Stuart Udell - Chief Executive Officer James Rhyu - Executive Vice President, Chief Financial Officer Mike Kraft - Vice President, Finance.

Corey Greendale - First Analysis Jeff Silber - BMO Capital Markets Chris Howe - Barrington Research.

Greetings and welcome to the K12 Fiscal 2016 Fourth Quarter Earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star, zero on your telephone keypad.

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Mike Kraft, Vice President of Finance. Thank you, sir, you may begin..

Thank you and good morning. Welcome to K12’s fourth quarter earnings call for fiscal year 2016.

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?.

Thanks Mike. Good morning everyone and thanks for joining us on the call today. As noted in our release issued this morning, we ended fiscal 2016 with revenue for the year declining 8% year-over-year to $872.7 million. Operating income for the year was $13.9 million, declining $4.5 million from the prior year.

Excluding the net impact of the settlement with the California Attorney General, operating income would have been $21 million. Capital expenditures were $71.2 million for the year. The majority of capex went towards upgrading our technology platform and curriculum to dramatically improve the student online learning experience.

Notably, we produced $50.6 million in free cash flow and ended the year with nearly $214 million in cash. We achieved this while investing $20 million for the acquisition of LTS last quarter. These results, adjusted for the impact of the settlement, are in line with the guidance we gave you last fall.

Performance for each quarter and for the full year consistently met or beat guidance we provided. Now let me turn to some commentary on business operations for the year. First, in our managed public school programs we continued to execute on our objectives to improve student retention.

We ended the fourth quarter with student enrollment almost equal with the year ago quarter. The improvement equates to more than a 150 basis point increase in our in-year student retention rate.

This reduction was not the result of a single event but part of a multi-year effort to attract and retain students who are most likely to succeed in an online environment. As part of this effort, we continued to invest in our Students First portfolio of programs.

This year, we rolled out these programs to 19 schools, representing about 50% of all students attending our partner schools. The programs encompass the entire student experience, from onboarding to personalized outreach, to academic and support services for struggling students, to surveys to gauge satisfaction.

Our goal is to further improve retention and academic results, thereby also improving the long-term economics of our business. Schools that participated in these Students First programs showed marked improvement in student engagement and retention. Student engagement is a critical element towards achieving student academic success.

We will continue to invest in Students First with plans to roll out to another 20 schools next year. This will allow us to reach approximately 90% of all students who attend managed public school programs with this innovative set of services. This year, we also succeeded in expanding the number of K12 managed public schools.

We grew our existing presence with six new schools in five states, including Alabama, Nevada, Michigan, Indiana and Virginia. These schools will serve a wide array of students from at-risk populations to dual credit and early college programs. At the same time, we have been pursuing blended school opportunities.

Our new blended school offering has met with immediate success with two new programs opening in Maine and Nebraska in the upcoming school year. With all of these new schools, we will work closely with boards to determine specific enrollment targets based on the objectives for that school.

Our partners are serious about running high quality charter schools and want to attract students who are well suited to be successful in their programs.

Moving forward, we will continue to work with school boards to open new schools in states that do not yet have a virtual school option, as well as expand our footprint in states where we already have a presence. As you know, this business development process is often a multi-year effort, so we will keep you informed of progress as things develop.

Overall, we expect to continue to see solid demand for full-time online programs, with managed programs being a core part of K12’s business for the long term.

Before we release our 2016 academic report, I also wanted to take the opportunity today to correct an error regarding the academic gains we reported using Scantron test results for math and reading two years ago, and as reflected in the 2015 academic report.

Specifically for school year 2013-14, we have recalculated those results by including gain scores falling within the standard error of measurement.

With this correction, it remains the case that K12 students’ overall mean gain exceeded the overall Scantron norm group mean gain in reading and math, although by a smaller margin than originally reported.

If gain scores falling within the standard error of measurement had been included in the analysis for school year 2013-14 and the calculation methodology otherwise remained the same, K12 students mean gain would have exceeded the Scantron norm group’s mean gain in grades four through nine in reading, and in grades 3 through 10 in math.

