwill the excess of the purchase price over the fair value of the identifiable net assets acquired. Finite-lived intangible assets acquired in business combinations subject to amortization are recorded at their fair value. Finite-lived intangible assets include trade names, acquired customers and non-compete agreements. Such intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense for the three months ended March 31, 2018 and 2017 was $0.7 million and $0.8 million, respectively, and for the nine months ended March 31, 2018 and 2017 was $2.2 million and $2.2 million, respectively. Future amortization of intangible assets is $0.8 million, $3.0 million, $2.9 million, $2.4 million and $2.2 million in the fiscal years ending June 30, 2018 through June 30, 2022, respectively, and $7.2 million thereafter. At March 31, 2018 and June 30, 2017, the goodwill balance was $90.2 million and $87.2 million, respectively. The Company reviews its recorded finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. During the nine months ended March 31, 2018 and 2017, there were no events or changes in circumstances that would indicate that the carrying amount of the goodwill was impaired. ASC 350 prescribes a two-step process for impairment testing of goodwill and intangible assets with indefinite lives, which is performed annually, as well as when an event triggering impairment may have occurred. ASC 350 also allows preparers to qualitatively assess goodwill impairment through a screening process which would permit companies to forgo Step 1 of their annual goodwill impairment process. This qualitative screening process will hereinafter be referred to as “Step 0”. The Company performs its annual assessment on May 31st. Goodwill and intangible assets deemed to have an indefinite life are tested for impairment on an annual basis, or earlier when events or changes in circumstances suggest the carrying amount may not be fully recoverable. During the year ended June 30, 2017, the Company performed “Step 0” of the impairment test and determined that there were no facts and circumstances that indicated that the fair value of the reporting unit may be less than its carrying amount and as a result, the Company determined that no impairment was required. During the nine months ended March 31, 2018 and 2017, there were no events or changes in circumstances that would indicate that the carrying amount of the goodwill was impaired. The following table represents the balance of the Company’s intangible assets as of March 31, 2018 and June 30, 2017: March 31, 2018 June 30, 2017 ($ in millions) Gross Accumulated Net Gross Accumulated Net Trade names $ 17.6 $ (8.3) $ 9.3 $ 17.6 $ (7.6) $ 10.0 Customer and distributor relationships 20.5 (13.0) 7.5 20.1 (12.0) 8.1 Developed technology 3.2 (2.1) 1.1 2.9 (1.7) 1.2 Other 1.4 (0.6) 0.8 1.4 (0.5) 0.9 Total $ 42.7 $ (24.0) $ 18.7 $ 42.0 $ (21.8) $ 20.2 |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets Long-lived assets include property, equipment, capitalized curriculum and software developed or obtained for internal use. In accordance with ASC 360, Property, Plant and Equipment (“ASC 360”) , management reviews the Company’s recorded long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company determines the extent to which an asset may be impaired based upon its expectation of the asset’s future usability as well as on a reasonable assurance that the future cash flows associated with the asset will be in excess of its carrying amount. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. During the three and nine months ended March 31, 2018, there was no such impairment charge. |
Fair Value Measurements | Fair Value Measurements ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value: Level 1: Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date. Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation. The carrying values reflected in the accompanying condensed consolidated balance sheets for cash and cash equivalents, receivables, and short and long term debt approximate their fair values. The held for sale asset is discussed in more detail in Note 12, “Investments.” The lease exit liability is discussed in more detail in Note 10, “Restructuring.” The redeemable noncontrolling interest includes the Company’s joint venture with Middlebury College to form Middlebury Interactive Languages (“MIL”). Under the agreement, Middlebury College had an irrevocable election to sell all of its membership interest to the Company (put right). Middlebury College exercised its put right on May 4, 2015 and a transaction to acquire the remaining 40% noncontrolling interest for $9.1 million in cash was consummated on December 27, 2016. T he following table summarizes certain fair value information at March 31, 2018 for assets or liabilities measured at fair value on a nonrecurring basis: Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Lease exit liability $ 3,120 $ — $ — $ 3,120 T he following table summarizes certain fair value information at June 30, 2017 for assets and liabilities measured at fair value on a nonrecurring basis: Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Held for sale asset $ 1,200 $ — $ — $ 1,200 Lease exit liability 4,841 — — 4,841 T he following table summarizes certain fair value information at March 31, 2018 for assets or liabilities measured at fair value on a recurring basis: Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Contingent consideration associated with acquisitions $ 1,342 $ — $ — $ 1,342 T he following table summarizes certain fair value information at June 30, 2017 for assets and liabilities measured at fair value on a recurring basis: Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Contingent consideration associated with acquisitions $ 2,806 $ — $ — $ 2,806 The following tables summarize the activity during the three and nine months ended March 31, 2018 and 2017 for assets and liabilities measured at fair value on a recurring basis: Three Months Ended March 31, 2018 Purchases, Fair