Good day, ladies and gentlemen, and welcome to the Q4 and Full Year 2012 K12 Inc. Earnings Conference Call. My name is Clinton, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I'd now like to turn the call over to Christi Parker, Vice President, Investor Relations.

Thank you. Good morning, and welcome to the K12 Fourth Quarter and Full Year 2012 Earnings Conference Call. Before we begin, the company would like to remind you that statements made during this conference call that are not historical facts may be considered forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied. In addition, this conference call contains time-sensitive information that reflects management's best analysis only as of the date of this live call. K12 does not undertake any obligation to publicly update or revise any forward-looking statements. For further information concerning issues that could materially affect financial performance related to forward-looking statements, please refer to K12's Form 10-K and 10-Q filings with the SEC. These filings can be found on the Investor Relations section of our website at www.k12.com. In addition to disclosing 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 posted on our website. This call is open to the public and is being webcast simultaneously on our website. The call will be available for replay there for 60 days. With me on today's call is Ron Packard, Founder and Chief Executive Officer; Harry Hawks, our Chief Financial Officer; and Tim Murray, President and Chief Operating Officer. Following our prepared remarks, we will answer any questions you may have. I will now turn the call over to Ron.

Thank you, Christi. Good morning, and welcome to the K12's Fiscal Year 2012 Earnings Call. I am pleased to be speaking with you today about our accomplishments over the past year and provide some insight about our goals and commitments for the new school year. I would like to start the morning by first welcoming all our students and teachers back to school. Our mission is to deliver an outstanding individualized education program for each of our students that enables them to pursue their dreams. We could not do that without the tremendous support of our talented teachers and staff. I want to recognize and thank all of them. Before we begin talking about our strong quarter and our review of the upcoming year, I would like to provide some additional information regarding the allegations in Florida. First, all teachers teaching Seminole County students were Florida certified, and in our internal review, we have only identified minor mistakes in matching the appropriate grade and course certifications with specific students and courses. Second, the emails at issue did not reflect our teacher-assignment policies, practices and controls. We believe the allegations resulted from both a mismatch of the timing of assignments with the reporting deadlines and more fundamentally, a misunderstanding by its author of the process used to generate the report in question in the Seminole materials. Third, we have shared and walked through all the internal supporting documentation for those teacher assignments with the IG's office and cooperated in every way. Beyond that, the results of our internal investigation concluded there's not evidence to support the conclusions drawn in the Seminole-submitted materials about teacher certification. It would be inappropriate for me to comment further, while the IG's office is still in the process of its investigation. Given the unbelievable amount of rumor mongering and absurd extrapolations, assumption to be drawing from this isolated incident, I thought I would take a minute to elucidate our teacher-hiring process. When K12 hires a teacher or recommends to one of our customers or partners the hiring of a teacher, we have a 3-step process to ensure appropriate certification. First, when the position is posted, the applicant must check the appropriate certifications, and today they have. Second, for those recommended for potential hire, we retain a third-party vendor that conducts background checks, including verifying the current certification status with the relevant state and any other records related to that teacher with the Department of Education. Third, when a hire is finalized, the teacher must submit a current copy of his or her state certifications with the returned and signed offer letter. As for the ongoing assignment of teachers and students to courses, again, our policy and expectation is full compliance with all state certifications and NCLB laws. To accomplish this, we have a combination of staff and systems responsible for the actual course assignment to properly match teacher's courses and state certification. At the managed schools, this is accomplished at the school level and is also checked by the state as part of the audit process that all of our schools regularly go through and which has not raised any significant teacher certification issues in any state. K12 as a culture aimed to comply with all regulations and laws and always do the right thing for children. It is our policy to comply with all applicable state regulations, including teacher certification laws. In fact, we have a dedicated school services compliance function with the sole responsibility of developing processes and testing the schools for compliance. Moreover, the schools K12 manage are regularly audited for a full array of financial and programmatic compliance. Despite the complexity of a system that now serves over 100,000 students must comply with federal laws and state laws in more than 30 states and employs over 4,000 teachers, our compliance over the past 12 years has been extraordinary. I am extremely proud of our employees and teachers and believe we have the finest workforce in the world and the nation's finest teacher core. While we have been an innovation engine in education and broken down barriers in order to help students, we have always gone to great lengths to comply with all regulations and always will, as it is part of our culture. Now, getting back to the real business. We had an excellent year and a particularly strong fourth quarter. Not only were the financial results strong, but we had an excellent business development year as well. With regard to financial results, we grew net income significantly to $17.5 million, an increase of close to 34% year-over-year. We grew revenue to $708 million, an increase of more than 35% over the last year. At the same time, EBITDA also increased by close to 30% to $87 million. To put these results in perspective, over the past 5 years, K12 has evolved from a net loss of $24.9 million to net income of $17.5 million. Revenue has grown from $140.6 million to $708.4 million, and EBITDA has increased from $12 million to $87 million. To sustain this growth for the long term, we devoted significant resources during the year to make improvements in our infrastructure and educational platforms. We completed the first phase of a company-wide Oracle Enterprise Resource Planning system, a second data center in Chicago that adds capacity and redundancy to our student-phasing applications and upgraded our Customer Relationship Management system to improve service levels. To improve operating efficiencies and the customer experience, we integrated our enrollment counseling organization more tightly into our recruiting organization. With the benefits of our recent acquisitions, we strengthened our company and its growth prospects in our Institutional and International and Private Pay businesses. We accomplished all of this while facing significant pricing cuts, much of it unanticipated and also while being unjustly attacked by opponents of our efforts to bring greater choice to all students. I thought it might be helpful to give you some better visibility into our plans for improving academic performance and to -- continuing to gain operating leverage. During our first 7 years, K12 focused primarily on the managed school business. The demand for a full-time public school online option was quite robust, and the business grew quite rapidly. In the process of developing a K-12 online learning program, we obtained a feedback from students' parents and teachers, which allowed us to build effective curriculum and learning platforms. We began to diversify our business model in 2 principal ways. First, we introduced a private school model where we do not depend on government funding but instead is parent pay. Second, we began to sell our curriculum services to traditional schools looking to supplement their offerings with online solutions. We call this the Institutional business, and it requires scale as well as breadth of solutions to support this cost of sales. So starting in 2010, we completed a series of acquisitions, which were helpful to achieving that scale and which also leveraged our core competencies into the International and Private Pay business to reach a broader base of customers. In conjunction with these acquisitions, we have significantly expanded our sales force, improved our sales management and acquired and developed more product capabilities. As a result of this business expansion, we now have achieved more scale in 2 related businesses that allow K12 to reach a larger number of children, and create additional growth vectors in what we believe are businesses with substantial growth opportunities. In fiscal year 2012, our Institutional business revenues grew more than 56% year-over-year from $46.8 million to $73.2 million, while International and Private Pay business revenues increased in excess of 80% from $21.7 million to $39.1 million. At the same time, our Managed Public Schools business grew over 31% from $454 million to $596.1 million. During the same period, we recognized that in support -- that in order to support our rapid growth and gain operating leverage in our business, we needed to make investments in our systems and infrastructure. These infrastructure investments, like our strategic acquisitions, will contribute to our long-term success. Obviously, they've also required significant amount of financial and operational resources. While much of the heavy lifting is behind us, we will continue to improve these systems and processes going forward. Those investments have been made in an environment of