However, K12’s gains would not have exceeded the Scantron norm group in grade 3 and in grade 10 for reading, and would not have more than doubled the norm group gains in grades 6, 7 and 9 in reading, and 9 in math, as we had previously stated during our earnings call on October 30, 2014.

K12’s precise performance relative to Scantron norms in math and reading for school year 2013-14 will be published in our 2016 annual academic report. That report will be published within the next month, and as you’ll see, in addition to presenting the above results, it will also present some further refinements to our methodology.

Now second, as school districts continue to adopt online schools and services into the classroom, we continue to see demand for the full catalog of FuelEd course offerings, from DASL curriculum and AP courses to credit recovery and ELL.

A perfect example of the breadth of opportunity for FuelEd solutions is with a new school district partner in California. This particular school district will be making a full complement of FuelEd courses available to several thousand students this fall.

The idea is to provide every student access to whatever they need, whenever they need it, including core curriculum electives and supplemental resources. We will even be providing adult education options as well as support for students requiring credit recovery.

When we asked this customer what their motivation was behind their adoption of Fuel Education, they responded, why wait to see a kid fail before we do something about it? We certainly hear the same from many of the districts we serve across the country.

In addition, as I mentioned on the conference call last month, FuelEd has expanded its contractual relationship with the Agora Cyber Charter School in Pennsylvania. Starting this school year, Agora will once again be receiving marketing services, enrollment management, middle school programs, and hardware and technical support from K12.

The enhancement of our relationship with Agora points to the value K12 plays in delivering a seamless online experience for students, and we look forward to serving the students, teachers and administrators of the Agora school. FuelEd is also expanding its full-time school footprint.

This year, we will be opening new programs for district partners in Colorado, Washington, Arkansas, Ohio, New Jersey, Pennsylvania, and Alabama. Looking ahead, we are excited about the prospects for FuelEd over the long term.

FuelEd remains a business development priority for K12 and we will seek to continue to grow FuelEd both organically and inorganically. Third, we made targeted investments in our systems architecture to better engage students and improve the online learning experience across all of our businesses.

This includes expanding the use of our new online platform to middle schools, which we rolled out to high schools during the ’15-’16 school year.

The platform takes the online learning experience to an entirely new level by empowering students, teachers and learning coaches to access what they need, when they need it, and also allows us to operator more seamlessly on mobile platforms.

Importantly, it will help teachers drive better academic outcomes with instant access to actionable student data. Now, aside from the sheer technical list, implementation of a new system on this scale is an enormous change management effort.

Over a two-year period, we will have rolled out the new platform to more than 75,000 students, families and teachers in more than 70 schools. By any measure, this is a huge feat and a laudable effort. Importantly, we continue to invest in our next-generation curriculum that will provide new, rich and interactive courses for the upcoming school year.

The new curriculum, which we call Summit, is rich, engaging and highly intuitive and adaptive in response to learners’ needs. We will continue to invest in this new modular and scalable curriculum over the next several years. Fourth, we brought Career Technical Education, or CTE to market.

These programs allow students to pursue a distinct career pathway based on the National Career Cluster model. Students can work towards earnings one or more industry recognized certifications from a pool of 18 certification options, most of which are stackable, meaning that they can be used towards future learning pathways.

We believe CTE has enormous potential to add to the skilled trade workforce in this country, as well as better prepare many graduating students for post-secondary education. For the upcoming school year, we will be launching five new CTE schools or programs with partners in Wisconsin, Nevada, Colorado, Utah and South Carolina.

FuelEd has also introduced these programs to school districts and has seen immediate demand. Dozens of school districts have already purchased courses and are planning to offer these CTE programs this fall. Now in summary, we clearly met or exceeded the financial and operational goals we set for the year.

Our managed public school programs are improving. Student retention, revenue per enrollment, and importantly academic outcomes are all heading in a positive direction. From a school development standpoint, in total we have worked with school boards to open 13 new schools or programs across 11 states.

Our institutional business continues to hold great potential for growth. School districts are reevaluating how they deliver their academic programming to meet the needs of the ever-growing digital education revolution.

