Greetings, and welcome to K12 Fourth Quarter Fiscal 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. I would now like to turn this conference over to your host, Mr. Mike Kraft, Head of Investor Relation. Thank you, you may begin.

Thank you and good afternoon. Welcome to K12’s fourth quarter and year-end earnings conference call for fiscal year 2020. 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. These statements are made pursuant to the Safe Harbor provision of the Private Security Litigation Reform Act of 1995. They 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 operational performance and results, please refer to our reports filed with the SEC. These reports include without limitation cautionary statements made in K12’s 2020 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 US or GAAP, we will discuss certain information that is considered non-GAAP financial information. A reconciliation of this non-GAAP financial information in 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 Nate Davis, Chief Executive Officer and Chairman of the Board; and Tim Medina, Chief Financial Officer. Following our prepared remarks we’ll answer any questions you may have. I would like now to turn over the call over to Nate. Nate?

Thank you, Mike. Good afternoon, everyone, and thanks for joining us on the call today. It's year-end so my comments will be a little longer than normal, but I wanted to give you a complete picture of the year-end review and the direction we're headed. First on behalf of my entire team here at K12, I'd like to begin by extending my thoughts and prayers to those of you who are suffering and have experienced loss because of coronavirus pandemic. Throughout my talk today I'll cover where our business is going to hurt by pandemic and also help to drawn more customers to our technology and services. So let's get started. I'm pleased to report that K12 ended fiscal year 2020 with a strong financial performance for both the quarter and the year, we met or beat our guidance across the board for revenue, adjusted operating income and capital expenditures, as most of you know we are now seeing increased interest in online school action across the nation. And we expect to see even stronger trends as we enter FY 2021. Our fiscal year 2020 revenue was $1.0408 million. Keep in mind that those revenues will largely little bit driven by enrollment trend before the pandemic hit. That's because due to state laws and policies by authorizers and local school boards, many case schools were restricted to taking new enrollment late in the school year just as pandemic hit the country. Therefore the fiscal 2020 impact on our revenues was very small. However we do anticipate a more significant revenue growth in FY 2021 which I will discuss in a few moments. Turning to profitability adjusted operating income for the year was $56.1 million excluding the impact of Galvanize acquisition adjusted operating income would have been $74.1 million an increase…

Thank you, Nate, and good afternoon, everyone. As you can see from our results, we had strong financial performance in fiscal 2020. We exited the year with great momentum leading into fiscal 2021 and we are well positioned for higher growth. In addition to reviewing our fourth quarter and full fiscal year results, I also want to provide some commentary on fiscal 2021 trends and discuss changes we’ll be making to our fiscal 2021 reporting. First to recap our reported results, revenue for the quarter was $268.9 million, an increase of 4.9% from the prior year. For the full year, revenue was $1,040.8 million, an increase of 2.5% from fiscal year 2019. For the quarter, income from operations was $7 million, an increase of $4.3 million from the prior year. For the full year, income from operations was $32.5 million, down $13 million compared to fiscal year 2019. Adjusted operating income was $12.9 million for the quarter, an increase of $5.7 million from the prior year. For the full year, adjusted operating income was $56.1 million, a decrease of $6.1 million from fiscal 2019. Capital expenditures for the year were $45 million a decrease of $3.4 million from the prior year. As Nate mentioned in each case our results met or beat the expectations we provided in our guidance. In fact we met or beat guidance every quarter this year as well as for the full year and that holds whether you include or exclude the impact of the Galvanize acquisition Now some additional details for the fourth quarter and the full year. The $25 million increase in revenue for the year was driven by the strength of our core managed public school business and our acquisition of Galvanize. This was somewhat offset by declines in our non-managed public school…

Okay thank you Tim. Laura if you’re still there I think we can move to Q&A with the end of our prepared comments.

At this time, we will be conducting a question and answer session. [Operator Instructions] Our first question comes from the line of Jeff Silber from BMO Capital Markets. You may proceed with your question.

Thank you so much and congrats And then congratulations on the strong finish and the momentum going into the current year. You provided some color on the demand trends and enrollment so far. You mentioned I think there are eight weeks left in the enrollment season. In a normal year, what percentage of your enrollments do you have by now and do you think it will be higher or lower than that this year?

Jeff, how are you doing.

All right.

