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 months and year ended Dec. 31, 2015.

“2015 was a solid year for Capella,” said Kevin Gilligan, chairman and chief executive officer. “We achieved our fourth consecutive year of new enrollment growth and our second consecutive year of annual total enrollment and revenue growth. To position Capella for accelerated growth, we are extending our competency-based learning and assessment capabilities to more aggressively pursue evolving market opportunities, including the flexible degree and non-degree markets.”

For the three months ended Dec. 31, 2015:

• Revenues were $109.5 million, compared to $108.4 million in the fourth quarter of 2014, an increase of 1.0 percent.
• Capella University total active enrollment increased 1.8 percent to 36,976, new enrollment decreased by 5.6 percent from fourth quarter 2014 and early cohort persistence improved by approximately 2 percent.
• Operating income was $19.7 million, compared to $20.3 million for the same period in 2014. Operating margin was 18.0 percent, compared to 18.7 percent for the fourth quarter 2014.
• Net income for the fourth quarter of 2015 was $11.6 million, compared to $12.3 million for the same period in 2014.
• Net income per diluted share was $0.96, compared to $0.99 for the same period in 2014.

For the fiscal year ended Dec. 31, 2015:

• Revenues increased by 2.0 percent to $430.3 million, compared to $422.0 million for the same period in 2014.
• Operating income for 2015 was $67.0 million, or 15.6 percent of revenue, compared to $64.1 million, or 15.2 percent of revenue during 2014, including second quarter 2014 lease amendment charges of approximately $2.7 million, or 0.6 percent of annual revenue.
• Net income was $40.2 million, or $3.27 per diluted share, compared to $37.9 million, or $3.03 per diluted share for 2014.
• Capella University average quarterly total enrollment increased by 3.7 percent, new enrollment increased by 3.4 percent from 2014 and early cohort persistence improved by approximately 2 percent.

Balance Sheet and Cash Flow

As of Dec. 31, 2015, the Company had cash and marketable securities of $161.2 million, compared to $167.1 million at Dec. 31, 2014, and no debt for the same periods.

Cash flow from operating activities for 2015 was $60.3 million compared to $65.2 million in 2014.

Dividend and Share Repurchases

The company announced an increase in its quarterly cash dividend to $0.39 per outstanding share of common stock during the fourth quarter of 2015. The dividend was paid on Jan. 15, 2016.

The Company repurchased approximately 485,000 shares of Capella stock for total consideration of $26.0 million in fiscal year 2015. In the fourth quarter 2015, the Company repurchased approximately 155,000 shares of Capella stock for total consideration of $7.5 million. The remaining authorization as of the end of the fourth quarter was $56.0 million.

Outlook

Earlier today Capella announced the planned divestiture of Arden University.

“We are proud of how Arden University has aligned with our high standards for academic quality and believe it is well positioned in the UK market, having received Taught Degree Awarding Powers in 2014 and university title in 2015,” said Kevin Gilligan, chairman and chief executive officer. “By focusing on our FlexPath programs and opportunities in the non-degree market in the U.S., we believe we will better position Capella for sustained growth.”

The outlook for the first quarter of 2016 excludes Arden University results in both expectations and comparisons to the first quarter of 2015. Annual 2015 income statements excluding Arden University are attached to this news release, and quarterly and annual 2015 and annual 2014 income statements excluding Arden University are available at Capellaeducation.com in the investor relations section under financial information and attached to the current report on form 8-K the Company filed today.

For the first quarter ending March 31, 2016, Capella University new enrollment is expected to be down slightly year-over-year and total enrollment is expected to grow about 1.5 to 2.5 percent year-over-year. Consolidated revenue is expected to be about flat to down 1 percent compared to first quarter 2015 and consolidated operating margin is anticipated to be approximately 14.5 to 15.5 percent of total revenue for the first quarter of 2016, excluding Arden University.

“A key goal for Capella University in 2016 is to deliver annual new and total enrollment growth,” said Steve Polacek, senior vice president and chief financial officer. “In addition, we are accelerating investments in growth opportunities that we believe create a higher return for our shareholders.”