Districts are leveraging digital content to provide original coursework, supplement classroom instruction, address homebound constituencies, and even replace traditional textbooks. Our acquisition of LTS enhances our product set and diversifies our technology platform.

LTS’ Stride Academy fills a gap in skills practice, assessment and test readiness across all grades and subject areas, and does so in an engaging, gamified environment. We have also expanded our business into new areas.

CTE has enormous potential to educate students who may not have had the ability to persist in a traditional classroom and to fill this nation’s need for more relevant and skilled workers. Our technical and product teams have delivered significant upgrades to our curriculum and infrastructure.

Our Summit curriculum and new learning management platforms are posed to enhance our speed to market and flexibility in providing effective learning solutions for schools, districts, families and students in years to come. We have a strong balance sheet with $214 million in cash and virtually no debt.

This puts us in a strong position to capture strategic opportunities while investing in the organic growth of our business. Overall, I believe K12 is well positioned to continue to innovate for the benefit of students and teachers across our nation in search of transformative learning experiences.

I trust you can see why we are so excited about K12’s long-term growth prospects. Thanks very much for all of your support this year, and I look forward to a great year in fiscal 2017. I will hand the call over to James.

James?.

Thank you, Stuart, and good morning everybody. Let me start with our reported results. Revenue for the quarter declined 6.1% from the year ago quarter to $221.3 million. For the year, revenue was $872.7 million, down 8% from fiscal 2015.

For the quarter, operating income was $510,000 compared to an operating loss of $16.3 million in the year ago quarter. For the year, operating income was $13.9 million compared to $18.4 million for the fiscal 2015.

As you saw in our press release, our operating income for the quarter and the year included a settlement with the State of California, resolving all claims related to the Attorney General inquiry. The company took a net charge during the fourth quarter related to this settlement of $7.1 million.

This is comprised of $2.6 million of settlement payments, $6 million to defray the cost to taxpayers for the Attorney General’s expenses, and $1.5 million of insurance reimbursements. Excluding this cost, we would have reported operating income of $7.6 million for the quarter and $21 million for the year.

This is in line with our guidance for the quarter and for the year. For comparison purposes, if we looked at 2015 excluding the $28.4 million in charges reported in the fourth quarter of that year, our fiscal 2015 operating income would have been $8.9 million for the fourth quarter and $43.7 million for the year.

I’m going to exclude the impact of the settlement and investigation costs for this year and the charges booked for 2015 when talking about expense and profitability numbers. This should provide you with a clearer picture of the underlying trends in our business.

Revenue for the quarter was $221.3 million, a decrease of 6.1% versus the year ago quarter. For the full year, revenue was $872.7 million, which represents an 8% decrease over the prior year. Revenues were primarily impacted by the change in the Agora contract.

Excluding the loss of Agora, revenues would have risen approximately 8% and 4% for the quarter and year respectively. The pro forma revenue growth in the quarter was largely driven by increases in our managed public schools programs and our institutional business, FuelEd. On a full year basis, we saw growth across all segments of our business.

Revenue from managed public school programs fell almost 8.9% for the quarter and 11.9% for the full year. Enrollment similarly fell 9.6% and 10.2% respectively. Revenue per enrollment saw more immediate impact as revenue per enrollment actually increased for the quarter by 0.8% and fell by 1.9% for the full year.

Underlying these losses, we saw strong increases in full-year revenue per enrollment of over 6% when excluding the impact of Agora. The revenue per enrollment trends involve a combination of factors, including school mix, improved funding in some states, and other variables.

School mix is an important lever for us as we optimize in states where the funding and contractual environments work in our favor and where our school board partners agree; however, as we look forward, we are cautious about both the overall environment and the opportunities to improve mix.

For fiscal year ’17, some of the growth opportunities Stuart discussed are in states where the funding levels are below average. While a short term challenge, we see this as a long term opportunity where we can work with those states to provide funding for online students that is at least comparable to the overall market.