We anticipated that everybody’s question would be how can you give that what the final enrollment numbers is going be. And I'm going to try to be disciplined and not give you that, because we don't know what it's going to be and this year doesn't look like previous years and we haven't disclosed what the weekly, monthly gross trends would be. So, I don't want to be evasive. The bottom line is we gave this back because we wanted to give people an understanding of where we are today, but I don't know how fast it's going to happen and I don't know how this year is going to relate the previous years. So, we're going to decline to give more details and just say we're at a $150 now and we know it’s continuing to grow. As you might imagine, we're seeing more demand this year than we ever seen before. But I don't know how much that demand continues. I just wanted to give it a little more coverage for investors than we’ve given in the past, but it’s just too hard to predict what's going to happen in this year. So, I really can't try to contrast this year to previous years and go through that math.

All right. You can't blame me for asking. [Multiple Speakers] Let me ask you -- I'll ask another question about the enrolment trends and I’m not looking for a specific number, but the type of demand that you're getting, is it coming more from parents, is it coming more from your school district partnerships? Are you seeing any impact to some of the new schools that you're opening, any color there would be helpful?

Sure. And yes, we can answer that one. It’s coming -- the primary growth is coming from parents who want to have an option for their kids, it’s enrollment in our – what we traditionally have called managed school, that's the primary goal, we are seeing increase however in school districts who call us and want to use our content and with more of those contracts this year than we've ever had in any one year before, I mentioned Miami Dade you know there's others we're working on, not yet close but maybe not as large as Miami Dade, I said there are 270,000 there are others that are literally anywhere from 10,000 to 100,000 students. So we're seeing more demand there as well but by far the biggest demand, the individual parent saying I need to get my kid into a safe environment and the new school – the new schools that we’re turning up are doing well, they are in small states obviously they are not in the bigger states but they’re filling pretty fast, so we're filling those schools up kind of faster than we thought, we would, so they’re all doing as well, but they’re small it’s existing state that you might imagine, so Floridas and Texas’ and Ohios you know Michigan all of big things we provide school that’s where we are seeing the greatest [indiscernible] as well.

All right, great let me sneak in one more then I'll jump back in the queue. So what do you say to those folks that think this might just be a one year spike in you know hopefully if we get a vaccine and a year from now schools are open as regular and all those students will return to their old school, how will you grow post-pandemic?

That’s an excellent question Jeff and when we think about that on a constant basis, we’re actually focused as a team on what we can do in FY 2022, right now we we've had that conversation as a matter of fact we had conversations about it earlier today, I would say a couple of things there are five major factors to how we continue to grow, the first is retention and I mentioned in my script that everybody in the organization knows we’ve got to provide a great experience for our all the experience. They’re going to come in and they’re going to say I thought I was going to one time program. We want to show better than they thought it would be. It’s a learning more with great flexibility in this program. They can do things that they could have done in, are we going to lose some whenever schools open back up absolutely but will we lose them all. I don't think so. I think we've got a good program and we’re going to keep. The second is socialization. That's number two. We have a number of programs that we are focused on so that when we have the opportunity just like when regular schools have the opportunity to open up. We're going to have a number of socialization programs some of which we're ceding now but they're online and then we'll have people in person interfacing with each other whenever COVID begins to subside. Third is Galvanize though we will continue to see Galvanize accelerated growth in the consumer business and by the way once COVID subside well, you might say the core business might lose some students, Galvanize gets back even higher growth because not only we’ll have online, we’ll now have the brick and mortar. Fourth would be learning solutions and learning solutions is growing again. It's getting market recognition and what we're finding is that that's the deal that we're doing and the people we're talking to are not doing it for one year. They're realizing this is an ongoing opportunity for them to include distance learning and their capabilities. And he's got to think about the backup programs that are necessary for hurricanes and snowstorms and fitness, all of those situations require having backup those and they're all realizing online could do that but the biggest one at above my side is single biggest one is the growth in clear learning. We have a lot of energy effort put into that. We're opening up more schools and we think we're going to grow continued growth in career learning at a higher rate than we've seen in the COVID. So when you add the improvement and the focus on retention post utilization, learning solutions growth, Galvanize growth and career learning growth, you see and we believe that we will not – it’s not just a one-time yield, we’re going to continue to grow. Does that help you?

Right. Appreciate -- yeah. It really did. Appreciate the color. Thanks so much.

Thank you, Jeff.

Our next question comes from the line of Stephen Sheldon with William Blair. You may proceed with your question.

Hey thanks. It’s good to hear on the enrollment momentum. Just curious if there is anything notable about the grade levels where you're seeing higher enrollment profit, are the enrollment skewing kind of older or younger? And can you also talk about enrollment trends through August between career readiness and your traditional programs?

