Business Committee April 30, 2013

2

Agenda

• CFO/CBO Update and Summary Discussion

• Organization Status and Priorities

• Financial Overview and status

• Facilities Fees and Financing Update

• Business Team Objectives – 2013/2014

• Organization

3

RSED Organizational Status and Priorities

4

90%+ of

students

graduate at

70th+ NWEA

percentile

High-level goals

Gro

wth

Q

uality

Rocketship

serves 30,000

students by 2017-18

People and

systems

support quality

and growth

Scala

bilit

y

Designing and implementing ELA

guidance system

Piloting and refining 4th/5th grade open

model

Creating network services R&D arm to

drive student recruitment and parent

leadership strategy and execution

Building internal capacity and expertise in

marketing, communications, and policy

Hiring staff and founding fellows for new

regions

Building talent management systems

Creating Scalability team to support teams

in optimizing and documenting practices

Expanding school-level business support

and systems to free up school leader time

Enhancing instructional data infrastructure

Major areas of investment in 2013-14

94.5 National

and Regional

FTEs

$17.6M in

total budget

requests

Proposed 2013-14 expenses

Planned investments align to three organizational goals

5

Organizational Status

• Executive Team— - Been together for 1 year now - Gained organizational and overall perspective

• Conducted self-assessment. Are we… - Able to sustain growth objectives? - Deliver high quality schools? - Be a great place to work?

6

Where We Stand…

• Cohesive leadership team

• Strong Results of our Schools

• Responsible Growth

• Committed Talent at all Levels of Org

• High brand recognition

• Parent Engagement and Leadership

• Instructional Foundation and Some Recent Results

• Operations Systems

• Talent Pipeline--teachers, principals, directors, regional, national, etc.

• Overall School Model (finances, enrollment, etc.)

• Organizational culture and morale

• Short Term v. Long Term

Promising Items Challenging Items

7

Need significant investment Foundation for growth

• Use 2013-2014 as an investment year at schools and N/R - School leader talent pipeline - Management depth at National/Regional - Systems and operations infrastructure

• Result: - Existing schools would break-even - National/Regional would experience significant growth - Significant increase in expenses at National/Regional - Funding from growth regions and/or capital campaign

Sets up better foundation for scale and replicability

8

Financial Overview and Status

9

The past year Key steps and decisions—a review

• June: - Identified weak budgets due to lack of net income and fundraising

• October: - Presented solution rooted in more efficient school model

• January: - Cut at the National Office to confirm sustainability targets

• March: - Revised school model to align with new academic priorities

• April: - Reviewed outputs from new budgets and devised a new strategy

10

1. School Budget Model Changes

11

• Rocketship began the 12/13 school year with a breakeven school model

August 2012 Model

(pre-Prop 30)

Students 630

Teachers 16

Rev per Student $7,393

Compensation per Student $3,230

Other Expenses per Student $1,726

Fees per Student $2,380

Total Revenue $4,657,711

Expenses

Comp $2,034,857

Other $1,087,663

35% Fees $1,499,355

Total Expenses $4,621,875

Net Income $35,835

Margin 0.8%

Progression of School Budgets What does a Year 5 school look like?

12

Progression of School Budgets

-No Academic Dean -4 fewer teachers -2 fewer ILSs

B. $330K

-Fewer teachers and students

C. $50K

$380K cost savings

-Fewer students have less revenue

A. $220K D. $75K

$145K less Income

-Less revenue has less fees

$230K Net Income

A.

B.

C.

D.

August 2012 Model Redesign School Model

(pre-Prop 30) Initial October Budget

Students 630 600

Teachers 16 12

Rev per Student $7,393 $7,399

Compensation per Student $3,230 $2,839

Other Expenses per Student $1,726 $1,746

Fees per Student $2,380 $2,371

Total Revenue $4,657,711 $4,439,392

Expenses

Comp $2,034,857 $1,703,103

Other $1,087,663 $1,047,746

35% Fees $1,499,355 $1,422,712

Total Expenses $4,621,875 $4,173,562

Net Income $35,835 $265,831

Margin 0.8% 6.0%

• The redesigned school model projected $230K more net income per school

13

Progression of School Budgets

August 2012 Model Redesign School Model

(pre-Prop 30) Initial October Budget Prop 30 Revenue

Students 630 600 600

Teachers 16 12 12

Rev per Student $7,393 $7,399 $7,811

Compensation per Student $3,230 $2,839 $2,839

Other Expenses per Student $1,726 $1,746 $1,755

Fees per Student $2,380 $2,371 $2,515

Total Revenue $4,657,711 $4,439,392 $4,686,605

Expenses

Comp $2,034,857 $1,703,103 $1,703,103

Other $1,087,663 $1,047,746 $1,052,720

35% Fees $1,499,355 $1,422,712 $1,509,237

Total Expenses $4,621,875 $4,173,562 $4,265,060

Net Income $35,835 $265,831 $421,544

Margin 0.8% 6.0% 9.0%

• Prop 30 added $410/student of revenue, increasing Net Income to $420K

-More revenue has more fees

B. $85K Fees

A. $245K Revenue

-Higher per student revenue

B.