This approach is consistent with our historical practice of entering states where the economics don’t begin favorably but improve over time. We continue to believe that the overall funding environment will remain positive; however, increases may be more modest in comparison to the trends we’ve seen in the past few years.

Excluding Agora, we have seen full year average enrollments almost flat to the prior year, despite starting the year with account date enrollment almost 4% lower than the previous year. As Stuart mentioned, our investments in in-year retention and programs are bearing fruit.

Moving on to our institutional business, which includes both the non-managed public school programs as well as our institutional, software and services line, revenue grew 30.8% for the quarter and 23.3% for the year. The gains in the non-managed programs were largely the result of the shift in the Agora contract going from managed to non-managed.

Institutional software and services revenue increased 8.7% for the year. The revenue growth here is not consistent from quarter to quarter; however, we are encouraged by the progress we are making to structurally set this business up for long term growth.

For non-managed programs, full year revenue per enrollment increased over 5% and was basically flat for the quarter. This was directly attributable to the Agora agreement, which as Stu mentioned we are expanding in both term and scope starting fiscal year ’17.

We are also looking at the enrollment side of our institutional business to ensure we maximize profitability and not enrollments. We may do some pruning of contracts that could impact enrollments going into next year to enhance the profitability of our portfolios.

In our private pay and international businesses, revenues declined 23.5% to $9.9 million for the quarter, but rose 1.1% to $47.1 million for the full year. As we mentioned last quarter, we have shut down our operations in the U.K. and the declines in the quarter are largely as a result of that change. For the year, our U.K.

operations business consisted of approximately $10 million in revenues. This was a money losing venture that we saw no clear path to either sustained growth or profitability, so for next year this business is going to shrink on a reported basis, given the loss of the U.K. revenues.

However, we do see some interesting opportunities in the private pay space and we will be pursuing them in the coming year. Gross margins were 35.3% in the quarter as compared to 33.2% in the year ago quarter. This is in line with our typical seasonal trends for the fourth quarter.

For the year, gross margins were 37.4% compared to 36.9% in the fiscal year ’15. The year-over-year increases for both the quarter and the year relate to the positive revenue per enrollment figures we have seen throughout the year.

Selling, administrative and other expenses increased 1% for the full year and 6.8% for the quarter, excluding the impact of the settlement charges this year and charges for last year, so we have basically managed these costs flat for the year. Product development expenses for the quarter were $1.1 million compared to $4.3 million in the prior year.

For the year, they declined 30% to $10.1 million. The decrease on the quarter and the year are largely attributable to a shift in resources to capital initiatives and away from maintenance-oriented non-capitalizable projects.

On a pro forma basis, again excluding the impact of the California AG settlement in the fourth quarter, operating income was $7.6 million for the quarter and $21 million for the year. These amounts are in line with the guidance we have provided throughout the year. Now let’s turn to some other items.

We ended the quarter with cash and equivalents of $214 million, which is an increase of $18.1 million from the prior year. This is after investing approximately $20 million in the LTS acquisition. The strength of our cash position is largely a result of our strong receivable management and timing of some cash tax payments.

Capex as we have historically defined it, which includes curriculum and software development, computer and infrastructure, was $71.2 million for the year versus $76.5 million in the previous year.

We saw a $6.1 million increase in investment for software and curriculum development offset by reductions in property and equipment and property lease costs. I also want to note a change that we will be making in our reported capex for fiscal ’17.

Historically, we have defined capex to include curriculum and software development, infrastructure and computer lease costs.

When our computer lease costs were $20 million or $30 million, it made sense to include this in our calculation; however, with improvements to our reclamation process and a decline in per-unit costs, computer-related expenses are now about $10 million and as such, we will begin to report capex in a more traditional manner, including just software and curriculum development and infrastructure costs.

This will also provide an easier compare to other companies’ investment profiles. Our tax rate for the year was 35.7%, which was in line with our guidance. Before handing the call back to Stuart, I wanted to touch on two other items.

First, beginning next quarter, we’re going to expand our quarterly scores by providing some additional profitability metrics such as adjusted EBITDA and adjusted operating income. We believe this will aid investors to better understand our underlying results without the impact of non-cash stock-based compensation charges.