The percentage growth between the two is about equal. We're not seeing one grow faster, the other from the time. But in terms of – I'm sorry. The first part of your question was…

Kind of a throw a break down I guess of the enrollment momentum between the age of students and then career readiness versus traditional.

So, yes. So we – it's kind of across the board. We – there is a slight different in the high school students and products that they're going after so we actually see a little more growth in high school. Primarily we have more of the high school. But generally we've seen it across the board. I mean I'm not seeing a dramatic difference between high school, middle school and grade school, I would say it’s coming forth.

Got it. And then on teacher hiring, I guess how much do you – have been made on that front so far, How long did it take them to get up to speed and how are you thinking about the teacher to student ratios in this environment?

Teacher hiring is going well. It's amazing how we - when you - when you need to hire more teachers, you go after them more aggressively. We also have I don't know if you notice, but we have a part time work force that Learning Solutions group on whenever they need you. And we’ve engage those teachers by the way there - there are a couple of thousands of them. We engage those part time teachers to try to get this medium to some full time for the year. We have gone to colleges and universities to hire more from those courses, who worked for Teach for America to try to take more of the graduates coming out of their – their program. So teacher hiring is actually going pretty well. Make no mistake, so we still get a lot of hiring to get done for the best year. In terms of how fast they can get up to speed, our program has a standard set of train that we've honed over many years and it only takes them about two weeks to go through the training. The teaching techniques themselves they already understand because they're experienced teachers. What's happened is they learned our system and they don't have to know all of the system that they as part, but they need to know is what the beginning of the content in the program. And the students are learning throughout the year, the teachers are also getting more and more familiar with it. So with that professional development session for all going to teachers, get them to their first week, first week training and then we will continue that development also.

Got it. And it's just the last one for me I think, I think Tim you might have mentioned is they're raised in this quarter some revenue from services for the Georgia Cyber Academy. So, can you quantify that?

Yeah. It was $4 million.

Okay. Perfect. Thanks. Congrats on the results and the momentum.

Our next question comes from the line of Greg Pendy with Sidoti. You may proceed with your question.

Hi guys, thanks for taking my question. Just, if I understand this correctly in the commitment to breakout career and learning, would that be in, if we were to run through this quarter, the 160,000 if you break that out into 103,700, I got a traditional general education and then you have the say 13,000 or so in the career learning, is that the commitment you guys will be reporting next year?

So what you're asking of Greg is you are saying from our 122,000 -- 3,000 that we reported in the first quarter of this year, 5,000 were career learning students and the remainder were general education.

And then I guess just the next question, I mean just going back to that article that you guys put out a while back on the teachers at 1,300 teacher hiring. I mean what is the general philosophy ahead of arguably uncertainty in terms of enrollment are you guys willing to stand ahead of growth or are you going to be more, I guess even if even if some of the enroll – and pair back just from your spend. I mean how are you guys just big picture thinking about arguably very big fall from an expense standpoint.

Yeah. I got it. Big picture is this, quality is more important. We have to deliver this. So, we're hiring teachers ahead of the demand. That means we take some financial risk. The fact is we may have more teachers than the demand requires, but so far we haven't been wrong. The demand is strong. So we try our best to hire ahead of it. I don’t know if that answers your question, but yeah, that means there is some risk that we will have more teachers than we need. I don't think that risk is high. I think it's pretty low risk because of what we've seen in the 150,000 number we reported today shows that the demand continues to grow and we're not going to end up with too many teachers, we’re going to end up with right number. But philosophically you have to approach the problem and to answer your question directly, we try to hire a head of demand, we’re doing our best to get our front end demand because the quality is important. At the end of the day, if we have to have a couple of million more in the expense and we'd like to have, but what we did was we had the right set of teachers on board before students out there. That to me is more important because the opposite means you're going to have bad academic results and the COVID tension [indiscernible] afford that.

Yeah. It makes a lot of sense. And I’m assuming teachers remain hiring risk that your – expense that you’re looking into the fall, correct?

That's correct. And then also remember that…

Okay.

…the number is not just teachers, the teachers and administrators, now bulk of it is teachers, but there are some administrators in there, academic administrators and counselors and things like that is also get…

Our next question comes from line of Alex Paris with Barrington Research. You may proceed with your question.

Hi guys. Thanks for taking my questions. Congratulations on a strong finish to the year. It looks like you have a great year coming up. So just to pick on a little bit, what are you seeing in terms of from the states in which operate in, any telegraphing or signaling on what school funding might look like in the coming year, revenue per students and that sort of obviously – there could some pressure there but do you have anecdotal information that you're seeing operating in that space.

