Here is the transcript of that interview:
JOHN KERNAN - LIGHTSPAN PARTNERSHIP, INC. - (LSPN)
CEO Interview - published 06/15/00
DOCUMENT # KAD238
JOHN KERNAN founded Lightspan Partnership, Inc., in September of 1993. Mr. Kernan was formerly Chairman and CEO of Jostens Learning Corporation, the nation?s largest educational software company. He developed Jostens Learning from a start-up company in 1985 (then named Education Systems Technology Corporation), to one of the largest software businesses in the US. Prior to founding Jostens Learning, Mr. Kernan was an executive with Gill Cable Corporation, a Northern California cable TV operator. He also was Vice President of Product Development for DELTAK, Inc. (now Applied Learning), the nation?s largest provider of video-based training. Mr. Kernan also has served as Director of Information Systems for two Fortune 500 companies. Mr. Kernan has served as Chairman and President of the Software Publishers Association, the primary trade association of the computer software industry. He also serves on the boards of MediaShare Corporation (multimedia software) and Academic Systems Corporation (higher-education software), and he is a Director of the National School Boards Association Foundation and Technology Network ? the high-technology community?s political action organization.
Sector: Education & Training Services
TWST: Would you provide our readers with an overview of Lightspan Partnership, Incorporated?
Mr. Kernan: The actual name of the company is Lightspan, Inc. We changed our name about a month ago.
TWST: Was there any particular reason for that?
Mr. Kernan: First of all, the previous name was The Lightspan Partnership, and we kept getting listed under the ?Ts? for ?The?, and then, the ?Partnership? word, which served the company well as a private enterprise because it emphasized the partnership we made with schools. But when we became a public company, it got very confusing, so we dropped it.
TWST: That?s a good name change. Do you provide services for schools?
Mr. Kernan: Lightspan develops and markets programs that we sell to schools that help the children learn reading and mathematics and language arts from kindergarten to grade eight. We also have a college division called Academic Systems. Academic Systems provides mathematics and English instruction for poorly prepared college students, of which there are very large numbers entering our colleges today. And then, we also have a very large commitment to the Internet with both subscription Internet products and free Internet programs that are used by many thousands of K-12 schools across the country.
TWST: When you say mathematics, do you mean algebra, calculus, geometry and all of those?
Mr. Kernan: At the higher education level, yes. For the younger kids in kindergarten to grade six, it?s everything from squares and triangles, which is kindergarten mathematics, up through pre-algebra at the sixth, seventh and eighth grades.
TWST: Would you give our readers an idea of the size of the market?
Mr. Kernan: The education market is huge. Depending on how you count them, there are more than 100,000 kindergarten to grade 12 schools in the United States, and roughly 5,000 colleges, both two-year and four-year ? that would constitute our market.
TWST: Insofar as language is concerned, do you also provide services for foreign languages, as well?
Mr. Kernan: We focus exclusively on teaching the English language, although a great many of our students in kindergarten to grade eight schools do not have English as their original language. They?re learning English as a second language.
TWST: They might have Spanish as a first language, for instance?
Mr. Kernan: It could be Spanish; it could be kids coming in from Asia. It could be kids coming in from other parts of South America, Europe and Africa.
TWST: Where would you like to take the company over the next few years?
Mr. Kernan: Well, we want to stay in the school-based education world. We?ve done a good job there. We?ve built a business with pro forma revenues of about $50 million last year, and many people think that it will be a good deal bigger than that this year. But I think the future for this company is to continue to emphasize what we do best, which is connecting the school to the home. The way our programs work, the schools buy Lightspan to teach reading or mathematics or language arts or other subjects. Kids and teachers use it a little bit in the classroom, but then, more than 90% of our usage actually occurs at home with the child working on very interesting material on reading, math and other subjects, with their parents.
TWST: What kinds of reading material would you provide for your students?
Mr. Kernan: Well, for little kids, we?re teaching them the alphabet ? short and long vowels, etc. For older students, we?re teaching them reading in the content areas and how to recognize different types of writing. And then in college, we?re teaching college English.
TWST: What accounts for this lack of preparatory skill when students enter college?
Mr. Kernan: Historically, colleges had a method of selecting kids that was purely based on their academic results in high school, which may or may not have been fair. Today, in many states, if you graduate from high school, regardless of what your scores were, you will be admitted to college in that particular state, because they have open enrollment programs. So more and more students, who graduate from high school, even though they?re not ready for college, are enrolling.
TWST: Certainly the SATs have taken on a much higher significance than they had ever before in the past.
