K12 Inc. Loses Ground in Contract With Major Cyber Charter School

Associate Editor

The board of Agora Cyber Charter School, the second largest virtual school in Pennsylvania, has dealt several blows to K12 Inc., the publicly traded company that manages the school and provides key technologies and services to run it and educate its students.

The board voted unanimously in meetings over the past few weeks to transition Agora into a self-managed entity, hiring executives to lead the 10,800-student virtual school, and contracting with new vendors for its student information system, learning management system, and computers, beginning July 1, 2015.

Now, it appears Agora is working on developing its own curriculum for grades 6 to 8 over the next year, a step that might suggest the K12 Inc.curriculum Agora currently uses could also be in jeopardy of being dumped as well. 

“It’s sort of the worst possible scenario for K12,” said Trace Urdan, a senior analyst for Wells Fargo Securities in San Francisco. K12 gets about 13 percent of its revenues from Agora, and about 10 percent from the Ohio Virtual Academy, according to the company. 

Although no final decision about the curriculum has been announced, if K12 loses that final piece of the contract, it could impact the company’s earnings by as much as $44 million annually if no adjustments are made to K12’s overhead, Urdan estimated in an Equity Research report. “We’ve been counting on them to hang on to the curriculum piece, which is high margin for K12,” Urdan said in the interview.

On Friday, K12’s stock was trading near its 52-week low price of $17.15, although K12’s fourth-quarter earnings beat analysts’ predictions.

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A K12 spokesman declined to comment on the developments at Agora, referring Education Week to its June statement, which indicated that the renewal application for Agora’s charter agreement with the Pennsylvania Department of Education would govern operations for the 2015-2016 school year and beyond. Agora is the second-largest charter school in the state, behind the Pennsylvania Cyber Charter School, which is not managed by K12. 

Mary Steffey, who chairs the Agora board, said Friday she would not comment on the developments.

Partnering with school districts and nonprofit charter school boards, K12 provides school management services to 74 online-only and blended public schools in more than 30 states, according to the company.

Board minutes indicate that Agora hired David Zeiler, a former executive of EdisonLearning, Inc.—a Tennessee-based virtual school operator—to become its “liaison executive officer.” 

“This is one of K12’s most profitable schools, so it’s going to hurt them,” said Gary Miron, a professor of education at Western Michigan University who conducts research on for-profit and nonprofit education management organizations. “It’s profitable not because of it’s performance, but because it’s a large school and because Pennsylvania pays very high per-pupil funding for virtual schools relative to other states.”

Earlier this year, Education Week covered the pushback against cyber-charter applications in Pennsylvania, where six applications to open new online schools were denied based in part on the issue of who would manage them.

Agora’s new, in-house management team has huge plans, said Urdan. “The ability to swap out every single piece of technology, re-organize the way the school is organized, swap out a large chunk of content in time for next year, and train all teachers in a new system—not to mention parents and students—seems enormously ambitious,” he said. “To get this all done without skipping a beat? We’ll see.”

Miron, for one, doesn’t think this spells long-term trouble for K12. “I’ve seen their stock prices go down after every scandalous report about their performance,” he said. The price rebounds because “what matters to investors isn’t the same as what matters to taxpayers or policymakers,” he said. “We’ll see their stock value go up.”

SOURCE: Stock chart from Google Finance

5 thoughts on “K12 Inc. Loses Ground in Contract With Major Cyber Charter School

  1. Does this mean Pennsylvania taxpayers can get their money back from K12 Inc.?

    Pennsylvania’s Agora Cyber Charter, managed by K12, Inc. never made adequate yearly progress under No Child Left Behind
    · In 2006 its AYP status was Warning
    · In 2007 its AYP status was School Improvement 1
    · In 2008 its AYP status was School Improvement 2
    · In 2008 its AYP status was Corrective Action 1
    · In 2010 its AYP status was Corrective Action 2 (1st Year)
    · In 2011 its AYP status was Corrective Action 2 (2nd Year)
    · In 2012 its AYP status was Corrective Action 2 (3rd Year)
    · In 2013 Agora’s School Performance Profile score was 48.3 on a 100 point scale; Acting Sec’y of Education Carolyn Dumaresq has indicated that a score of 70 is considered passing

    In addition to never making AYP. Agora’s 2012 graduation rate was 45% while the Philly SD graduation rate was 57%
    http://thenotebook.org/april-2013/135820/cyber-charter-graduation-rates

    School Choices: K12 Inc execs taking $2K per student in salary. 8 execs, 75K students, $21M in salaries. 20% of revenue in 8 pockets.
    Morningstar Executive Compensation
    http://insiders.morningstar.com/trading/executive-compensation.action?t=LRN

    1. You should have worked for them Larry. The list of unethical practices and policies is enough to make any educator or taxpayer angry.

  2. As a former teacher for Agora I can vouch for the unscrupulous tactics that they employed in order to bump up passing rates. For example, my students were with me for one semester. the lowest grade they could be given for the quarter was a 50%. If a student turned in no work at all they still received a 50% for the marking period. This meant that in order to pass the course and receive the English credit they only needed to get a 70% the other marking period. This was common knowledge amongst the students and they took severe advantage of this policy.
    Their attendance policy was also anything but ethical. In order to be counted present they needed to log in to 75% of their courses. If a students logged in for only a few minutes they were counted as present. I had a student on my roster with 110 unexcused absences.
    The list of unethical practices goes on and on. The principal at the high school level advocated these policies and turned a deaf ear to our misgivings. This school needs to be investigated by the state and either forced to follow ethical guidelines or be closed. They are wasting the taxpayers money.

  3. How do virtual schools support the academic, social, and emotional needs of at-risk students from a distance? This is a question I would like answered from the student’s perspective. If you know of any high school students enrolled in a PA virtual school that would agree to complete a questionnaire and two online interviews, please call (215) 550-1236. The students will earn a $100 Visa Gift Card for their time.

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