significant state budget constraints and unanticipated funding recapture issues that have exerted significant pressure on K12's margins. We believe these factors have obfuscated the natural scaling power of the businesses and increasing efficiencies of K12. We are optimistic the budget environment is starting to stabilize and these investments are beginning to realize their benefits. So thus, we expect to improve margins going forward while continuing to grow rapidly. We are pleased that we've been able to continue to deliver high-quality individualized education on a scale basis in the markets we serve. As we reflect upon our success in opening schools in new states, increasing enrollment caps, expanding educational liberty, integrating acquisitions, deploying infrastructure improvements and expanding our business lines, we indeed have accomplished a great deal but understand that we must continue to improve. We are committed to achieving operational efficiencies while maintaining our dedication to offering extraordinary educational experiences for the students we serve. Delivering this high-quality education is the reason we are all here. To help us with this, we have expanded our management team by hiring Tim Murray, our President and Chief Operating Officer; as well as Jim Donley, our Chief Information Officer. We are currently focused on concluding the integration process for the acquisitions we have made to date. In July 2011, we completed the purchase of certain K12 assets and Insight School management contracts of Kaplan Virtual Education. These assets were not fully integrated or optimized in fiscal year 2012, but they now have been absorbed into our operations, and we expect the Insight Schools to be a positive contributor to K12's top and bottom line in fiscal year 2013. We expect the general pace of acquisitions going forward to be slower than the past several years. With regard to our investment in the Chinese-English language learning center company web, we have extended our option to acquire controlling interest in the company until December 31. In the meantime, we're continuing our extensive business due diligence process. If we choose not to exercise this option, we have the right to put our investment back to the company at 8% return. Last year, we opened new schools in Louisiana and Tennessee. This fall, we opened new Managed Public Schools in Iowa and New Mexico, and we opened a Flex School in New Jersey. Additionally, enrollment caps were raised in several other states. Most importantly, it should be reiterated that while Michigan approved the significant expansion of the enrollment cap this year, it will not go into effect until the 2013-2014 school year. We will continue this year to work to add more states and expand caps into 2013-2014 school year so that all children that desire to attend K12 schools will have that opportunity. In the past year, we successfully worked through another unfavorable state funding climate. For each of the last 4 years, state's cut education funding has declined. This year was particularly challenging as we faced unprecedented midyear formulaic adjustments in certain states. Fortunately, total average student enrollments in our Managed Public Schools increased by over 41%, which coupled with the natural scaling of our business and strong cost management, have allowed us to deliver solid financial results despite these significant funding reductions and adjustments. Overall, we expect to see approximately a 1% decrease in fiscal 2013 funding level across the portfolio of states. Additionally, I would like to add that last year's retention rate was not statistically different than that of the previous year. As you are aware, we now also have curriculum, systems and services to school districts in all 50 states and the District of Columbia. Our revenue growth of more than 56% year-over-year in the Institutional business was a result of strong organic growth and the synergies we have realized through the acquisitions of both KC Distance Learning, or KCDL, where we acquired among other things the Aventa curriculum portfolio and the American Education Corporation or AEC, where we acquired the A+ curriculum portfolio. As school districts and academic administrators accept online learning and seek cost-efficient, high-quality, integrated and flexible educational solutions, we believe a direct-to-district distribution channel offers further growth potential. In addition to achieving cost efficiencies with these acquisitions, K12 has had success growing the revenue of acquired companies, and Aventa is a good example of this. Since we acquired the product line, revenues have grown 76% from $14 million in 2010 to $24.7 million in 2012. We are also excited about our recent launch of a new and innovative online learning solution called PEAK 12. This solution simplifies a district management of online learning assets by consolidating multiple solutions on a single platform. It allows administrators and teachers to manage enrollment, programs and performance tracking, alerts and reporting across the multiple online solutions from a single solution. In addition to selling to school districts the past year, we launched a Pre-K program in several early childhood learning centers, in addition to the dozens of kindergarten programs we already have in place around the country. We're quite excited for this innovative new Pre-K offering and believe it has application in the direct-to-consumer channel as well. Our International and Private Pay business, which now includes The Keystone School, the K12 International Academy and the George Washington University Online High School is growing rapidly, as revenues increase in excess of 80% year-over-year, as we served almost 30,000 students in 85 countries. The academic gains for the private school business are outstanding and show the power of the model when students are fully engaged. As you may recall, as part of our acquisition of KCDL, we acquired The Keystone School, which hasn't grown revenue in 2 to 3 years prior to acquisition. In the past fiscal year, the first complete year of K12's ownership, revenue of the school has grown from $11 million to $14 million. We believe it is further testament to K12's ability to add value to the companies it has acquired. We remain dedicated to improving the academic performance of the students we serve, and we'll continue to work so these schools are measured properly, and the performance of these students will be properly communicated. It is ironic and sad that the same groups who argue the state test scores and AYP are poor measures of most, if not, all schools, now selectively seek to use the same inaccurate measures of schools to attack virtual schools. Particularly, as the result of a high percentage of new students and students who enroll behind grade level, these inaccurate measures are significantly less appropriate to measure virtual schools than they are for most traditional schools. The hypocrisy is startling. Later this fall, we will be issuing an annual academic report that will explain how we measure the academic performance of our students and the associated challenges in accuracies of applying traditional performance evaluation methods to virtual public schools given their high student growth rate and dynamic student population. We will also be hosting an academics and product day later in the year, where we encourage you to join us to experience firsthand the power of our products, curriculum and innovative learning applications and learn more about our academics. An increasing number of students join our programs, significantly behind grade level. We are proud to be creating technology-based learning systems and curricula to help solve these educational challenges. These are students for whom the traditional school model has already failed them. To bolster both our internal and external advocacy efforts, we are actively searching for a Chief Academic Officer to help analyze and communicate our academic progress. Our goal remains to provide children with an individualized education to prepare them to achieve and become whatever they want to be in life. We firmly believe that online instruction is an effective way to deliver students and individualized education where tools, such as adaptive learning, can tailor instruction to the personalized needs of each student. We will continue to focus on learning efficiencies, academic outcome and remediation, so we can better serve the significant number of students who come to K12 behind grade level, as well as help school districts serve their children who need remediation or perhaps advanced instruction. In the past year alone, we invested an additional $65 million in curriculum and online learning platforms, a cumulative $305 million to date. We will continue to invest in new curriculum and learning methodologies to ensure that we can provide new capabilities for our students and the schools and school districts we serve. I am excited by what technology now allows us to do, and I believe the new technological advances will allow us to transform education even more in the next decade than we have already done in the past decade. Now I'd like to turn to the 2013 fiscal year. While we will issue our formal guidance the week of October 8 in a separate call dedicated entirely to this topic, we want to provide you with some visibility into our early 2013 outlook. First, our enrollment growth continues to be strong, and we are quite pleased with where we are at this time. Second, re-enrollment rates are similar to previous years. The cost of student acquisitions remain similar to last year. We believe our Institutional growth -- business and our International and Private Pay business will continue to grow rapidly. The business development environment for new states and existing state expansion looks similar to where it did a year ago. The business continues to scale nicely, and we have achieved significant cost reductions in the past fiscal year from both scaling and specific cost reduction efforts. We expect that margins will expand for the 2012-2013 school year. We expect that capital expenditures for fiscal year 2013 will grow less than 10%. With that, I will now call -- turn the call over to Tim Murray to make a few comments.

