Greetings and welcome to the K12 Fiscal 2015 Third Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Mike Kraft, Vice President of Finance for K12. Thank you, Mr. Kraft you may now begin.

Thank you and good morning. Welcome to K12’s third quarter earnings conference call for fiscal year 2015. Before we begin, I would like to remind you, that in addition to historical information, certain comments made during this conference call may be considered forward-looking statements, made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and should be considered in conjunction with cautionary statements contained in our earnings release and the company’s periodic filings with the SEC. Forward-looking statements involve risks and uncertainties that may cause actual performance or results to differ materially from those expressed or implied by such statements. In addition, this conference call contains time-sensitive information that reflects management’s best analysis only as of the day of this live call. K12 does not undertake any obligation to publicly update or revise any forward-looking statements. For further information concerning risks and uncertainties that could materially affect financial and operating performance and results, please refer to our reports filed with the SEC, including, without limitation, cautionary statements made in K12’s 2014 annual report on Form 10-K. These filings can be found on the Investor Relations section of our website at www.k12.com. In addition to disclosing financial results in accordance with generally accepted accounting principles in the U.S. or GAAP, we will discuss certain information that is considered non-GAAP financial information. A reconciliation of this non-GAAP financial information to the most closely comparable GAAP information was included in our earnings release and is also posted on our website. This call is open to the public and is being webcast. The call will be available for replay for 30 days. With me on today’s call is Nate Davis, Chief Executive Officer and Chairman; Tim Murray, President and Chief Operating Officer; and James Rhyu, Chief Financial Officer. Following our prepared remarks we will answer any questions you may have. I’d like to now turn the call over to Nate. Nate?

Thank you Mike and good morning everyone. Thanks for joining us on the call today. Let me start by highlighting a few results for the quarter. Revenue was $244.6 million, up 4% year-over-year. Excluding the businesses we sold last year revenue rose 6.4% year-over-year. This quarter we delivered growth across the board. We reported gains in both Managed and Non-managed Public School Programs, as well as in our international and private pay schools. We also continued strong growth in institutional business. Operating income for the quarter was $27.4 million, which was flat compared to prior year. Excluding the businesses we sold last year operating income rose 1.9%. Both revenue and operating income came in ahead of guidance we provided last quarter and our business trends going into the fourth quarter remain solid. We are therefore tightening and slightly improving our full year guidance. For fiscal year 2015 we are forecasting revenues of $938 million to $948 million, operating income of $39 million to $42 million, and capital expenditures of $75 million to $78 million. While FY'15 business trends were better than we expected, only actual results from the upcoming enrollment season will allow us to accurately issue FY'16 guidance. We will provide FY'16 guidance once the new enrollment season is completed in October. Now let me turn to some commentary on the current quarter. First on business development, I talked last quarter about new schools in both North Carolina and Colorado. In North Carolina we’re on track to open a new virtual academy in partnership with the North Carolina Learns Group. We project a first year enrollment of up to 1,500 students and over the next four years expect that to double to 3,000 students. In Colorado we opened a new school in partnership with Colorado Digital. The new school…

Thank you, Nate and good morning everybody. First a few words on our reported results. We ended the quarter with revenue of $244.6 million, up 4% from the year-ago quarter. Operating income was $27.4 million, which was flat with the third quarter of last year and total managed and non-managed enrollment were also largely flat with the year ago quarter. Growth in non-managed programs rose 38.1%, offset by the 4.6% decline in managed programs. I am going to focus the remainder of my remarks this morning on the pro forma results excluding the business we sold in 2014 to ensure we look at the results on a comparable basis. For the quarter we reported revenues of $244.6 million, which represents an increase of 6.4% over the pro forma Q2 results last year, $229.9 million. We saw growth in all lines of our business. Revenues for Public School Programs rose 4.6% year-over-year, while enrollments were flat and managed program revenue rose 3.5% year-over-year. This was in contrast to an enrollment decline of 4.6% on a year-over-year basis. As we have seen for the past year or so the positive revenue per enrollment trends relate to a combination of factors including school mix and accrued overall funding environment in some states and other variables. We expect the positive rate environment to continue through Q4 and sequentially to be about flat in Q3. Non-managed program revenue rose 37.8%, to $9.3 million. Non-managed enrollment rose 38.1% with revenue per enrollment largely flat year-over-year. While revenue per enrollment trends may fluctuate on a quarterly basis due to school mix and seasonality we would expect that Q3 trends will largely continue through Q4 of this year. Institutional Software and Services, which includes our core software technology professional and other education services sold by our FuelEd team…

Thanks James. Mike?

Manny, we're ready to take the first call.

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions]. Our first question is from Jeff Silber of BMO Capital Markets. Please go ahead.

Thank you so much. And looking back on the quarter that just ended, I'm just curious if you could pinpoint where you thought the upside was versus your guidance, both from a revenue and operating income perspective.

So Jeff this is James. Yeah we had a little bit more rate favorability than I think we had anticipated and we also, I think we managed our costs a little bit tighter than we had previously thought. That's where the main difference is.

Okay, great. Now, I know you're not going to give specific color on upcoming enrollment trends for next year, but I'm just curious versus at this time last year how you think things are tracking for the upcoming school year.

Well I'm optimistic because the changes we put in place, I talked about some of them in the enrollment process that made it easier to make it through the process for students. I also think there is a marketing segmentation work that we’ve done that looks more specifically at what message speaks to each type of student and how do we reach them in a more, more vital and more social networking and more local event way. So I think that that I'm optimistic that we'll see better results. And right now I'm seeing some results that indicate that maybe we're right, but this is very, very early in the season. And so it's hard to predict, but early in the season and we're pretty pleased with where we are.

