K12 Inc. Defends Colorado Virtual Academy After Hit On Wall Street
Poor academic performance and control issues at Colorado’s largest taxpayer funded online school put its Virginia-based management company on the defensive Monday.
Update 4:00 p.m. 11/20/2012: K12 Inc.'s stock continued to slide Tuesday. A report coming from the Colorado Charter School Institute presented more bad news, with a recommendation to deny transfer of COVA to the district.
We are lowering our rating on LRN shares to Market Perform over performance issues that have come to our attention at one of the company's longest-standing schools, Colorado Virtual Academy (COVA), which enrolls approximately 4,500 students and generates, we est, around $23MM in annual revenue (~3%) at an above average margin. We believe this latest example of K12's declining academic performance could weigh on shares at least until the problem seems addressed or new school growth meaningfully accelerates.
The report also referenced an application by Colorado Virtual Academy to transfer its charter to the Colorado Charter School Institute. That application is expected to be denied by CSI, which cited concerns over academic performance and board control issues.
KUNC first reported on the academic challenges at the state’s largest online K-12 school last fall. The school's current graduation rate is 22 percent.
After the Wells Fargo announcement on Monday, K12 Inc.’s stock ended the trading day down 3.84 points, or 18.78%. For its part, K12 Inc. posted a response regarding its ongoing action plan at Colorado Virtual Academy, which pointed to challenges stemming from changing demographics at the school:
While growth in at-risk populations is a phenomenon increasingly affecting public schools across the country, the growth in this cohort in COVA appears disproportionate to other schools we manage. This influx has required extensive changes to an intervention model there, an adjustment which has proved difficult for some teachers in the short term and also contributed to a reduction in parent satisfaction to a level below the near-90% range characteristic of other K12-managed schools.
COVA has already made changes to the school’s leadership structure this year. Also in the works could be a potential shift to a new authorizer. COVA partners with Adams 12 Five Star, a district north of Denver, to oversee its operations and academic improvement. With its charter set to expire next year, the school is pursuing a relationship with the Colorado Charter School Institute.