A.

$160K Net Income

14

Progression of School Budgets

• The latest model reflects - 1) lessons from the past year and

- 2) modifications to the “redesign model”

August 2012 Model Redesign School Model

(pre-Prop 30) Initial October Budget Prop 30 Revenue Latest Model

Students 630 600 600 653

Teachers 16 12 12 16

Rev per Student $7,393 $7,399 $7,811 $7,819

Compensation per Student $3,230 $2,839 $2,839 $3,386

Other Expenses per Student $1,726 $1,746 $1,755 $1,775

Fees per Student $2,380 $2,371 $2,515 $2,523

Total Revenue $4,657,711 $4,439,392 $4,686,605 $5,102,757

Expenses

Comp $2,034,857 $1,703,103 $1,703,103 $2,209,525

Other $1,087,663 $1,047,746 $1,052,720 $1,158,136

35% Fees $1,499,355 $1,422,712 $1,509,237 $1,646,784

Total Expenses $4,621,875 $4,173,562 $4,265,060 $5,014,445

Net Income $35,835 $265,831 $421,544 $88,313

Margin 0.8% 6.0% 9.0% 1.7%

15

Run Rate Cost (Year 3+) Difference

August 2012 Model Latest Budget Total

Enrollment 630 653 23

Revenue $4,657,711 $5,102,757 445,047

Changes due to New Instructional Model

Salaries $1,613,456 $1,743,111 ($129,655)

Employee Benefits $421,401 $466,414 ($45,012)

2:1 Tech, Chromebooks $25,363 $58,537 ($33,174)

Curriculum $73,000 $95,679 ($22,679)

Professional Development $31,640 $48,307 ($16,667)

TFA and Recruitment Costs $34,400 $8,000 $26,400

Substitutes and Proctors $65,075 $29,007 $36,068

Total Changes from New Model $2,264,335 $2,449,056 ($184,721)

Changes Driven by '12/13 Actual Expenses

Office Supplies $31,500 $56,696 ($25,196)

Copiers $36,570 $48,548 ($11,978)

Utilities $48,000 $55,000 ($7,000)

Authorizor Fee $48,871 $38,034 $10,836

Student Insurance $28,350 $11,204 $17,146

Total Changes from '12/13 Actual Expenses $193,291 $209,482 ($16,191)

35% Fees $1,499,355 $1,646,784 ($147,429)

Interest $62,982 $85,151 ($22,169)

All Other Costs $601,913 $623,972 ($22,059)

Total Expenses $4,621,875 $5,014,445 ($392,569)

Net Income $35,835 $88,313 $52,477

Budget Changes Summary

16

2. Baseline Model Analysis

17

Startup Capital Need—in total Assuming no grants and no income

($125,000)

$500,000

($2,089,430)

($2,500,000)

($2,000,000)

($1,500,000)

($1,000,000)

($500,000)

-

$500,000

$1,000,000

Security Deposit Security Deposit Working Capital(Deferral)

Working Capital(Deferral)

Working Capital(Deferral)

Year -1 Year 0 Year 1 Year 2 Year 3 Total

Startup Capital Needs

Cumulative Impact Security Deposit Minimum Cash Working Capital Minimum Cash

18

Startup Cash Flow Support Total need could be offset by available grants and debt

($534,587)

($1,534,587)

($2,714,430)

($504,315)($250,000)

($500,000)

($1,684,158)

($250,000)

($3,500,000)

($3,000,000)

($2,500,000)

($2,000,000)

($1,500,000)

($1,000,000)

($500,000)

-

Cash Flow Need Net Income Walton CSP ReceivablesFinancing

Best Case Worst Case

OperatingIncome

Private Grants Public Grants SustainableFunding

CDE Loan Funding Gap Funding Gap

Startup Capital and Cash Flow Support

Expect these to be available, but not

guaranteed

Minimum or maximum need, depending on

availability of grants/loans

19

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Operating Details

S-T Ratio - 37 41 41 41 41Students - 560 611 659 657 653Teachers - 15 15 16 16 16Public Rev / Student - $8,716 $7,889 $7,311 $4,435 $6,893

Income StatementRecurring Revenue - $4,142,806 $4,622,191 $5,059,536 $5,133,938 $5,102,757Grants / Fundraising - - - - - - Total Revenue - $4,142,806 $4,622,191 $5,059,536 $5,133,938 $5,102,757

