Greetings and welcome to the K12 First Quarter Fiscal 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Mike Kraft, VP of Finance. Please go ahead.

Thank you and good afternoon. Welcome to K12’s first quarter earnings conference call for fiscal year 2018. Before we begin, I would like to remind you that in addition to historical information, certain comments made during this conference call may be considered forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and should be considered in conjunction with cautionary statements contained in our earnings release and the company's periodic filings with the SEC. Forward-looking statements involve risks and uncertainties that may cause actual performance or results to differ materially from those expressed or implied by such statements. In addition, this conference call contains time-sensitive information that reflects management's best analysis only as of the day of this live call. K12 does not undertake any obligation to publicly update or revise any forward-looking statements. For further information concerning risks and uncertainties that could materially affect financial and operating performance and results, please refer to our reports filed with the SEC, including without limitation cautionary statements made in K12's 2017 Annual Report on Form 10-K. These filings can be found on the Investor Relations section of our website at www.k12.com. In addition to disclosing financial results in accordance with Generally Accepted Accounting Principles in the U.S., or GAAP, we will discuss certain information that is considered non-GAAP financial information. A reconciliation of this non-GAAP financial information to the most closely comparable GAAP information was included in our earnings release and is also posted on our website. This call is open to the public and is being webcast. The call will be available for replay for 30 days. With me on today's call is Stuart Udell, Chief Executive Officer, and James Rhyu, Chief Financial Officer. Following our prepared remarks, we will answer any questions you may have. I’d like to now turn the call over to Stuart. Stuart?

Good afternoon, and thanks for joining us on the call today. Today I want to provide you with our guidance for fiscal 2018, as well as an update of our date enrollments and other developments in our business. As noted on previous calls, we continue to see demand across the nation for online and blended learning option. As of the October 4, count date total enrollment in K12 managed public schools rose 2.4% year-over-year to more than 111,000 students. We saw growth in both our existing and new school. Importantly after three years of decline, this is the second year in a row in which we posted year-over-year gains in managed public school enrollment. I also want to point out that due to our previously described retention issues last year, we ended fiscal '17 with about 97,000 enrollments which was 1000 lower than the prior year. Therefore, our jumping off point for the fiscal 2018 year was actually lower than prior year, yet we still managed to post higher count date enrollments. This represented growth from fiscal year end to count date of about 14% which was a 4% improvement over prior year. Set differently, we grew from about 97,000 enrollment at the end of fiscal '17 to more than 111,000 enrollments by October 4 for a growth of about 14,000 enrollment. This is strong performance and I believe it's not only an indicator of market demand but also out of our potential to grow in future years. Now as I review our performance, I see a number of factors that drove enrollment levels. First, we saw an increase in student reregistration rate. In fact, this is the highest reregistration rate in four years. This year's reregistration effort started earlier and included an enhanced framework designed to provide families the…

Thank you, Stuart and good afternoon. Turning to our results, revenue for the quarter was $228.8 million marginally lower than the $229.1 million from the prior-year. Increased revenue in our managed public school programs were offset by declines in institutional private pay businesses. Revenue for managed public school programs increased 2.1% compared to the year ago quarter to $188.5 million. The increase was largely a result of 2.4% increase in student enrollments, somewhat offset by lower revenue per enrollment. School mix was the primary driver of the lower revenue per enrollment. I also want to reiterate some of the comments Stuart made regarding how we are jumping off point for the enrollment in this fiscal year was actually lower than the previous year that we still posted higher enrollments. Specifically we ended fiscal '16 with Q4 enrollments of 98.4 thousand and improved to accounting enrollment 108.5 thousand of approximately 10% growth. In comparison we ended fiscal '17 with Q4 enrollments of 97.4 thousand what Stuart mentioned a 1,000 less than the previous year and grew to accounting enrollment number of 111.1 thousand or about 14% growth. So while we saw 2% year-over-year accounting enrollment growth, we saw a four point growth in performance from our account at the prior end of school year. This reinforces our view that demand for our programs remain strong and we believe bodes well for future growth. While we may face headwinds in any given year, we believe that this demand coupled with continued improvements in student retention which we should see this year compared to last year can translate into solid and improving enrollment and revenue growth for core business in fiscal '19 and beyond. In terms of revenue per enrollment, we continue to see a positive overall per-pupil funding environment continuing through fiscal…

[Operator Instructions] Our first question comes from Jeff Silber with BMO Capital Markets. Please proceed with your question.

Just a question on the enrollments side, I know in prior years and maybe with just last year we saw a shift in the type of contracts from managed to nonmanaged that impacted the enrollment counts on each line item. Was there anything like that this year or is this kind of an apples-to-apples comparison?