Value Issuances, Unrealized Fair Value Description December 31, 2017 and Settlements Gains/(Losses) March 31, 2018 (In thousands) Contingent consideration associated with acquisitions $ 1,340 $ — $ 2 $ 1,342 Total $ 1,340 $ — $ 2 $ 1,342 Three Months Ended March 31, 2017 Purchases, Fair Value Issuances, Unrealized Fair Value Description December 31, 2016 and Settlements Gains (Losses) March 31, 2017 (In thousands) Contingent consideration associated with acquisitions $ 2,963 $ — $ 8 $ 2,971 Total $ 2,963 $ — $ 8 $ 2,971 Nine Months Ended March 31, 2018 Purchases, Fair Value Issuances, Unrealized Fair Value Description June 30, 2017 and Settlements Gains (Losses) March 31, 2018 (In thousands) Contingent consideration associated with acquisitions $ 2,806 $ (1,319) $ (145) $ 1,342 Total $ 2,806 $ (1,319) $ (145) $ 1,342 Nine Months Ended March 31, 2017 Purchases, Fair Value Issuances, Unrealized Fair Value Description June 30, 2016 and Settlements Gains (Losses) March 31, 2017 (In thousands) Redeemable noncontrolling interest in Middlebury Interactive Learning $ 6,801 $ (9,134) $ 2,333 $ — Contingent consideration associated with acquisitions 2,947 — 24 2,971 Total $ 9,748 $ (9,134) $ 2,357 $ 2,971 |
Net Income (Loss) Per Common Share | Net Income (Loss) Per Common Share The Company calculates net income (loss) per share in accordance with ASC 260, Earnings Per Share (“ASC 260”). Under ASC 260, basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. The weighted average number of shares of common stock outstanding includes vested restricted stock awards. Diluted net income (loss) per share (“EPS”) reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock options. The dilutive effect of stock options and restricted stock awards was determined using the treasury stock method. Under the treasury stock method, the proceeds received from the exercise of stock options and restricted stock awards, the amount of compensation cost for future service not yet recognized by the Company and the amount of tax benefits that would be recorded as income tax expense when the stock options become deductible for income tax purposes are all assumed to be used to repurchase shares of the Company’s common stock. Stock options and restricted stock awards are not included in the computation of diluted net income (loss) per share when they are antidilutive. Common stock outstanding reflected in the Company’s condensed consolidated balance sheets includes restricted stock awards outstanding. Securities that may participate in undistributed net income with common stock are considered participating securities. Three Months Ended Nine Months Ended March 31, March 31, 2018 2017 2018 2017 (In thousands except share and per share data) Basic net income per share computation: Net income attributable to common stockholders $ 13,070 $ 9,115 $ 18,273 $ 6,934 Weighted average common shares — basic 39,644,074 38,376,984 39,366,497 38,145,671 Basic net income per share $ 0.33 $ 0.24 $ 0.46 $ 0.18 Diluted net income per share computation: Net income attributable to common stockholders $ 13,070 $ 9,115 $ 18,273 $ 6,934 Share computation: Weighted average common shares — basic 39,644,074 38,376,984 39,366,497 38,145,671 Effect of dilutive stock options and restricted stock awards 1,122,129 951,143 1,404,940 810,410 Weighted average common shares — diluted 40,766,203 39,328,127 40,771,437 38,956,081 Diluted net income per share $ 0.32 $ 0.23 $ 0.45 $ 0.18 For the three months ended March 31, 2018 and 2017 and nine months ended March 31, 2018 and 2017, shares issuable in connection with stock options and restricted stock of 1,422,500, 1,283,168, 1,086,880, and 2,064,498, respectively, were excluded from the diluted income per share calculation because the effect would have been antidilutive. As of March 31, 2018, the Company had 44,664,798 shares issued and 41,162,200 shares outstanding. |
Reclassification | Reclassification Certain previous year amounts have been reclassified to conform with current year presentations, as related to the statement of cash flows. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements Accounting Standards Adopted In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation - Stock Compensation (Topic 718) (“ASU 2016‑09”) . This update was issued as part of the FASB’s simplification initiative and affects all entities that issue share-based payment awards to their employees. The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies and an accounting policy election for forfeitures. As part of the new guidance: · Excess tax benefits or deficiencies arising from share-based awards will be reflected in the condensed consolidated statements of operations as income tax expense rather than within stockholders’ equity. The adoption of this guidance may result in volatility within a company’s results of operations, primarily due to changes in the stock price. · Excess tax benefits will be presented as an operating activity on the statement of cash flows rather than as a financing activity. · A forfeiture election will be made to either estimate forfeitures (similar to today’s requirement) or recognize actual forfeitures as they occur. Entities will apply the forfeiture election provision using a modified retrospective transition approach, with a cumulative effect adjustment recorded to retained earnings as of the beginning of the period of adoption. · Statutory tax withholding requirements for employers who withhold shares upon settlement of an award on behalf of an employee to cover tax obligations are broadened to allow for a range of withholding from the minimum to the maximum statutory allowable amounts. The Company adopted this guidance during the first quarter of fiscal 2018. As part of its adoption of ASU 2016‑09, the Company made an accounting policy election to change the way in which it accounts for forfeitures of share-based awards. Specifically, beginning in the first quarter of fiscal 2018, the Company recognizes forfeitures of share-based awards as they occur