K12, Inc Continues its Slide Down

Summary

Two days ago, we revealed multiple K12 school closures and a first ever union contract that we estimate will lead K12 to lose money in fiscal 2019 and beyond.

Yesterday, we learned of another school closing; we estimate this non-managed school will reduce revenue by another $7 Million and operating income $5 Million.

We were told the school was closing due to its inability to meet academic standards, marking yet another failed chapter in the virtual charter school story.

More Bad News For K12’s Fiscal 2019

On Monday, we released a report that disclosed five K12 (NYSE:LRN) schools that are closing or at risk of closing after this school year and a first ever union contract for the California Virtual Academies. We estimate that the lost revenue and increased expenses will cause pre-tax earnings to decline $20 Million and lead K12 to lose money in fiscal 2019 and beyond.

Yesterday, we were told of yet another school closing. A parent of the Texas Virtual Academy (TVA) 3-8 Campus told us that, according to a letter from the school, it will be closing after the school year due to an inability to meet academic standards.

We called K12, who partners with the school’s operator, and the enrollment specialist confirmed that the school is closing.

TVA, which is now known as Responsive Education Virtual Learning, is operated by ResponsiveEd but uses K12’s curriculum. We believe this makes TVA a non-managed K12 school, which earn lower revenue per student but have higher margins. In essence, K12 is just selling software.

According to the Texas Tribune, TVA’s 3-8 campus had 3,419 students enrolled for the 2016/2017 school year (the figure was also confirmed on the Texas Education Agency website). Assuming enrollment was flat in the 2017/2018 school year, and using fiscal 2017’s revenue per non-managed student of $2,262, the closure of TVA will reduce fiscal 2019 revenue by $7.7 Million.

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