Strong third quarter results; raising annual
2016 outlook; investing for 2017 growth
Capella Education Company (NASDAQ: CPLA), a leading
educational services company, today announced financial results for
the three and nine months ended Sept. 30, 2016.
“Our organization-wide focus on learner success significantly
contributed to strong third quarter results for Capella Education
Company,” said Kevin Gilligan, chairman and chief executive
officer. “The success of our learners is at the center of our
strategy that is focused on building the most direct path between
learning and employment, positioning Capella for growth in a
challenging market environment.”
Selected Financial Data for the Three Months Ended Sept. 30,
2016
Results for the third quarter of 2016, and comparisons to
previous periods, are for consolidated Capella Education Company
continuing operations. Included in consolidated results are
Hackbright Academy and DevMountain operations from their respective
acquisition dates of April 22 and May 4, 2016. The sale of Arden
University was completed on Aug. 18, 2016 with results presented as
discontinued operations.
Revenues were $105.9 million in the third quarter of 2016, up
5.8 percent compared to $100.1 million in the third quarter of
2015. Operating income from continuing operations was $15.3
million, compared to $14.1 million for the same period in 2015. The
operating margin was 14.5 percent, compared to 14.1 percent for the
third quarter 2015. Diluted net income per common share from
continuing operations was $0.81, compared to $0.72 for the same
period in 2015.
Operating and Segment Highlights
- The “Post-Secondary” segment is
comprised of Capella University and Sophia Learning; the “Job-Ready
Skills” segment consists of Capella Learning Solutions, Hackbright
Academy and DevMountain.
- For the Post-Secondary segment,
revenues were $103.5 million, up 3.4 percent compared to $100.1
million in the third quarter of 2015. The operating margin was 16.4
percent, compared to 14.8 percent for the third quarter 2015.
Results are primarily attributable to Capella University.
- Capella University total active
enrollment increased 2.8 percent to 37,708 learners, new enrollment
decreased by 0.9 percent compared to third quarter 2015, and early
cohort persistence improved by approximately 4 percent.
- Revenues for the Job-Ready Skills
segment were $2.4 million compared to $0.03 million in the third
quarter of 2015. The operating loss was $1.6 million, compared to
$0.7 million for the third quarter 2015.
Balance Sheet and Cash Flow
At Sept. 30, 2016, Capella Education Company had cash and
marketable securities of $163.5 million, compared to $159.3 million
at Dec. 31, 2015, and no debt for the same periods.
Cash provided by operating activities from continuing operations
for the nine months ended Sept. 30, 2016 was $76.8 million compared
to $51.2 million in the same period a year ago.
Dividend and Share Repurchases
A quarterly cash dividend of $0.39 per outstanding share of
common stock was declared during the third quarter of 2016. The
dividend was paid on Oct. 14, 2016.
In the third quarter of 2016, Capella Education Company
repurchased approximately 130,000 shares of Capella stock for total
consideration of $7.5 million. The remaining authorization as of
the end of the third quarter was $33.5 million.
Outlook
For the fourth quarter ending Dec. 31, 2016, revenues from
continuing operations for consolidated Capella Education Company
are expected to be up 3.5 to 4.5 percent compared to fourth quarter
2015. Consolidated operating margin for continuing operations is
anticipated to be approximately 16.0 to 17.0 percent of total
revenue for the fourth quarter of 2016. Capella University new
enrollment is expected to be slightly down year-over-year and total
enrollment is expected to grow about 2.0 to 3.0 percent
year-over-year.
For the fiscal year ending Dec. 31, 2016, revenues from
continuing operations for consolidated Capella Education Company
are expected to be at the high end of previous guidance of $424 to
$428 million. Earnings per share are expected to be at $3.50 to
$3.55, above the previous guidance range of $3.30 to $3.40,
including acquisition-related transaction costs and effects of
purchase accounting.
“Our annual performance is expected to be above our previous
expectations,” said Steve Polacek, senior vice president and chief
financial officer. “We are in a strong financial position and
continue to invest for growth in 2017 by developing opportunities
in the job-ready skills market and further strengthening Capella
University’s brand and differentiation.”
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, gainful employment, return of Title IV funds,
borrower defenses to repayment, financial responsibility standards,
state authorization, 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;
successfully defending litigation and other claims; any
governmental action or review of our business, marketing, or
financial aid practices, including by any state attorneys general,
the federal Consumer Financial Protection Bureau, the Federal Trade
Commission, the Minnesota Office of Higher Education or other state
or federal 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; successfully integrating
acquisitions; successfully growing Capella Learning Solutions’ new
business lines; 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 2016 results and outlook
during a conference call scheduled today, Oct. 25, 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 Oct. 25 through Nov. 1, 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
Capella Education Company (http://www.capellaeducation.com) is
an educational services company that provides access to
high-quality education through online postsecondary degree programs
and job-ready skills offerings needed in today’s market. Capella’s
portfolio of companies is dedicated to closing the skills gap by
providing the most direct path between learning and employment.
