Greetings and welcome to the K12 Fiscal 2017 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 your host, Mr. Mike Kraft. Thank you Mr. Kraft, you may begin.

Thank you and good afternoon. Welcome to K12's second quarter earnings call for fiscal year 2017. 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 operational performance and results, please refer to our reports filed with the SEC, including without limitation cautionary statements made in K12's 2016 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 Stuart Udell, Chief Executive 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 Stuart. Stuart?

Thanks Mike. Good afternoon and thanks for joining us on the call today. With my one year anniversary with K12 just around the corner, I've been taking some time to reflect on our business strategy, priorities and opportunities. Today I want to review with you where I think this business is going and therefore how we are prioritizing our resources to support future growth. Across all of our lines of business I see tremendous opportunity and after a number of years in which we faced stiff environmental headwinds, we believe that the recent election at both the federal and state level may contribute to a generally more positive environment for growth going forward. In our managed schools business, demand in the first half of fiscal '17 has been stronger than we've seen in several years certainly in new enrollments, but just as importantly at the application level which is a good proxy for market demand. Established states like Texas, Michigan and South Carolina continue to show strong demand for application and newer states like Alabama and North Carolina and Virginia posted solid enrollment growth. At the same time in some of our more mature states where we had programs for 10 more years, we saw flatter in some cases slight declines in enrollment. On balance however, we believe that our uptick in managed school enrollment in fiscal year 2017 combined with the renewed attention on school choice and online education, portends a favorable environment for long-term growth in our managed public school business. We also continue to see opportunities to increase the number of partner schools we serve across our existing state footprint and increase the number of states we serve with full time online program. In the last few years we opened up partner schools in North Carolina, Virginia,…

Thank you, Stuart and good afternoon everybody. First a recap of our reported results. Revenue for the quarter increased 5.9% to $221.1 million. Operating income for the quarter was $18.3 million, an increase of $3.6 million or 24% from the prior year. Adjusted operating income was $22.9 million an increase of $3.2 million or 16% from the prior year. As a reminder, adjusted operating income and adjusted EBITDA excludes stock-based compensation. Capital expenditures were $9.8 million, a decline of $1.8 million from the prior year. In each case these results exceeded the expectations we provided in our guidance last quarter. Some additional details for the quarter; revenue was $221.1 million an increase of $12.3 million or 5.9% from a year ago. Revenue growth was largely driven by increases in our managed public school programs and some modest gains in our institutional business. Somewhat offset by declines in our private pay business. As I mentioned on last quarter's call, the private pay business declined is a result of closing down our U.K. operations that we announced in fiscal '16. Revenues for managed public school programs increased 7.1% compared to the prior year to $182.4 million, increase was a result of a 2.3% increase in student enrollments combined with revenue per enrollment increasing 4.6%. From a enrollment standpoint demand continues to be strong. For the first half of fiscal '17 more students applied the K12 managed schools in the same time last year also as Stuart already mentioned. In Q2 we saw reduction in student retention rates compared to a year ago quarter. We continue to roll our programs to improve our retention efforts and we believe those programs will take some time to take hold and we will have an effective fiscal '18 but we’ll not have an impact at fiscal…

Thanks you very James. Tim if you would queue up some questions, we would be happy to take them now.

[Operator Instructions] Our first question comes from the line of Corey Greendale of First Analysis. Please proceed with your question.

Thank you, this is Ken Wang on for Corey. So just looking at Q3 guidance, it looks like it implies revenue would be down year-on-year, just wondering if there's any additional color you can provide there?

Yes, I mean so it does imply slight deterioration of revenue year-on-year and I think as Stuart mentioned, we are seeing some softer retention rates and we’ll see how it actually forms up throughout the course of the quarter into what it actually means but there is some softness there that we probably expect largely driven by softness in the retention.

All right. Thank you. And looking at the institutional software revenue growth, which looked like it slowed sequentially in the December quarter, what was the organic growth in the segment, and why did it slow? What do you expect for the rest of the year?

