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Revenue, Enrollment, and Costs Up for K12 Inc.

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K12 Inc., the country's largest provider of K-12 virtual schooling, appears to be getting larger, according to its fiscal year 2012 third quarter earnings report released today.

The Herndon, Va.,-based company, publicly traded on the New York Stock Exchange, posted revenue of $178 million for the quarter, a 36.8 percent increase over the same quarter the previous year, and a 7 percent increase over the previous quarter. Earnings per share were $0.18, an increase over the same period last year and an increase over last quarter, but below analyst expectations of $0.21 per share.

Instructional costs, however, increased 36 percent this quarter over the same period last year and increased slightly over the second quarter of fiscal 2012. "Selling, administrative and other operating expenses" were up 46 percent over the same quarter last year, with a slight increase over the second quarter. Cost increases were associated with new school openings and business development, the report said.

Student enrollment in K12-managed public schools remained mostly stagnant over the previous quarter, at 105,912, probably because it's the middle of the school year. Enrollment is 46 percent higher than one year ago.

K12 Inc. contracts with local school districts, which use state funds to pay the company to manage virtual schools in the area. The company has been both a benefactor and a controversial entity of the virtual schools movement that is gaining steam as technology and personalized learning becomes more accepted in schools, but is facing questions about its accountability.

Last year, The New York Times published a scathing article that highlighted aggressive recruiting practices and poor academic performance in some K12 Inc. schools, causing the company's stock to drop from $28.79 to $18.90 per share in three days. Following that article, a class action lawsuit was filed against K12 Inc. for allegedly misleading investors.

K12 Inc. denies any wrongdoing and its officials have claimed traditional performance metrics do not do its students, typically low-income and poor-performing, adequate justice. In a conference call with investment analysts Tuesday morning, K12 Inc. founder and Chief Executive Officer Ronald J. Packard seemed confident that state policy and media backlash isn't affecting the company's contracts on the state level.

Recently, the open enrollment period for virtual schools in Wisconsin was expanded, and Michigan lifted the cap for virtual schools enrollment from 1,000 to 10,000. This upcoming school year, K12 Inc. will open new virtual or blended learning schools in New Jersey, Florida, and Oregon. Last month, the company released a 44-page report (.pdf) on academic gains made by its students.

"One of the good things that's come out about this is we've have probably been a little too shy about talking about our academics and student growth and the Scantron data," Packard said on the call, referring to the sheets students in some states use to answer questions on standardized tests. "By sharing that data so openly... I think we are in a much stronger position politically than we were even a year ago."

However, in recent weeks, legislative proposals in Mississippi, Alabama, and Connecticut have all been killed or altered by arguments against for-profit operators of schools. Packard was questioned about the recent termination of a contract in Washington state, where state funding cuts have dropped per-pupil virtual school spending below that of traditional schools. Two other virtual schools K12 manages in Washington will remain open.

"The relationships with those districts is better, easier, and more economically favorable," Packard said.

The company's stock was trading at $20.40 as of 2 p.m. Tuesday, down 12 percent on the day.

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