Thanks, Ron. Before I comment on the fourth quarter, let me say a few words about my focus and where I expect to add value to K12. I have been and will continue to be focused on 4 aspects of our business: first, the customer experience, as well as our employees' experience. Combined, this is what I think of as our product. Second is academic outcomes, the output of our product. While Ron touched on this topic, it's everyone's responsibility at K12, and we take delivering great student outcomes as our job 1. Number three, operating leverage, how we'll achieve it with scale; and last, cash, how we most effectively generate and utilize cash. The growth of the company has been nothing short of stellar. I'm very proud to be here to work with our team to continue to invest and develop the processes, systems and policies to manage this growth, including investing in our team. We will ensure that we have a platform and structure necessary to efficiently grow the company. We'll make the required investments with an appropriate balance of both near-term and long-term focus. Investments made in our ERP, CRM and data centers are a great start, and we'll build on them to ensure we derive the value that can be seen in increased operating leverage. We will strive to deliver a better experience to our customers and better processes for our employees. As for the fourth quarter, I think you can see in the financial results that we took actions to slow the growth in SG&A. I would characterize the results as a comprehensive reduction in discretionary expenditures resulting from a broad and deep focus on the scaling of costs. Regarding CapEx in Q4, we spent $15.8 million, excluding capital leases, taking our full year investment to $48.6 million. We continue to invest in curriculum, some $16.1 million for the year; software development at $22.1 million; and $10.4 million in plant, property and equipment, including Oracle. Be assured that our decisions to invest cash are ROI based, and we make those decisions using the same ROI criteria whether or not the cash is an operating expense or capitalized expense. Further, for fiscal year 2013, the EBITDA less CapEx, is a compensation affecting metric for both Ron and me, just as improving academic outcomes impacts our compensation. Having now been with K12 for 4 months, after having served as CEO or COO of several technology companies, I can tell you that our growth challenges are the best kind of challenges to have. The combination of Ron's leadership to pursue continued growth and my leadership to identify opportunities across our entire value chain to impact our unit costs and improve both our customer experience as well as in employee productivity is a great partnership. We have a talented team highly committed to a mission, in fact, unlike anything I've seen in my past. Our product suite is strong. Our business model is well aligned to the customer buying models that allow us to service both the managed schools opportunity as well as the provision of curriculum and services into the traditional brick-and-mortar schools segment. Our focus this coming year is to drive for profitable growth, and we are fully committed to delivering that, as we continue to deliver better academic outcomes for our students and customers. And with that, let me now introduce our Chief Financial Officer, Harry Hawks.