Yes, the organic growth year-over-year was sort of in the low single-digit range and for the rest of the year the institutional software and services I mentioned earlier is – it's going to have some variability throughout the rest of the year particularly if you look at Q4 of last year we had a pretty significant Q4, I'd expect that to be actually down year-over-year but we probably won't post such a strong Q4. If you look at fiscal year '16 sequentially Q3 is normally lower than Q2. We would expect some sequential decline again in Q3 so, sort of directional range of what you should expect.

And we continue to see obviously positive trends in the marketplace, I think as we’ve grown in institutional over time one of the things we felt, we needed to do was to top grade our talent a little and over the last quarter brought in new leadership for both our sales organization and our customer service organization which of course impacts retention in the institutional business. So we’re very pleased that, have a team that we think and execute against kind of our longer term vision and growth prospects.

All right, that’s very helpful. Thank you.

[Operator Instructions] Our next question comes from the line of Jeff Silber of BMO Capital Markets. Please proceed with your question.

Thanks so much. Just wanted to circle back to your outlook. If I'm looking for the full year fiscal 2017 revenues and adjusted operating income, I know there is going to be noise in stock based comp, but I want to leave that out. Are you still comfortable with the guidance that you gave on the last quarter for the entire year?

Yes, we're not changing our full year guidance at this time expect for the CapEx which we previously mentioned is coming down but full year guidance we are not changing.

Okay. Fantastic, I just wanted to double check on that. And you mentioned a few times the decline in the retention. Can you give us a little bit more color on that? Is this something that just happened this quarter? What do you think happened, and how do you think you can fix it?

Well, look you may have mentioned we alluded in our last quarterly call to a little bit of a challenge with launching our new technology for back-to-school which create a little bit of early year problem but as you know there is sensitivity in the model. So if we have students that had a litter rougher onboarding experience, that can kind of play out through the year in terms of slightly higher attrition. So, while we’re certainly not pleased with that and that little bit of carryover effect, it’s something we’re very confident will not happen again and when we look at, all of the programs we’ve introduced over the last year including some new processes we put in place to deal with ongoing retention, we had every reason to believe in the future that will be kind of back to where we were with those efforts. So, we don't believe there is a systematic - we do not believe it’s the systematic issue.

Okay great. And finally, can you just give us an update on what progress you've been making in Ohio? Thanks.

Sure, Ohio the conversations are ongoing and I would say we are in a very normal and standard renewal process so where we would like and expect to be at this point.

And is there a time frame from when we would expect an announcement? How close to the beginning of the next school year does that normally come?

Well it certainly varies in, it various by individual contract negotiations but so, I can speculate exactly when that might come to fruition but, we feel good about the pace of which is moving along.

Okay, great. Thanks so much.

You very welcome. Thank you for the questions.

Our next question comes from the line of Alex Paris of Barrington Research. Please proceed with your question.

Hi, good afternoon. This is Chris Howe sitting in for Alex Paris. A few of my questions have been taken. But I was wondering if you could provide maybe some more color than you already have, in regards to the changes in Washington, and how this might affect your approach to the market? And I guess more specifically, how it might affect the progress you're making with states in regard to caps?

Sure, well look as we talk a little bit certainly having a more favorable pro school choice environment in Washington is always helpful. We’re in a very different place than we ever really been historically in terms of that perspective. As I also mentioned it really is a state to state business. There are obviously some changes in government as in several key space. We believe there a few key space that we have an opportunity to potentially open up over the next couple of few years if things continue to go well. In terms of structural caps and individual stake, there are handful that our partner schools are working with but there are also individual kind of board and post caps that we have an ability - that our school boards has the ability to raise overtime and we expect some of that to happen along the way. But again we have a very favorable national environment, the state environment I think eased up in some places and we’ll continue to work with advocates on both sides of isles, deal with issues like the ones you questioned.

Thank you for taking my question.

There are no further questions over the audio portion of the conference. I would now like to turn the conference back over to management for closing remarks.

Well, thank you very much for joining us this quarter. We appreciate everyone's time and questions and we of course look forward to rejoining you in three months. Have a great night everybody.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful rest of your evening.