K-12 Inc. Online Charter School Management Company Taking Hits!

Dear Commons Community,

K-12 Inc., the for-profit, online education company, founded by former Goldman Sachs executive Ron Packard and former United States Secretary of Education and right-wing talk show host William Bennett in 1999, has been in the news lately for the wrong reasons. As reported in Capital and Main:

“The latest sign that the nation’s 14-year romance with the for-profit cyber charter industry might be cooling came this summer when the Board of Trustees for Pennsylvania’s scandal-plagued Agora Cyber Charter School discussed completely severing its relationship with K12 Inc., the nation’s largest for-profit cyber charter management and curriculum supplier.

The action came nearly three weeks after an August 5 vote by Agora’s board to not renew its management contract with the online learning giant beginning with the 2015-16 school year.

Agora had been the jewel of K12’s 29-state network of virtual charters, accounting for 14 percent of the company’s annual revenues of $848.2 million. So when news of the August 5 decision came to light during an August 14 K12 Fourth Quarter investor conference call, it sent K12’s high-performing stock into a nearly 13-point tailspin.

Investors had already been skittish following an avalanche of recent setbacks for the company, including:

  • Last year’s loss of a management contract at Colorado Virtual Academies (COVA) — that state’s largest cyber charter — for the 2014 school year after complaints by parents and COVA about the company’s mismanagement of resources and misplaced priorities.
  • Last month’s order by Tennessee’s education commissioner for the closure of K12′s affiliate there, Tennessee Virtual Academy, at the end of the 2014-15 school year, citing its dramatically poor academic performance.
  • This spring’s formal opinion by New Mexico’s Attorney General that a Farmington, NM-based K12 affiliate is in violation of a state law forbidding a for-profit company’s involvement in managing a charter school.
  • April’s decision by the National Collegiate Athletic Association (NCAA) that it would no longer accept coursework from 24 virtual charters that use K12 to provide their online curriculum, including both Agora Cyber Charter and California’s largest online charter network, the California Virtual Academy (CAVA).

This follows scathing comments by hedge fund manager Whitney Tilson who announced he was shorting K12 Inc. stock, effectively betting that the company would fail with an unsustainable education model.Tilson said in a presentation document that although average revenues per student were on the rise and the concept of online education has “strong political support, especially among Republicans” as well as “enormous buzz,” “K12’s aggressive student recruitment has led to dismal academic results by students and sky-high dropout rates, in some cases more than 50% annually” and “there have been so many regulatory issues and accusations of malfeasance that I’m convinced the problems are endemic.”

The efficacy of the model has also been questioned by the company’s shareholders in a lawsuit alleging that the firm violated securities law by making false statements to investors about students’ performance on standardized tests and boosting its enrollment and revenues through “deceptive recruiting,” according to the Washington Post.

This is more than a bad-hair day for K-12 Inc.




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