K12, Inc. Continues Its Massive Transition
K12 traditionally caters to students and families who work better in smaller, at-home, individualized settings. Photo: K12.
For-profit educator K12 (NYSE: LRN ) released its quarterly report today, handily beating expectations for both revenue and earnings. Revenue came in at $244 million -- about $6 million ahead of what was forecast -- and earnings came in at $0.45 per share, far ahead of the expected $0.37 per share. Yet the stock itself is up less than 5% as of mid-day.
In order to understand why the reaction was so muted, it's important to grasp where K12 has been, where it's going, and the massive transformation it is undertaking to make its business model more sustainable.
A tale of two approachesTraditionally, K12's bread and butter was in what are now called "Managed Schools." With such schools, K12 would set up a charter school subsidiary in a local community. The company would handle essentially all of the schooling -- teaching, curriculum, assessment, etc. -- for students whose families chose to use the company's online offerings instead of attending the neighborhood school.
The model itself started running into serious problems back in 2011. Parents, educational officials, and some short-sellers claimed that the company was recruiting students for the program based solely on meeting booming enrollment expectations. This led many to accuse the company of accepting students who were doomed to fail in the at-home environment simply to make an extra buck.
As education officials began to investigate these claims, the company began exploring other ways to provide e-learning solutions to schools. That gave birth to what are now referred to as "Non-Managed Schools." In these schools, K12 principally provides the content and online platform for classroom teachers to use in augmenting their instruction.
Diverging resultsAs you might expect, growth in enrollment and revenue from managed schools has screeched to a halt, while non-managed programs have been growing by leaps and bounds. Altogether this is a very positive development: focusing on non-managed programs allows K12 to adopt an approach that is both sustainable and will keep the company out of the public's cross-hairs.
The problem: managed programs still bring in much more revenue than non-managed onesK12, Inc. Continues Its Massive Transition (LRN):
