Greetings and welcome to the K12 Fiscal 2017 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 your host, Mr. Mike Kraft, Vice President of Finance. Thank you Mr. Kraft, you may now begin.

Thank you and good afternoon. Welcome to K12's third 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 operating 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?

Good afternoon and thanks for joining us on the call today. First, let me start by highlighting a few results for the quarter. Revenue for the quarter was $222.5 million, an increase of 0.5% year over year and slightly above our guidance provided last quarter. We posted operating income of $12.8 million which included a set of specific charges adding up to $11.4 million as outlined in our press release and in our 10-Q. Without these specific charges, our business delivered $24.2 million in operating income in the quarter, an increase of 26.7% year over year. This $24.2 million was above our guidance of $14 million to $17 million as a result of the timing of some revenue events and expense actions as well as management's focus on expanding operating leverage and generating positive cash flow while continuing to drive improved academic outcomes. Our forecast for the fourth quarter places our full year expectations in line with our original guidance for the year. This underscores K12’s commitment to deliver upon our financial objectives while remaining focused on our core mission to transform learning for every student we serve. Now today I want to focus on three key topics: upgrades to our platform and curriculum, programs to improve the student and family experience, and then briefly on the policy environment. This quarter we largely completed a monumental task of migrating all of our middle school programs to a new learning management platform provided by Desire2Learn. The new online middle school was designed to empower, engage, and help students achieve even better academic results. More than 20,000 middle school students have been migrated to the new platform which provides a rich and engaging educational experience. The new user experience includes planning features that help students stay on top of their schoolwork, powerful…

Thank you, Stuart. Good afternoon everybody. First, a quick recap of our reported results. Stuart mentioned, revenue for the quarter increased 0.5% to $225.5 million. Operating income on a reported basis was $12.8 million, a decrease of $6.3 million or 33% from the prior year. Adjusted operating income was $18.0 million, a decrease of $5.4 million or 23.1% from the prior year. And just as a reminder, adjusted operating income and adjusted EBITDA excludes the impact of stock based compensation. Capital expenditures were $33.2 million, a decline of $7.8 million from the prior year’s nine months ending in March. As you saw in our press release and Stuart has already mentioned, our operating results for the quarter include a $11.4 million of charges that I will detail in a few minutes. These charges primarily stem from our ongoing effort to review our operations and portfolio of assets and to look for ways to improve our long term profitability. In this case, we took a number of actions including reducing our real estate exposure, lowering our human resource costs and recording some additional reserves for receivables that have been outstanding for a while. Excluding those charges, we would have reported operating income of $24.2 million for the quarter and adjusted operating income of $28.7 million. A little more detail on the $11.4 million in charges. First, as we previously discussed, from a real estate perspective we're consolidating our corporate headquarters and much like many corporations have done, we evaluate our space needs, we implemented smarter guidelines and we reduced our footprint. In addition, we exited underutilized facilities for schools that have closed in prior periods. In total, $5.5 million of the charges related to the accounting for this action. Second, from a resource standpoint, we have practically reviewed our organization since…

Thank you, James. Manny, if we have any questions we'd be happy to take them now.

[Operator Instructions] Our first question is from Corey Greendale of First Analysis.

Thank you. This is Ken Wang on for Corey. First of all, congratulations on a very strong quarter. So just going off of the press release yesterday on the North Carolina Virtual Academy seeing an increase in student applications. Just wondering if you can offer any additional color on whether you're seeing any similar demand increases in other states?

Well, we're fairly early in the enrollment season, it's very very early. Most of our schools just opened pretty recently. North Carolina is an interesting state because right now demand greatly outpaces supply and that's something that we hope the state will take a look at over time, when you have so many families who are interested in getting into school, but that's obviously a great situation if we can get a school like North Carolina fill very quickly and we get to then focus on other areas.

And then any change in your thoughts on use of cash.

Well, that's something we clearly think about periodically and while we consider all options and have periodic conversations with our board about that, we are most focused on looking at M&A opportunities. We are very active in doing so but we also remain very disciplined in our approach to strategic combination and making sure that they provide both strategic value and that they are priced reasonably. So that's a discipline we have internally as James shared. In the last year or so we were able to close the LTS acquisition and acquired the remaining share of Middlebury Interactive and it’s something that we are certainly very focused on on the management team. That is our primary anticipation of these to cash at this point.

And just one quick one for James. Anything you can offer on the expectation for tax rate in Q4.

Yeah, I think well -- I think on a full year basis we should land well within sort of 40 – sub-40 range I think. So I think that -- what that implies is for Q4 at least we'll also probably be in the high 30s type of range.

Thank you. The next question is from Jeff Silber of BMO Capital Markets.

Just wanted to go back to your initial remarks – and forgive me, I don't know if I copied this correctly, but I think you talked about a delay of potential new school openings from fiscal 2018 to fiscal 2019. Can you go over the reasons for that again?

No, that's not so much a delay but as you know, I mean we have roughly 16 or 17 possible new states within which we can open up a new state entirely. So every year we queue up two or three that we hope to have a good shot at and we're working hard in those states. We're not sure we'll be able to get a new state entirely open this year but we certainly will continue to open new schools in existing states. And we'll be able to add programs like career and tech education to existing schools. So we remain very focused on growth via a number of avenues but new states in and of themselves are binary. They either happen or not, we're working hard on a couple of them.

All right. Thank you for clarifying that. And then I think you said you were looking for a “modest growth” in managed public school enrollment next year. How do you define modest?

I think it's a little early in the season, we continue to believe that we have growth opportunities, we're not really giving any guidance for the fall enrollment number. But we do think that -- we do think that managed school programs is going to continue growing.

And then I ask this every quarter; can we get an update on what's going on in Ohio?

Yes, we've been in conversations and negotiations around contracts -- contract renewals for some time. It’s part of the standard process and I would generally say that things are going the way we want them to be going. So we'll hopefully have an update very soon.

And is typically announcement made publicly and if so does that happen before the end of the current school year?

Typically it's not been our history to announce contract renewals but as I said things are going quite fine in our estimation and we certainly hope to get things moving along a little more quickly. But there are a lot of players involved. End of Q&A

[Operator Instructions]

Well, thank you again for listening in everybody. We appreciate your continued interest and support. Manny, if there's no more questions, we are ready to close the call. And we will join everyone again in about 90 days.

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.