Greetings, and welcome to the K12 Fiscal 2016 Second 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 turn the conference over to 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 second quarter earnings call for fiscal 2016. Before we begin, I would like to remind you, that in addition to historical information, certain comments made during the 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 2015 Annual Report on Form 10-K. These filings can be found in 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, Executive Chairman of the Board 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, and thanks to everyone for joining us on the call today. Before reviewing the results for the quarter, I wanted to first touch on the announcement we made yesterday naming Stuart Udell as K12’s Chief Executive Officer. Stuart comes to K12 with over two decades of experience in the education sector with a specific background in virtual learning. Most recently, he was first CEO and then Executive Chairman of Catapult Learning, a privately held provider of instructional services, professional development, and an operator of schools. Stuart’s depth of experience will provide a seamless transition to K12 and allow us to continue executing on the programs and initiatives that we have launched in the last two years. His experience spans curriculum and program development, school operations, educational services, and technology innovation. Stuart has been a proponent of providing education solutions for students regardless of their geographic location or socioeconomic background. His principles and his passion clearly aligning with K12’s mission and our vision for the future of education. Personally, I will continue to be actively involved in K12 and maintain my role as Executive Chairman of the Board of Directors. In addition to supporting Stuart, I will be focused on public policy and the issues that surround our public policy, we’ll continue to work closely with our schools and their boards and additionally I will work with Stuart on strategic direction and acquisition opportunities as they arise. As you’ve seen over the past few years since I stepped in from the Board of Management to Management and with the support of the Board, we have worked to strengthen K12’s culture by always putting student achievement above everything else. We’ve also built the cadre of great teachers and school leaders while simultaneously strengthening new technology and…

Thank you, Nate. Good morning everybody. First a few words about our reported results. Revenue for the quarter declined 9.7% from the year ago quarter to $208.8 million. This quarter we posted an operating income of $14.7 million, this compares to $20.5 million in the second quarter of last year. In order to looking – in order to look at the underlying trends in our business, I am going to spend some time discussing the revenue and enrollment on a pro forma basis, excluding the impact of Agora which we transitioned last year. We believe this approach will provide you with a clear picture of the underlying trends in our business. This is the fact that the infrastructure shared across all of our schools and businesses, we won't extend that approach for operating income or other components of our results. So excluding the impact of Agora, total company pro forma revenue increased 2%. Revenues for managed school programs would have risen approximately 3.2% year-over-year, while average enrollments would have declined by 2%. However, as Nate mentioned, our ending quarter enrollments were actually higher than our account enrollment. We normally have some drop-off after account dates slightly average is lower but ending at a higher account despite as some of our investments are beginning to pay-off for us as Nate indicated. Average revenue per enrollment increased more than 5% year-over-year for managed programs. The revenue per enrollment trends relate to a combination of factors including school mix, improved funding environment in some states. For our non-managed public school program, excluding the impact of Agora revenues would have been $15.6 million. Non-managed program enrollments grew 2%, and we benefited from new programs launched this year offsetting the rise in enrollments, revenue per enrollment declined 7%, largely due to mix. Our institutional software…

Okay, we are completed with our prepared remarks. Operator, we are ready to take questions.

Thank you. [Operator Instructions] And our first question is from Corey Greendale from First Analysis. Please go ahead.

Hi, good morning.

Good morning, Corey. How are you doing?

I am doing well. How are you Nate?

Good.

So, few questions. First of all, congratulations on the persistence improvement. I realize it may be a little hard to parse, but, how much the improvement do you think is due to the things you’ve been doing to try to make sure the people that are coming to your schools or more likely to succeed in the first place versus things you are doing once their in school to improve their retention?

It is hard to parse that. I would say, little more weighted towards the efforts to retail students after they join the program. Call out to those students and to the families to make sure any problems they run into or resolve quickly, we make sure we provide lot more support to them to help them understand what we work they have to go through, what process should be, it really changes their life. We spend a lot more time trying to make sure that teachers are in touch with them more frequently. So, I think this has a little more impact, and the reason I say that is because the efforts to new promotional programs is really new this year. So it has not yet had its full impact, because it’s a brand new program. We expect it to have more impact in the coming years. But the actions that be more in touch with our students and be more touch with the parents, those actions I think have a little bit more impact than the new market program.

Okay and in terms of the fact that the end of the quarter enrollment was higher. I know, there was a time when you would take students to – we are not funded and the fact that they came in after the account date and that – and maybe went back. Can you just update us on where you are on that? And are you enrolling students or you are not get funded for this year?

Yes, we still take students who were not going to get funded for the year. The student comes to us and, there is two reasons why we do that by the way. First of all, we want to make sure we provide access to the program to all students. But secondly, if we can provide great services to those students, they will stay in the program and then that becomes a reimbursable student in the next year. So we want to retain them. So, yes, we still take students who come in after the account date and state that we may not get funded to us.

I think Corey, again to think that – another thing I just – we previously talked about how we are changing our external acquisition approach to optimizing against students who we think will come in. We won’t get funded for them and lead. That doesn’t – as Nate was mentioning, that doesn’t mean that we are not going to take those students, but our acquisition activities are more focused where we are going to generate greater revenue and profits for students. So, sort of just new one – but we never really gone away from taking those students. We are just trying to focus more on those students where we will make sure that we do get funding for us.

In other words, we don’t promote to them, but if they come to us, we still take them

Okay, that helps and actually, James on a related point, could you give us some help on how to model revenue per enrollment for both managed and non-managed for the rest of the year?