Compensation $68,013 $2,039,571 $2,085,505 $2,209,985 $2,209,855 $2,209,525Other $700 $1,172,125 $1,103,014 $1,170,450 $1,161,757 $1,158,136Facilities Fee - $779,281 $848,614 $931,811 $946,850 $941,019Management Fee - $584,461 $636,461 $698,858 $710,138 $705,765Total Expenses $68,713 $4,575,438 $4,673,594 $5,011,104 $5,028,600 $5,014,445

Net Income ($68,713) ($432,632) ($51,403) $48,432 $105,338 $88,313Net Income w/o Grants ($68,713) ($432,632) ($51,403) $48,432 $105,338 $88,313

Cash FlowBOP Cash - ($193,713) ($1,025,519) ($1,040,661) ($1,034,587) ($937,112)Net Income ($68,713) ($432,632) ($51,403) $48,432 $105,338 $88,313Operating Cash Flow ($125,000) ($1,516,438) ($394,168) ($178,824) ($32,426) $14,211Financing Cash Flow - $1,117,263 $430,430 $136,466 $24,564 ($11,385)EOP Cash ($193,713) ($1,025,519) ($1,040,661) ($1,034,587) ($937,112) ($845,973)

Liquidity ($193,713) ($1,025,519) ($1,040,661) ($1,034,587) ($937,112) ($845,973)Cash Surplus / (Shortage) ($693,713) ($1,525,519) ($1,540,661) ($1,534,587) ($1,437,112) ($1,345,973)

Baseline School Breakeven by Year 3…

$1,034,587 negative cash plus $500K “Buffer” = $1.5M need

Yields need of Minimum $534K Maximum $1,534K

Likely help from: 1. $750K of grants 2. $250K of CDE loan

20

Existing schools have current need additional cash

($3,000,000)

($2,000,000)

($1,000,000)

-

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

EOP Cash Balance - No GrowthRS9

RS8

RSA

RBM

RDP

ROMO

RLS

RSSP

RMS

Total

($5,000,000)

($4,000,000)

($3,000,000)

($2,000,000)

($1,000,000)

-

$1,000,000

$2,000,000

$3,000,000

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

EOP Cash Surplus / (Shortage) - No GrowthRS9

RS8

RSA

RBM

RDP

ROMO

RLS

RSSP

RMS

Total

Cash balance overall is positive • Cash at existing schools will

remain relatively flat (near zero)

• But new schools (RBM, RSA, RS8 and RS9) will have $3 million need

Note: This assumes that RSED grants $1 million to RBM

However, safety of a cash buffer (i.e. 45 days of expenses on hand) yields a $2.5 million shortfall

21

Impact of Growth – New Schools

Growing by 5 schools per year will bring the total cash balance to negative $19M by FY 2018. Safe Cash Position

would require $16

million more (or a

need of $35M).

Net income from operating schools could fund much of this need

($25,000,000)

($20,000,000)

($15,000,000)

($10,000,000)

($5,000,000)

-

$5,000,000

$10,000,000

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

EOP Cash Balance - Growth

($40,000,000)

($35,000,000)

($30,000,000)

($25,000,000)

($20,000,000)

($15,000,000)

($10,000,000)

($5,000,000)

-

$5,000,000

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

EOP Cash Surplus / (Shortage) - Growth

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Baseline School Model – Long Term Planning Need to achieve at least $200K net income improvement /school

• Expenses - Reduce to 1 Assistant Principal at each school - Continued evaluation of the instructional model—may lead

to economic benefit (if doesn’t detract from instructional value

- Online curriculum support and evolution - Staff training may lead to a need for fewer adults in each

classroom - Sharing of Operations Managers across schools

• Revenues - Higher number of students at each school (back to 630-650

as before)

Unlikely to achieve these levels at existing schools due to facilities constraints—were not designed with the new instructional model options in mind

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Cash Need Analysis - No Growth

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

EOP Cash $4,840,720 $4,696,524 $3,015,210 $2,159,673 $1,978,233 $1,913,576

Cash Need $340,720 $196,524 ($1,484,790) ($2,340,327) ($2,521,767) ($2,586,424)

Grants $1,853,100 - - - - -

Cumulative Grants $1,853,100 $1,853,100 $1,853,100 $1,853,100 $1,853,100 $1,853,100

Total Need $2,193,820 $2,049,624 $368,310 ($487,227) ($668,667) ($733,324)

