SEC Company Response from Stride, Inc. (LRN) (CIK 0001157408) (LRN) — Apr 30, 2014
Stride, Inc. (LRN) (CIK 0001157408)
Date: April 30, 2014 · CIK: 0001157408 · Accession: 0001104659-14-032729
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-33883
Referenced dates: April 10, 2014, March 28, 2014, March 4, 2014
Letter
VIA EDGAR AND HAND DELIVERY Division of Corporation Finance Securities and Exchange Commission Filed August 29, 2013 Form 10-Q for the Quarter Ended December 31, 2013 Filed February 4, 2014 File No. 001-33883
Dear Mr. Spirgel:
On behalf of our client, K12 Inc. (the “Company,” “we,” “us” or “our”), this letter sets forth the Company’s responses to the comments received from the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated April 10, 2014, with respect to the above-referenced annual report on Form 10-K (the “Form 10-K”) and quarterly report on Form 10-Q (the “Form 10-Q”). The Staff’s comments are set forth below in bold, followed by the Company’s response to each comment. Previously, the Company received comments from the Staff by letter dated March 4, 2014, and the Company responded by letter dated March 28, 2014. In connection with the Company’s response to each comment the Company acknowledges that:
· the Company is responsible for the adequacy and accuracy of the disclosures in its filings with the Commission;
· the Staff’s comments or changes to disclosure in response to the Staff’s comments do not foreclose the Commission from taking any action with respect to the Company’s filings; and
· the Company may not assert the Staff’s comments as a defense in any proceedings initiated by the Commission or any person under the federal securities laws of the United States.
Comment
Form 10-K, Item 1. Business, page 5
Academic Performance, page 14
1. We have considered your response to comment 1. Please clarify what disclosure you intend to provide in future filings regarding student persistence rates from year to year. In addition, please address in your Management Discussion and Analysis the trends in your student persistence rates, how persistence rates impact the number of new enrollments you need to maintain and grow your average student enrollment, and the costs related to marketing and advertising used for the recruitment of new students.
Response
K12 intends to disclose in future filings student persistence rates across all its managed public schools based on a snapshot of current enrollment, as of the most recent practical date, of students enrolled less than one year, between one and two years, between two and three years, and for three or more years, as provided in our March 28, 2014 response to comment 1.
In our Management Discussion and Analysis in future filings we will explain that we focus on persistence primarily to achieve greater academic progress for students using the K12 curriculum, as much as we do to maintain enrollment and for future overall growth. The longer a student persists with our K12 curriculum at one of our managed schools, the greater the likelihood of a better academic outcome for that student, in our experience. See K12 2014 Academic Report at pp. 4, 17.
Please note that persistence rates for schools of choice as opposed to persistence rates for traditional, local public schools will generally not be equivalent because families are free to enroll, re-enroll or withdraw their children in a virtual school as their individual needs evolve. Families are not constrained with schools of choice by public attendance zones as is often the case with public brick and mortar schools. If a child is not enrolled in an authorized alternative school like one of our managed schools, the child must attend her traditional local school. The Company continues to believe as the choice of a virtual school model becomes more widely available to families due to favorable legislative and regulatory developments, and the value of the virtual school alternative for many students is better understood, that new enrollments each year will sustain K12’s growth. We note further that, of the approximately 55 million students in grades K through 12 in the U.S. in any given year, less than 0.3% are served by our K12 curriculum. Thus, while persistence is a factor, especially as it relates to academic performance, it cannot be viewed in isolation when assessing all the other factors described above that drive our ability to increase student enrollment year over year at the managed schools we serve.
The Company does not budget marketing and advertising expense based on anticipated persistence rates for the next school year. Rather, we budget marketing spend based upon past experience and perceived efficacy of various types of media and marketing campaigns, from feedback provided by the school boards that contract for our services as well as from our enrollment centers, and management’s assessment of growth opportunities at schools that only recently have contracted for our services. Please note that, to the extent higher persistence rates
could mean that our marketing costs could decline over a prior year, it also means that we could have more available to spend toward increasing public awareness in existing and new states of the online public school option offered by the charters and school districts that contract for our services. Because overall growth in enrollment, including growth at particular schools, must be accompanied by up-front investment by us in the recruiting and training of certified teachers and the procurement of student school supplies (computers, text books and teaching materials), we carefully plan the amount of marketing to be spent during any given enrollment season against forecasted growth in our overall annual budget for each school year.
