K12 Inc., the Herndon, Va. public company that provides online curriculum and manages virtual schools for students in pre-K-12, topped $1 billion in annual revenues for the first time in fiscal 2019, according to its annual results announced Tuesday.
But a dispute with Georgia Cyber Academy over the company’s contract for serving 10,000 public school students added a sobering note to the otherwise upbeat report.
The company’s revenue growth of 10.7 percent year over year was “based on the managed public schools program,” said Nate Davis, CEO and chairman of the board, who spoke in a conference call for investors after the New York Stock Exchange closed yesterday.
It “again demonstrates the strength of our core public schools business and the underlying demand for blended and online school options.
However, Davis also acknowledged the “ebb and flow” of the business, using the example of the Georgia Cyber Academy, which K12 Inc. has been managing for the past five years. The school’s charter was set to expire June 30, 2019, but Georgia’s charter commission granted a one-year extension. However, students in the academy performed below state averages, according to reports, and the charter board overseeing the academy is working with new vendors, according to Davis.
The company has filed a demand for arbitration, asserting that the academy has breached its contract with K12 Inc. for the upcoming school year.
“While we are presently unable to predict the outcome of this arbitration, what we do know is the board of GCA school has already engaged other service providers for the upcoming school year,” said Davis. “These include providers for curriculum, computer equipment, and other managed school services.”
If the arbitrator does not rule in K12’s favor, it stands to lose millions of dollars in the upcoming year, according to a report in AJC.com. “The state and federal governments sent about $90 million in public funds to Georgia Cyber Academy this past year,” AJC.com reported.
Davis on the investor call said the school itself “wasn’t really that profitable,” and noted that it was “getting near break-even” in profitability.
A Focus on Career Tracks
K12 Inc. appears to be undeterred by the potential setback. “As with our strategy with all states, we’ve been seeking to work with other boards to open up more than one school in a state,” said Davis. In Georgia, K12 has been trying to open a school focused on career-readiness in the fall of 2020. But on July 31, K12’s petition to launch a Destinations Career Academy. which was recommended for denial by the charter commission’s staff, was tabled by that panel, after an attorney for K12 requested time to address deficiencies, according to minutes of the meeting.
Davis said the company is not banking on either the dispute with the cyber academy, or the prospects of a new school, coming out in its favor. “From an investor’s standpoint, we must conservatively assume that we will not serve GCA for the upcoming school year and our financials reflect that fact. We also cannot assume that the new school we support will be in service immediately,” Davis said.
“We have new statewide schools in Florida and Texas. A new school in Missouri. Eight new Destination Career Academies and three expansions,” said Davis. The managed public school business, “our core business, is growing and the environment for full-time blended and online education continues to be strong,” he said.
Davis cited the growth in the career-readiness business, which is a focus the company launched about three years ago, as one of its strengths.
The number of K12’s schools and programs has grown by more than 50 percent, he said. “Curricula continues to be developed, with a significant expansion of project-based learning courses,” he said. That means more hands-on experiences.
In addition to other changes, he cited K12’s development of “adaptive curriculum tools using cutting-edge, artificial intelligence capabilities, which we will be an important differentiator for student outcomes.”
Finally, the company has ended the year with $284 million of cash on hand. “We continue to be in a strong position to invest in the organic growth of our business,” and the company’s strong balance sheet will allow it to pursue opportunities for inorganic growth—mergers or acquisitions—”if and when they arise,” he said.