Mr. Kernan: In the traditional, top-tier, private and state colleges, SATs are very important. But the vast majority of today?s college students are not attending those top-tier schools. They?re attending the two-year and four-year schools that are state-supported. And these under-prepared students are a big market for our academic systems subsidiary.
TWST: Would you expect any significant changes or developments in your sector of the market over the next few years?
Mr. Kernan: Well, the Internet is the big change agent for the education world. We have been putting virtually all of our extra resources, financial and otherwise, into the Internet side of our business. Our Lightspan subscription Internet programs are used ? those are the ones where the school actually pays a fee to use it ? in just under 2,000 schools. And our free Internet site, Lightspan.com, which is supported by sponsorship, is now used in more than 18,000 schools.
TWST: Have teachers found these educational software services and programs to be helpful to them as well?
Mr. Kernan: Well, if you think about today?s teacher on the Internet ? pretend you?re a teacher doing a lesson on the solar system, maybe a fourth grade teacher. Where would you send your kids off to research the solar system on the Internet? You would probably have them search on the word, ?planet.? Try it some time. In the first 10 or 20 returns, you?re going to get nothing that has to do with the solar system. You?re going to get Planet Hollywood, you?re going to get Lonely Planet, etc. ? you?re not going to get anything about the solar system. When you search on Lightspan.com to make up your solar system lesson, you type in the word planet and you can also tell what level you?re interested in. If you?re a fourth grade teacher, you?d get different things than an eighth grade teacher. All of the returns are going to absolutely be pertinent to what you?re teaching in class. You?re not going to get any Planet Hollywoods; You?re just getting the stuff that relates to education. The Internet can be a great tool for education, but today in many schools, it?s just a big time waster. And they?re are also a lot of scary places where the kids can go.
TWST: Yes, sure. The chat rooms for example.
Mr. Kernan: Or some of the smut sites. Well, with our Lightspan.com, you don?t have to deal with any of that.
TWST: What do you see as the biggest opportunity for Lightspan, in addition to your continued use with the Internet?
Mr. Kernan: I think our biggest opportunity is to just grow from the thousands of schools that we have now to tens of thousands of new schools. This company has grown remarkably in five years and I think that trend will continue.
TWST: Do you think acquisitions will play a part in Lightspan?s future?
Mr. Kernan: Well, we?re going to look at acquisitions to see if they fit within our strategy. I think in this market, we have to be careful to make sure that we?re making very long-term decisions about acquisitions.
TWST: I know you?ve touched on the rate of gain in the sales and earnings for last year. What do you see coming in the next couple of years?
Mr. Kernan: Well, I can?t really forecast our growth because we?re a public company. But the forecasts that you see from a number of analysts who cover our company show some pretty significant growth rates. And if you look at our history, our growth rate has been very gratifying ? from zero to $50 million in less than five years.
TWST: Are there any risks other than the general economy? Is there anything that might keep you up at night as far as the sector of the market that you?re in is concerned?
Mr. Kernan: The nice thing about selling to schools and to public education is that first of all, it tends to be generally business cycle proof. There are 53 million kids in our schools and the nation is spending more than $300 billion educating them. In a business cycle downturn, that?s not going to change very much.
TWST: No, I think the education of our kids has always been considered to be one of our top priorities.
Mr. Kernan: And especially now. Both political parties at the national, state and local levels are trying to outdo each other in how they can spend more money, how they can pay more attention, how they can just run our public schools better. So we are fortunate to be in a category that everyone thinks we ought to do more with, and that?s education.
TWST: So there is a limitless amount of growth prospects?
Mr. Kernan: Well, it?s not limitless, but everyone thinks we ought to do more of it, and if you?re a company that has a very substantial record of growth already, you can feel pretty good that you?re in the right place.
TWST: As CEO, where do you spend most of your time within the company?
Mr. Kernan: Well, we?ve got three businesses. We?ve got our kindergarten to grade 12 software business. We?ve got our higher education business. And then, we?ve got the Internet business. The first two are the mature businesses (at least maturing), that have great growth records and already very large sales and quite large customer bases. I?m pretty satisfied with what?s going on there. I spend most of my time on the Internet side because that?s the new business for us. That?s an area of high competition, and it?s frankly the area that?s growing the fastest on a percentage basis of anything that we?re doing now.
TWST: Yes, that?s the so-called new economy.
Mr. Kernan: Well, you know, here?s a point. Education is the last big, unclaimed category on the Internet. There is no eBay of education. There is no Yahoo! of education. But somebody is going to be the big player in the category. And frankly, we think we?ve got the assets to make Lightspan the big player.