Comment Form 10-K, Item 1. Business, page 5
Academic Performance, page 14
2. We have considered your response to comment 2; however, we continue to believe that you should address our comment in your disclosure. Please revise your disclosure in future filings to provide additional information about the academic performance of the schools you operate. For example, for each state in which K12 operates a school, please disclose a comparison of the K12 student scores in reading and math to the state averages.
Response
Initially, with respect the original comment 2 seeking comparison of K12 student scores in reading and math to state averages, we note the Staff’s statement that in connection with expanding student enrollments, it “would appear that your potential and current customers would take into account academic performance in deciding to use your products and services….” It is important to recognize that parents and families seeking to enroll their students in K12-managed schools are not our customers, as the schools we serve are public schools and tuition free. Rather, the customers we invoice are the not-for-profit school boards which have a charter from a state authority, and in some cases our customer may be the school board or superintendent of a state-authorized school district.
In selecting K12 to provide online curriculum, technology and management services, the governing charter school boards/districts perform due diligence on K12 and exercise their authority to enter into contracts with terms and conditions to meet the needs of the school and the students they seek to enroll. We compete with other providers of online curriculum and of management services to win the business or renewal contracts with these customers. As none of our direct competitors who seek to provide curriculum and management services to virtual public schools are publicly-traded companies and do not publish academic performance data in SEC periodic reports, these potential and existing customers look to the vendor applications or state education websites for academic performance data in their selection process.
More fundamentally, the publicly available information through state department of education websites and our annual Academic Reports provide investors and customers with a comprehensive, highly detailed picture of the academic performance of students attending our
managed schools. Adding substantial, granular data on test results to our SEC filings on a periodic basis will not alter or add to the “‘total mix’ of information made available,” TSC Industries, Inc. v. Northway, 426 U.S. 438, 449 (1976). Indeed, including test data from each school and each student cohort or grade would require providing detailed information on student demographics and the academic starting point of the student population at each school for a school-by-school comparison to have any meaning.
State testing information in reading and math (and in some cases, science and the English language arts) along with student demographics is publicly available for all schools, including K12 managed schools, traditional public brick and mortar schools and other charter schools, through state department of education websites. It is important to note that there are no arithmetic means or “averages” as reported by state testing authorities — rather, the state tests are intended to measure a percentage of proficiency in reading or math of the students attending a school. For example, one school may have a proficiency score of 75% in reading, and another school a score of 55%, meaning that according to the test results at a given point in time, 75% of the students in one grade or cohort have achieved reading proficiency based on a state objective at the first school, whereas 55% have achieved reading proficiency at the other school. See, for example, the Testing and Accountability web page for the State of Texas Education Agency at www.tea.state.tx.us, and click through to “district” and “campus” to see state proficiency results at every Texas school. For California, see www.cde.ca.gov and click through to the Testing and Accountability web page to find the proficiency test results for all California schools, including the K12 California Virtual Academy. For a further example, see www.isbe.state.il.us for proficiency report cards on all Illinois schools, including our Chicago Virtual Academy.(1) Families, school boards and investors can readily find this information, and importantly, look at proficiency results and student demographics from prior years for any school and make their own comparisons.
In addition, because we publish an annual academic report which now contains school proficiency data under each state’s accountability standards (which have been substituted for AYP measures in 42 states and District of Columbia who have been granted NCLB waivers by the U.S. Department of Education), we believe our customers and investors have at their immediate disposal more extensive information about the academic performance in math and reading of the virtual public schools we serve than that of schools managed by our competitors. We have also added an in-depth section to our 2014 Academic Report that provides value-added (growth) results for students in two of our larger and mature schools (Ohio Virtual Academy and the Agora schools in Pennsylvania). We respectfully refer the Staff to the K12 2014 Academic Report, now published and available at www.K12.com, as well as to our previous response to comment 2.
(1) We are supplementally providing the Staff a hard copy of the 2012-2013 “Report Card” on our Chicago Virtual Academy downloaded from the Illinois Department of Education web site at http://webprod.isbe.net/ereportcard/publicsite/getReport.aspx?=2013dcode=150162990225C-epdf.
During the 2012-2013 school year we managed some 66 schools in 32 states and the District of Columbia. State proficiency results are available on each of these schools through state department of education websites as explained above. Moreover, we have added, in our view, a more meaningful assessment through publication in our annual Academic Report of Scantron reading and math results that measure academic gains (not just proficiency) from Fall to Spring for students attending our managed schools. To add extensive data to our periodic reports filed with the SEC will not add to the “total mix” of information on our business or financial results, and indeed could lead to investor confusion.