This is pretty much an apples-to-apples comparison there wasn’t really anything that shifted between the categories year-over-year.

And then in looking at nonmanaged programs, obviously you had the large enrollment drop yet revenues per average enrollment went up substantially. Can you give us a little bit more color what's going on there specifically and is that something that you continue throughout the remainder of the year?

Yes we had a pretty good mix within our client base obviously we're trying to mix into clients that are more profitable for us. We provide a little bit more for them. Stuart mentioned that we have - we don’t provide the marketing services for all clients so where we can provide them that will give us a higher per enrollment revenue mix because we do charge for many of those. So overall I think that there was just a little bit of a better mix. I think what you’ll see for the year to your other question I think is a similar trajectory of year-over-year revenue per enrollment. So as you know it's dips down in the fourth quarter but on the year-over-year basis we should see something similar throughout the year.

Now I know intraquater I believe you had some disclosure about or maybe you disclosed it - the papers about issues in one of your schools in Indiana, I was hoping you can address that for us.

Yes, we had some issues in the Hoosier Academy in Indiana which the board has elected not to pursue renewal of the charter which expires at the end of this year. So it’s not a matter of the school being closed, but they have decided not to pursue the charter. Now the board still maintains two other charters in the state and we did launch an entirely new school in the state of Indiana this year. So as we move through this year into the next back-to-school season we will have three schools up and running right now we have four in the interim, but the steady state has been three schools in Indiana and we will enter next school year with three schools as well. So we have other ways to continue to serve the students in the state of Indiana.

And then just one follow up final question, you mentioned your CTE programs how larger are those right now.

So we don’t disclose these items, they are pretty small over the past couple of years we said we just really answering from last year, they were just a set a few schools we just had a few programs. We didn’t really mark heavy to them. We're still getting our fee raise, we saw Stuart had strong growth but they’re not materials to be overall number but the trajectory that we see both in the acquisition side and the retention side as Stuart mentioned are very promising and we look to further invest this year and into next year.

And are there any difference than your regular programs in terms of either revenue per student or potential profitability?

They are not materially different. We are looking at opportunities to capture some additional revenue date with our CT specific funds available and things like that but for right now they are not materially different.

Our next question comes from Alex Paris with Barrington Research. Please proceed with your question?

This is Chris Howe sitting for Alex. I was just wondering if could provide some additional color on the Southern New Hampshire University partnership kind of how it came about and maybe the difficulty in obtaining this partnership and what should be our expectation for a similar type of partnership moving forward?

Well we think we’re highly unique partner because they are certainly one of the leaders and the fastest growing online both secondary institution in the country they are known for very high quality program. And what one of things that makes them highly unique is that they are both project based and competency based. So that's very different then just about every other graduate education program in the country. The other thing that makes it unique is that they are building it alongside us, so we are going to be working together with - we’re starting with anthropological study where they will be observing our teachers, teaching in their natural habitats in their houses we are also going to have a lab up in Southern New Hampshire for little bit to study exactly what great - what the characteristic of great online features look like. And the program is also unique and that it will be interweaved with K12 training program that we have in place for all teachers. So we are building the program collaboratively in three pieces, the first module will be a series of training modules that roughly all 5000 or so of our teachers will go through as part of their core training program. The second piece stacked on top will be a micro-credential so student will effectively get a badge for completing it which K12 will administer. And the third component will be the opportunity for teacher to finish their graduate education with Southern New Hampshire and they will have the ability to take that second piece the micro-credential and roll it in for credit into a master's of education programs. So it’s a very integrated program with our own internal training system. We will provide it as I said I need to highly subsidized or potentially even free basis for our teachers because we believe with assuredness that the better we train our teachers in a customized program to teach in an online teaching environment which you know it's really hard to be a great teacher, it’s even harder be a great teacher online and we’re building a customized program to teach that. But the bet is and the bet is that these better trained teachers will be more engaged teachers, create better engagement with students and ultimately better retention and financial results of the byproduct of doing the right things for kids. So we see nothing like this in the marketplace, we think - there is a revolution needed in graduate Master's of education programs and we have - we think the only really terrific partner in the country to go build that with.

And then just following up in your comments on Big Universe going into Spanish bilingual. Is that an area of interest moving forward, is this just the beginning. Should the growth in Fuel Ed be expected organically or is there a pipeline of opportunities that you see on the horizon?