Thank you, Tim. Good morning to everyone participating in our call and webcast. I'd like to touch on a few key topics before we open the call for your questions. First, thanks to the incredible efforts of the over 3,000 men and women who passionately support our mission, I am pleased to be able to report a strong fourth quarter as evidenced by revenue of $170.4 million versus $128.3 million, an increase of $42 million or nearly 33%; EBITDA of $17.7 million versus $6.3 million, an improvement of $11.4 million; operating income of $2 million versus operating loss of $6.2 million, an $8.2 million improvement; net income of $1.8 million versus a net loss of $2.8 million, an improvement of $4.6 million; diluted EPS of $0.05 versus a loss of $0.08, an improvement of over $0.13. Improved results, particularly on a comparative basis with a relatively higher expense Q4 last year, are attributable to several factors, including, revenue growth in all businesses, substantial slowing of growth in SG&A, partially a result of cost savings initiatives and the absence of certain transaction, merger integration and system implementation expenses in the prior year. Numerous other factors, such as reversal of a portion of the revenue adjustment we had in the second quarter, modest improvement in gross margin, slowing in the growth and product and software development expenses, all resulting in improvement in both EBITDA and operating income margin. Second, our solid finish to fiscal 2012 contributed to the full year results reported last night. Revenue increased 35.6% to $708 million. EBITDA increased nearly 30% to $87 million. Operating income increased nearly 20% to $29 million. EPS increased 22.3% to $0.45, and please note that our press release provides additional revenue detail by line of business. Third, I'd like to emphasize the importance of our significant investments in K12's future. To date, we've invested over $305 million in curriculum, technology and learning platforms. The capital investments made during the quarter and throughout the year are almost all related to curriculum development, software development and systems enhancements. These investments are critical to our education mission and contribute to a scalable infrastructure necessary to support our future growth. Fourth, our financial position remains strong. We have substantial liquidity and financial flexibility. At June 30, our cash balance was nearly $145 million. In addition, our accounts receivable of $160.9 million materially exceeded our accounts payable and accrued liabilities. We had no bank debt and approximately $31 million of student computer-related capital leases and $1.9 million small note payable outstanding. On a related topic, I'd like to follow up on comments I made last quarter about the aging of receivables, the impact on working capital and its effect on the GAAP statement of cash flows. Out of an abundance of caution, I said that we could see a change in the usual seasonal pattern of collections, as we saw evidence that some states would be slower in paying. I am pleased to report that although there are still some lingering effects of a sluggish economy, we did better than we thought we would. After increased effort on our part during the quarter, we reduced our AR balance, our accounts receivable balance, by over $44 million and increased cash on hand by over $21 million, both just since March 31. As a result, GAAP cash flow from operations improved from a negative $13.5 million through 9 months to $33 million for the full year as a result -- a better than $46 million swing during the quarter. Notwithstanding, given the growth in our core business, the provision of working capital, the schools acquired in the Kaplan and Insight acquisition, where we did not acquire working capital, the launch of new schools, the significant growth in Institutional sales and other new initiatives, we did have a significant growth in accounts receivable year-over-year, but the cash flow trends are encouraging. Let me also explain a couple of changes that we're making on a go-forward basis for demonstrating the performance metrics of our business. We continue -- we expect to continue to generate more of our revenues in Institutional business through the sale of licenses and services to the districts or schools on a fixed basis or in other words, an annual all-you-can-eat license. Therefore, the correlation of revenue to enrollments continues to be less and less meaningful for this line of business. As a result, we will report on revenues for this segment and move away from the FTE enrollments that used a 4-to-1 conversion factor. We have heard your feedback on this, and we agree with you. For our International and Private Pay business, where the business has also involved given the additions to our product lines from our acquisitions, comparability to our Managed Public Schools through the use of enrollment statistics, will increasingly less -- have less value. We'll instead report total student counts, the number of students we serve, as well as semester course enrollments. Whereas the Managed Public Schools are predominantly full-time students, that is not the case in International and Private Pay business. Finally, as Ron said, we will not offer full year guidance at this time but plan to do so the week of October 8 after reviewing final fall enrollment information. However, we are prepared to say that we are comfortable with the FY 2013 estimates, posted the first call, at least through yesterday afternoon, which reported on a consensus basis, revenue of $854.7 million, EBITDA of $109.7 million, operating income of $55 million, EBIT of $46.9 million, net income of $25.7 million and EPS of $0.69. Regarding the first quarter, we observed that the consensus estimates just cited slightly overweight Q1 and underweight Q4, partially due to the normal seasonal fluctuation in margin. It is our intention to include Q1 guidance when we provide our full year outlook the week of October 8. For ease of reference, the Q1 estimates posted the first call are revenue of $233 million, EBITDA of $29 million and EPS of $0.21. At this time, I'd like to turn it back over to Ron.