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 fourth quarter 2015 results and outlook during a conference call scheduled today, Feb. 11, 2016, at 9:00 a.m. Eastern time (ET). To participate in the live call, investors should dial 800.794.6623 (domestic) or 785.424.1227 (international) at 8:50 a.m. (ET), conference ID# 8176. 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 Feb. 11 through Feb. 18, 2016, at 800.839.2670 (domestic) or 402.220.7230 (international), conference ID# 8176. 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 Dec. 31, 2015. In addition, Capella Education Company offers online education through Arden University Ltd., formerly called Resource Development International Ltd. (RDI) (http://arden.ac.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 and Capella Learning Solutions (CLS) which provides online non-degree, high-demand, job-ready skills, training solutions and services to individuals and corporate partners.

*Capella University is accredited by The Higher Learning Commission.

  CAPELLA EDUCATION COMPANY   Consolidated Balance Sheets (In thousands, except par value)       As of December 31, 2015     As of December 31, 2014 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 88,027 $ 94,003 Marketable securities, current 27,522 29,619 Accounts receivable, net of allowance of $6,706 at December 31, 2015 and $6,558 at December 31, 2014 19,136 17,902 Prepaid expenses and other current assets   14,581     9,007   Total current assets 149,266 150,531 Marketable securities, non-current 45,679 43,430 Property and equipment, net 34,762 37,246 Goodwill 16,872 16,961 Intangibles, net 1,389 1,927 Other assets   2,387     1,453   Total assets $ 250,355   $ 251,548   LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,275 $ 6,832 Accrued liabilities 26,177 23,410 Dividends payable 4,824 4,622 Income taxes payable — 709 Deferred revenue   12,763     11,718   Total current liabilities 46,039 47,291 Deferred rent 1,874 2,440 Other liabilities 3,061 3,698 Deferred income taxes   1,502     3,085   Total liabilities 52,476 56,514 Shareholders’ equity: Common stock, $0.01 par value: Authorized shares — 100,000; Issued and Outstanding shares — 11,824 at December 31, 2015 and 12,243 at December 31, 2014 118 122 Additional paid-in capital 114,849 112,417 Accumulated other comprehensive loss (272 ) (335 ) Retained earnings   83,184     82,830   Total shareholders’ equity   197,879     195,034   Total liabilities and shareholders’ equity $ 250,355   $ 251,548       CAPELLA EDUCATION COMPANY   Consolidated Statements of Income (In thousands, except per share amounts)       Three Months Ended December 31,     Twelve Months Ended December 31, 2015     2014 2015     2014 (Unaudited) Revenues $ 109,475 $ 108,442 $ 430,267 $ 421,967 Costs and expenses: Instructional costs and services 47,201 45,530 189,852 185,503 Marketing and promotional 25,255 25,407 104,413 99,790 Admissions advisory 7,246 6,950 29,193 28,042 General and administrative 10,103 10,243 39,776 41,847 Lease amendment charges   —     —     —     2,690   Total costs and expenses   89,805     88,130       363,234     357,872   Operating income 19,670 20,312 67,033 64,095 Other expense, net   (150 )   (166 )     (218 )   (725 ) Income before income taxes 19,520 20,146 66,815 63,370 Income tax expense   7,872     7,821     26,627     25,427   Net income $ 11,648   $ 12,325     $ 40,188   $ 37,943   Net income per common share: Basic $ 0.98 $ 1.01 $ 3.33 $ 3.09 Diluted $ 0.96 $ 0.99 $ 3.27 $ 3.03 Weighted average number of common shares outstanding: Basic 11,881 12,242 12,079 12,286 Diluted 12,087 12,508 12,301 12,535 Cash dividends declared per common share $ 0.39 $ 0.37 $ 1.50 $ 1.42     CAPELLA EDUCATION COMPANY   Consolidated Statements of Cash Flows (In thousands)       Year Ended December 31, 2015     2014 (Unaudited) Operating activities Net income $ 40,188 $ 37,943 Adjustments to reconcile net income to net cash provided by operating activities: Provision for bad debts 14,343 14,848 Depreciation and amortization 22,673 23,798 Amortization of investment discount/premium, net 2,293 1,843 Impairment of property and equipment 896 277 Loss on disposal of property and equipment 64 69 Share-based compensation 6,594 5,129 Excess tax benefit from share-based compensation (439 ) (547 ) Deferred income taxes (1,602 ) (317 ) Payment of contingent consideration — (906 ) Changes in operating assets and liabilities Accounts receivable (15,614 ) (15,843 ) Prepaid expenses and other current assets (3,374 ) (754 ) Accounts payable and accrued liabilities (3,313 ) (3,582 ) Income taxes payable (2,988 ) 3,000 Deferred rent (566 ) (781 ) Deferred revenue   1,172     1,011   Net cash provided by operating activities 60,327 65,188 Investing activities Capital expenditures (20,641 ) (20,584 ) Investment in partnership interest (934 ) (1,453 ) Purchases of marketable securities (32,640 ) (64,308 ) Maturities of marketable securities   30,175     25,415   Net cash used in investing activities (24,040 ) (60,930 ) Financing activities Excess tax benefits from share-based compensation 439 547 Net proceeds from exercise of stock options 1,337 5,599 Payment of dividends (18,012 ) (17,256 ) Repurchases of common stock (26,006 ) (17,299 ) Payment of contingent consideration   —     (5,945 ) Net cash used in financing activities (42,242 ) (34,354 ) Effect of foreign exchange rates on cash   (21 )   2   Net decrease in cash and cash equivalents (5,976 ) (30,094 ) Cash and cash equivalents at beginning of year   94,003     124,097   Cash and cash equivalents at end of year $ 88,027   $ 94,003   Supplemental disclosures of cash flow information Income taxes paid $ 31,171 $ 23,061 Non-cash investing and financing activities: Purchase of equipment included in accounts payable and accrued liabilities $ 854 $ 863 Declaration of cash dividend to be paid $ 4,646 $ 4,587     CAPELLA UNIVERSITY   Other Information          

