EX-99.1 2 cpla_8-k21417ex991.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
NEWS RELEASE
capellagraphic1a01a07.jpg

FOR IMMEDIATE RELEASE            

Investor Contact:
Heide Erickson
Capella Education Company
612.977.5172
Heide.Erickson@capella.edu

Media Contact:
Mike Buttry
Capella Education Company
612.977.5499
Mike.Buttry@capella.edu

Capella Education Company Reports Fourth Quarter and Full Year 2016 Results
Solid performance in 2016; positioned for continued growth in 2017

MINNEAPOLIS, Feb. 14, 2017 - Capella Education Company (NASDAQ: CPLA), a leading educational services company, today announced financial results for the three months and year ended Dec. 31, 2016.

“We delivered solid results in 2016 and made significant progress in executing our vision of providing the most direct path between learning and employment,” said Kevin Gilligan, chairman and chief executive officer. “We believe our ‘most direct path’ innovations, including our flexible degree and job-ready skills offerings, will drive long-term growth by expanding our addressable market, creating new sources of revenue, and better positioning us to deliver differentiated value to both consumers and employers.”
 
Results for the three months and year ended Dec. 31, 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 acquisition dates of April 22 and May 4, 2016, respectively. The sale of Arden University was completed on Aug. 18, 2016 with results presented as discontinued operations.

Selected Financial Data for the Three Months Ended Dec. 31, 2016

Revenues were $111.3 million in the fourth quarter of 2016, up 4.9 percent compared to $106.1 million in the fourth quarter of 2015. Operating income was $18.3 million, compared to $20.5 million for the same period in 2015. The operating margin was 16.4 percent, compared to 19.3 percent for the fourth quarter 2015. Diluted net income per common share from continuing operations was $0.97, compared to $1.05 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 $109.4 million, up 3.1 percent compared to $106.1 million in the fourth quarter of 2015. The operating margin was 18.9 percent, compared to 21.0 percent. Results are primarily attributable to Capella University.
•
Capella University total active enrollment increased 2.5 percent to 37,882 learners, new enrollment decreased by 1.1 percent compared to fourth quarter 2015, and early cohort persistence improved by approximately 5 percent.
•
Revenues for the Job-Ready Skills segment were $1.9 million compared to $0.02 million in the fourth quarter of 2015. The operating loss was $2.4 million, compared to $1.8 million.
 
Selected Financial Data for the Fiscal Year Ended Dec. 31, 2016

Revenues were $429.4 million in fiscal year 2016, up 3.1 percent compared to $416.5 million in 2015. Operating income was $68.2 million, compared to $70.3 million for the same period in 2015. The operating margin was 15.9 percent, compared to 16.9 percent in 2015. Diluted net income per common share from continuing operations was $3.58, compared to $3.55 for the same period in 2015.

Operating and Segment Highlights

•
For the Post-Secondary segment, fiscal year 2016 revenues were $424.1 million, up 2.0 percent compared to $416.0 million in 2015. The operating margin was 18.1 percent, compared to 17.6 percent in 2015. Results are primarily attributable to Capella University.
•
Capella University average quarterly total enrollment increased by 2.5 percent, new enrollment decreased by 0.9 percent from 2015, and early cohort persistence improved by approximately 5 percent.
•
Revenues for the Job-Ready Skills segment were $5.3 million compared to $0.6 million in 2015. The operating loss was $8.7 million in 2016, compared to $2.9 million for 2015.

Balance Sheet and Cash Flow

At Dec. 31, 2016, Capella Education Company had cash and marketable securities of $162.3 million, compared to $159.3 million at Dec. 31, 2015, and no debt as of these dates.

Cash provided by operating activities from continuing operations for 2016 was $85.1 million compared to $59.9 million in 2015. A portion of the year-over-year increase in 2016 was due to $13.6 million of cash received as an incentive to extend the lease for our headquarters in Minneapolis, MN.