Okay fair enough. And if I can just ask one more question about your cash position, which you highlighted. What minimum cash do you need to run the business, and you mentioned maybe some strategic acquisitions. I'm just curious what holes you think are you in your current portfolio.

Well, I’ll just take the first half of the question and maybe Nate will take the second half. So you may know that we need cash predominantly for the first quarter, first quarter’s sort of our largest cash usage quarter. Well so we know we'll have some sequential decline in Q1 fiscal year '16 in our cash balance. We don't really provide guidance of exactly how much cash we need but if you look historically, I think last year we had cash that's now excluding the share repurchase of in the range of $50 million or so. So that that’s a good [ph] proxy of at least the minimum net amount of cash we need for Q1. We also think that our cash balance will grow a little bit Q4 as well as the historical trends is proving.

Relative to the scale that we need in the institutional business I think that's the place where I look for strategic opportunities. The managed public school business I think is actually, has all the content it needs. There is always more that we can do but we think we will do some of that through internal development, through strategic partnerships and acquisition opportunities and other joint marketing relationships, I think that we want more reach to school districts. We need greater distribution. Our sales force is just not large enough to reach all the schools. We’ve got such great products in ELL and in PEAK and in Matchbox but the problem is you got to get to all the school districts. So I want to get the greater distribution. I also think there is opportunity in the area of career readiness, career readiness is as I talk to Governors and legislatures around the state, every state struggles with the issue that many students are going on to college and the degrees they are getting in college are not really helping them fulfill the jobs that are open. And they want more career readiness, whether it’s in networking or it’s in some of the professional fields, so places like nursing and they want to see more high schools deal with that problem. So we believe that there is an opportunity to have more career readiness content as well and those are the areas that I think, there is one or two others but that’s the top priorities for us.

All right, great. Thank you so much.

Operator, next call.

Thank you. [Operator Instructions]. The next question is from Jerry Herman of Stifel. Please go ahead.

Thanks, good morning everybody. Nate, I was wondering if you give a little color on the pipeline, inclusive of some of the other states you have mentioned last quarter such as Texas, Michigan, Georgia, Minnesota and likewise maybe just an update or a progress report on Agora if anything is new or different there?

The pipeline for new states has not changed dramatically from last quarter. These things take a while to build up although there is one new development and that is in the state of Alabama. There is a new law which we think will open up opportunities. I don’t think it will open an opportunity for this coming school year but the school year afterwards we think that there maybe an opportunity to open a school in Alabama. There is a lot still work to be done there but the states that we mentioned before, are all still the states that we believe are opportunities. We do think that second schools and third schools within the state is likely, the higher growth pattern than brand new state although there is one or two brand new states, the larger pattern is going to be second and third schools within a state and building out counties in the State of Florida, that’s another one that we still think is an opportunity to grow. We know that Florida we won’t be opening schools this year but we will, we’ll have at least two and maybe three schools that we think we will open in Florida in the following school year, schools year ‘16-‘17. So I think second schools in a state as well as schools that are dedicated to this career readiness concept that I talked about as well as schools that are dedicated to athlete students are all going to be opportunities for us which will allow each schools to be more focused on what its particular niche is. So that’s what we see coming in the areas of new business development. Tim is going to address the Agora question for you.

Hey Tim.

Hey, Jerry how are you? On Agora we continue to work very closely with the team there to ensure continuity for the coming school year. The systems integrations work that was necessary for our systems to be able to hand off data to theirs has been completed. We are working to transition the enrollment process, so that when our contract comes to the end on June 30th that there is a seamless process to continue enrollments. We continue to perform marketing for Agora up to June 30th as well. So we are committed to their success going forward and to being a customer of ours in terms of their consumption of our curriculum and other support services.

Okay, and the financial metrics, in the transition look similar to previously described in terms of the impact, the negative impact on ‘16?

Yes I think as we previously talked about the only real unknown is the level of enrollment that the Agora School will ultimately have but yes the overall economics are as we have previously described yes.

And then just one quick follow-up if I may, the institutional software and services business as per the release shows a 16% increase, I guess sort of a two part question. I know that you guys have transitioned the revenue model in that business and that’s been, let’s call it dilutive to growth, can you talk about what, if that is now normalized and what is sort of the run rate on that business?

Hey Jerry let me take the first part of that and James may jump in as well. Historically as we reported the institutional business it was a combination of what we are now reporting in software and services. It also included our full time student programs. Those full time student programs as you have suggested have been now -- are being reported under this category called non-managed schools. So the results, as normalized both me and James commented on the 34.8% growth is looking purely at the software and services growth this year versus last year. The FTS business obviously is growing at a slightly less rate but still, I am sorry FTS being our full time students program, is still growing in a double-digits range.

Yes, so I think Jerry the only thing I would add to what Tim said is I do think that we are now -- we sort of lapped some of the transitions that we previously talked about in, I think last year and the year before and so I think that the run rate you see in that line item is pretty indicative of sort of a normalized run rate.

Great, thanks guys. I turn it over.

Operator, are there any other questions?

We have no further questions at this time.

Okay, well I appreciate everybody’s time this morning and hope you guys all the information you needed to understand our results. And again we are very pleased with our results and I thank you everybody for your time. Operator I think we are finished.

Thank you ladies and gentlemen this does conclude today’s teleconference. You may disconnect your lines at this time. And thank you for your participation.