Well it’s a terrific little product and program that has been getting absolutely fantastic results and if not rocket science if we give kids great buffs really engaging full color literature that high interest level to get to pick you want to go read five books in a row on butterflies you can do that. That students will engage in reading and we can measure their reading practice more carefully. We know that at least better outcomes of all types not just in reading but another subject areas. Now Big Universe is a fairly modest in terms of scale right now that get a very small but loyal customer base in K-12 school. But the opportunity for Big Universe for us is really two-fold on one hand we will take that platform and fully integrate it with our core managed public school platform, so that reading practice will be taken to the particularly for elementary kid to much to a newer and much more engaging level. And secondly we will distribute that product through Fuel Education to mostly public and even private school systems across the United States. So that’s the plans we have. We think it has significant potential as a standalone product, and really important purpose for us in our core managed public school program.

[Operator Instructions] Our next question comes from Corey Greendale from First Analysis. Please proceed with your question.

So few questions on the managed enrollment, so given that you resolved, the retention issue last year that the comps get easier. So anyway you can give us a sense like - I am assuming that means year-over-year growth could improve as the year is gone, do you think you get up the kind of mid single digit growth by end of the year what are your thoughts are there?

I think part of the best - Corey maybe the best comp if you will to look at is you might remember in fiscal 2016 we had a really good retention year it sort of provided a fully different arch of quarter-to-quarter-to-quarter enrollment throughout the year than we had seen in years prior to that and all things been equal we think we could do something similar this year, get back to those retention levels maybe a little bit better. So while doesn’t get to quite to the mid single digit but it certainly gets you some improvement throughout the year.

And then on the nonmanaged enrollment, can you just elaborate a little bit on - I think you mentioned one school didn’t renew and another had some issues can you say anymore about those two schools?

Well we typically don’t disclose who particularly lost their clients but we did have one significant charter school operator that decided to move in a different direction. And as we said we had one of our larger nonmanaged partners who declined a little bit on a year-over-year basis then in aggregate you know was obviously pretty significant. But you haven't quite asked the question this way, on top of it we did have self execution problem as you know because we’ve shared on the prior call Shawn Ryan is in place he is kind of new General Manager of Fuel Education and he has been in the process of strengthening his team. So we feel optimistic about the future. We know the market is there and we have the responsibility for executing better particularly from a sales perspective on forward basis.

The one that didn’t renew did they go to a competitor or they were doing themselves?

I am not particularly certain but I don't believe it was to the loss of a competitor they - our program that uses multiple products and I think I just dropped off for whatever reason I'm not quite sure.

So if you look at the enrollment pattern and nonmanaged enrollment pattern in fiscal 2017. The enrollment up sequentially as the year went I’m telling it’s pretty unusual is there any reason to think could have initially affected this high watermark for the year?

Yes, I think - I’ll sort of again fiscal 2016 prior a little bit barometer of how the enrollment trend might look this year. I don't think we’re going to get the type of - like you said last year was a little bit unusual, there was a couple where particular situation that happened last year which I don’t think are going to recur this year. So '16 is higher more likely type of the trajectory.

And then James actually had a question for about the Q2 guidance. So if you look at the quarter you just reported revenue was basically flat year-over-year right operating loss, the adjusted operating lot got better so less of a loss this year than last year? The guidance is more or less flat revenue in Q2 but that’s good - the guidance on the adjusted operating income relative to last year so what accounts for the year-over-year weak kind of basically November was better in Q1?

Yes and some of it is just some of its timing there was accounting things happened during the course of the quarter. There really wasn’t anything too structural in that. We did do - we have some higher seasonality in cost. And so we were a little bit tighter this quarter that we’re really more efficient because I think we just - we actually I think our results are pretty good but we did it with a little bit less. So I think we were little more efficient but nothing really of note other that, so I think out of the ordinary fuel.

And as Jim said this can imply in the guidance just to be clear if the managed enrollment can get better the year-over-year comp may better year as the year goes on it sounds like the private they can get better that both topline and bottom-line results should get better year-over-year in the back half-year of the year relative to the first half?

Right.

Our next question comes from [Mark Schapiro] with [indiscernible]. Please proceed with your question.

Just a quick question on the managed school business. You talked about some of the new states and your ability to kind of accelerate growth to managed schools over time. Maybe you can just touch on case like Florida where you got significant expansion opportunity and how that may layer in growth over the next couple of years?