Comment Form 10-K, Item 1. Business, page 5
Academic Performance, page 14
3. We have considered your response to comment 3. Please provide the substance of your response in future filings.
Response
K12 will provide the substance of its response to comment 3 in its future filings. We also direct the Staff to pages 30-31 of our 2014 Academic Report which sets forth the components of each state’s school accountability systems under the waivers granted by the U.S. Department of Education under the No Child Left Behind Act.
Comment Form 10-K, Item 1. Business, page 5
Academic Performance, page 14
4. We note your response to comment 4. Please clarify whether you intend to provide the substance of your response, including information responsive to comment 4, in future filings.
Response
K12 will provide the substance of its response to comment 4 in its future filings.
Comment Form 10-K, Item 7. Critical Accounting Policies and Estimates, page 63
Revenue Recognition, page 64
5. We note your response to comment 6 and your proposed disclosure stating that the pro rata amount of revenues to recognize in a fiscal quarter is based on estimated total funds that each school will receive in a given year. Please further clarify how you considered
typical variations in virtual school funding formulas and methodologies in your measurement and timing of revenues (including but not limited to the following):
· Funding contingent upon successful course completion. For instance, in Florida and Texas, full-time virtual schools are allocated funds based on the number of students completing courses but receive funds only after students have successfully completed a course. Refer to ASC 605-25-30-5.
· Funding adjusted for factors such as average daily attendance and student needs.
· FTE funding based on student location.
· Funding based on prior year enrollments.
Response
Each state or school district has variations in the school funding formulas and methodologies, which we use to estimate funding at our respective schools. As we build the funding estimates for each school, we are mindful of the state definition for count dates on which reported enrollment numbers will be used for per pupil funding. Enrollment counts and definitions vary by district and may be based on a single count date, multiple count dates within the school year, and average daily attendance or membership.
The estimates we make each month on a school by school basis consider the latest information available to us and consider material relevant information at the time of the estimate. States may update their funding levels or methodologies mid-year; therefore, to the extent there are changes from historical experi
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CORRESP 1 filename1.htm William P. O”Neill (202) 637-2275 william.o’neill@lw.com 555 Eleventh Street, N.W., Suite 1000 Washington, D.C. 20004-1304 Tel: +1.202.637.2200 Fax: +1.202.637.2201 www.lw.com FIRM / AFFILIATE OFFICES Abu Dhabi Milan Barcelona Moscow Beijing Munich Boston New Jersey Brussels New York April 30, 2014 Chicago Orange County Doha Paris Dubai Riyadh Düsseldorf Rome Frankfurt San Diego Hamburg San Francisco Hong Kong Shanghai Houston Silicon Valley London Singapore Los Angeles Tokyo Madrid Washington, D.C. VIA EDGAR AND HAND DELIVERY Larry Spirgel Assistant Director Division of Corporation Finance Securities and Exchange Commission 100 F Street, N. E. Washington, D.C. 20549 Re: K12 Inc. Form 10-K for the Year Ended June 30, 2013 Filed August 29, 2013 Form 10-Q for the Quarter Ended December 31, 2013 Filed February 4, 2014 File No. 001-33883 Dear Mr. Spirgel: On behalf of our client, K12 Inc. (the “Company,” “we,” “us” or “our”), this letter sets forth the Company’s responses to the comments received from the staff of the Division of Corporation Finance (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated April 10, 2014, with respect to the above-referenced annual report on Form 10-K (the “Form 10-K”) and quarterly report on Form 10-Q (the “Form 10-Q”). The Staff’s comments are set forth below in bold, followed by the Company’s response to each comment. Previously, the Company received comments from the Staff by letter dated March 4, 2014, and the Company responded by letter dated March 28, 2014. In connection with the Company’s response to each comment the Company acknowledges that: · the Company is responsible for the adequacy and accuracy of the disclosures in its filings with the Commission; · the Staff’s comments or changes to disclosure in response to the Staff’s comments do not foreclose the Commission from taking any action with respect to the Company’s filings; and · the Company may not assert the Staff’s comments as a defense in any proceedings initiated by the Commission or any person under the federal securities laws of the United States. Comment Form 10-K, Item 1. Business, page 5 Academic Performance, page 14 1. We have considered your response to comment 1. Please clarify what disclosure you intend to provide in future filings regarding student persistence rates from year to year. In addition, please address in your Management Discussion and Analysis the trends in your student persistence rates, how persistence rates impact the number of new enrollments you need to maintain and grow your average student enrollment, and the costs related to marketing and advertising used for the recruitment of new students. Response K12 intends to disclose in future filings student persistence rates across all its managed public schools based on a snapshot of current enrollment, as of the most recent practical date, of students enrolled less than one year, between one and two years, between two and three years, and for three or more years, as provided in our March 28, 2014 response to comment 1. In our Management Discussion and Analysis in future filings we will explain that we focus on persistence primarily to achieve greater academic progress for students using the K12 curriculum, as much as we do to maintain enrollment