Incremental Net Income / School $200,000 $200,000 $200,000 $200,000 $200,000

Mature Schools 8 9 9 9 9

Incremental Net Income $1,600,000 $1,800,000 $1,800,000 $1,800,000 $1,800,000

Cumulative Net Income $1,600,000 $3,400,000 $5,200,000 $7,000,000 $8,800,000

Need with Net Income $3,649,624 $3,768,310 $4,712,773 $6,331,333 $8,066,676

“Safe Cash Position” – Current 8 schools Net income improvement would yield significant cash benefit

Cash need of $2.5M by FY 2018 is offset by $1.8M of grants this year from new funders

If each school could generate $200K more net income per year, there would be $9M of extra cash generated over the next five years to fund growth

Safe Cash Position assuming current expense structure and facilities operations

Safe Cash Position assuming ability to improve expense structure by $200K per year per school

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Cash Need Analysis - Growth Cash Need Analysis - No Growth

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

EOP Cash $4,840,720 $3,921,674 ($2,055,430) ($8,083,988) ($13,450,513) ($18,410,820)

Cash Need $340,720 ($2,578,326) ($11,055,430) ($19,583,988) ($27,450,513) ($34,910,820)

Grants $1,853,100 $2,900,000 $3,450,000 $2,500,000 $1,500,000 $1,250,000

Cumulative Grants $1,853,100 $4,753,100 $8,203,100 $10,703,100 $12,203,100 $13,453,100

Total Need $2,193,820 $2,174,774 ($2,852,330) ($8,880,888) ($15,247,413) ($21,457,720)

Incremental Net Income / School $200,000 $200,000 $200,000 $200,000 $200,000

Schools 8 13 18 23 28

Incremental Net Income $1,600,000 $2,600,000 $3,600,000 $4,600,000 $5,600,000

Cumulative Net Income $1,600,000 $4,200,000 $7,800,000 $12,400,000 $18,000,000

Need with Net Income $3,774,774 $1,347,670 ($1,080,888) ($2,847,413) ($3,457,720)

“Safe Cash Position” – Current growth plan $200K additional net income improvement would fund growth

$35M of cash need to open 5 schools per year over the next five years is offset by $13M of expected fundraising to $22M ($250K per school from Walton, $1M total from Debs) If each school could generate $200K more net income per year, need would be less

than $4 million (and this is at the “safe” level

25

Baseline School: Bay Area vs. Milwaukee

MKE has higher revenue and lower cost of living. But, higher costs, including lower ISD funding, mitigate that benefit

BA vs. MKEBA MKE MKE F/(U) to BA

Net Rev / Student $7,814 $8,033 $219Students $600 $600 - Rev / School $4,688,246 $4,819,537 $131,290Revenue Differences $131,290

School Compensation $2,209,525 $1,988,573 $220,953Janitor - $35,000 ($35,000)Teacher Travel to BA - $27,000 ($27,000)Utilities $38,000 $70,000 ($32,000)Fees $1,640,886 $1,686,838 ($45,952)ISD Loss - ($150,000) ($150,000)Expense Differences ($68,999)

Net Income Difference $62,291

Milwaukee school financial picture is expected to be slightly better than a comparable Bay Area school

26

NASH has substantially higher revenue offset slightly by transportation / ISD MEM is $700 / student less than NASH, making it more similar to BA

BA vs. NASH and MEM

BA NASH NASH F/(U) to BA MEM MEM F/(U) to BA

Net Rev / Student $7,814 $9,676 $1,862 $8,976 $1,162

Students 600 600 - 600 -

Rev / School $4,688,246 $5,805,362 $1,117,116 $5,385,362 $697,116

Revenue Differences $1,117,116 $697,116

School Compensation $2,209,525 $1,988,573 $220,953 $1,988,573 $220,953

Difference in Benefits - $59,657 ($59,657) $59,657 ($59,657)

Transportation - $300,000 ($300,000) $300,000 ($300,000)

Teacher Travel to BA - $27,000 ($27,000) $27,000 ($27,000)

Fees $1,640,886 $2,031,877 ($390,991) $1,884,877 ($243,991)

ISD Loss - ($200,000) ($200,000) ($200,000) ($200,000)

Expense Differences ($756,695) ($609,695)

Net Income Difference $360,421 $87,421

Nashville school financial picture is expected to be significantly

better than a comparable Bay Area school. Memphis will less

favorable than Nashville.