Before we take questions, I would like just to recap some important upcoming dates. Later this morning, we will be presenting at the BMO Back to School Conference here in New York. Next week, on September 20, we will return to New York for the Credit Suisse Annual Small and Mid Cap Conference. The week of October 8, we will issue our guidance in a separate call dedicated entirely to this topic. Later in the fall, we will issue an academic performance report to explain how we measure the academic performance of our students. In early or mid-December, we will host an academics and products day where we encourage you to join us to experience firsthand the power of our products, the rich curriculum and innovative learning applications and learn more about our academics. Operator, we will be pleased to take questions at this time.

[Operator Instructions] Your first question comes from the line of Sara Gubins.

This is Kelly Metzler for Sara Gubins. Revenue per student for Managed Public Schools declined 7% for the year after being flat in 2011. Could you talk about what drove the decline? How much was due to state funding versus a mix shift?

I'll start with that. I mean, there's a lot -- the revenue per student is a lot more complex than that. It's not just the funding in the state, and it's not just the mix shift. There are about 12 factors that actually affect that number. One of those, as we mentioned at the Investor Day, is we have a lot of students enrolled, but because of either changes in counties [ph] or other reasons, we get paid 0 for them. So a combination will be this year, in particular, we had a large number of kids that are enrolled that we are not receiving funding for, for a variety of reasons, so that also lowers it. But the general -- I think, the core the question was trying to get at is with the general -- the general level of pricing reduction was not 7%. It was less than that, and it was more due to other factors than it was pricing reductions. Harry, you want to add to that?

Yes, I think the part that's related to price reductions is probably 2% or 3%, and the remainder is mix shift. But once again, just to reaffirm what Ron said, there's at least 12 factors that go into this, and so it's a little bit more complicated. But I think that's the short hand.

That's helpful. And how much of the $8 million revenue adjustment from the second quarter was reversed?

