A Forecast from K12 Inc: We Don’t Take Lousy Test Takers or Poor Kids

Posted: March 5, 2016 in Uncategorized

During their 2014, 2015 and 2016 quarterly earnings conference calls (full transcripts available here) K12 Inc outlined the future of the company to its stakeholders. Spoiler alert: Your child is not one of them.

Who was present? COREY GREENDALE, ANALYST, FIRST ANALYSIS SECURITIES; Jeff Silber, BMO Capital Markets; HENRY CHIEN, ANALYST, BMO CAPITAL MARKETS; CHRIS GASSEN, ANALYST, FAIRCOURT VALUATION

In spite of insistence by CEO Nate Davis and others that K1 Inc is devoted to providing quality education via personalized (ahem….online) instruction that is not limited by a child’s zip code, ya’ might want to listen a little more closely. I did. Here’s what they have to say in their own words:

  • Rigging the numbers. Children can (are are) denied access to their program in order to control for their test scores, in order to maintain a false illusion of success. They target students that ensure their program succeeds. I wonder what would happen if real public schools did that? I’ll let Nate Davis tell you in his own words from the conference call in 2015: “We are aggressively leveraging data analytics to hone in our marketing efforts and we are investing toattract those students who are most likely to succeed in an online environmen This is a concerted effort on how we inform families about their online education options at K12 partner schools.” Why does this matter? Isn’t the goal to educate ALL children so they can succeed, rather than merely market to children who suit you? Not if you first obligation is to your stockholders. Again Nate Davis: “The results (or targeted marketing campaigns) will translate into the appropriate balance between enrollment levels and financial return for our investors.”

After all, “improved student persistence is obviously important to enrollments and revenues.

He doubled down on this message during the 2016 Conference call in which he details how they rigged enrollment in Tennessee to ensure their test scores remained high.

Davis: “The Education Commissioner reported that annual assessment scores for the 2013-2014 school year at Tennessee Virtual Academy, which we manage, in total the scores were low …The Commissioner stated that the Tennessee Virtual Academy students have shown improvement in years two and three, and that the challenges rested primarily with first-year students. The net result was that the Commissioner asked the Union County Public school, our partner, not to take new enrollments after the July 10, because it was the new students who were bringing down the school’s overall score.”

  • Children for profit. How can K12 Inc claim to offer a service parallel to (or dare replace) public schools, when their model is driven by profits over service. In other words, of you don’t have a numeric value attached to your head, K12 is not interested in you: “Student persistence, revenue per enrollment and, importantly, academic outcomes have all shown improvement and are increasing the lifetime value per customer.”

It’s not that they don’t ever take ANY underfunded children who cannot pay or have the school pay for them. It’s just that they don’t really WANT them.  James Rhyu says “We are just trying to focus more on those students where we will make sure that we do get funding for them” adding that (regarding the kids who don’t have cash in hand) “We don’t promote to them. But if they come to us, we still take them.”

Now that they’ve got a shiny new foundation (see below) they can donate the expenses back to themselves to pay for customers (I mean, students) who cannot afford it.

Awww, how noble of them. Public schools have been fucking doing that for decades.

  • They deny access to certain children due to potentially bad test performance and/or lack of funding. But they still rolled out a new foundation! They want to roll their way across every state and community laying waste to public education. In 2016 Davis reported “K12’s sponsorship in the launch of the foundation for blended and online learning.”

Why?  Because “The foundation will bring key stakeholders together to reinforce why digital learning and digital technology in our schools and even school choice is critical in delivering on great educations to students across the United States.”

Choice … unless you can’t pay or perform shitty on tests. What choices are left for the kids K12 won’t take?

The goal of the foundation is to provide post-secondary scholarships to students, to institute a grant program for individuals and organizations making progress in teaching in digital and blended learning, and to bring together key stakeholders on educational advancement through intentional collaboration.

Wait…..so they’ve created a foundation through which they funnel more money BACK TO THEMSELVES!? Blood brilliant.

Who is included?  Davis says “Look at that foundation board in our announcement. It includes prominent industry leaders and experts…”

Who are those “leaders and experts”?

Kevin Chavous (Chairman) – Founding Board Member and Executive Counsel for the American Federation for Children
Robyn Bagley – Founder and Principal, Early College High School
Kenneth Campbell – Founding Board Member for the Black Alliance for Educational Options
Allison Cleveland – Executive Vice President of School Management and Services, K12 Inc.
Mary Gifford – Senior Vice President of Academic Policy and External Relations, K12 Inc.
Linda Lopez – former Arizona State Senator
Dr. Rod Paige – former U.S. Secretary of Education
Caroline Vander Ark – COO of Getting Smart

  • So where are they going next? (coming soon to a theater near you). Nate Davis in 2015 said:

“Growth prospects also look good in some other states, including Virginia, New Jersey, and Connecticut.”

“A parallel program focuses on developing our schools’ administrators, principals, and instructional coaches.” “The K12 managed-school footprint is growing.”

This seems to be true both geographically in within the market itself.

We announced in Alabama last year, we expect to see more students in Alabama. We have got programs that we are working on in places like West Virginia and Nebraska, Missouri, Connecticut. None of these are firm programs approved yet, but these are all places where there are conversations going on, and there are expansions going on in places like New Mexico, Texas, Wisconsin, Nevada and Virginia. So there is a lot in the business development activity that we think over the next couple of years we should benefit from as well.

K12 Inc is primed to expand its markets in new arenas too: “The adoption rate at which school districts nationwide are integrating online components into the classroom is escalating. FuelEd is a great alternative for school districts that want online options to range from a single remedial course to a full-time online school. This business leverages all of K12’s curricula to offer the largest digital catalog that is aligned with national and state standards in the industryCommon Core has come home to roost.

“This year, both Chicago and Philadelphia public school districts designated FuelEd as a preapproved curriculum provider.

  • How can they do this? Nate Davis: “We anticipate our ongoing effort with legislators and independent school boards will further expand the number of schools we support in current and new states.”

2015 was a great year for K12 Inc!  “We ended the year with almost $200 million in cash. We are in a strong position to capture both strategic opportunities, as well as inorganic growth.”

Tim Murray (President and COO) seconds that motion: “Our goal is to grow faster than the industry, so to take share in this market. As we look at our current pipeline, our pipeline is up well over where we were at this time last year, especially for new customer opportunity, so we are very, very comfortable about how the market is developing here and our position in it.”

Of course it is! Nate Davis: “We delivered solid double-digit gains in our international and private-pay schools, as well as our institutional software and services. We posted strong double-digit revenue growth in the nonmanaged public school programs”

In summary: “We are well positioned to benefit in this digital education explosion.”

Amen.

Comments
  1. ciedie aech says:

    This makes things so transparent….

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