Baseline School: Bay Area vs. Tennessee

27

3. FY 2013-14 School Projections

28

RMS RSSP RLS ROMO RDP RBM RSA TotalOperating Details

S-T Ratio 37 41 39 40 40 30 29 37Enrollment 591 658 630 635 638 179 485 3,816ADA 579 638 616 613 615 176 465 3,702Teachers 16 16 16 16 16 6 17 103Tutors, ECCs, ATs 8 8 8 9 8 4 8 53Public Rev / Student $7,958 $7,523 $7,841 $7,525 $7,502 $8,298 $7,523 $7,676

Income StatementRecurring Revenue $4,736,584 $4,975,267 $4,972,584 $4,823,049 $4,807,995 $1,386,527 $3,697,462 $29,399,468Grants / Fundraising - - - - - $517,264 $405,000 $922,264Total Revenue $4,736,584 $4,975,267 $4,972,584 $4,823,049 $4,807,995 $1,903,791 $4,102,462 $30,321,732

Compensation $1,963,356 $2,269,774 $1,958,333 $1,988,017 $1,876,353 $879,634 $1,578,653 $12,514,120Other $981,292 $1,203,385 $1,105,190 $1,064,717 $1,133,586 $464,795 $819,331 $6,772,296Facilities Fee $869,143 $912,894 $913,223 $984,357 $881,870 $62,975 $689,160 $5,313,622Management Fee $651,857 $684,671 $684,917 $660,336 $661,403 $194,742 $516,870 $4,054,795Total Recurring Expenses $4,465,648 $5,070,724 $4,661,663 $4,697,427 $4,553,212 $1,602,145 $3,604,014 $28,654,833

Recurring Net Income $270,936 ($95,457) $310,921 $125,621 $254,783 $301,645 $498,448 $1,666,898% Margin 5.7% (1.9%) 6.3% 2.6% 5.3% 15.8% 12.1% 5.5%

Non-Recurring Expenses $76,799 $9,483 $24,533 $36,695 $65,473 $107,368 $42,537 $362,887

Full Net Income $194,137 ($104,940) $286,388 $88,927 $189,311 $194,277 $455,911 $1,304,011Net Income w/o Grants $194,137 ($104,940) $286,388 $88,927 $189,311 ($322,987) $50,911 $381,747% Margin 4.1% (2.1%) 5.8% 1.8% 3.9% 10.2% 11.1% 4.3%

Cash FlowBOP Cash $979,638 $106,669 $137,440 $346,244 $123,466 $66,740 $78,489 $1,838,687Net Income $194,137 ($104,940) $286,388 $88,927 $189,311 $194,277 $455,911 $1,304,011Operating Cash Flow ($117,499) ($296,364) ($716,111) ($682,852) ($880,891) ($620,181) ($1,491,244) ($4,805,143)Financing Cash Flow ($50,000) $794,327 $812,825 $768,954 $1,082,706 $404,806 $1,075,612 $4,889,230EOP Cash $1,006,276 $499,692 $520,542 $521,273 $514,591 $45,642 $118,769 $3,226,785

Existing Bay Area Schools ‘12/13

$1.3M of net income (only $0.4M without grants). Cash supported by $900K of grants

29

FY 2013/14 School Financials - Detailed FY 2013/14 School Financials - Baseline

RMS RSSP RLS ROMO RDP RBM RSA RS8 RS9 Baseline TotalOperating Details

S-T Ratio 38 38 37 38 36 40 35 - 37 41 #DIV/0!Enrollment 610 606 625 615 615 444 600 - 560 653 4,675ADA 586 582 600 590 590 410 570 - 525 627 4,453Teachers 16 16 17 16 17 11 17 - 15 16 125Tutors, ECCs, ATs 8 7 7 8 7 6 5 - 7 9 8Public Rev / Student $7,950 $7,745 $7,810 $7,831 $7,835 $6,565 $7,497 - $7,965 $7,797 $7,686

Income StatementRecurring Revenue $4,862,998 $4,706,785 $4,894,778 $4,829,742 $4,832,141 $2,924,700 $4,511,680 - $4,142,806 $5,102,757 $35,705,630Grants / Fundraising - - - - - $250,000 - $138,450 $329,786 - $718,236Total Revenue $4,862,998 $4,706,785 $4,894,778 $4,829,742 $4,832,141 $3,174,700 $4,511,680 $138,450 $4,472,592 $5,102,757 $36,423,865

Compensation $2,139,052 $2,096,454 $2,197,659 $2,138,391 $2,175,786 $1,670,246 $2,111,244 $68,013 $2,034,603 $2,209,525 $16,631,447Other $1,046,594 $1,072,954 $1,130,390 $1,102,436 $1,130,357 $938,873 $1,122,404 $80,438 $1,163,699 $1,158,136 $8,788,144Facilities Fee $896,820 $865,929 $901,856 $985,919 $890,208 $120,000 $975,219 - $779,281 $941,019 $6,415,231Management Fee $672,615 $649,447 $676,392 $667,296 $667,656 $392,826 $620,577 - $584,461 $705,765 $4,931,269Total Expenses $4,755,080 $4,684,784 $4,906,296 $4,894,041 $4,864,008 $3,121,946 $4,829,443 $148,450 $4,562,045 $5,014,445 $36,766,092