Yes, I mean, I think for managed revenue per enrollment, for the rest of the year, you are going to see year-over-year, you’ll continue to see similar declines as you’ve seen in sort of first half of the year to the first half of the year we saw between sort of 2% and 2.5%, currently something similar for the full year. So, your back half of the year is going to be something similar. That’s for the managed. And remember, that includes the impact of Agora.

Yes.

And then for the non-managed, which also again includes the impact of Agora, we’ll likely see something – again in a similar range of the first half of the year. We’ve got some lumpiness quarter-over-quarter, but I think that full year, you are going to see similar kind of year-over-year improvement.

Okay. And then, one more, then I’ll turn it over. On the institutional, can you just talk about kind of price versus volume trend? And the – I think the growth there is little less than, maybe you had talked about earlier, actually getting this year, it’s kind of what’s happening in that business and what you expect for the rest of the year there?

Yes, I’ll talk about that. This is Nate speaking. So, number one, the first part of your question, rate versus volume. We see most of the growth coming from volume and not in the tutorial. Competitive pricing issue, we have not seen the competitive pricing issues we saw maybe a year, year and a half ago. The market is settling just a little, but it’s not like RFP is still competitive there, certainly competitive and there is certainly some pressure. But it’s not nearly the pressure we saw year and a half ago where we saw prices just across the board was dropping. The volumes increase, we are seeing more in RFPs from school districts, we are seeing more school districts look for various solutions – not just solutions traditional solutions of supplemental content but designed with learning content, particularly math specific need. So we are seeing school district products to expand a little bit more. Now the second part of your question you talked about our growth and what does growth look like. Remember that, we look at growth for the full year. Even last year if you look at last year’s quarters, you would see one quarter was 4% growth, other quarters with 30% growth and in other quarters with 16% growth. So it’s not consistent across the year because the selling season really varies across the year. And so you are going to see the same thing this year. You are going to see some quarters that are not high growth, so others that are high growth. We also are going to be very much impacted and I hope you know that, I think you know this by whatever we do in the managed public school business when we enroll students in managed public school, we also get more students enrolling in full time programs at the districts we are running. Because when we promote in a state, we promote on a broad basis and it’s not just for managed schools, we will promote for all of the schools. So, generally, when we are up in enrollments for managed schools, we are also going to up in enrollment for intuitional and we reverse this is also true. So this year, you may see less of these enrollments in these school districts. We think that comes back next year. So, overall, it’s a quarterly variance that you are probably seeing. We still believe that there is strong growth for the full year.

That’s very helpful. Thank you.

Thank you. The next question is from Jeff Silber of BMO. Please go ahead.

Hey, good morning its Henry Chien calling in for Jeff.

How are you doing?

Just wanted to ask about total enrollment, you mentioned it’s growing a little bit this quarter. Could you talk a little bit or add some more color on that growth? Is it just a broad retention improvement or are there any schools that you tied new schools or any trends you are seeing?

It’s primarily in broad, it’s across the board. Retention efforts that have really driven the growth. It’s not like there is some new trend in brand new enrollment. As a matter of fact, we’ve sort of gone off the promotional areas. We haven’t – much money on promotional efforts in the second quarter as we do in the first quarter, but as we will do in the fourth quarter of this year. So we are active in a relatively low period of promotion after October. So really improving comps. I’m trying around the previous year’s decline to this year’s increase of just maintaining more students. So it’s really has been at now, relative to which school, it’s sort of been all of the schools that we’ve rolled these new programs to students. We have seen a difference between the retention in schools we rolled out program to students versus the schools that don’t have it yet. So which is why we are optimistic about next year because we end up rolling it out all the other schools next year. That help you, Henry?

Got it, yes, that’s helpful. And just sort of related question. Could you remind us the difference between your non-managed program revenues and institutional revenues, just trying to understand how to understand the growth of either those and whether they are related? Thanks.

Yes, sorry Henry, if I understand your question correctly, the non-managed revenue versus institutional, the non-managed program revenue is really – those are essentially like the full-time equivalent programs that we manage for district partners, where in the institutional software and services, that’s in essence, sort of everything else meaning, that would include everything from platform solutions, one-off solutions that provide professional development, as well as course enrollment that have not likely sort of full-time program – district programs that we manage for them. So, it’s sort of everything else in that institutional software and services.

Got it. And are these usually in the same course, are you seeing – I am just trying to understand the new add business is growing …

Generically I think, if you are asking the non-managed enrollments are generally distinct from the programs in the institutional software and services. But the customer relationship changes, right. The distinct programs and actually a different marketing where we market to them. But the customers tend to be related. What I mean by that is, that we develop a good relationship with the school districts and once you develop a good relationship, not only you are running new programs for them, but you are also delivering the software in a content to that same customer. So, there is a relationship there, relation building. So the more we build the relationship with the big customer, the better off we are not only running new programs, but also providing software to them.

Got it, okay, that’s helpful. Thank you.

Anything other?

[Operator Instructions] Okay, gentlemen, we have no further questions at this time. Would you like to make any additional or closing comments?

No additional closing comments other than one point I guess we didn’t talk about, people didn’t ask about was what’s our new business development activity. We announced at Alabama last year. We expect to see more students in Alabama. We’ve got programs that we are working on in places like West Virginia, Nebraska, Missouri, Connecticut, none of these are program based – current programs approved yet. But these are all places where there are conversations going on and with expansions going on places like New Mexico, Texas, Wisconsin, Nevada, Virginia. So there is a lot in the business development activity that we think over the next couple of years, we should see some benefit from as well. So, I appreciate everybody’s time today and thank you for the time and I guess we are done operator. Thank you, Manny.

We welcome. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time and thank you for your participation.