I mean Florida is very exciting state for us. We have been operating with both Fuel Ed programs and some charter programs that were within district borders. What happened in Florida that was very exciting this year is the state got opened up for - open enrollment state wide. So we've been able to use our existing vehicle to improve enrollment in the state in year already and suffice it to say we've had nice growth in Florida this year and we’re working hard to build more capacity in there in years to come and we don't have any reason to believe it can be one of our most significant states over period of time. The other very significant state that we expanded our work into, we of course have at least - we have a couple nonmanaged partners in the state of Pennsylvania already but we did get charter approval to open insight school in Pennsylvania. So it’s the only fully managed program we now have in the state of Pennsylvania. We are off to what we think is a pretty good start there and we continue to work carefully and closely with our other partners in the state. The insight school of Pennsylvania will ultimately be somewhat different than the non-managed partners we have in Pennsylvania and that it will have a CTE flavor to it over time which allows us to really - we think optimize that market and get kids with different types of interest into different program some of them of course being orphaned and some of them being partner program. So that’s another state - we obviously know there is very high funding level for student in the state of Pennsylvania and we are also excited about the opportunity of it being a very established state I should say in terms of acceptance of virtual education - new opportunity.

As you see momentum growing for kind of the blended solution for students who want more choice. Do you see the penetration rate of student population changing at all and if the market can today bigger four companies like yours to address that market and maybe it’s been in the past is there more confidence in that market opportunity and maybe there was in the past?

Yes, we think that blended is an opportunity to try to expand that TAM a bit so there are folks who want some level of socialization. Blended can also play an important role in providing enrichment opportunities so for instances in Nevada we have an incredible school that provides in lego and robotics and other kind of science exposure. And in fact we had the only I think - two years ago we had the only robotics team in the state to go as a national championship to that school. We also think blended can play a real role in intervention to offer kid to need extra help. And we have quite a few blended programs setup across the nation right now and it is an area we’ll continue to expand. The opportunity is significant it also comes with a challenge of figuring out how to provide that as economically as possible. So we continue to work with our partner school to try to speak out what we think are fair and appropriate funding levels for blended programs.

The other opportunity that we really do see to expand the market growth to TAM is the CTE, I mean well it’s a very small for us today, all of our preliminary research and preliminary acquisition modeling indicates that there's a lot of demand across a lot of states we’re just scratching the surface. And we think that could be a pretty material addition to our growth in the years to come.

I am just going to say, I mean that’s an area where we think the mega and macro trends really line up. Last year - or this year in the 50s state of the state 18 governors sighted CTE as something that's important to them. We know that business is looking to fill an estimated 5 million to 6 million open middle skilled jobs by the year 2020 and in research that we've done parent research we know that - you know parents want their kids to have marketable skills because that can lead to better job and opportunity. So the interesting thing about CTE is that you know it’s not the old vocational education that many of us grew up with it, it’s really an opportunity that opens to both kids who need an alternative and students who are still college-bound, but want additional marketable skills and credentialed and certification. So we think we have an opportunity - we think the market is significant and we have opportunity to help expand it by telling the story.

I was just going to ask Stuart whether this is a business that you grow organically, it basically expand over several years while there are inorganic opportunities that really accelerate the growth in this business?

Well I think we certainly have both. So organically we have been able already open up seven academies either in combination with or standing alone. I think that quite a few of our existing managed public schools will want to open CTE schools within schools over time. We also have the opportunity to open many new ones. On the inorganic side we are looking as well - we probably will be more focused in organically on content plays and other tools that can help those types of students whether they’re career counseling opportunities or opportunities to engage with others types of groups that could be helpful to advance the CTE student’s career. But we are looking at both is the short answer Mark.

And just last question on institutional business, how quickly do you think - how long do you think it will take to turn that business around. Obviously we've fixed the window this year, do you expect to get back to growth next year in that business?

We do I think that’s the only acceptable answer for us and we do feel like we have a pretty good understanding of the issues. We've been working hard on sales execution really bifurcating our sales channel strategy. On inside sales basis we’re selling lot more of our transactional products and the outside team we're training up to sell more and more consultant fashion and really higher level higher ticket complex implementations which we think we're uniquely qualified to do because we’re really one of the only players in the marketplace that offers an instructional component which means the turnkey solution. So - we have the ability to do it. Our expectation is that we will be back to growth by 2019.

I was just wondering and thinking to myself that with the managed school business seeming to gain momentum and the outlook there improving whether - how long a lease do you have on this business before you decide whether this is something core to take off over the long-term?

My perspective is this is a business that should be multiple bigger than it is, we have to figure out how to get there but clearly we’re enthused about the continued growth in managed public schools. And frankly when we just do the mathematical exercise around if we have the ability to improve retention this year to the levels we think we can in managed public school and then continue to execute against moderate growth as we have this selling season with managed public school. We think we could have some pretty good out years to things come together at the right way. So that's just kind of mathematical opportunity for us.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to management for closing remarks.

Once again thank you everyone for joining us this quarter. We greatly appreciate you being here and we look forward to reporting to you in about 90 days or so. Take care now.

This concludes today's conference. You may disconnect your lines at the time. Thank you for your participation.