Net Income $107,917 $22,002 ($11,518) ($64,299) ($31,867) $52,754 ($317,763) ($10,000) ($89,452) $88,313 ($342,227)Net Income w/o Grants $107,917 $22,002 ($11,518) ($64,299) ($31,867) ($197,246) ($317,763) ($148,450) ($419,238) $88,313 ($1,060,462)

Cash FlowBOP Cash $1,006,276 $499,692 $520,542 $521,273 $514,591 $45,642 $118,769 $27,978 $75,080 ($937,112) $3,329,844Net Income $107,917 $22,002 ($11,518) ($64,299) ($31,867) $52,754 ($317,763) ($10,000) ($89,452) $88,313 ($342,227)Operating Cash Flow ($152,069) $212,014 $39,218 $124,677 $169,212 ($537,570) ($318,806) $8,166 ($1,523,729) $14,211 ($1,978,887)Financing Cash Flow - ($204,612) ($18,846) ($75,402) ($130,541) $886,396 $293,943 - $1,117,263 ($11,385) $1,868,200EOP Cash $962,125 $529,096 $529,395 $506,249 $521,395 $447,223 ($223,858) $26,145 ($420,838) ($845,973) $2,876,931

Existing Bay Area Schools ‘13/14 Investments will yield close to break-even income levels

• Negative net income of $340K driven by growing schools (RSA and RS9) • Cash decreasing by only $600K due to $1M of support from National to RBM • Assumes grant by RSED of $1 million to RBM ($250K grant and $800K loan)

30

Example School: RLS Additional compensation driving 13/14 expenses higher

Rocketship Los Suenos

2012-13 2013-14 RLS Budget vs.RLS Budget RLS Actuals Baseline School RLS Budget 2012-13 Actuals Baseline School

Operating DetailsS-T Ratio 40 39 41 37 (3) (4)Students 630 630 653 625 (5) (28)ADA 605 616 627 600 (16) (27)Teachers 16 16 16 17 (1) (1)ILSs, ECCs, Ats 8 8 9 7 1 2Public Rev / Student $7,581 $7,841 $7,797 $7,810 ($32) $13

Income StatementRecurring Revenue $4,701,224 $4,972,584 $5,102,757 $4,894,778 ($77,807) ($207,980)Grants / Fundraising and Other - - - - - - Total Revenue $4,701,224 $4,972,584 $5,102,757 $4,894,778 ($77,807) ($207,980)

Compensation $2,034,857 $1,958,333 $2,209,525 $2,197,659 ($239,326) $11,866Other $1,118,941 $1,105,190 $1,158,136 $1,130,390 ($25,200) $27,746Facilities Fee $880,571 $913,223 $941,019 $901,856 $11,368 $39,164Management Fee $660,428 $684,917 $705,765 $676,392 $8,526 $29,373Total Recurring Expenses $4,694,797 $4,661,663 $5,014,445 $4,906,296 ($244,632) $108,149

Recurring Net Income $6,427 $310,921 $88,313 ($11,518) ($322,439) ($99,831)% Margin 0.1% 6.3% 1.7% (0.2%) (6.5%) (2.0%)

$50K for lower average salaries this year

$40K for higher benefits costs

$40K for additional ILS

$30K for higher hourly rates

$80K for BOM

$240K of increased comp

31

4. National and Regional Overview

32

Summary of Expenses

Note: Excludes $2.1M of redesign costs

FY 2013-14 Budget

Comp Non Comp Total Growth Rate

National $7,721,903 $3,817,428 $11,539,332 20.0%

Bay Area $1,605,000 $318,721 $1,923,721 15.0%

MKE $540,204 $46,000 $586,204 Region Expansion

NASH $462,997 $198,500 $661,497 Region Expansion

Total $10,330,104 $4,380,649 $14,710,753

The total for National/Regional above is approximately $13.4 million. For comparison, the forecast for N/R for 2012/13 is approximately $9.0 million. The final proposed amount is

expected to be approximately $12.0 million.

Note: Initial Annual Planning Budgets have been submitted (and are

shown below). We are still in review process to review the submissions,

and are taking steps to prioritize hires and delay non-critical hires and

expenses. The current status is at least 10% less than the total shown

here (and could be lower).