in the period of forfeiture rather than estimating the number of awards expected to be forfeited at the grant date and subsequently adjusting the estimate when awards are actually forfeited. The change in accounting policy resulted in an adjustment to decrease retained earnings as of July 1, 2017 by $0.1 million. The Company has adopted the remaining provisions as follows: · Excess tax benefits arising from share-based awards are reflected within the condensed consolidated statements of operations as income tax expense; adopted prospectively; · Excess tax benefits are presented as an operating activity on the statement of cash flows; adopted prospectively; and · The Company is now permitted to withhold shares beyond the minimum statutory tax withholding requirements upon settlement of an award; adopted prospectively. Accounting Standards Not Yet Adopted In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) , which supersedes most existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard is effective for the Company’s next fiscal year beginning July 1, 2018, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact this standard will have on its consolidated financial statements which includes performing a detailed review of each of its revenue streams and comparing historical accounting policies and practices to the new standard. The majority of the Company’s business is based on contracts where annual revenue is recognized within each fiscal year, mirroring the school year. The Company expects revenue recognition will remain largely unchanged under the new standard on a full year basis, however, there may be some shifting of revenue between periods. The Company has begun its implementation process and expects to be fully compliant by the first quarter of fiscal 2019. |
Summary of Significant Accoun23
Summary of Significant Accounting Policy (Tables) | 9 Months Ended |
Mar. 31, 2018 | |
Summary of Significant Accounting Policies | |
Schedule of useful lives of property and equipment | Useful Life Student and state testing computers 3 - 5 years Computer hardware 3 years Computer software 3 - 5 years Web site development 3 years Office equipment 5 years Furniture and fixtures 7 years Leasehold improvements 3 - 12 years |
Schedule of intangible assets | March 31, 2018 June 30, 2017 ($ in millions) Gross Accumulated Net Gross Accumulated Net Trade names $ 17.6 $ (8.3) $ 9.3 $ 17.6 $ (7.6) $ 10.0 Customer and distributor relationships 20.5 (13.0) 7.5 20.1 (12.0) 8.1 Developed technology 3.2 (2.1) 1.1 2.9 (1.7) 1.2 Other 1.4 (0.6) 0.8 1.4 (0.5) 0.9 Total $ 42.7 $ (24.0) $ 18.7 $ 42.0 $ (21.8) $ 20.2 |
Schedule of assets and liabilities measured at fair value on a nonrecurring basis | T he following table summarizes certain fair value information at March 31, 2018 for assets or liabilities measured at fair value on a nonrecurring basis: Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Lease exit liability $ 3,120 $ — $ — $ 3,120 T he following table summarizes certain fair value information at June 30, 2017 for assets and liabilities measured at fair value on a nonrecurring basis: Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Held for sale asset $ 1,200 $ — $ — $ 1,200 Lease exit liability 4,841 — — 4,841 |
Schedule of assets and liabilities measured at fair value on a recurring basis | T he following table summarizes certain fair value information at March 31, 2018 for assets or liabilities measured at fair value on a recurring basis: Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Contingent consideration associated with acquisitions $ 1,342 $ — $ — $ 1,342 T he following table summarizes certain fair value information at June 30, 2017 for assets and liabilities measured at fair value on a recurring basis: Fair Value Measurements Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Input Inputs Description Fair Value (Level 1) (Level 2) (Level 3) (In thousands) Contingent consideration associated with acquisitions $ 2,806 $ — $ — $ 2,806 |
Schedule of activity related to fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | The following tables summarize the activity during the three and nine months ended March 31, 2018 and 2017 for assets and liabilities measured at fair value on a recurring basis: Three Months Ended March 31, 2018 Purchases, Fair Value Issuances, Unrealized Fair Value Description December 31, 2017 and Settlements Gains/(Losses) March 31, 2018 (In thousands) Contingent consideration associated with acquisitions $ 1,340 $ — $ 2 $ 1,342 Total $ 1,340 $ — $ 2 $ 1,342 Three Months Ended March 31, 2017 Purchases, Fair Value Issuances, Unrealized Fair Value Description December 31, 2016 and Settlements Gains (Losses) March 31, 2017 (In thousands) Contingent consideration associated with acquisitions $ 2,963 $ — $ 8 $ 2,971 Total $ 2,963 $ — $ 8 $ 2,971 Nine Months Ended March 31, 2018 Purchases, Fair Value Issuances, Unrealized Fair Value Description June 30, 2017 and Settlements Gains (Losses) March 31, 2018 (In thousands) Contingent consideration associated with acquisitions $ 2,806 $ (1,319) $ (145) $ 1,342 Total $ 2,806 $ (1,319) $ (145) $ 1,342 Nine Months Ended March 31, 2017 Purchases, Fair Value Issuances, Unrealized Fair Value Description June 30, 2016 and Settlements Gains (Losses) March 31, 2017 (In thousands) Redeemable noncontrolling interest in Middlebury Interactive Learning $ 6,801 $ (9,134) $ 2,333 $ — Contingent consideration associated with acquisitions 2,947 — 24 2,971 Total $ 9,748 $ (9,134) $ 2,357 $ 2,971 |
Schedule of calculation of basic and diluted net income (loss) per share | Three Months Ended Nine Months Ended March 31, March 31, 2018 2017 2018 2017 (In thousands except share and per share data) Basic net income per share computation: Net income attributable to common stockholders $ 13,070 $ 9,115 $ 18,273 $ 6,934 Weighted average common shares — basic 39,644,074 38,376,984 39,366,497 38,145,671 Basic net income per share $ 0.33 $ 0.24 $ 0.46 $ 0.18 Diluted net income per share computation: Net income attributable to common stockholders $ 13,070 $ 9,115 $ 18,273 $ 6,934 Share computation: Weighted average common shares — basic 39,644,074 38,376,984 39,366,497 38,145,671 Effect of dilutive stock options and restricted stock awards 1,122,129 951,143 1,404,940 810,410 Weighted average common shares — diluted 40,766,203 39,328,127 40,771,437 38,956,081 Diluted net income per share $ 0.32 $ 0.23 $ 0.45 $ 0.18 |