Dividend and Share Repurchases

The company announced an increase in its quarterly cash dividend to $0.41 per outstanding share of common stock during the fourth quarter of 2016. The dividend was paid on Jan. 13, 2017.
 
The Company repurchased approximately 488,000 shares of Capella stock for total consideration of $25.6 million in fiscal year 2016. In the fourth quarter of 2016, Capella Education Company repurchased approximately 51,000 shares of Capella stock for total consideration of $3.1 million. The remaining




authorization as of the end of the fourth quarter was $30.4 million.

Outlook

For the first quarter ending March 31, 2017, consolidated revenues for Capella Education Company are expected to be up 5.0 to 6.0 percent compared to first quarter 2016. Consolidated operating margin is anticipated to be approximately 14.5 to 15.5 percent of total revenue for the first quarter of 2017. Capella University new enrollment is expected to be up in the low-single digit percentage range year-over-year and total enrollment is expected to be up about 1 percent year-over-year.

For the fiscal year ending Dec. 31, 2017, consolidated revenues for Capella Education Company are expected to increase 3 to 5 percent year-over-year and operating margins are expected to be similar to fiscal 2016 due to expected investments in advance of accelerated revenue growth.

“We are particularly pleased with achieving five consecutive years of strong learner success improvements, which was the primary driver for total enrollment growth in 2016,” said Steve Polacek, senior vice president and chief financial officer. “We are in a strong financial position and are managing our investments thoughtfully with the goal of driving accelerated growth.”

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, our Annual Report on Form 10-K for 2016 and other documents the company files with the SEC.     
 
Conference Call

Capella will discuss its fourth quarter 2016 results and outlook during a conference call scheduled today, Feb. 14, 2017, 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. 14 through Feb. 21, 2017, 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 December 31, 2016
 
As of December 31, 2015
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
93,570

 
$
86,104

Marketable securities, current
45,458

 
27,522

Accounts receivable, net of allowance of $6,682 at December 31, 2016 and $6,340 at December 31, 2015
20,708

 
17,081

Prepaid expenses and other current assets
17,877

 
14,308

Currents assets of business held for sale
—

 
4,251

Total current assets
177,613

 
149,266

Marketable securities, non-current
23,320

 
45,679

Property and equipment, net
34,121

 
34,306

Goodwill
23,310

 
—

Intangibles, net
9,221

 
—

Deferred income taxes
1,853

 
—

Other assets
7,875

 
2,397

Noncurrent assets of business held for sale

—

 
18,707

Total assets
$
277,313

 
$
250,355

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
4,367

 
$
1,470

Accrued liabilities
31,302

 
23,658

Dividends payable
4,945

 
4,824

Deferred revenue
12,398

 
7,796

Current liabilities of business held for sale
—

 
8,291

Total current liabilities
53,012

 
46,039

Deferred rent
13,693

 
1,874

Other liabilities
2,316

 
3,061

Deferred income taxes
—

 
1,502

Total liabilities
69,021

 
52,476

Shareholders’ equity:
 
 
 
Common stock, $0.01 par value: Authorized shares — 100,000; Issued and Outstanding shares — 11,545 at December 31, 2016 and 11,824 at December 31, 2015
115

 
118

Additional paid-in capital
121,581

 
114,849

Accumulated other comprehensive loss
(93
)
 
(272
)
Retained earnings
86,689

 
83,184

Total shareholders’ equity
208,292

 
197,879

Total liabilities and shareholders’ equity
$
277,313

 
$
250,355








CAPELLA EDUCATION COMPANY
Consolidated Statements of Income
(In thousands, except per share amounts)
 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2016

2015
 
2016
 
2015
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
 
Revenues
$
111,308


$
106,129

 
$
429,390

 
$
416,548

Costs and expenses:



 
 
 
 