Since we have instituted some performance-based compensation, it is increasingly difficult to predict the exact timing of expense on some of these grants. Second, I want to again remind everybody that we will not be providing a separate guidance release and conference call this fall with our enrollment count date.

We will report both actual enrollment and Q1 results at the same time at the end of October. We will also provide full year guidance at that time as well. I will now hand the call back over to Stuart.

Stuart?.

Thanks James. Donna, we’d be pleased to answer any questions..

[Operator instructions] Our first question is coming from Corey Greendale of First Analysis. Please proceed with your question..

Hi, good morning everyone..

Morning..

Congratulations on a nice end to the year. I mostly had a few numbers questions.

So first of all, is LTS, I assume that’s in the institutional software [indiscernible], is that right?.

Yes, that’s correct, Corey. Since we closed it late in the year, it was really immaterial. As you know, the way the accounting works, the deferred revenue gets written off in things like that, so it was really immaterial in both revenue and profit for the year..

Okay, so you kind of pre-empted my next question, which is the improvement in growth in institutional software, so it was not driven by LTS.

Can you just comment on the change in the trend there, and whether you think the better growth is sustainable?.

Yes, so it is—correct, it is not really attributable to LTS. We think the growth in our institutional software and services business will continue to be a little bit lumpy, but as I think Stuart mentioned, we are investing behind it both organically and inorganically.

I think we’re going to continue to see growth into next year and beyond, but we’re not really, I think, ready to put a precise range of that growth right now..

We’ve also worked to build and structure our sales organization to support better growth moving forward..

You may not know this off the top of your head, but what percent of that business is now annual subscriptions versus more site licenses?.

Within institutional software and services, we’ll do almost half of annual license business now..

Okay, all right. Great. Then there were a couple things that James you talked about relatively briefly. I just wanted to follow up on the point about funding levels in newer states in 2017 being below average.

Should our expectation be that revenue per enrollment in managed will actually be down next year, or are you saying lower growth?.

No, I actually don’t think it will be down, Corey. You know, we had some pretty heady growth and revenue per enrollment over the past few years.

I just want to be careful that I think the overall environment continues to be positive, but given just that mix, we will sort of mix a little bit into some of these—you know, Stu mentioned a number of states, like Alabama and things like that, where those states just do have slightly lower than average revenue per enrollment.

So I still think we’ll get some gains, I just think it’ll be much more muted as compared to the past few years..

And of course, we’ve had success historically entering new states and improving the per-pupil funding over time, so that’s of course something we’ll be working hard to try to accomplish..

Understood. I think you also said something briefly about doing some things to increase profitability versus enrollment.

Hopefully you know what I’m referring to, but could you just elaborate on that?.

Yes, as you know, in our non-managed side of our business, we have an enrollment side of that business as well. We’re increasingly looking at our portfolio, just as we have consistently over the past couple of years – you know, we closed down the U.K. this year. We’ve done it more at sort of a structural level at the U.K. business.

I think we’re going to continue to dive deeper down at the contract level and things like that, and just make sure that we’re not adding enrollments for enrollment sake. So I think we have some contracts that probably are unprofitable for us, and I think the top line enrollment number is not what we should be shooting for.

We should be shooting to improve profitability overall, so in the non-managed enrollment business if that is somewhat going to compromise the enrollment numbers, we’d rather take that.

We want to improve retention, we want to talk about ensuring that our marketing for those programs is efficient, so I think there’s a number of things involved in that, but just like the managed business, it’s not enrollment for enrollment sake.

In the non-managed business, it’s not enrollment for enrollment sake, it’s also to look at profitability, retention, efficiency, those kinds of things as well..

Okay, and on the non-managed, can you give – and I apologize if you gave this already – some sense of what the increase in what you’re doing for Agora, what the impact of that financially will be in fiscal ’17 versus ’16?.

Yes, so sorry – we haven’t given that. We’re still working through it, because with Agora, it is obviously a fluid situation and somewhat unique. It will be a positive.