and for future overall growth. The longer a student persists with our K12 curriculum at one of our managed schools, the greater the likelihood of a better academic outcome for that student, in our experience. See K12 2014 Academic Report at pp. 4, 17. Please note that persistence rates for schools of choice as opposed to persistence rates for traditional, local public schools will generally not be equivalent because families are free to enroll, re-enroll or withdraw their children in a virtual school as their individual needs evolve. Families are not constrained with schools of choice by public attendance zones as is often the case with public brick and mortar schools. If a child is not enrolled in an authorized alternative school like one of our managed schools, the child must attend her traditional local school. The Company continues to believe as the choice of a virtual school model becomes more widely available to families due to favorable legislative and regulatory developments, and the value of the virtual school alternative for many students is better understood, that new enrollments each year will sustain K12’s growth. We note further that, of the approximately 55 million students in grades K through 12 in the U.S. in any given year, less than 0.3% are served by our K12 curriculum. Thus, while persistence is a factor, especially as it relates to academic performance, it cannot be viewed in isolation when assessing all the other factors described above that drive our ability to increase student enrollment year over year at the managed schools we serve. The Company does not budget marketing and advertising expense based on anticipated persistence rates for the next school year. Rather, we budget marketing spend based upon past experience and perceived efficacy of various types of media and marketing campaigns, from feedback provided by the school boards that contract for our services as well as from our enrollment centers, and management’s assessment of growth opportunities at schools that only recently have contracted for our services. Please note that, to the extent higher persistence rates 2 could mean that our marketing costs could decline over a prior year, it also means that we could have more available to spend toward increasing public awareness in existing and new states of the online public school option offered by the charters and school districts that contract for our services. Because overall growth in enrollment, including growth at particular schools, must be accompanied by up-front investment by us in the recruiting and training of certified teachers and the procurement of student school supplies (computers, text books and teaching materials), we carefully plan the amount of marketing to be spent during any given enrollment season against forecasted growth in our overall annual budget for each school year. Comment Form 10-K, Item 1. Business, page 5 Academic Performance, page 14 2. We have considered your response to comment 2; however, we continue to believe that you should address our comment in your disclosure. Please revise your disclosure in future filings to provide additional information about the academic performance of the schools you operate. For example, for each state in which K12 operates a school, please disclose a comparison of the K12 student scores in reading and math to the state averages. Response Initially, with respect the original comment 2 seeking comparison of K12 student scores in reading and math to state averages, we note the Staff’s statement that in connection with expanding student enrollments, it “would appear that your potential and current customers would take into account academic performance in deciding to use your products and services….” It is important to recognize that parents and families seeking to enroll their students in K12-managed schools are not our customers, as the schools we serve are public schools and tuition free. Rather, the customers we invoice are the not-for-profit school boards which have a charter from a state authority, and in some cases our customer may be the school board or superintendent of a state-authorized school district. In selecting K12 to provide online curriculum, technology and management services, the governing charter school boards/districts perform due diligence on K12 and exercise their authority to enter into contracts with terms and conditions to meet the needs of the school and the students they seek to enroll. We compete with other providers of online curriculum and of management services to win the business or renewal contracts with these customers. As none of our direct competitors who seek to provide curriculum and management services to virtual public schools are publicly-traded companies and do not publish academic performance data in SEC periodic reports, these potential and existing customers look to the vendor applications or state education websites for academic performance data in their selection process. More fundamentally, the publicly available information through state department of education websites and our annual Academic Reports provide investors and customers with a comprehensive, highly detailed picture of the academic performance of students attending our 3 managed schools. Adding substantial, granular data on test results to our SEC filings on a periodic basis will not alter or add to the “‘total mix’ of information made available,” TSC Industries, Inc. v. Northway, 426 U.S. 438, 449 (1976). Indeed, including test data from each school and each student cohort or grade would require providing detailed information on student demographics and the academic starting point of the student population at each school for a school-by-school comparison to have any meaning. State testing information in reading and math (and in some cases, science and the English language arts) along with student demographics is publicly available for all schools, including K12 managed schools, traditional public brick and mortar schools and other charter