CPLA Capella Education Company (MM)

Capella Education Company (NASDAQ:CPLA), a provider of online post-secondary education, primarily through its wholly owned subsidiary Capella University, today announced financial results for the three and nine months ended Sept. 30, 2015.

“Our performance over the course of 2015 demonstrates the strength of our competitive position, the appeal of our value proposition and our ability to execute and deliver growth in a challenging market environment,” said Kevin Gilligan, chairman and chief executive officer. “Our goal is to continue outperforming the market while positioning Capella for long-term sustainable growth.”

For the three months ended Sept. 30, 2015:

• Revenues were $103.7 million, compared to $103.1 million in the third quarter of 2014, an increase of 0.6 percent.
• Capella University total active enrollment increased 4.2 percent to 36,683, new enrollment increased by 2.3 percent from third quarter 2014 and early cohort persistence improved by approximately 3 percent.
• Operating income was $13.5 million, compared to $13.2 million for the same period in 2014. Operating margin was 13.0 percent, compared to 12.8 percent for the third quarter 2014.
• Net income for the third quarter of 2015 was $8.2 million, compared to $7.8 million for the same period in 2014.
• Net income per diluted share was $0.67, compared to $0.62 for the same period in 2014.

For the nine-month period ended Sept. 30, 2015:

• Revenues increased by 2.3 percent to $320.8 million, compared to $313.5 million for the same period in 2014.
• Operating income for the nine-month period ended Sept. 30, 2015 was $47.4 million, or 14.8 percent of revenue, compared to $43.8 million, or 14.0 percent of revenue during the same period in 2014.
• Net income was $28.5 million, or $2.31 per diluted share, compared to $25.6 million, or $2.04 per diluted share, for the same period in 2014.

Balance Sheet and Cash Flow

As of Sept. 30, 2015, the Company had cash and marketable securities of $169.7 million, compared to $167.1 million at Dec. 31, 2014, and no debt outstanding as of Sept. 30, 2015.

Cash flow from operating activities for the nine months ended Sept. 30, 2015 was $51.7 million compared to $47.5 million in the same period a year ago.

Dividend and Share Repurchases

A quarterly cash dividend of $0.37 per outstanding share of common stock was declared during the third quarter of 2015. The dividend was paid on Oct. 15, 2015.

In the third quarter 2015, the Company repurchased approximately 146,000 shares of Capella stock for total consideration of $7.5 million. The remaining authorization as of the end of the third quarter was $13.5 million.

Outlook

For the fourth quarter ending Dec. 31, 2015, Capella University new enrollment is expected to decline year-over-year in the mid-single-digit percentage range. Total enrollment is expected to grow about 1.5 to 2.5 percent year-over-year, and consolidated revenue is expected to be about flat to up 1.0 percent compared to fourth quarter 2014.

The consolidated operating margin is anticipated to be approximately 17.0 to 18.0 percent of total revenue for the fourth quarter of 2015.

“Our fourth quarter 2015 outlook reflects continued variability in the market environment,” said Steve Polacek, senior vice president and chief financial officer. “We are investing to support our learners and building on our unique capabilities to drive shareholder value.”

Forward-Looking Statements

Certain information in this news release does not relate to historical financial information, including statements relating to future prospects and expectations regarding our growth, revenues, enrollment, and operating performance, and should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company cautions investors not to place undue reliance on any such forward-looking statements, which are based on information available at the time those statements are made or management's good faith belief as of that time with regard to future events, and should not be read as a guarantee of future performance or results. Such statements are subject to risks and uncertainties which could cause the company's actual results to differ materially from historical results and from results presently anticipated or projected. The company undertakes no obligation to update its forward-looking statements.