It’s hard to cite at this point because we actually don’t know what the enrollments are going to look like, and because we haven’t managed those enrollments for a while, everything from re-enrollments or re-registration through the next year and the arc of enrollments through the summer and the fall is still uncertain.

So I think there’s a fairly big range on what that Agora improvement could be, so I think at this point it’s a little early to give any guidance on that..

Okay. One last one from me, and I at least have to try to ask this.

As we’re going into the next school year, any sort of preliminary indications of how the enrollment season is going?.

No, it’s still very early. We’re not even halfway into the season. It’s very early still in our trajectory. .

We’ll certainly talk about it enrollments on the first quarter call. .

I get it. I’m just contractually obligated to ask. All right, great. Talk to you soon. Thanks..

Thanks Corey..

Thank you. Our next question is coming from Jeff Silber of BMO Capital Markets. Please proceed with your question..

Thank you. My contract makes me follow up from Corey’s questions.

In terms of the new schools that you cited coming up next fall, are there any caps that we need to be aware of, or are they going to be typical new schools in terms of first year of enrollments?.

There are no caps on many of those schools. I believe that three have caps in place—four, so four of the 13 have caps in place. .

Can you just remind me what the typical enrollment is per school in the first year?.

Yes, I think Jeff, you’ve got to remember, a number of those schools are in states where we already operate, so normally in a state like North Carolina, which was just virgin territory for us this past year, we have a three or four-year trajectory of growth that will go into the thousands, right.

Also remember, North Carolina is also capped, but that cap does allow us to go over a three to five-year period, upwards of 5,000 enrollments. So that would be a typical trajectory in a state like North Carolina.

Maine – different, right? It’s a much smaller state, much smaller enrollments, so we only had a few hundred there, but in many of the schools, as Stuart mentioned, where we already have an existing school, the growth trajectories are much smaller than, say, like North Carolina, so there’s no quote-unquote typical, as you know, but there would be more in the hundreds range than the thousands range, certainly..

Okay. From an upcoming elections impact, I know it really depends on each state and sometimes each local district.

Anything at a high level that we need to look out for in some of the states you’re operating in, or some of the states you might be entering?.

Well, I certainly think that this is a state-level business, so we’re not particularly concerned about the federal election. The ESSA framework reinforces that this is a state business effectively, so we don’t really—we’re business as usual..

So nothing on the agenda in terms of new caps coming on board, or caps being taken off?.

Not that we’re aware..

No, not that we’re—the only thing, Jeff, which is—you know, the caps I’d say are the caps, meaning that the state sets them. That’s all publicly available information.

But you know, you also have to remember we work with our boards, and we really—the boards often run schools where they impose caps as well, because they want to ensure growth doesn’t get out of hand, we run very strong academic programs, et cetera. We can sort of build into our growth the infrastructure and the teachers, et cetera.

So for us at least, I think the structural caps by the state are one component. The boards and working with boards—you know, they have often not hard and fast caps. They give us some guidance ranges, sometimes they say let’s look at it during the course of the year as well.

There’s economics behind in-years as well, so it is very, very fluid but I think that there is in general across the board, I don’t think we’re currently worried about the election year having a big cap issue for us, so I don’t know that that’s really the issue..

Okay, that’s helpful.

I know you’re not giving official guidance for next year, but can you tell us what we should be expecting for our capital expenditures budget, and how will the new disclosure on capex compare to fiscal year ’16? So for example, if you were disclosing capex the way you are going forward in the year that just ended, what was the number on fiscal ’16? Thanks..

Good question, Jeff. So what it will do is going forward, the capex number—well sorry, yes, we’re not giving guidance for next year, but I would tell you if you looked at the trajectory over the past few years, we’ve sort of been in that $70 million to $75 million range.

This year, the $71 million would have actually been sort of down to $61 million, $62 million range. On that basis, I don’t think that we’re looking to dramatically increase capex levels in next year or years beyond..

Okay, fantastic. Thanks so much..

You’re welcome..