schools, through state department of education websites. It is important to note that there are no arithmetic means or “averages” as reported by state testing authorities — rather, the state tests are intended to measure a percentage of proficiency in reading or math of the students attending a school. For example, one school may have a proficiency score of 75% in reading, and another school a score of 55%, meaning that according to the test results at a given point in time, 75% of the students in one grade or cohort have achieved reading proficiency based on a state objective at the first school, whereas 55% have achieved reading proficiency at the other school. See, for example, the Testing and Accountability web page for the State of Texas Education Agency at www.tea.state.tx.us, and click through to “district” and “campus” to see state proficiency results at every Texas school. For California, see www.cde.ca.gov and click through to the Testing and Accountability web page to find the proficiency test results for all California schools, including the K12 California Virtual Academy. For a further example, see www.isbe.state.il.us for proficiency report cards on all Illinois schools, including our Chicago Virtual Academy.(1) Families, school boards and investors can readily find this information, and importantly, look at proficiency results and student demographics from prior years for any school and make their own comparisons. In addition, because we publish an annual academic report which now contains school proficiency data under each state’s accountability standards (which have been substituted for AYP measures in 42 states and District of Columbia who have been granted NCLB waivers by the U.S. Department of Education), we believe our customers and investors have at their immediate disposal more extensive information about the academic performance in math and reading of the virtual public schools we serve than that of schools managed by our competitors. We have also added an in-depth section to our 2014 Academic Report that provides value-added (growth) results for students in two of our larger and mature schools (Ohio Virtual Academy and the Agora schools in Pennsylvania). We respectfully refer the Staff to the K12 2014 Academic Report, now published and available at www.K12.com, as well as to our previous response to comment 2. (1) We are supplementally providing the Staff a hard copy of the 2012-2013 “Report Card” on our Chicago Virtual Academy downloaded from the Illinois Department of Education web site at http://webprod.isbe.net/ereportcard/publicsite/getReport.aspx?=2013dcode=150162990225C-epdf. 4 During the 2012-2013 school year we managed some 66 schools in 32 states and the District of Columbia. State proficiency results are available on each of these schools through state department of education websites as explained above. Moreover, we have added, in our view, a more meaningful assessment through publication in our annual Academic Report of Scantron reading and math results that measure academic gains (not just proficiency) from Fall to Spring for students attending our managed schools. To add extensive data to our periodic reports filed with the SEC will not add to the “total mix” of information on our business or financial results, and indeed could lead to investor confusion. Comment Form 10-K, Item 1. Business, page 5 Academic Performance, page 14 3. We have considered your response to comment 3. Please provide the substance of your response in future filings. Response K12 will provide the substance of its response to comment 3 in its future filings. We also direct the Staff to pages 30-31 of our 2014 Academic Report which sets forth the components of each state’s school accountability systems under the waivers granted by the U.S. Department of Education under the No Child Left Behind Act. Comment Form 10-K, Item 1. Business, page 5 Academic Performance, page 14 4. We note your response to comment 4. Please clarify whether you intend to provide the substance of your response, including information responsive to comment 4, in future filings. Response K12 will provide the substance of its response to comment 4 in its future filings. Comment Form 10-K, Item 7. Critical Accounting Policies and Estimates, page 63 Revenue Recognition, page 64 5. We note your response to comment 6 and your proposed disclosure stating that the pro rata amount of revenues to recognize in a fiscal quarter is based on estimated total funds that each school will receive in a given year. Please further clarify how you considered 5 typical variations in virtual school funding formulas and methodologies in your measurement and timing of revenues (including but not limited to the following): · Funding contingent upon successful course completion. For instance, in Florida and Texas, full-time virtual schools are allocated funds based on the number of students completing courses but receive funds only after students have successfully completed a course. Refer to ASC 605-25-30-5. · Funding adjusted for factors such as average daily attendance and student needs. · FTE funding based on student location. · Funding based on prior year enrollments. Response Each state or school district has variations in the school funding formulas and methodologies, which we use to estimate funding at our respective schools. As we build the funding estimates for each school, we are mindful of the state definition for count dates on which reported enrollment numbers will be used for per pupil funding. Enrollment counts and definitions vary by district and may be based on a single count date, multiple count dates within the school year, and average daily attendance or membership. The estimates we make each month on a school by school basis consider the latest information available to us and consider material relevant information at the time of the estimate. States may update their funding levels or methodologies mid-year; therefore, to the extent there are changes from historical experi