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Column: www.k-through-12.com

Posted: September 6, 2018 4:00 p.m.
Updated: September 7, 2018 1:00 a.m.

If the website address above scares you a bit, don’t worry; I made it up. However, there really is a website at www.K12.com and it might be scary.

I refer to K12 in my coverage of a presentation Kershaw County School District eLearning Director Isti Sanga made to the Kershaw County school board on Tuesday. A little more than half-way through his presentation, Sanga played a commercial from K12.com. The company offers tuition-free, online public school classes for students all the way from K to 12.

According to its website, K12 launched in 1999 in answer to a “call voiced by a growing number of parents whose children’s needs were not being met by,” traditional education models. It also offers “private schooling” and makes some of its money that way.

Sanga played the commercial because he sees K12 as possible “bad news” for traditional education, similarly to how online universities are cutting into bricks-and-mortar college enrollments. As noted in my article, his former employer, Northern Illinois University, has seen a drop in enrollment from around 25,000 to 17,000, mostly due to competing online offerings.

Sanga’s argument for supporting the district’s eLearning program is that Kershaw County needs to offer such programs in order to entice parents to keep their students enrolled in its schools.

He also said K12 receives funding from “the same pot” as regular school districts.

I decided to try to find out for myself by emailing K12.com officials and asking them to explain their ability to offer tuition-free online public education. I haven’t heard back.

As I jumped around its website, I discovered a fact you wouldn’t necessarily pick up by just landing on their home page. Not, that is, unless you scroll all the way to the bottom where, in small print, there’s a link to “K12 Corporate.” Hover over that and a small menu pops up that includes a link to “Investor Relations.”

In addition to any profit from its private school and other institutional offerings, at least part of K12’s funding comes from investors; it’s a publicly traded company. The important point about this is that, as such, they have to submit filings to the U.S. Securities Exchange Commission and issue annual reports.

According to its most recent 10-K, for Fiscal Year 2017, K12 brought in $888.5 million in revenues. Adjusted Earnings Before Depreciation, Interest, Taxes and Amortization (a/k/a EBDITA) for FY 2017 was $46.4 million. Operating income stood at $13.1 million, but after adjusting for specific charges, it bumped up to $28.4 million and ended up with free cash flow of $40.5 million, which was actually a decrease from between $58-$59 million.

So, it seems, at least on the surface, that K12 is making a lot of money.

Those $888.5 million in revenues? They were “driven by an increased adoption of online education and an improved funding environment for online schools.” This includes what, according to the 10-K filing, K12 calls “Managed Public Schools” (it also has a few Managed Private Schools). The Managed Public Schools are “comprised of virtual and blended public schools, institutional business (educational products and services sold to school districts, public schools and other educational institutions...) and Private Pay Schools and Other (private schools, including international, for which [it] charge[s] student tuition and direct consumer sales).” Later in that same section of the 10-K, K12 says, “The majority of our revenue is derived from long-term service agreements with the governing authorities of these virtual public schools.”

Would that be the S.C. Department of Education? Individual school districts? Could Sanga be right? Are our tax dollars going to K12 and similar companies that gain students by enticing them away from traditional schools? And, is that truly a “bad thing”?

As a bit of a futurist, I marvel at the ability to offer digital education. Also, as a former homeschooling father, I can appreciate the fact that not every student is “built” to be in a bricks-and-mortar classroom. Virtual classrooms can be a very good and viable alternative for certain students.

But should programs like K12’s entirely replace what we think of as “school”? And let’s get back to that common stock. If I read a footnote in K12’s 10-K correctly, the aggregate market value of its own voting stock and non-voting stock held by others as of Dec. 31, 2016, was $483.3 million. Even if most of that was non-voting stock, that’s still a lot of investor interest to which to cater.

Could that interest influence how K12 operates and what it offers as class material? As long as it offers public school curricula, I’d think they’d have to adhere to the same standards as Kershaw County. But, I can’t help worrying.

Hopefully, they’ll answer my email and I can find out more. If I do, I’ll let you know.

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