Long-term Obligations (Tables)
Long-term Obligations (Tables) | 9 Months Ended |
Mar. 31, 2018 | |
Long-term Obligations | |
Summary of present value of the net minimum payments due on outstanding capital leases | As of June 30, Capital Leases (in thousands) 2018 (remaining three months) $ 3,840 2019 13,440 2020 7,997 2021 3,368 Total minimum payments 28,645 Less amount representing interest (imputed weighted average capital lease interest rate of 2.74%) (935) Net minimum payments 27,710 Less current portion (13,727) Present value of minimum payments, less current portion $ 13,983 |
Equity Transactions (Tables)
Equity Transactions (Tables) | 9 Months Ended |
Mar. 31, 2018 | |
Equity Transactions | |
Schedule of stock option activity | Weighted Weighted Average Average Remaining Aggregate Exercise Contractual Intrinsic Shares Price Life (Years) Value Outstanding, June 30, 2017 1,356,528 $ 20.19 4.46 $ 1,481,585 Granted — — Exercised (13,600) 13.53 Forfeited or canceled (109,971) 22.45 Outstanding, March 31, 2018 1,232,957 20.06 3.70 190,004 Stock options exercisable at March 31, 2018 1,091,726 $ 20.75 3.51 $ 120,305 |
Schedule of restricted stock award activity | Weighted- Average Grant-Date Shares Fair Value Nonvested, June 30, 2017 2,141,047 $ 12.34 Granted 1,011,605 17.34 Vested (1,309,775) 12.22 Canceled (331,263) 14.52 Nonvested, March 31, 2018 1,511,614 $ 15.45 |
Schedule of performance share units award activity | Weighted- Average Grant-Date Shares Fair Value Nonvested, June 30, 2017 1,043,602 $ 13.16 Granted 138,241 18.07 Vested (242,383) 12.35 Canceled (147,050) 14.02 Nonvested, March 31, 2018 792,410 $ 13.52 |
Restructuring (Tables)
Restructuring (Tables) | 9 Months Ended |
Mar. 31, 2018 | |
Restructuring | |
Schedule of operating expenses | Balance at Payments, net of Accretion Balance at Description Initial Value June 30, 2017 sublease income Expense Adjustments March 31, 2018 (In thousands) Lease #1 $ 1,652 $ 1,421 $ (295) $ 27 $ — $ 1,153 Lease #2 1,311 1,138 (545) 14 47 654 Lease #3 2,443 2,282 (545) 44 (468) 1,313 Total $ 5,406 $ 4,841 $ (1,385) $ 85 $ (421) $ 3,120 |
Supplemental Disclosure of Ca27
Supplemental Disclosure of Cash Flow Information (Tables) | 9 Months Ended |
Mar. 31, 2018 | |
Supplemental Disclosure of Cash Flow Information | |
Schedule of supplemental disclosure of cash flow information | Nine Months Ended March 31, 2018 2017 (In thousands) Cash paid for interest $ 546 $ 575 Cash paid for taxes $ 11,211 $ 4,741 Supplemental disclosure of non-cash financing activities: Property and equipment financed by capital lease obligations, including student peripherals $ 16,119 $ 13,969 Supplemental disclosure of non-cash investing activities: Stock-based compensation expense capitalized on software development $ 1,053 $ — Stock-based compensation expense capitalized on curriculum development $ 835 $ — Business combinations: Current assets $ 209 $ — Intangible assets 695 — Goodwill 2,983 — Assumed liabilities (234) — Deferred revenue (361) — Contingent consideration (500) — |
Description of the Business (De
Description of the Business (Details) | 9 Months Ended |
Mar. 31, 2018item | |
Description of the Business | |
Number of lines of business | 3 |
Number of managed public schools that curriculum and services are sold to | 75 |
Basis of Presentation (Details)
Basis of Presentation (Details) | 9 Months Ended |
Mar. 31, 2018segment | |
Basis of Presentation | |
Number of operating segments | 1 |
Number of reportable business segments | 1 |
Summary of Significant Accoun30
Summary of Significant Accounting Policies - Revenue Recognition (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2018 | Mar. 31, 2017 | Mar. 31, 2018 | Mar. 31, 2017 | |
Revenue recognition | ||||
Amounts recorded as revenues and school operating expenses | $ 81.4 | $ 75.1 | $ 221 | $ 212.5 |
Reduction in school operating losses included in the entity's revenue | $ 18.7 | $ 12.5 | $ 50.2 | $ 40.8 |
Minimum | ||||
Revenue recognition | ||||
Duration of contracts providing access to curriculum via the entity's Web site | 1 year | |||
Maximum | ||||
Revenue recognition | ||||
Duration of contracts providing access to curriculum via the entity's Web site | 2 years |
Summary of Significant Accoun31
Summary of Significant Accounting Policies - Concentration Risk (Details) $ in Millions | 3 Months Ended | 9 Months Ended | |
Mar. 31, 2018USD ($)contract | Mar. 31, 2018USD ($)contract | Jun. 30, 2017USD ($) | |
Inventories | |||
Excess and obsolete inventory reserve | $ | $ 3.5 | $ 3.5 | $ 2.3 |
Revenue | Customer Concentration Risk | |||
Concentration of revenues | |||
Concentration risk (as a percent) | 10.00% | 10.00% | |
Number of customers with concentration | contract | 1 | 1 |
Summary of Significant Accoun32
Summary of Significant Accounting Policies - Property and Equipment (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Mar. 31, 2018 | Sep. 30, 2017 | Mar. 31, 2017 | Mar. 31, 2018 | Mar. 31, 2017 | |
Property and equipment | |||||
Depreciation expense | $ 4,800 | $ 5,500 | $ 13,700 | $ 14,100 | |
Peripheral equipment write down | 800 | 700 | 3,300 | 3,400 | |
Capitalized software development costs | 18,852 | 19,345 | |||
Net income | 13,043 | 8,882 | $ 18,073 | 6,144 | |
Capitalized Curriculum Development Costs | |||||
Estimated useful life of the software | 5 years | ||||
Capitalized curriculum development additions | $ 7,770 | 12,427 | |||
Amortization expense | 4,700 | 5,200 | 14,800 | 14,800 | |
Out of period adjustment | |||||
Property and equipment | |||||
Capitalized software development costs | $ 2,300 | ||||
Net income | 1,400 | ||||