Among these risks and uncertainties are any failure to materially comply with the extensive regulatory framework applicable to us, including compliance with Title IV of the Higher Education Act and the regulations thereunder; complying with U.S. Department of Education rules, including those regarding incentive compensation and gainful employment disclosures, certifications and program requirements; maintaining our business in accordance with regional and specialized accreditation standards and state regulatory and program approval requirements; adapting to changes in the administration, funding and availability for Title IV programs; any governmental review of our business, marketing, or financial aid practices, including by any state attorneys general, the federal Consumer Financial Protection Bureau, the Minnesota Office of Higher Education or other state regulatory bodies; successfully growing our FlexPath programs; maintaining and expanding existing commercial relationships with employers and developing new employer and business partner relationships; successfully managing our PhD completion efforts; improving our conversion rate and effectively leveraging our brand-driven marketing strategy; keeping up with advances in technology important to the online learner experience; effectively managing data security risks; improving our learner persistence and cohort retention rate; and managing risks associated with the overall competitive environment and general economic conditions.

Other factors that could cause the company’s results to differ materially from those contained in its forward-looking statements include those described in the “Risk Factors” section of our most recent Annual Report on Form 10-K on file with the Securities and Exchange Commission (SEC), and any updates or developments described in our Quarterly Reports on Form 10-Q and other documents the company files with the SEC.

Conference Call

Capella will discuss its third quarter 2015 results and outlook during a conference call scheduled today, Oct. 27, 2015, at 9:00 a.m. Eastern time (ET). To participate in the live call, investors should dial 866.385.4179 (domestic) or 702.928.7882 (international) at 8:50 a.m. (ET), conference ID# 48239481. The webcast, including the accompanying presentation, will be available on the Capella Education Company Web site at www.capellaeducation.com in the investor relations section. A replay of the call will be available starting on Oct. 27 through Nov. 3, 2015, at 855.859.2056 (domestic) or 404.537.3406 (international), conference ID# 48239481. It will also be archived at www.capellaeducation.com in the investor relations section.

About Capella Education Company

Founded in 1991, Capella Education Company (http://www.capellaeducation.com) is a leader in online education, primarily through our wholly owned subsidiary Capella University (http://www.capella.edu), a regionally accredited* online university with approximately 37,000 learners as of Sept. 30, 2015. In addition, Capella Education Company offers online education through Arden University Ltd., formerly called Resource Development International Ltd. (RDI) (http://www.rdi.co.uk), an independent provider of United Kingdom (UK) university distance learning qualifications. Capella Education Company also owns Sophia (http://www.sophia.org), an innovative learning platform leveraging technology to support self-paced learning.

*Capella University is accredited by The Higher Learning Commission.