   December 31,   

    Enrollment by Degree (a): 2015     2014 % Change Doctoral 9,645 10,100 (4.5 )% Master's 16,882 15,700 7.5

 %

Bachelor's 9,454 9,500 (0.5 )% Other 995 1,009 (1.4 )% Total 36,976 36,309 1.8 %  

(a) Enrollment as of December 31, 2015 and 2014 is the enrollment as of the last day of classes for the quarter ended December 31, 2015 and 2014, respectively.

CAPELLA EDUCATION COMPANY

Non-GAAP Pro-Forma Statement of Income and Earnings per Common Share

Year-Ended December 31, 2015(In thousands, except per share amounts)

Non-GAAP Income Statement and Earnings Per Common Share:The non-GAAP pro-forma income statement and earnings per common share are non-GAAP financial measures consisting of the consolidated income statement and earnings per common share excluding the impact of Arden University for the year-ended December 31, 2015. The following table provides a reconciliation of the consolidated income statement and earnings per common share, the most directly comparable GAAP to non-GAAP measures. Quarterly schedules for 2015 are available on our website at www.capellaeducation.com in the Investor Relations section under Financial Information.

            Capella Education Capella Education Arden University (Non- Company (excluding Company (GAAP) GAAP) Adjustments Arden University) Year-Ended Year-Ended Year-Ended December 31, 2015 December 31, 2015 December 31, 2015 Revenues $ 430,267 $ (13,718 ) $ 416,549 Costs and expenses: Instructional costs and services 189,852 (6,969 ) 182,883 Marketing and promotional 104,413 (4,784 ) 99,629 Admissions advisory 29,193 (987 ) 28,206 General and administrative   39,776     (4,278 )   35,498   Total costs and expenses   363,234       (17,018 )   346,216   Operating income 67,033 3,300 70,333 Other expense, net   (218 )     85     (133 ) Income before income taxes 66,815 3,385 70,200 Income tax expense   26,627     (64 )   26,563   Net income $ 40,188     $ 3,449   $ 43,637   Net income per common share: Basic $ 3.33 $ 0.29 $ 3.61 Diluted $ 3.27 $ 0.28 $ 3.55 Weighted average number of common shares outstanding: Basic 12,079 12,079 Diluted 12,301 12,301  

View source version on businesswire.com: http://www.businesswire.com/news/home/20160211005260/en/

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