By Zachary A. Goldfarb
Washington Post Staff Writer
Friday, December 14, 2007

K12, a provider of online courses for virtual schools, made its debut as a public company yesterday, raising $108 million as its shares climbed 36 percent.

The Herndon company intends to use the proceeds from the initial public offering to set up virtual schools in more locations and expand abroad, said Ronald J. Packard, K12's founder and chief executive.

Shares of K12, trading on the New York Stock Exchange under the symbol LRN, closed at $24.55, up from its offering price of $18. The company issued 6 million shares. The amount of cash raised was less than the $172.5 million it said it sought in a prospectus filed this summer.

K12 manages virtual schools on behalf of school districts and government agencies, licensing online curricula and providing educational services. The company operates in 17 states and the District and plans to sell to an independent school in Dubai next year. More than 39,000 students use K12's software, most often as a substitute for going to school buildings.

Packard said the company would look into offering General Educational Development high school diplomas and adult education, two profitable enterprises for other companies. According to a filing with the Securities and Exchange Commission, K12 will also pay down debt and issue dividends to holders of preferred shares.

"K12 has grown very rapidly, and our mission is to really serve as many children as possible," said Packard, who founded the company in 2000 with William J. Bennett, who was secretary of education during the Reagan administration.

Enrollment in K12's virtual schools has increased 35 percent a year over the last three years, according to an SEC filing. From 2004 to 2006, sales increased from $71.4 million to $116.9 million, and the company turned $7.4 million in losses in 2004 to $1.4 million in profit in 2006.

With roughly 700 employees, including 450 in Herndon, K12 is one of several big education technology companies in the Washington area, a group that includes software giant Blackboard.

K12 faces other big competitors, including Baltimore-based Connections Academy and Insight Schools of Portland, Ore., which this year was acquired by Apollo Group, the nation's largest for-profit education company.

Even though K12 is in a growing market, the company will have to deal with resistance to virtual schools by teachers' unions and some legislators, said Trace A. Urdan, a for-profit education analyst at Signal Hill, an investment bank and research firm.

"Politically it's very sensitive in the way that charter schools are sensitive," he said. "Whether you are pulling a home-schooling family into the public school system or pulling a student away from the public school, you're taking away the funding that's attached to the student away from that school."

Packard said K12's approach is distinct because it combines rigorous course work with research into how students learn. For example, to develop the science curriculum, K12 staff visited with physicists at the University of California at Los Angeles and decided that wave theory -- one of the key ideas of quantum mechanics -- would be taught in the first years of school.

"It might be as simple as water boxes with waves in it," Packard said. "That's laying the foundation for quantum mechanics 12 years later."