  CAPELLA EDUCATION COMPANY Consolidated Balance Sheets (In thousands, except par value)       As of September 30, 2015     As of December 31, 2014 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 97,213 $ 94,003 Marketable securities, current 29,531 29,619 Accounts receivable, net of allowance of $6,848 at September 30, 2015 and $6,558 at December 31, 2014 18,441 17,902 Prepaid expenses and other current assets 16,333 9,007 Deferred income taxes   2,936     2,809   Total current assets 164,454 153,340 Marketable securities, non-current 42,991 43,430 Property and equipment, net 36,541 37,246 Goodwill 16,900 16,961 Intangibles, net 1,523 1,927 Other assets   1,923     1,453   Total assets $ 264,332   $ 254,357   LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 8,960 $ 6,832 Accrued liabilities 29,833 23,410 Dividends payable 4,639 4,622 Income taxes payable — 709 Deferred revenue   13,295     11,718   Total current liabilities 56,727 47,291 Deferred rent 2,099 2,440 Other liabilities 3,029 3,698 Deferred income taxes   5,291     5,894   Total liabilities 67,146 59,323   Shareholders’ equity: Common stock, $0.01 par value: Authorized shares — 100,000; Issued and Outstanding shares — 11,976 at September 30, 2015 and 12,243 at December 31, 2014 120 122 Additional paid-in capital 115,025 112,417 Accumulated other comprehensive loss (221 ) (335 ) Retained earnings   82,262     82,830   Total shareholders’ equity   197,186     195,034   Total liabilities and shareholders’ equity $ 264,332   $ 254,357       CAPELLA EDUCATION COMPANY Consolidated Statements of Income (In thousands, except per share amounts)       Three Months Ended September 30,     Nine Months Ended September 30, 2015     2014 2015     2014 (Unaudited) Revenues $ 103,711 $ 103,097 $ 320,792 $ 313,525 Costs and expenses: Instructional costs and services 48,221 47,143 142,651 139,973 Marketing and promotional 25,860 25,509 79,158 74,383 Admissions advisory 7,390 7,019 21,947 21,092 General and administrative 8,772 10,250 29,673 31,604 Lease amendment charges   —   —     —     2,690   Total costs and expenses   90,243   89,921     273,429     269,742   Operating income 13,468 13,176 47,363 43,783 Other income (expense), net   24   (46 )   (68 )   (559 ) Income before income taxes 13,492 13,130 47,295 43,224 Income tax expense   5,320   5,373     18,755     17,606   Net income $ 8,172 $ 7,757   $ 28,540   $ 25,618   Net income per common share: Basic $ 0.68 $ 0.63 $ 2.35 $ 2.08 Diluted $ 0.67 $ 0.62 $ 2.31 $ 2.04 Weighted average number of common shares outstanding: Basic 12,027 12,268 12,146 12,301 Diluted 12,237 12,505 12,373 12,545 Cash dividends declared per common share $ 0.37 $ 0.35 $ 1.11 $ 1.05     CAPELLA EDUCATION COMPANY Consolidated Statements of Cash Flows (In thousands)       Nine Months Ended September 30, 2015     2014 (Unaudited) Operating activities Net income $ 28,540 $ 25,618 Adjustments to reconcile net income to net cash provided by operating activities: Provision for bad debts 10,717 11,232 Depreciation and amortization 17,026 18,016 Amortization of investment discount/premium, net 1,702 1,319 Impairment of property and equipment — 277 Loss on disposal of property and equipment 63 77 Share-based compensation 5,465 3,927 Excess tax benefits from share-based compensation (422 ) (451 ) Deferred income taxes (790 ) (537 ) Payment of contingent consideration — (906 ) Changes in operating assets and liabilities: Accounts receivable (11,285 ) (11,273 ) Prepaid expenses and other current assets (4,327 ) (670 ) Accounts payable and accrued liabilities 7,458 (230 ) Income taxes payable (3,813 ) 149 Deferred rent (341 ) (623 ) Deferred revenue   1,674     1,548   Net cash provided by operating activities 51,667 47,473 Investing activities Capital expenditures (16,478 ) (15,788 ) Investment in partnership interest (470 ) (1,453 ) Purchases of marketable securities (25,247 ) (48,957 ) Maturities of marketable securities   24,180     13,890   Net cash used in investing activities (18,015 ) (52,308 ) Financing activities Excess tax benefits from share-based compensation 422 451 Net proceeds from exercise of stock options 1,234 3,663 Payment of dividends (13,570 ) (12,961 ) Repurchases of common stock (18,500 ) (14,032 ) Payment of contingent consideration   —     (5,945 ) Net cash used in financing activities (30,414 ) (28,824 ) Effect of foreign exchange rates on cash   (28 )   13   Net increase (decrease) in cash and cash equivalents 3,210 (33,646 ) Cash and cash equivalents at beginning of period   94,003     124,097   Cash and cash equivalents at end of period $ 97,213   $ 90,451   Supplemental disclosures of cash flow information Income taxes paid $ 23,331 $ 18,327 Noncash transactions: Purchase of equipment included in accounts payable and accrued liabilities $ 382 $ 425 Declaration of cash dividend to be paid $ 4,500 $ 4,346 Repurchases of common stock included in accrued liabilities $ — $ 241     CAPELLA UNIVERSITY Other Information  

 

   

   September 30,   

    Enrollment by Degree (a): 2015     2014 % Change Doctoral 9,559 9,976 (4.2 )% Master's 16,807 15,157 10.9 % Bachelor's 9,361 9,138 2.4 % Other 956 949 0.7 % Total 36,683 35,220 4.2 %  

(a) Enrollment as of September 30, 2015 and 2014 is the enrollment as of the last day of classes for the quarter ended September 30, 2015 and 2014, respectively.

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Capella Education CompanyInvestor Contact:Heide Erickson, 612-977-5172Heide.Erickson@capella.eduorMedia Contact:Mike Buttry, 612-977-5499Mike.Buttry@capella.edu