Between $1 million and $2 million.

The next question comes from the line of Suzi Stein.

Just going back to the last question, you said that the pricing should be down about 1% this year. It was down 2% last year, and you mentioned the 7% decline for managed schools. How should we think about the decline given that you said there are 12 factors? What are you expecting for this year just in terms of that revenue per student decline?

We do not expect it to be nearly as large as it was last year. And this past year had a bunch of factors, particularly the number of students we ended up serving where we get nothing for will be smaller, certainly, a smaller percentage of our students going forward. So we expect that number to be -- that decline to be much less then this coming year. Harry, you want to add to that?

I think that really says it Ron. I mean, I don't have much to add to that.

Can you maybe just discuss how significant Florida is to the business just from an enrollment and maybe a revenue perspective and maybe specifically, Seminole County? And any idea of timing of when that could be resolved?

We don't want to speculate on the timing of an IG investigation. I mean, like as we mentioned in our press release and today, we've had not only internal investigation, but also hired an independent investigator. But we're hoping it's resolved relatively quickly. And Florida, as of today, is a relatively small part of our business, but we're optimistic it will become a large part over the coming years.

Okay. And then maybe just a final one. On the restatement of the enrollment numbers, you gave an annual number, but can you give us some quarterly color and maybe how much was -- were the managed students down year-over-year in fourth quarter -- I mean, sorry, up for the quarter, year-over-year on the managed student side?

Yes, let me grab on to one word you said, which was restatement. We're just changing the presentation format for the 3 lines of business. We'll continue to use student enrollment on a -- if you will, an average basis for the managed schools. And we're changing to be more reflective of what's appropriate for the other businesses. We're evolving to other reporting other metrics, particularly for International and Private Pay. So there's no restatement per se. As it relates to the full year number, which is in the 10-K, that is an accurate number and a healthy growth of approximately 40% over the prior year, and it's -- we'll be providing a lot more enrollment data on our call on -- at the week of October 8.

The next question comes from the line of Jeff Meuler.

This is Nick Nikitas for Jeff. You mentioned the $1 million, $2 million reversal of revenue recognition. Was there any impact to Q4 by other funding adjustments? And if so, to what magnitude?

Really not material. So what we have -- what we said at the time we did the -- we disclosed the $8 million adjustment in Q2 was -- we have plus and minus sort of adjustments every month, every quarter, all year long. It's just that at that one point in time, we had a negative number that was material, so we disclosed it. But minor adjustments throughout the rest of the year and some of that $8 million adjustment in Q2 actually came back of $1 million or $2 million but nothing material else to report on that.

Okay. And then with the cost-savings initiatives, you mentioned the SG&A expense savings throughout 4Q. Is there any additional traction or going into fiscal '13, incremental to the $10 million that you mentioned previously?

Well, I think it's important -- this is a continual process where K12 is continually trying to improve what we do, whether it's get purchasing scale, whether it's improve the efficiency of our operating model. Tim is working on a whole series of initiatives. So we expect to just be continually getting more efficient, and we're quite pleased with what we were able to achieve already in the fourth quarter. And we view this as an ongoing process, and a lot of that momentum that we had in the fourth quarter, we believe, continues into the next year and years to come.

Your next question comes from the line of Trace Urdan.

Ron, I wanted to start by -- just by asking about the internal investigation and whether it included counties besides Seminole and whether it -- you -- as a result of that investigation, you've made any adjustments to any procedures around this issue.

I think -- I'm not sure it's adjustments to procedures, but making sure instead that we make sure that we're complying with all of our existing procedures everywhere. But we'll -- obviously, we looked at this in a much larger basis than Seminole. And again, the -- we're quite convinced that our processes for making sure all our teachers are certified, which they were in this case -- I can't say that enough times -- are there. And you got to ask yourself a question. Why would we ever hire teachers who are not certified? We have tens of applicants for every single job opening. So it's almost ridiculous. So we have -- we are looking at all our procedures to make sure that everything is done right, particularly how we assign teachers and students to classes, and we're going -- we're doing a complete review of that. We always do though. This is nothing new. We are constantly receiving questions about things as we break new ground. Virtual education didn't exist in most places before K12 started it. The fact that we've gone through 12 years, over 30 states and have had so few incidents, and almost all of them minor, is remarkable, given the ground we're breaking. But the answer is, of course, we did. We looked at make sure the policies are enforced, and we'll continue to always do so.

Great. And then in your prepared remarks, you talked about your efforts to develop products to help remediate kids that are coming from behind grade level. And I'm wondering are you currently supplying any products like that to districts on a supplemental basis at the moment.