Capitalized Curriculum Development Costs | |||||
Capitalized curriculum development additions | $ 600 | ||||
Student and state testing computers | |||||
Property and equipment | |||||
Accelerated Depreciation | 800 | 1,800 | $ 1,700 | 2,800 | |
Student and state testing computers | Minimum | |||||
Property and equipment | |||||
Useful Life | 3 years | ||||
Student and state testing computers | Maximum | |||||
Property and equipment | |||||
Useful Life | 5 years | ||||
Computer hardware | |||||
Property and equipment | |||||
Useful Life | 3 years | ||||
Computer software | Minimum | |||||
Property and equipment | |||||
Useful Life | 3 years | ||||
Computer software | Maximum | |||||
Property and equipment | |||||
Useful Life | 5 years | ||||
Web site development | |||||
Property and equipment | |||||
Useful Life | 3 years | ||||
Office equipment | |||||
Property and equipment | |||||
Useful Life | 5 years | ||||
Furniture and fixtures | |||||
Property and equipment | |||||
Useful Life | 7 years | ||||
Leasehold improvements | Minimum | |||||
Property and equipment | |||||
Useful Life | 3 years | ||||
Leasehold improvements | Maximum | |||||
Property and equipment | |||||
Useful Life | 12 years | ||||
Capitalized software | |||||
Property and equipment | |||||
Useful Life | 3 years | ||||
Amortization expense | $ 8,200 | $ 8,400 | $ 26,900 | $ 25,200 |
Summary of Significant Accoun33
Summary of Significant Accounting Policies - Goodwill and Intangibles (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Mar. 31, 2018 | Mar. 31, 2017 | Mar. 31, 2018 | Mar. 31, 2017 | Jun. 30, 2017 | |
Intangible Assets: | |||||
Amortization expense | $ 700 | $ 800 | $ 2,200 | $ 2,200 | |
Goodwill | 90,197 | 90,197 | $ 87,214 | ||
Intangible assets, net | 18,694 | 18,694 | 20,226 | ||
Gross Carrying Amount | 42,700 | 42,700 | 42,000 | ||
Accumulated Amortization | (24,000) | (24,000) | (21,800) | ||
Net Carrying Value | 18,700 | 18,700 | 20,200 | ||
Impairment of goodwill | 0 | ||||
Assets written-off | 0 | 0 | |||
Future amortization of intangible assets | |||||
2,018 | 800 | 800 | |||
2,019 | 3,000 | 3,000 | |||
2,020 | 2,900 | 2,900 | |||
2,021 | 2,400 | 2,400 | |||
2,022 | 2,200 | 2,200 | |||
Thereafter | 7,200 | 7,200 | |||
Trade names | |||||
Intangible Assets: | |||||
Gross Carrying Amount | 17,600 | 17,600 | 17,600 | ||
Accumulated Amortization | (8,300) | (8,300) | (7,600) | ||
Net Carrying Value | 9,300 | 9,300 | 10,000 | ||
Customer and distributor relationships | |||||
Intangible Assets: | |||||
Gross Carrying Amount | 20,500 | 20,500 | 20,100 | ||
Accumulated Amortization | (13,000) | (13,000) | (12,000) | ||
Net Carrying Value | 7,500 | 7,500 | 8,100 | ||
Developed technology | |||||
Intangible Assets: | |||||
Gross Carrying Amount | 3,200 | 3,200 | 2,900 | ||
Accumulated Amortization | (2,100) | (2,100) | (1,700) | ||
Net Carrying Value | 1,100 | 1,100 | 1,200 | ||
Other | |||||
Intangible Assets: | |||||
Gross Carrying Amount | 1,400 | 1,400 | 1,400 | ||
Accumulated Amortization | (600) | (600) | (500) | ||
Net Carrying Value | $ 800 | $ 800 | $ 900 |
Summary of Significant Accoun34
Summary of Significant Accounting Policies - Fair Value (Details) - USD ($) $ in Thousands | Mar. 31, 2018 | Jun. 30, 2017 |
Measured on a nonrecurring basis | ||
Assets and liabilities measured at fair value on a recurring and nonrecurring basis | ||
Held for sale asset | $ 1,200 | |
Lease exit liability | $ 3,120 | 4,841 |
Measured on a nonrecurring basis | Significant Unobservable Inputs (Level 3) | ||
Assets and liabilities measured at fair value on a recurring and nonrecurring basis | ||
Held for sale asset | 1,200 | |
Lease exit liability | 3,120 | 4,841 |
Acquisitions | Measured on a recurring basis | ||
Assets and liabilities measured at fair value on a recurring and nonrecurring basis | ||
Contingent consideration | 1,342 | 2,806 |
Acquisitions | Measured on a recurring basis | Significant Unobservable Inputs (Level 3) | ||
Assets and liabilities measured at fair value on a recurring and nonrecurring basis | ||
Contingent consideration | $ 1,342 | $ 2,806 |
Summary of Significant Accoun35
Summary of Significant Accounting Policies - Fair Value Measurements (Details) - USD ($) $ in Thousands | Dec. 27, 2016 | Mar. 31, 2018 | Mar. 31, 2017 | Mar. 31, 2018 | Mar. 31, 2017 |
Middlebury Interactive Languages LLC | |||||
Fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | |||||
Ownership percentage acquired (as a percent) | 40.00% | ||||
Cash purchase price | $ 9,100 | ||||
Measured on a recurring basis | |||||
Fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | |||||
Fair Value, beginning of period | $ 1,340 | $ 2,963 | $ 2,806 | $ 9,748 | |
Purchases, Issuances and Settlements | (1,319) | (9,134) | |||
Unrealized Gains/(Losses) | 2 | 8 | (145) | 2,357 | |
Fair Value, end of period | 1,342 | 2,971 | 1,342 | 2,971 | |
Measured on a recurring basis | Middlebury Interactive Languages LLC | |||||
Fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | |||||
Fair Value, beginning of period | 6,801 | ||||
Purchases, Issuances and Settlements | (9,134) | ||||
Unrealized Gains/(Losses) | 2,333 | ||||
Acquisitions | Measured on a recurring basis | |||||
Fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis | |||||
Contingent consideration, fair value, beginning balance | 2,806 | ||||
Fair Value, beginning of period | 1,340 | 2,963 | 2,806 | 2,947 | |
Purchases, Issuances and Settlements | (1,319) | ||||
Unrealized Gains/(Losses) | 2 | 8 | (145) | 24 | |
Contingent consideration, fair value, ending balance | 1,342 | 1,342 | |||
Fair Value, end of period | $ 1,342 | $ 2,971 | $ 1,342 | $ 2,971 |
Summary of Significant Accoun36
Summary of Significant Accounting Policies - Net Income Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | ||||
Mar. 31, 2018 | Mar. 31, 2017 | Mar. 31, 2018 | Mar. 31, 2017 | Jun. 30, 2017 | ||
Basic and diluted income (loss) per share computation: | ||||||
Net income attributable to common stockholders | $ 13,070 | $ 9,115 | $ 18,273 | [1] | $ 6,934 | |