Yeah and you said taking our questions, we always take your question.

Absolutely, thank you.

Yeah, so yes we are seeing some signals from states, some states are struggling with the issue more than the others. We think that that on average rates will not go up you know we are going to have a year when people are struggling that their economies, they’re struggling with their taxes and so we're not going to see rates go up, but we also know that every jurisdiction is struggling, they don't want their kids to lose a year of growth, so we've basically seen most states saying we're going to find a way to fund education, they're not backing off funding education. Now you know you might see small differences in the 1%, 2% kind of change but we're not seeing anybody say hey we're going to drop our rate and drop our reimbursement rate, you know any significant number that I’ve not seen anybody say that to state, they're all committed, they have to fund education and then they have to find a way to get that done, in addition to that CARES funding has really helped the state. The federal government has dropped a lot of fund into the states to help them and many of the states are counting on even more CARES's spending to help through the year and then they've done some savings they saved a little bit of money from some of the things they didn’t spend money on, you know in their sports, in their building and things like that and they’ve taken that money and they’re putting that money into online, so we are not seeing any dramatic reduction in rate, although you know I want to be cautionary there. We know that everybody is down on taxes because - people - there are less people working and more people on unemployment. So there's less revenues to states and the states are struggling with how do we solve this problem. But you're not backing off education to do so I don't know if I'm giving you enough color. But that's how we see it.

No, that's great and helpful I appreciate it. And then I guess my last question is about a point that you made, you have over $150,000 enrolled in managed public schools for the coming year as there -- what are the variables in terms of those enrollments started and what is your historical exposure there.

Good, good try out

Good try

I'm not going to give numbers on it but…

Okay

I’ll say how we think about it and how we're analyzing it. But the numbers to be honest with you they’re surprising. Each time we look at the numbers that are different than our previous year’s trend. What we know is that every year when parents enroll in our system throughout that season there is some percentage of them relatively small percentage who then decide they're not going to show up. So there's what we call a melt right so there's X number - it will be x minus number who actually show up. But it's a small percent. At the same time we also know that we get a lot of enrollments that happen through the end of season

Yeah

Especially as parents figure out whatever their other option wasn't available. I need to get into something. And lastly we're seeing from all of our surveys we’re seeing a number of parents say I don't know what my public school district is going to do I’m a little worried about that so we’re seeing kind of an increased demand in the last few weeks that people worry about the health issue. So while none of our trends look like the trends from previous years, we do look at all of these factors and look at them quite honestly every day, we tracking them that done almost every day. And what I'm not going to give you, how did they do this year versus last year. I'm going to tell you we monitor. And when I say we're going to be in strong double-digits, that's based upon looking at the trends we've had in the past. The trends we're looking at today. We analyzed this pretty closely. I'm going to be consistent here. I'm not going to disclose all of the specific trends I'm just going to tell you we monitor those trends very closely and we wouldn't make the statement we made if we weren't comfortable that that we've got a good handle on where there is no mistakes are coming out.

Yeah. It sounds reasonable. I appreciate the extra color. Thanks guys and good luck.

Thank you.

[Operator Instructions] Our next question comes from the line of Troy Adam [ph]. You may proceed with your question.

Hi. I'm in the education industry and so I was just wondering what – similar question to be forward the parents driving the demand. What percentage of your services are offered directly to the parents and what percentage are going through the actually public or private school system?

On our public reporting, we do disclosed how much of our revenue is come from, what we call managed schools and how much it comes from private schools, how much it comes from the institutional business. And so I don’t know that the percentage right at the top of my head, but some in the range of 85% comes from the - what we call the managed schools, the schools where we're offering - our schools are offering the service directly to consumers, another maybe 7% to 8% are coming from the institutional and then a slightly smaller percentage are coming from private schools, so that’s generally how I would break it up.

Okay. Thank you for the general statistics

Okay, thanks Troy appreciate you being on the call.

Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn the call back over to Mr. Davis for closing remarks.

Well I want to thank everybody for listening to the call and staying with me as I had longer than normal comments today but we had a lot to report on, we obviously gave a little different stat than we normally do but we thought it was important in this unprecedented time to give you some sense of where we are, I appreciate everybody being on the call and I hope everybody is safe and sound and have a great rest of the week, thank you.

This concludes today's conference you may disconnect your lines at this time. Thank you for participation have a great day