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Interview With The CEO And Founder: K12 Inc. (LRN) - Ron Packard

September 7, 2011 - The Wall Street Transcript has just published Education Report offering a timely review of the sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.

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Ron Packard, CFa, is the CEO and Founder of K12 Inc., a technology-based education company based in Herndon, Va. K12 is a provider of proprietary curriculum and online education programs to students in kindergarten to 12th grade. Mr. Packard previously was a Vice President of Knowledge Universe, and CEO of Knowledge Schools, which provides high-quality childhood education in community and employer-sponsored centers, and invests in, incubates and operates several charter school companies. Previously, he worked for McKinsey & Company as well as for Goldman Sachs in mergers and acquisitions. Mr. Packard holds a B.A. in economics and mechanical engineering with honors from the University of California at Berkeley He holds an MBA with honors from the University of Chicago.

TWST: When we spoke in 2009, we talked about the challenge you were facing in raising awareness about the alternative form of education you provide. Would you update us on any progress you've made on that front during the past two years?

Mr. Packard: I think we are seeing a gradual increase in awareness, and we are continuing to grow enrollment pretty heavily. So we've seen 20%-plus enrollment growth over those several years. I think virtual education, virtual schooling, is becoming more and more mainstream, and I think a lot of it is viral, where parents who are using it are telling others. And I think it's also helping as a lot of school districts announced they are going to offer one or two courses. So online education in general in the K12 space is becoming much better known.

TWST: As we look forward, what should investors expect as far as any geographic or operational expansion you would want to make in the near to midterm?

Mr. Packard: We are very price disciplined and very focused on what we do with acquisitions. So you can never be sure you are going to make acquisitions. However, I do think there may be opportunities with other attractive geographies and there may be some add-ons where acquisitions make sense.

TWST: Excluding the newly acquired programs, you still had enrollment growth of about 22% in the first quarter of 2011 compared with 2010. What are the factors driving that nonacquisition growth?

Mr. Packard: I think a lot of it is - I think, Victor Hugo has said, "Nothing is as powerful as an idea whose time has come." I think the online learning space, the time has come. What you are seeing is the acceptance of the technology. In any new technology, whether it'd be refrigerators or television, it's a long, steady, gradual climb up in awareness and acceptance, and I think we are still in the beginning of that phase. So I expect to see strong enrollment growth for years and years to come as online education in the K to 12 space becomes mainstream and accepted and used by everybody.

TWST: What are the most significant outstanding regulatory issues that could impact your business?

Mr. Packard: Unlike the colleges, we've already been heavily regulated for a long time, and we had to produce outcomes in regard with state test and learning games. We are also much cheaper for the taxpayers of the traditional public schools. For us, it's more opportunistic and there are still 20 states that we are not allowed to have public virtual schools, so I actually view the regulation issues not as obstacles, but we actually have opportunity. So we want to be in all 50 states. We want every child in the country to be able to get this type of education. So for us, issues we deal with regulations are more opportunities than they are risks.

TWST: Most states right now are experiencing budget problems. How does that trickle down to your company?

Mr. Packard: I think from our perspective, clearly we've seen lower funding for children in most of our states, and that's obviously had an adverse effect. But in our particular case, we are scaling and growing and getting more cost efficient. So we continually are driving our model and being more efficient. So we are able to compensate for that. We have been able to deliver over the last three years, despite unprecedented budget cuts, very strong income and earnings growth. So we just have to continue to operate more efficiently. On the positive side, states are looking and seeing one or more efficient alternatives. And the fact that we can deliver great education on average, throughout 60% per child, for the taxpayers who are paying makes it more open to actually looking at our business as a potential solution to the problem.

TWST: Who do you view as your primary competitors, and what are the advantages you believe you have over them?

Mr. Packard: I think the market is still nascent. We don't really think of it in the competitive dynamic. So our biggest challenge isn't competitors. Our biggest challenge is making sure people who could benefit from this become aware of it. So we want to really make sure that every family knows this is out there and what it is, and it's not so much a competitor. We continually invest a lot of money in both curriculum and technology to make sure that we are not only maintaining the lead among anyone else who is doing this, but we are actually increasing that lead.

The remainder of this 36 page Education Report can be immediately viewed by purchasing online.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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