Weighted average common shares—basic | 39,644,074 | 38,376,984 | 39,366,497 | 38,145,671 | ||
Effect of dilutive stock options and restricted stock awards (in shares) | 1,122,129 | 951,143 | 1,404,940 | 810,410 | ||
Weighted average common shares—diluted | 40,766,203 | 39,328,127 | 40,771,437 | 38,956,081 | ||
Basic net income per share (in dollars per share) | $ 0.33 | $ 0.24 | $ 0.46 | $ 0.18 | ||
Diluted net income per share | $ 0.32 | $ 0.23 | $ 0.45 | $ 0.18 | ||
Additional disclosures | ||||||
Common stock, shares issued | 44,664,798 | 44,664,798 | 44,325,772 | |||
Common stock, shares outstanding | 41,162,200 | 41,162,200 | 40,823,174 | |||
Stock options and restricted stock | ||||||
Basic and diluted income (loss) per share computation: | ||||||
Anti-dilutive shares | 1,422,500 | 1,283,168 | 1,086,880 | 2,064,498 | ||
[1] | Net income excludes $0.2 million due to the redeemable noncontrolling interest related to LearnBop, which is reported outside of permanent equity in the accompanying unaudited condensed consolidated balance sheets. |
Summary of Significant Accoun37
Summary of Significant Accounting Policies - Recent Accounting Pronouncements (Details) $ in Millions | Jul. 01, 2017USD ($) |
Accounting standards update 2016- 09 | |
Accounting Standards Adopted | |
Accounting policy in an adjustment to retained earnings | $ 0.1 |
Income Taxes (Details)
Income Taxes (Details) | Jan. 01, 2018 | Mar. 31, 2018 | Mar. 31, 2017 | Dec. 31, 2017 | Mar. 31, 2018 | Mar. 31, 2017 |
Reconciliation to income tax at the statutory rate: | ||||||
Effective income tax rate (as a percent) | 34.70% | 33.70% | (11.50%) | 36.40% | ||
U.S. Federal tax at statutory rates (as a percent) | 21.00% | 35.00% |
Long-term Obligations - Debt (D
Long-term Obligations - Debt (Details) - USD ($) | 9 Months Ended | |
Mar. 31, 2018 | Jun. 30, 2017 | |
PNC Equipment Finance LLC Lease Line of Credit | ||
Long-term obligations | ||
Line of credit, amount outstanding | $ 21,900,000 | |
Remaining borrowing availability | $ 24,200,000 | 31,900,000 |
Payment terms of equipment lease line of credit | 36 months | |
Purchase option at the end of payment terms | $ 1 | |
PNC Equipment Finance LLC Lease Line of Credit | Minimum | ||
Long-term obligations | ||
Interest rate (as a percent) | 1.95% | |
PNC Equipment Finance LLC Lease Line of Credit | Maximum | ||
Long-term obligations | ||
Interest rate (as a percent) | 3.12% | |
PNC Equipment Finance LLC Lease Line of Credit | LIBOR | ||
Long-term obligations | ||
Interest rate spread added to base rate (as a percent) | 1.20% | |
Computer hardware | ||
Long-term obligations | ||
Gross carrying value of leased computers | $ 42,800,000 | 39,100,000 |
Accumulated depreciation of leased student computers | $ 24,900,000 | $ 25,100,000 |
Long-term Obligations- Capital
Long-term Obligations- Capital Leases (Details) - USD ($) $ in Thousands | Mar. 31, 2018 | Jun. 30, 2017 |
Minimum lease payments on capital leases | ||
Less current portion | $ (13,727) | $ (11,880) |
Present value of minimum payments, less current portion | 13,983 | $ 10,025 |
PNC Equipment Finance LLC Lease Line of Credit | ||
Minimum lease payments on capital leases | ||
2018 (remaining three months) | 3,840 | |
2,019 | 13,440 | |
2,020 | 7,997 | |
2,021 | 3,368 | |
Total minimum payments | 28,645 | |
Less amount representing interest (imputed weighted average capital lease interest rate of 2.65%) | (935) | |
Net minimum payments | 27,710 | |
Less current portion | (13,727) | |
Present value of minimum payments, less current portion | $ 13,983 | |
Weighted average interest rate (as a percent) | 2.74% |
Line of Credit (Details)
Line of Credit (Details) - Line of Credit - USD ($) $ in Thousands | Jan. 31, 2014 | Mar. 31, 2018 |
Line of credit | ||
Maximum borrowing capacity | $ 100,000 | |
Term of debt | 5 years | |
Borrowings from line of credit | $ 0 | |
Line of credit, amount outstanding | $ 0 | |
Prime Rate | ||
Line of credit | ||
Interest rate spread added to base rate (as a percent) | 0.25% | |
Federal Funds Rate | ||
Line of credit | ||
Interest rate spread added to base rate (as a percent) | 0.75% | |
LIBOR | ||
Line of credit | ||
Interest rate spread added to base rate (as a percent) | 1.25% |
Equity Transactions - Share Bas
Equity Transactions - Share Based Compensation (Details) - USD ($) | 9 Months Ended | 12 Months Ended |
Mar. 31, 2018 | Jun. 30, 2017 | |
Employee and Non Employees Stock Option | ||
Shares | ||
Outstanding at the beginning of the period (in shares) | 1,356,528 | |
Exercised (in shares) | (13,600) | |
Forfeited or canceled (in shares) | (109,971) | |
Outstanding at the end of the period (in shares) | 1,232,957 | 1,356,528 |
Weighted-Average Exercise Price | ||
Outstanding at the beginning of the period (in dollars per share) | $ 20.19 | |
Exercised (in dollars per share) | 13.53 | |
Forfeited or canceled (in dollars per share) | 22.45 | |
Outstanding at the end of the period (in dollars per share) | $ 20.06 | $ 20.19 |
Additional information | ||
Weighted Average Remaining Contractual Life | 3 years 8 months 12 days | 4 years 5 months 16 days |
Aggregate Intrinsic Value | $ 190,004 | $ 1,481,585 |
Exercisable (in Shares) | 1,091,726 | |
Stock options exercisable, Weighted Average Exercise Price (in dollars per share) | $ 20.75 | |
Stock options exercisable, Average Remaining Contractual Life (Years) | 3 years 6 months 4 days | |
Stock options exercisable, Aggregate Intrinsic Value | $ 120,305 | |
Plan | ||
Stock option activity | ||
Shares reserved for issuance | 4,420,455 | |
Plan and Prior Plan | ||
Shares | ||
Outstanding at the end of the period (in shares) | 3,536,981 |
Equity Transactions - Vesting (
Equity Transactions - Vesting (Details) $ in Millions | 3 Months Ended | 9 Months Ended | ||||
Mar. 31, 2018USD ($) | Dec. 31, 2017USD ($)item | Jun. 30, 2017USD ($) | Mar. 31, 2017USD ($) | Mar. 31, 2018USD ($) | Mar. 31, 2017USD ($) | |
Employee and Non Employees Stock Option | ||||||
Equity Transactions | ||||||
Intrinsic value of options exercised | $ 0 | $ 0.2 | ||||