CAPELLA EDUCATION COMPANY Consolidated Balance
Sheets (In thousands, except par value)
As of September 30, 2016 As of December 31,
2015 (Unaudited) ASSETS Current assets: Cash and
cash equivalents $ 95,713 $ 86,104 Marketable securities, current
44,758 27,522 Accounts receivable, net of allowance of $6,583 at
September 30, 2016 and $6,340 at December 31, 2015 20,055 17,081
Prepaid expenses and other current assets 14,883 14,308 Currents
assets of business held for sale — 4,251
Total current assets 175,409 149,266 Marketable securities,
non-current 23,034 45,679 Property and equipment, net 33,054 34,306
Goodwill 25,312 — Intangibles, net 8,674 — Deferred income taxes
1,348 — Other assets 7,670 2,397 Noncurrent assets of business held
for sale — 18,707 Total assets $
274,501 $ 250,355
LIABILITIES AND SHAREHOLDERS’
EQUITY Current liabilities: Accounts payable $ 2,885 $ 1,470
Accrued liabilities 32,549 23,658 Dividends payable 4,685 4,824
Income taxes payable 1,873 — Deferred revenue 16,188 7,796 Current
liabilities of business held for sale — 8,291
Total current liabilities 58,180 46,039 Deferred rent 14,067
1,874 Other liabilities 2,069 3,061 Deferred income taxes —
1,502 Total liabilities 74,316 52,476
Shareholders’ equity: Common stock, $0.01 par value: Authorized
shares — 100,000; Issued and Outstanding shares — 11,507 at
September 30, 2016 and 11,824 at December 31, 2015 115 118
Additional paid-in capital 117,427 114,849 Accumulated other
comprehensive loss (27 ) (272 ) Retained earnings 82,670
83,184 Total shareholders’ equity
200,185 197,879 Total liabilities and
shareholders’ equity $ 274,501 $ 250,355
CAPELLA EDUCATION COMPANY Consolidated Statements
of Income (In thousands, except per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30, 2016
2015 2016 2015
(Unaudited) Revenues $ 105,909 $ 100,134 $ 318,082 $ 310,419
Costs and expenses: Instructional costs and services 47,656 46,539
138,469 137,308 Marketing and promotional 25,338 24,604 76,140
75,658 Admissions advisory 7,408 7,141 22,116 21,210 General and
administrative 10,159 7,719 31,410
26,444 Total costs and expenses 90,561
86,003 268,135 260,620 Operating
income 15,348 14,131 49,947 49,799 Other income (expense), net
46 (5 ) 79 (28 ) Income from
continuing operations before income taxes 15,394 14,126 50,026
49,771 Income tax expense 5,807 5,324
19,089 18,834 Income from continuing operations 9,587
8,802 30,937 30,937 Income (loss) from discontinued operations, net
of tax 2,963 (630 ) 606 (2,397 ) Net
income $ 12,550 $ 8,172 $ 31,543 $ 28,540 Basic net
income (loss) per common share: Continuing operations 0.83 0.73
2.66 2.55 Discontinued operations 0.26 (0.05 )
0.05 (0.20 ) Basic net income per common share $ 1.09 $ 0.68
$ 2.71 $ 2.35 Diluted net income (loss) per common
share Continuing operations 0.81 0.72 2.61 2.50 Discontinued
operations 0.25 (0.05 ) 0.05 (0.19 )
Diluted net income per common share $ 1.06 $ 0.67 $ 2.66 $
2.31 Weighted average number of common shares outstanding:
Basic 11,538 12,027 11,647 12,146 Diluted 11,790 12,237 11,872
12,373 Cash dividends declared per common share $ 0.39 $ 0.37 $
1.17 $ 1.11
CAPELLA EDUCATION COMPANY
Consolidated Statements of Cash Flows (In thousands)
Nine Months Ended September 30, 2016
2015 Operating activities
(Unaudited) Net income $ 31,543 $ 28,540 Income (loss) from
discontinued operations, net of tax 606 (2,397
) Income from continuing operations 30,937 30,937 Adjustments to
reconcile net income to net cash provided by operating activities:
Provision for bad debts 7,686 10,635 Depreciation and amortization
15,751 16,447 Amortization of investment discount/premium, net
1,608 1,702 Impairment of property and equipment 404 — Loss on
disposal of property and equipment 143 63 Share-based compensation
5,434 5,465 Excess tax benefits from share-based compensation (378
) (422 ) Deferred income taxes (5,016 ) (788 ) Changes in operating
assets and liabilities, net of assets acquired and liabilities