We do have some products like that, that the districts are starting to use. I mean, a couple of things, specifically, we have a marketable reading program that will take kids who are 3 years behind grade levelly and bring them up to grade level in 18 months, and that's a remarkable program. It's a combination -- and half the time, I think, it's actually autodidactic and the rest with an instructor. So that's one example. We're, hopefully, piloting the National Math Labs program with at least one district this coming year, and that's where you can put children for an hour a day in a computer lab, and we're seeing in eighth, ninth, 10th grade this year. It looks like almost twice the national norm learning gains. So we are beginning that process, but I think it's a continual process, and I can't emphasize enough, where we've seen such a change in the children who are coming to us and we always got a lot of advanced learners, but now the number of kids who are way behind grade level is going up, and we're now looking at tens of thousands of these kids. So we view it as our challenge to figure out how to remove -- get kids up to grade level. And remember, we're not just talking about taking a child and moving them to a year per year. If you're 2 years behind grade level, all of sudden we you get you learning at 1 year for every year, you stay 2 years behind grade level. We have to accelerate learning to 1.5 years or 2 years per year in order to get kids to grade level. Remember, these are kids that might come to us having learned half a year per year. So this is an extraordinary challenge, one we face. It's one school districts face. But I believe our combination, because we build such -- we build learning software, we build curriculum, we also manage schools, the combination of those core competencies, I believe, put us in a tremendous position to begin to solve this problem, which is really the essence of getting the U.S. school system to where it needs to be.

Okay. And you mentioned in your prepared remarks as well that you completed the first phase of Oracle implementation. That set off alarm bells in my head. Can you describe what is still to come in terms of the Oracle ERP opportunity and how we should think about what that might cost?

When the word Oracle is mentioned, the bells are ringing in my head continually. But what I'd say is we've done the heavy lifting and we're -- but when you put these systems in, right, they're so powerful and there are so many things you can do, you're never ever complete -- never ever completely there. And I'm going to let Tim comment a little bit on where we're going with the Oracle implementation. Though, I want to just add that it is -- the bulk of it -- lifting has been done.

Yes, thanks, Ron. There's a reason why Oracle does so well as a company, right? Once you start, you never stop. The functionality that we have implemented to date is largely around improving some of our accounting and financial functions. The opportunity in front of us is to look at our other business processes and either integrate legacy systems into Oracle, in some cases, replace or upgrade legacy systems. And so the proper way to think about our ERP is the foundation is in place, and as we implement further integration with other business applications, that's where we can automate workflows, streamline workflows and achieve the type of productivity gains that are available to us.

Okay, great. And then last question, I'll let you move on. Can you just describe where -- how the board -- what the board's thinking at the moment about potential share repurchase and how that's evolved?

Yes, I'll just comment briefly. We continually will look at that. I mean, there's a -- it's something we look at as we -- when you believe your shares are significantly undervalued. But also, when you're a growth company like K12, I mean, the growth opportunities and the high IRR investments in front of us is unbelievable. I mean, our challenge is not finding high IRR investments. Our challenge is prioritizing them. So you always want to make sure you have the capital to be able to do what you do, but it's something we, obviously, have looked at and we'll continue to look at going forward.

The next question comes from the line of Giri Krishnan.

I guess, I had a couple of questions. One, I understand you'll give a preliminary -- your outlook on the week of October 8, but is there qualitatively any way for us to think about enrollment growth for the next school year relative to the last, given all the cap removals and new state additions and so forth?

Sure. I think it's a little early, and we always want to be careful since we tend to have measured enrollment year over -- October 1 to October 1. But I'd say a couple of things. I think Harry's general statement that we're comfortable where the first call numbers are and he -- I think he said what those first call numbers are. To give you an idea that we're at least comfortable with the enrollment growth level that's similar to the revenue growth number in there or close to it that we'll provide those numbers. I'd also say that it's a continual process, and looking forward, when you look at the cap expansions that are already in place for the year after this one, then you have a pretty good growth prospects for the next couple of years between those things. But I wouldn't want to comment any more on enrollment growth or revenue growth than other to say we're comfortable where the consensus numbers are, and we'll give you much more detail on that in the October call.

Okay. And then in your prepared -- in the press release, there were some -- you made some comments about initiatives to improve student outcomes. Can you expand on what those are? And is there -- should we expect any material impact on costs? Or is it just normal initiatives that you've always had in mind or implemented?