Unrecognized compensation | $ 0.9 | $ 0.9 | ||||
Weighted average period for recognition of total unrecognized compensation expense related to unvested stock options granted | 1 year 2 months 12 days | |||||
Stock based compensation expense | 0.2 | $ 0.5 | $ 1 | 1.6 | ||
Restricted Stock | ||||||
Equity Transactions | ||||||
Unrecognized compensation | 16.8 | $ 16.8 | ||||
Weighted average period for recognition of total unrecognized compensation expense related to unvested stock options granted | 1 year 7 months 6 days | |||||
Stock based compensation expense | 3.9 | 4.8 | $ 11.7 | 13 | ||
Restricted Stock | Vesting Performance | ||||||
Equity Transactions | ||||||
Stock based compensation expense accelerated vesting | 1.4 | 0.8 | 1.7 | 0.8 | ||
Performance Share Units | ||||||
Equity Transactions | ||||||
Unrecognized compensation | 0.7 | 0.7 | ||||
Stock based compensation expense | 0.6 | $ 3.8 | $ 0 | 4.1 | $ 0 | |
Performance Shares Tranche #2 | ||||||
Equity Transactions | ||||||
Unrecognized compensation | $ 3.5 | 3.5 | ||||
Stock based compensation expense | $ 2.5 | $ 0 | ||||
Number of performance measures | item | 2 | |||||
Quarterly Period Beginning November 15, 2017 | Performance Share Units | ||||||
Equity Transactions | ||||||
Earned award vesting percentage | 30.00% | |||||
Period After August 15, 2018 | Performance Share Units | ||||||
Equity Transactions | ||||||
Earned award vesting percentage | 70.00% | |||||
Maximum | ||||||
Equity Transactions | ||||||
Vesting period. | 3 years | |||||
Minimum | ||||||
Equity Transactions | ||||||
Vesting period. | 2 years |
Equity Transactions - Restricte
Equity Transactions - Restricted Stock (Details) | 9 Months Ended |
Mar. 31, 2018$ / sharesshares | |
Executives | Vesting Based On Performance And Service | |
Shares | |
Granted (in shares) | 34,760 |
Weighted-Average Grant Date Fair Value | |
Granted (in dollars per share) | $ / shares | $ 17.70 |
Executives | Vest immediately upon achievement of the performance goals | |
Weighted-Average Grant Date Fair Value | |
Earned award vesting percentage | 20.00% |
Executives | Vest ratably in semi-annual intervals until the applicable anniversary from grant date | |
Weighted-Average Grant Date Fair Value | |
Earned award vesting percentage | 80.00% |
Period over which shares vest in semi-annual intervals | 3 years |
Restricted Stock | |
Shares | |
Nonvested at the beginning of the period (in shares) | 2,141,047 |
Granted (in shares) | 1,011,605 |
Vested (in shares) | (1,309,775) |
Forfeited or canceled (in shares) | (331,263) |
Nonvested at the end of the period (in shares) | 1,511,614 |
Weighted-Average Grant Date Fair Value | |
Nonvested at the beginning of the period (in dollars per share) | $ / shares | $ 12.34 |
Granted (in dollars per share) | $ / shares | 17.34 |
Vested (in dollars per share) | $ / shares | 12.22 |
Forfeited or canceled (in dollars per share) | $ / shares | 14.52 |
Nonvested at the end of the period (in dollars per share) | $ / shares | $ 15.45 |
Restricted Stock | Vesting Based On Performance And Service | |
Shares | |
Granted (in shares) | 398,442 |
Vested (in shares) | (275,135) |
Nonvested at the end of the period (in shares) | 474,141 |
Performance Share Units | |
Shares | |
Nonvested at the beginning of the period (in shares) | 1,043,602 |
Granted (in shares) | 138,241 |
Vested (in shares) | (242,383) |
Forfeited or canceled (in shares) | (147,050) |
Nonvested at the end of the period (in shares) | 792,410 |
Weighted-Average Grant Date Fair Value | |
Nonvested at the beginning of the period (in dollars per share) | $ / shares | $ 13.16 |
Granted (in dollars per share) | $ / shares | 18.07 |
Vested (in dollars per share) | $ / shares | 12.35 |
Forfeited or canceled (in dollars per share) | $ / shares | 14.02 |
Nonvested at the end of the period (in dollars per share) | $ / shares | $ 13.52 |
Right to receive number of shares | 1 |
Equity Incentive Plan - Other (
Equity Incentive Plan - Other (Details) - USD ($) $ / shares in Units, $ in Millions | Aug. 02, 2017 | Mar. 31, 2018 | Dec. 31, 2017 | Jun. 30, 2017 | Mar. 31, 2017 | Mar. 31, 2018 | Mar. 31, 2017 | Jun. 30, 2017 |
Equity Transactions | ||||||||
Fair value of share-based compensation awards granted in period | $ 17.5 | $ 14.6 | ||||||
Fair value of share-based compensation awards vested in period | $ 21.7 | 13.5 | ||||||
Vesting Performance | ||||||||
Equity Transactions | ||||||||
Number of consecutive days considered for the computation of average closing stock prices | 30 days | |||||||
Equity Incentive Market Based Restricted Stock Awards | ||||||||
Equity Transactions | ||||||||
Granted (in dollars per share) | $ 14.35 | |||||||
Equity Incentive Market Based Restricted Stock Awards | Vesting Performance | ||||||||
Equity Transactions | ||||||||
Vested (in shares) | 257,075 | |||||||
Nonvested at the end of the period (in shares) | 25,200 | 25,200 | ||||||
Equity Incentive Market Based Restricted Stock Awards | Stock price performance target one | ||||||||
Equity Transactions | ||||||||
Stock price | $ 13 | 13 | ||||||
Vested (in shares) | 18,400 | |||||||
Equity Incentive Market Based Restricted Stock Awards | Stock price performance target two | ||||||||
Equity Transactions | ||||||||
Stock price | 16 | 16 | ||||||
Equity Incentive Market Based Restricted Stock Awards | Stock price performance target three | ||||||||
Equity Transactions | ||||||||
Stock price | $ 19 | $ 19 | ||||||
Restricted Stock | ||||||||
Equity Transactions | ||||||||
Stock based compensation expense | $ 3.9 | $ 4.8 | $ 11.7 | 13 | ||||
Unrecognized compensation | $ 16.8 | $ 16.8 | ||||||
Weighted average period for recognition of total unrecognized compensation expense related to unvested stock options granted | 1 year 7 months 6 days | |||||||
Nonvested at the beginning of the period (in shares) | 2,141,047 | |||||||
Granted (in shares) | 1,011,605 | |||||||
Vested (in shares) | 1,309,775 | |||||||
Nonvested at the end of the period (in shares) | 1,511,614 | 2,141,047 | 1,511,614 | 2,141,047 | ||||