assumed from business acquisitions: Accounts receivable (9,938 )
(11,542 ) Prepaid expenses and other current assets (1,603 ) (7,194
) Accounts payable and accrued liabilities 7,863 7,481 Income taxes
payable 4,058 (3,728 ) Deferred rent 12,193 (341 ) Deferred revenue
7,692 2,509 Net cash provided by
operating activities - continuing operations 76,834 51,224 Net cash
provided by (used in) operating activities - discontinued
operations (2,831 ) 443 Net cash provided by
operating activities 74,003 51,667
Investing activities
Acquisitions, net of cash acquired (32,101 ) — Capital expenditures
(14,703 ) (16,244 ) Investment in partnership interests (3,551 )
(471 ) Purchases of marketable securities (21,810 ) (25,246 )
Maturities of marketable securities 25,635
24,180 Net cash used in investing activities - continuing
operations (46,530 ) (17,781 ) Net cash provided by (used in)
investing activities - discontinued operations 13,792
(234 ) Net cash used in investing activities (32,738 )
(18,015 )
Financing activities Excess tax benefits from
share-based compensation 378 422 Net proceeds from exercise of
stock options 2,339 1,234 Payment of dividends (13,756 ) (13,570 )
Repurchases of common stock (22,517 ) (18,500 ) Net
cash used in financing activities - continuing operations (33,556 )
(30,414 ) Effect of foreign exchange rates on cash (23 )
(28 ) Net increase in cash and cash equivalents 7,686 3,210
Cash and cash equivalents and cash of business held for sale at
beginning of period 88,027 94,003 Cash
and cash equivalents and cash of business held for sale at end of
period 95,713 97,213 Less cash of business held for sale at end of
period — (1,950 ) Cash and cash equivalents at
end of period $ 95,713 $ 95,263
Supplemental
disclosures of cash flow information Income taxes paid $ 20,044
$ 23,331 Non-cash investing and financing activities: Purchase of
equipment included in accounts payable and accrued liabilities $
523 $ 382 Declaration of cash dividend to be paid 4,554 4,500
Receivable due from sale of business 4,539 —
CAPELLA EDUCATION COMPANY Segment Reporting (In
thousands) Three Months
Ended Nine Months Ended September 30,
September 30, 2016 2015 2016
2015 (Unaudited) Revenues
Post-Secondary $ 103,488 $ 100,100 $ 314,704 $ 309,856 Job-Ready
Skills 2,421 34 3,378
563 Consolidated revenues $ 105,909 $ 100,134
$ 318,082 $ 310,419 Operating income (loss)
Post-Secondary 16,970 14,781 56,254 50,958 Job-Ready Skills
(1,622 ) (650 ) (6,307 ) (1,159 ) Consolidated
operating income 15,348 14,131 49,947 49,799 Other income
(expense), net 46 (5 ) 79
(28 ) Income from continuing operations before income taxes $
15,394 $ 14,126 $ 50,026 $ 49,771
Note: The summary of financial information by reportable segment
above excludes the results of operations for Arden University,
which are presented as discontinued operations in our Consolidated
Statement of Income.
Quarterly revenues and operating income (loss) by reportable
segment for 2015 and prior quarters of 2016 can be found at the
Capella Education Company website at www.capellaeducation.com, under ‘Investor
Relations’, within the ‘Financial Information’ section in the
‘Fiscal Year & Quarterly Results’ spreadsheet.
CAPELLA UNIVERSITY Other Information
September
30,
Enrollment by Degree (a): 2016
2015 % Change Doctoral 9,257 9,559 (3.2 )%
Master's 17,761 16,807 5.7 % Bachelor's 9,644 9,361 3.0 % Other
1,046 956 9.4 % Total 37,708 36,683 2.8 %
(a) Enrollment as of September 30, 2016 and 2015 is the
enrollment as of the last day of classes for the quarter ended
September 30, 2016 and 2015, respectively.
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version on businesswire.com: http://www.businesswire.com/news/home/20161025005390/en/
Capella Education CompanyInvestor Contact:Heide
Erickson, 612-977-5172Heide.Erickson@capella.eduorMedia
Contact:Mike Buttry, 612-977-5499Mike.Buttry@capella.edu
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