Yes. I'm not sure you're going to see a material impact on costs this year, but some of the things we talk about are expanding, for example, the National Math Labs to all students that are significantly behind grade level. We did a pilot to make sure they worked in the past year. It's also looking at the number of online sessions and interventions our teachers do with students, so there's a whole series of things we're doing. We're looking at actually building specific math courses to actually get you ready for algebra and pre-algebra. So these things are already built into our numbers, so I don't think you'll look at a material change in the coming year. But we're going to continue to get at this. And also, a big part of what we need to do is make sure that policymakers -- and I think we've done this effectively at least at the policy level -- understand how you need to measure schools like this, schools with such a high mobility of population, kids with -- schools with so many kids coming in so far behind grade level. I mean, ironically, this isn't what K12 originally was founded to do, but I believe one of the great long-term impacts of online education is just going to help dramatically reduce the dropout rate. Our school in Chicago, which only takes high school dropouts, is actually taking these kids back in and through a flexible hybrid model, graduating over 90% of them. So we have -- our virtual schools are showing that these kids who come way behind grade level, given an extra year, we can graduate these kids. So in a nation where we now have -- almost 30% of our kids don't graduate from high school, the flexibility and individualization of online education, I believe, can greatly reduce that number. And we are committed to doing that. I mean, we're here to help solve national problems. So -- and we're very excited about it, but it's a lot of work. And we're going to, in the academic annual report, give you a lot of, not only data but also just logical information on how these schools should be measured and why they should be measured that way. So we're quite excited about it. We want to be incredibly transparent with the kids that come in to us, how -- what we do with them. And we're very excited about it.

Okay. Then last -- a question on enrollments. I think someone had asked a question on your Managed Public School enrollments, and I'm not sure if I understood the answer. Just looking at the average enrollment number for the Managed Public Schools, in doing with some rough math, it implies that the Q4 Managed School -- Public School enrollment number was around 87,000 or 88,000. Can you guys confirm if we're in the ballpark, correct on this?

Well, I think we'll just, more or less, repeat what we said a moment ago, which was that the number that's in the 10-K is indeed correct, and it looks like it's a very substantial growth year-over-year of 41%. And we'll be providing more enrollment information the week of October 8. So I think we'll just leave it at that.

The next question comes from the line of Jarrel Price.

So as you said, the midyear revisions that you experienced in 2012 seemed pretty unique. So based on what you see for the upcoming year, do you think this trend is going to continue? Or should we expect that you return to a year of more balanced adjustments?

Well, it's always hard to predict the future. I'd say a couple of things. We -- if you look at the relative size of those kind of adjustments prior to this past year, they were always much, much smaller than anything we experienced this year. And the way we look at our year going forward, is everything we know that's going to happen or even if we think it's a shot that would happen, we model in. So when Harry gives those numbers, we've looked at states that have told us it's going to be flat, for example, and we've actually modeled in reductions, just looking at their fiscal situation. So we, obviously, begin the year and we model in everything that we know will happen or we think might happen with any reasonable probability. So the answer is we expect it to be 0 going -- when we start the year, but we know that hasn't happened. But prior to this year, we had never seen adjustments that went more than $4 million one way or the other. And this year, the $8 million, which were 2 quarters, so the annualized number is actually almost twice that. So we don't expect it to happen, and if we did, we already have it modeled in.

And I think you've been pretty clear about only employing certified teachers, but just a quick clarification about your policies in other states than Florida. For example, in Pennsylvania, up to 25% of a charter's teachers can be noncertified. In Ohio, we understand that part-time teachers can be noncertified. So given these state standards, do you employ noncertified teachers in Ohio and Pennsylvania? Or should it be clear that you only employ teachers who are certified in the states?

Let me say it this way, and I'll -- we'll give you -- we'll give a more detailed answer. I want to make sure I have all the data in front of me. But we comply with all laws and regulations. So in the cases you've described, we would comply with all laws and regulations. But generally, we push the bar much higher than that and look to hire certified teachers. I can't sit here without the data and tell you it's 100% everywhere. But I can guarantee you that it complies with all laws and regulations. And we will get back to you on that question. I just don't have the certification status in every state with all the schools we have in front of me, but I believe, generally -- I think, we only hire certified teachers, but I don't want to say that and commit until I have the exact facts in front of me.

The final question comes from the line of Justin Harrison [ph].

You mentioned Chicago earlier. I noticed in following the teacher strike there that the charter schools opened without any issue. I guess the question is, do you have any or really how do high-profile events like this tend to impact your business development activities in kind of entering into new states or growing caps?

I -- it's hard to say, but we're thankful that our schools in Chicago are open, and we wish we could take more kids. That being said, it's always sad when you have events like this where students and their families aren't going to school, which for a lot of these families, provides enormous childcare issues. But I think it's one of the -- when you look at the overall situation, it's one of the reasons why you need school choices. When you have a situation like Chicago and also -- and you're going to shut down the education for 100,000 kids, that's a bad situation for everybody involved. So in general, I would like to think these things kind of help us and really accentuate the need for more choices for students and also for districts to have the online capability to serve kids when events like this happens. But we're here to help school districts and states however we can.

And now I'd like to turn the call over to Ron Packard for closing remarks.

All right. Well, we thank you for your attention. We look forward to seeing a lot of you at conferences coming up, and also, we look forward to our guidance call in early October. Thanks, everybody.

Thank you for joining today's conference. This concludes your presentation. You may now disconnect. Good day.