33

Long Term Projections

Rocketship Consolidated - Income Statement2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Enrollment 3,816 5,110 8,826 14,229 23,087 36,371

# of Schools 7 9 15 24 39 62

# of Bay Area Schools 7 8 13 18 23 28

# of Regions 1 2 3 5 8 11

Revenues

Management Fee $4,054,795 $5,384,642 $9,400,115 $15,328,807 $25,132,772 $40,086,220

Growth Philanthropy $4,503,100 $11,576,500 $23,206,500 $20,281,500 $18,486,000 $17,986,000

Other Philanthropy $3,885,900 $550,000 - - - -

Other Home Office Revenue - - - - - -

Total Revenue $12,443,795 $17,511,142 $32,606,615 $35,610,307 $43,618,772 $58,072,220

Expenses

National Office Expenses $7,112,759 $11,539,332 $13,847,198 $16,616,637 $19,939,965 $23,927,958

Regional Support Office Expenses $2,276,721 $3,944,701 $5,885,481 $8,800,893 $12,929,805 $18,014,023

Other Home Office Expenses $352,161 $134,938 $34,125 $34,125 $29,250 $24,375

Total Expenses $9,741,641 $15,618,970 $19,766,803 $25,451,655 $32,899,020 $41,966,356

Net Income $2,702,155 $1,892,172 $12,839,812 $10,158,652 $10,719,751 $16,105,864

Net Income without Philanthropy ($5,686,845) ($10,234,328) ($10,366,688) ($10,122,848) ($7,766,249) ($1,880,136)

34

Fundraising Assumed

• $3.0M for national for each new region (assuming it comes in same stages as DC)

• $2.5M for each new region (all at once starting next year)

Summary

Total FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

National - Unrestricted $4,435,900 $3,885,900 $550,000 - - - -

National - Growth $43,200,000 $450,000 $2,700,000 $11,575,000 $9,825,000 $9,450,000 $9,200,000

Bay Area $13,453,100 $1,853,100 $2,900,000 $3,450,000 $2,500,000 $1,500,000 $1,250,000

Milwaukee $1,886,500 $700,000 $526,500 $406,500 $181,500 $36,000 $36,000

TN $2,500,000 $1,500,000 $450,000 $275,000 $275,000 - -

New Regions $35,000,000 - $5,000,000 $7,500,000 $7,500,000 $7,500,000 $7,500,000

Total $100,475,500 $8,389,000 $12,126,500 $23,206,500 $20,281,500 $18,486,000 $17,986,000

Based on current growth plans, expect $90 million of fundraising over next 5 years, $75 million based on new region expansion

35

Summary of Cash—Total organization

Note: Excludes non-BA / MKE schools cash needs, but includes their management fees • $3.0M for national for each new region (assuming it comes in same stages as DC) • $2.5M for each new region (all at once starting next year)

Rocketship Consolidated - Cash2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Cash

National & Regions $9,149,964 $10,526,939 $24,149,340 $34,271,466 $44,343,099 $59,601,887

BA Schools $3,069,245 $1,851,145 ($4,348,116) ($10,765,990) ($16,758,617) ($22,275,536)

MKE Schools ($42,920) ($128,153) ($387,043) ($1,130,598) ($2,642,927) ($5,122,878)

Total $12,176,288 $12,249,931 $19,414,181 $22,374,879 $24,941,555 $32,203,474

Cash Surplus / (Shortage)

National & Regions $7,197,592 $8,056,088 $20,967,884 $30,159,089 $39,097,305 $53,031,991

BA Schools $126,656 ($4,004,760) ($13,585,083) ($23,384,960) ($32,525,712) ($41,275,892)

MKE Schools ($502,251) ($633,413) ($2,126,102) ($5,315,182) ($10,716,349) ($19,533,467)

Total $6,821,998 $3,417,915 $5,256,699 $1,458,947 ($4,144,757) ($7,777,368)

Actual projected Cash Position assuming current expense structure and facilities operations

“Safe Cash Position” assuming

current expense structure and

facilities operations

36

Cash Estimate at National – as of June 30

Home Office Conservative Cash Estimate

March Cash Balance $3,567,161

Management Fees $2,641,510

Secured Philanthropy $590,000

Grant Letter Pending $3,824,600

Q4 Expenses ($3,344,384)

Expected June Cash Balance $7,278,887

Does not include the $1 million going to RBM

37

Facilities Fees and Financing

38

Review of Facility Fee Utilization Summary of strategy

• 2010-2012 - Collected lease payments from schools that only cover debt service,

taxes and insurance expenses

• After 2012 (starting 2013/2014) - Collect 20% Facility Fee to allow Launchpad to cover all the same

expenses, and establish replacement reserves and help fund future projects.

- Consistent with original Rocketship model, but the difference between the actual leases and the full 20% fee has not been internally dedicated for Launchpad’s facility activities.

