K12 Inc. historical and projected financial summary from House Oversight document

k12 Summary Historical and Projected Financial Information Fiscal Year Ended June 30, ($ in millions) 2002 2003 2004 2005 2006P 2007P Revenue $6.7 $30.9 $71.4 $85.3 $1160 $132.2 Growth 362.1% 131.0% 19.5% 36.0% 14.0% Operating Income ($30.4) ($28.0) ($6.9) ($3.3) $2.0 $6.4 Operating Income (454.3)% (90.4)% (9.7)% (3.8)% 1.7% 4.8% Margin EBITDA ($28.6) ($25.1) ($2.0) $2.2 $5.7 $12.3 EBITDA Margin (427.9)% (87.1)% (2.8) % 2.6% 4.9% 9.3% Net Income ($30.4) ($28.4) ($7.4) ($3.5) $1.3 $5.2 Net Margin (454.5) % (91.7)% (10.4)% (4.1)% 1.1% 3.9% Historically, the majority of k12’s revenue has been from virtual schools and district-managed virtual programs. Traditionally, k12’s revenue growth has been driven by three major factors; (i) the addition of grades, (ii) the addition of states and (iii) same-store growth in existing states. In 2002 k12 began operations in two states (Colorado and Pennsylvania). In 2003 revenue grew to $30.9 million from $6.7 million during the 2002 fiscal year end. Growth was due to the addition of four new states (Ohio, Idaho, California and Arkansas), three new grades and same store sales growth of approximately 40%. During 2004 revenue increased by 131.0% to $71.4 million. Revenue growth during the 2004 fiscal year was due to the addition of five new states (Minnesota, Arizona, Florida, Wisconsin and the District of Columbia) and two new grades. During the 2005 fiscal year k12 began to concentrate on leveraging its scale to achieve profitability by slowing down curriculum production and not aggressively pursuing new states. Revenue grew at a slower rate, but profitability increased as the growth in the existing states continued. Existing state growth is more profitable than new state growth because each new state requires a significant amount of fixed overhead to be added. The projections of financial results presented above are based on the development and expansion of k12’s operations in existing states and grades. Key growth drivers in the near term are expected to include high same-store growth rates and k12's ability to leverage its existing infrastructure for margin improvement. Future drivers of growth at k12 which are not included in the projections are expected to include the addition of new states. In 2006, k12 opened in Texas, Wyoming and Washington. More recently, the Chicago school board approved a virtual public school for the city of Chicago that will be managed by k12. k12 also received a charter in the Sacramento area of California that will allow it to serve a large area in California that it cannot currently serve. 12 is currently continuing to pursue opportunities in several other states. Under k12’s current revenue recognition policy, revenues are principally earned from contractual agreements to provide on-line curriculum, books, materials, computers and to manage and operate virtual charter schools. In most contracts, k12 is responsible to the charter schools for all aspects of the management of schools, including but not limited to the monitoring of the academic achievement of the students, training, and compensation of school personnel; and procurement of curriculum and equipment necessary for operations of the schools. The schools receive funding on a per student basis from the state in which the charter school or school district is located. Where k12 has determined that they are the primary obligor for substantially all expenses under these contracts, k12 records the associated per student revenue received by the school from its state funding school district up to the expenses incurred in accordance with Emerging Issues Task Force (EITF) 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent. k12 has generally agreed to fund any operating losses of the schools in a given school year; however, k12 is not entitled to any revenue in excess of expenses incurred on its contracts, 113 HOUSE_OVERSIGHT_024546