Granted (in dollars per share) | $ 17.34 | |||||||
Restricted Stock | Service based awards | ||||||||
Equity Transactions | ||||||||
Granted (in shares) | 613,163 | |||||||
Vested (in shares) | 759,165 | |||||||
Nonvested at the end of the period (in shares) | 1,012,273 | 1,012,273 | ||||||
Performance Share Units | ||||||||
Equity Transactions | ||||||||
Stock based compensation expense | $ 0.6 | $ 3.8 | $ 0 | $ 4.1 | $ 0 | |||
Percentage of target award probable at the highest level | 150.00% | |||||||
Board of Directors certified that MPS schools were not in academic jeopardy | 97.00% | |||||||
Unrecognized compensation | $ 0.7 | $ 0.7 | ||||||
Nonvested at the beginning of the period (in shares) | 1,043,602 | |||||||
Granted (in shares) | 138,241 | |||||||
Vested (in shares) | 242,383 | |||||||
Nonvested at the end of the period (in shares) | 792,410 | 1,043,602 | 792,410 | 1,043,602 | ||||
Granted (in dollars per share) | $ 18.07 | |||||||
Performance Share Units | Actual performance exceeds the target criteria | ||||||||
Equity Transactions | ||||||||
Stock based compensation expense | $ 5.6 | |||||||
Performance Shares Tranche #1 | ||||||||
Equity Transactions | ||||||||
Granted (in shares) | 446,221 | |||||||
Granted due to the Outperform level (in shares) | 138,241 | |||||||
Performance Shares Tranche #2 | ||||||||
Equity Transactions | ||||||||
Stock based compensation expense | $ 2.5 | 0 | ||||||
Unrecognized compensation | $ 3.5 | $ 3.5 | ||||||
Mr. Davis | Performance Shares Tranche #1 | ||||||||
Equity Transactions | ||||||||
Granted (in shares) | 90,000 | |||||||
Mr. Udell | Performance Shares Tranche #1 | ||||||||
Equity Transactions | ||||||||
Granted (in shares) | 70,021 |
Related Party Transactions (Det
Related Party Transactions (Details) - School Mortgage $ in Millions | Sep. 11, 2013USD ($) |
Related Party Transactions | |
Issuance of a mortgage note | $ 2.1 |
Interest on investment (as a percent) | 5.25% |
Note receivable term | 5 years |
Corporate Joint Venture | |
Related Party Transactions | |
Issuance of a mortgage note | $ 2.1 |
Interest on investment (as a percent) | 5.25% |
Note receivable term | 5 years |
Commitments and Contingencies (
Commitments and Contingencies (Details) $ in Millions | Mar. 31, 2018USD ($) | Oct. 02, 2017item | Jul. 20, 2016item |
Buildings of Flex schools | |||
Commitments and contingencies | |||
Guarantees related to lease commitments | $ | $ 2.2 | ||
Babulal Tarapara Vs K12 Inc. | |||
Commitments and contingencies | |||
Number of officers against whom lawsuit is filed | 2 | ||
Number of former officers against whom lawsuit is filed | 1 | ||
Number of former officers who were dismissed as defendants in the lawsuit | 2 |
Restructuring (Details)
Restructuring (Details) - Facility closing $ in Millions | 3 Months Ended |
Mar. 31, 2017USD ($)facility | |
Restructuring | |
Number of facilities being exited | facility | 3 |
Impairment of leases | $ 5.4 |
Lease liability current | 1.7 |
Lease liability noncurrent | 3.7 |
Accelerated depreciation | 1.4 |
Deferred rent and tenant improvements written off | 1.9 |
Selling, administrative and other operating expenses | |
Restructuring | |
Net impact of facility exit activity | $ 4.9 |
Restructuring - operating expen
Restructuring - operating expenses (Details) $ in Thousands | 9 Months Ended |
Mar. 31, 2018USD ($) | |
Restructuring | |
Initial Value | $ 5,406 |
Beginning Balance | 4,841 |
Payments, net of sublease income | (1,385) |
Accretion Expense | 85 |
Adjustments | (421) |
Ending Balance | 3,120 |
Lease 1 | |
Restructuring | |
Initial Value | 1,652 |
Beginning Balance | 1,421 |
Payments, net of sublease income | (295) |
Accretion Expense | 27 |
Ending Balance | 1,153 |
Lease 2 | |
Restructuring | |
Initial Value | 1,311 |
Beginning Balance | 1,138 |
Payments, net of sublease income | (545) |
Accretion Expense | 14 |
Adjustments | 47 |
Ending Balance | 654 |
Lease 3 | |
Restructuring | |
Initial Value | 2,443 |
Beginning Balance | 2,282 |
Payments, net of sublease income | (545) |
Accretion Expense | 44 |
Adjustments | (468) |
Ending Balance | $ 1,313 |
Severance (Details)
Severance (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2018 | Mar. 31, 2017 | Mar. 31, 2018 | Mar. 31, 2017 | |
Employee severance | ||||
Severance | ||||
Severance costs | $ 3.5 | $ 2.3 | $ 4.5 | $ 3.3 |
Investments (Details)
Investments (Details) - USD ($) $ in Millions | Sep. 11, 2013 | May 06, 2013 | Jan. 31, 2011 | Jun. 30, 2017 | Mar. 31, 2017 |
Web International Education Group, Ltd.(Web) | |||||
Investments | |||||
Investment | $ 10 | $ 10 | |||
Ownership percentage | 20.00% | ||||
Impairment of investment in Web International Education Group, Ltd | $ 10 | ||||
Web International Education Group, Ltd.(Web) | Other current assets | |||||
Investments | |||||
Investment reclassified | $ 10 | ||||
School Mortgage | |||||
Investments | |||||
Interest on investment (as a percent) | 5.25% | ||||
Issuance of a mortgage note | $ 2.1 | ||||
Note receivable term | 5 years | ||||
Fair value of assets held for sale | $ 1.2 | ||||
Impairment loss | $ 0.6 |
Supplemental Disclosure of Ca52
Supplemental Disclosure of Cash Flow Information (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Supplemental Disclosure of Cash Flow Information | ||
Cash paid for interest | $ 546 | $ 575 |
Cash paid for taxes | 11,211 | 4,741 |
Supplemental disclosure of non-cash financing activities: | ||
Property and equipment financed by capital lease obligations, including student peripherals | 16,119 | $ 13,969 |
Supplemental disclosure of non-cash investing activities: | ||
Stock-based compensation expense capitalized on software development | 1,053 | |
Stock-based compensation expense capitalized on curriculum development | 835 | |
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Assets [Abstract] | ||
Current assets | 209 | |
Intangible assets | 695 | |
Goodwill | 2,983 | |
Assumed liabilities | (234) | |
Deferred revenue | (361) | |
Contingent consideration | $ (500) |