39

Review of Facility Fee Utilization

2012-13

RMS RSSP RLS ROMO RDP RBM RSA AVG

Lease (Pre-Modification / ~Debt Service) $480,461 $491,296 $646,339 $984,357 $803,146 $62,975 $478,393

Fee applicable Revenue $4,345,714 $4,564,472 $4,566,116 $4,402,242 $4,409,350 $1,298,277 $3,445,799

% of Revenue 11% 11% 14% 22% 18% N/A 14% 15%

2013-14

RMS RSSP RLS ROMO RDP RBM RSA NET

Lease (Pre-Modification / ~Debt Service) $480,461 $491,296 $646,339 $984,357 $803,146 $62,975 $478,393

Fee applicable Revenue $4,484,098 $4,329,645 $4,509,278 $4,448,642 $4,451,041 $2,618,840 $4,137,180

Facility Fee / Lease (Post Modification at 20%) $896,820 $865,929 $901,856 $889,728 $890,208 $523,768 $827,436

Difference $415,993 $394,283 $255,181 ($96,190) $86,111 $403,768 ($147,783) $1,311,363

Notes: RSA will not be at full enrollment in 2013/14. No shortage expected beginning 2014/15.

RBM financing for Phase 2 construction will likely result in smaller difference from the 20% Facility Fee.

40

Cross-over refunding of RS#1 and RS#2 First step in Obligated Group Strategy

• New Market Tax Credit (NMTC) loans exists on several schools now

- RMS, RSSP, RLS, RDP

- Federal tax rules require maintaining NMTC for 7 years

• “Cross-over” refunding

- Uses an interim escrow arrangement to bridge the gap to the end of the 7 year commitment, although makes RMS and RSSP slightly more expensive than today’s debt

- Removes future interest rate risk on these schools, especially since these are required to be refinanced in next 2-3 years

- Locks in today’s interest rates; probably 5.5% - 6.5%

- Sets up the end result of an obligated group structure enabling easier access to bond financing for future schools

- Close on cross-over refunding in Fall, 2013

41

Cross-over Refunding Economic Decision

Mateo Sheedy Si Se Puede

Assumptions:

Cross-Over Bonds Issuance Date 9/1/2013 9/1/2013

NMTC Loan Principal ($) 5,541,938 6,800,000

NMTC Loan Maturity 5/15/2015 3/18/2016

Number of Years until Cross-Over 1.71 2.55

Cross-Over Bonds Interest Rate 6.00% 6.00%

Final Maturity of Cross-Over Bonds 6/1/2044 6/1/2044

Cross-Over Bonds Principal 7,080,000 9,265,000

Non-Asset Bonds 853,048 1,580,677

Non-Asset Bonds % 12.0% 17.1%

Break-Even Interest Rate 7.06% 7.67%

The break-even interest rate represents the effective long-term rate we would pay if we

executed the strategy now (i.e. with a long-term bond rate of 6%). The effective rate would

be lower if we are able to beat that rate. If we believe that long-term rates will not rise in

next 24 months above 7%, then it might not make sense to execute this strategy. The

strategy would make more sense if we can achieve an investment grade rating.

Currently researching the

possibility of being able to

refinance in 2014. If so, the

effective rate would be

closer to 6.5%.

42

Business Team 2013-2014 Initiatives

43

Business Team Organization—2013/2014

Andy Stern

CBO

Margaret Diesel

Financial Controller

Laura Kozel

VP, Facilities

Imelda Gonzalez

Director, HR

Josh Mukhopadhyay

Legal Counsel

VP, Operations

(OPEN)

44

Business Team—Key Initiatives 2013/2014 Invest in scalability and infrastructure

• Drive scalability and consistency (S&S Team) - Compliance—systems/tool creation for national oversight - Direct support—help desk and training on central systems - Knowledge management—Document/organize materials - Key Priorities

- Version 1.0 “BOM Handbook” - BOM and OM trainings at July summer PD - Identification of nuances for MWKE in systems, documentation, and training

• Business Operations Redesign (Field Ops Team) - Business Operations Managers at each school - Regional management - Clear direction/training and consistent priorities

• Other functions - Finance Team: Robust purchasing function; Budget vs. Actual reporting system - Facilities Team: Implement scalable financing infrastructure; facilities management - HR Team: Roll-out of HRIS, Benefits and other plan communications upgrade - Legal team: Clear understanding and influence on zoning and other non-negotiables

• Budget Implications - Total budget for all Business functions in 2012/13 was $3.6 million. Current budget is

approximately $5.1 million

45

Tradeoff between quality and size?

Quality

Size (Growth)

Organizations have easier time of achieving

quality when small

Difficult to maintain quality with growth

Size (Growth)

Scalability

Quality

Scalability can enable RSED to move the entire curve to the right

Rethinking

elementary school

from the ground up.

info@rsed.org

Twitter: @RocketshipED

www.rsed.org