Once again, that is star, one to register any questions at this time. Our next question is coming from Alex Paris of Barrington Research. Please proceed with your question..

Good morning, this is Chris Howe sitting in for Alex Paris. .

Morning..

Good morning.

Can you comment on how the integration of LTS and the core Stride Academy is going so far compared to your internal expectations, and when would we be able to see a meaningful impact from this? In other words, when do you see it being a driver within the software and services?.

Sure. So far, the integration has gone very well. We have done a fair bit of work around marketing and sales integration. The teams are working well. We’ve done a fair bit of cross-training.

Of course, we’re really entering a new sales year or sales cycle, so we haven’t seen huge returns yet, although we’ve had certainly some nice deals happen along the way, so that’s been good. From an operational perspective, we’ve maintained our little operation down in Arkansas and are communicating very closely with the team.

We also have engaged in a collaborative product road map, so some of the work around adaptation and gamification that’s been done at LTS over the years has already been shared and integrated with our core business.

We’ve also done some fun little projects, so for instance we launched in very short order a gaming and coding academy in Ohio on a pilot basis over the summer and had about 45 kids engaged in that program, so we’re starting to really share the tools across the business in a lot of ways. But generally going, the integration has gone very, very well.

In terms of driving meaningful impact, we’ll be—we’ve kind of trained up our inside sales team. We think this is a great product, a great point purchase product at the price levels it’s at, and we certainly expect to see significant increases in adoptions over time..

I think one thing just to keep in mind is for fiscal year ’17 specifically, again just because of the way the accounting works on the deferred revenue when we acquired the business, we really won’t see any meaningful contribution to profitability certainly in ’17, and even the revenue impact gets muted, again all sort of through the accounting of it, not through the underlying business trends.

So I think starting in fiscal year ’18, though, assuming the business grows as Stuart indicated, you will see some more meaningful growth in ’18 out of that, but it’s fairly muted in ’17 because of the accounting impact..

The other thing I’ll just say is we like LTS as a product entrée, not only because of its price point but it covers all grade levels, all subjects, and that’s going to help us expand the conversation for our sales team in the Fuel Education organization..

Thank you for the additional color, that’s very helpful. My next question is in regard to LearnBop for families, if you’d be able to provide some general overview on this product and what it exactly could mean for expanding your portfolio within the math skills arena..

Yes, I think I mentioned a little bit earlier that we see some interesting things in the private pay side of the business, and LearnBop for families, which is the consumer product, it really falls within our private pay business.

We think that we have some really interesting assets that translate really well into the consumer market, and with very minimal investment we think we can pivot some of those into the consumer market. LearnBop is one of those that we’ve done an early pivot on.

It’s being used internally throughout some of our managed schools as well, and so we see both internal use as well as that consumer product.

But this literally was launched within the past few months, it’s early days of traction, and again very little investment, so I think that consumer piece of the business, some of these digital assets we will continue to see as we test the market on whether those consumer assets can gain some traction..

The other benefit of launching a consumer version of LearnBop is particularly in the math areas, it helps avoid some summer slide, and it’s a way to, you know, we hope over time as we experiment, improve retention on a year-over-year basis. .

Thank you. One last one from me.

It may be too early to provide, but what kind of cash flow impact are you anticipating from the investments in Summit?.

I think on a cash flow basis, for fiscal ’16 at least, we invested a lot of money in Summit in ’16, getting ready for the ’17 launch. It was sort of just built into the overall capex numbers, and I think our capex, as I said, we don’t anticipate any dramatic increases in capex.

So I don’t think that there is a—I don’t think that the trajectory of capex is going to change much, and therefore the trajectory of our cash flow shouldn’t be impacted dramatically from Summit either..

Thank you..

Thank you. At this time, I’d like to turn the floor back over to management for any additional or closing comments..

Thank you for spending time with us today. We look forward to talking to you on the first quarter call about enrollments and guidance, and until then enjoy the summer..

Ladies and gentlemen, thank you for your participation. This concludes today’s teleconference. You may disconnect your lines at this time, and have a wonderful day..