TWST: Can you describe the corporate culture that you?ve tried to inpire in your management team and your employees at Lightspan?
Mr. Kernan: Well, we have a saying that is maybe unique to the education space. The best way to describe our corporate culture is, ?Doing well while we?re doing good.? The majority of our employees come from the education world. They were teachers. They were people who sold to education. They were curriculum developers. So there is this tremendous desire to make a difference for kids. That, coupled with the fact that the business is growing very nicely, just gets everybody excited. But at the core, what we?re trying to do is provide American kids with a better educational experience, and to work with teachers and parents and school administrators to do that. In the thousands of schools that we already have as Lightspan customers, we?re doing that.
TWST: Right, and finding a teacher who inspires kids is always a plus.
Mr. Kernan: Well, you take today?s kids. They?re playing video games. They?re watching television. If they?re fortunate enough to have a computer and Internet access, they?re surfing the Web. That kid is not going to be excited by the traditional textbook and by the three pages of mimeographed fraction problems that the teacher sends home as homework. So what we?ve done at Lightspan is use the Internet, use the video-game style experiences, use story and character in our education software ? the same things that get kids excited about everything else they do, we use that to get them excited about reading, mathematics and language arts. We?re using today?s tools for today?s kids.
TWST: Yes, and as I guess your management team can attest that it is difficult to teach kids. It always has been and certainly now it is. It sounds like you?ve got the right management team.
Mr. Kernan: We?ve got great teachers. We just need to give them better tools.
TWST: What would long-term investors focus on in reading your financial reports?
Mr. Kernan: I think they would focus on the growth of our three businesses. Our software business is growing nicely in the kindergarten to grade eight market. Our college business is growing; more and more colleges are adopting the Academic Systems program. And there?s remarkable growth in our Internet business. I think investors should focus on that. I think they should also focus on the fact that we have consistently met our forecast. Lightspan is a no surprises company. And if there are going to be surprises, we try to make them positive ones.
TWST: What are the factors that affect your operating margins?
Mr. Kernan: Well, our cost of sales is, as with any other software company, relatively small. The main factors that affect our operating margins are, today, the amount of money that we spend on sales and marketing. Our sales and marketing expenses in our traditional software business in the kindergarten to grade eight market and the higher education market are pretty well controlled as a percentage of our overall sales. But we are spending substantial amounts of money to make our way in the Internet business.
TWST: Are there R&D expenditures that are involved as well?
Mr. Kernan: The R&D in our traditional business is pretty well under control. The R&D in the Internet side is a major new spending category for us.
TWST: What do you think about your stock price?
Mr. Kernan: I think it?s too low. What you have with Lightspan is, arguably, the fast-growing education technology business in the country, by revenue. At the same time, we?re the fastest growing education technology business by numbers of users, by numbers of schools and teachers and students. And we also consistently hit our financial numbers. I think those are indications of a well-managed, nicely growing company. I hope that our stock price will reflect it.
TWST: Is there anything that I may have overlooked that you might want to discuss before we conclude the interview? Certainly, you?ve given investors quite a number of reasons for investing in Lightspan.
Mr. Kernan: Well, this isn?t necessarily a reason for investing, but it?s one of the things that keeps all of us here. For hundreds of thousands of children, we?re making a difference in how successful they are in school. We do that by getting them excited about learning, by extending the school day into the child?s home, and by getting the parents even more involved in their child?s education. Sometimes, these are parents that may not have been successful in school themselves. We ran a contest, not too long ago, where students had to write me a letter telling why they liked Lightspan. I have on my wall my personal favorite response. It reads, ?I like Lightspan because my father is reading so much better now.? That is material that came home from the school for the kid to use. The kid apparently did very well with it, but we also helped the dad who probably didn?t do well in school himself. It made a difference for the whole family. We?re doing well by all the financial standards, while we?re doing good by all the make-a-difference-for-kids standards.
TWST: Thank you.
JOHN KERNAN
Chairman & CEO
Lightspan, Inc.
10140 Campus Point Drive
San Diego, CA 92121
(858) 824-8000
(858) 824-8313 - FAX
www.lightspan.com
Each Executive who is the featured subject of a TWST Interview is offered the opportunity to include an Investors Brief or other highlight material to be provided and sponsored by and for the company. This interview with John Kernan, Chairman & CEO of Lightspan, Inc., is accompanied by an Investors Brief containing corporate information. |
