Product and Service
Companies included in K-12 educational materials sector in education industry primarily provide K-12 educational content/material, solution and service for public schools and private schools.
Demand for Product and Service
As our revenue data indicates, adoption of education districts has been weak in the past several years. However, we are anticipating an upward trend in long run due to the accelerating economy’s recovery and favourable demographic changes. The trend is apparent in schools’ adoption in learning solution based on new technology.
The Sector
Sector’s current, trend, causes behind trend, and future
Current and Trend
- Demand for instructional materials from schools is strong and the trend is supposed to continue in the long run.
- Materials adoption from school districts has been weak but present a strong upward trend as fiscal condition of local government improves since the last quarter of 2017.
- Demand for traditional instructional materials and solution grows more slowly than that for new and technology based materials and solution.
- Revenues of products for K-6 seem to have grown more quickly than for 9-12 probably as a result of product mix shifting to new technology in product for K-6.
Causes behind the trend
- Demographic trends and spending of local government/education district, which depends heavily on local economy condition, work together to determine the demand for products of companies in this industry.
- Favourable demographic trend as presented in population growth forms a base for this industry in a long run. However, currently due to negative impact of recession in the past several years, adoption of school districts has been less than regular level. As economy recovery speeds, the adoption may come back to the level as it is before recession.
- New learning solutions based on technology help students learn in more efficient ways than traditional materials. It is particular true for materials and solution for K-6 students.
Industry Future
There is a reason to believe that revenue will gain fast growth for companies in this sector, especially for those able to provide innovative education solutions of technology
Numbers
General Financial Performance of Companies In the Sector
The decline in sales for those companies in this sector who focus on traditional instructional materials/assessment (k-12) seems to slow down in 2017, a trend that has continued in the past several years primarily due to less new adoption from state and local government. The trend seems to be continuing in 2018. However, it seems that the demand for technology–based educational/learning solutions (k-12) has been increasingly strong as indicated by fast increase in revenue of companies who focus on this type of products during the same period of time.
Based on the extent of demand for their products, companies in this sector present different trends in terms of their margins. We saw an apparent decrease in gross margin (about 42.5% in 2018) for those companies who focus mainly on traditional educational materials and a significant increase in gross margin ( 70% in 2018) for companies who have been successfully shifting their products to technology solution. The average SG&A as percentage of sales of companies in this sector concentrates on a range of 45-47%. Generally, the typical operating margin for traditional solution companies ranges from -5% to 7% in 2018.
According to our analysis, the current companies’ enterprise price/sales ratio is between 1.3 and 3.9 with a debt/asset ratio of 30%. The current companies’ enterprise price/EBI ratio is between 36 and 39 with a debt/asset ratio of 30%.