Instructional costs and services
47,526


45,575

 
185,995

 
182,883

Marketing and promotional
27,319


23,971

 
103,458

 
99,629

Admissions advisory
7,176


6,996

 
29,292

 
28,206

General and administrative
11,027


9,055

 
42,438

 
35,498

Total costs and expenses
93,048


85,597

 
361,183

 
346,216

Operating income
18,260


20,532

 
68,207

 
70,332

Other income (expense), net
98


(105
)
 
177

 
(133
)
Income from continuing operations before income taxes
18,358


20,427

 
68,384

 
70,199

Income tax expense
6,891


7,734

 
25,980

 
26,569

Income from continuing operations
11,467


12,693

 
42,404

 
43,630

Income (loss) from discontinued operations, net of tax
(41
)
 
(1,045
)
 
565

 
(3,442
)
Net income
$
11,426

 
$
11,648

 
$
42,969

 
$
40,188

Basic net income (loss) per common share:



 
 
 
 
Continuing operations
1.00


1.07

 
3.65

 
3.61

Discontinued operations
(0.01
)

(0.09
)
 
0.05

 
(0.28
)
Basic net income per common share
$
0.99

 
$
0.98

 
$
3.70

 
$
3.33

Diluted net income (loss) per common share
 
 
 
 
 
 
 
Continuing operations
0.97

 
1.05

 
3.58

 
3.55

Discontinued operations
—

 
(0.09
)
 
0.04

 
(0.28
)
Diluted net income per common share
$
0.97

 
$
0.96

 
$
3.62

 
$
3.27

Weighted average number of common shares outstanding:



 
 
 
 
Basic
11,517


11,881

 
11,614

 
12,079

Diluted
11,812


12,087

 
11,856

 
12,301

Cash dividends declared per common share
$
0.41


$
0.39

 
$
1.58

 
$
1.50








CAPELLA EDUCATION COMPANY
Consolidated Statements of Cash Flows
(In thousands)
 
Twelve Months Ended December 31,
 
2016
 
2015
 
(Unaudited)
 
 
Operating activities
 
Net income
$
42,969

 
$
40,188

Income (loss) from discontinued operations, net of tax
565

 
(3,442
)
Income from continuing operations
42,404

 
43,630

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for bad debts
10,663

 
14,275

Depreciation and amortization
21,343

 
21,917

Amortization of investment discount/premium, net
2,129

 
2,293

Impairment of property and equipment
442

 
896

Loss on disposal of property and equipment
164

 
64

Share-based compensation
6,422

 
6,594

Excess tax benefits from share-based compensation
(1,136
)
 
(439
)
Deferred income taxes
(4,280
)
 
(1,641
)
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed from business acquisitions:

 
 
 
Accounts receivable
(13,568
)
 
(15,150
)
Prepaid expenses and other current assets
(470
)
 
(7,162
)
Accounts payable and accrued liabilities
8,132

 
(3,344
)
Income taxes payable
(2,823
)
 
(2,980
)
Deferred rent
11,819

 
(566
)
Deferred revenue
3,902

 
1,540

Net cash provided by operating activities - continuing operations
85,143

 
59,927

Net cash provided by (used in) operating activities - discontinued operations
(2,874
)
 
400

Net cash provided by operating activities
82,269

 
60,327

Investing activities
 
 
 
Acquisitions, net of cash acquired
(32,101
)
 
—

Capital expenditures
(20,908
)
 
(20,417
)
Investment in partnership interests
(3,551
)
 
(934
)
Purchases of marketable securities
(29,216
)
 
(32,640
)
Maturities of marketable securities
31,430

 
30,175

Net cash used in investing activities - continuing operations
(54,346
)
 
(23,816
)
Net cash provided by (used in) investing activities - discontinued operations
15,032

 
(224
)
Net cash used in investing activities
(39,314
)
 
(24,040
)
Financing activities
 
 
 
Excess tax benefits from share-based compensation
1,136

 
439

Net proceeds from exercise of stock options
5,363

 
1,337

Payment of dividends
(18,254
)
 
(18,012
)
Repurchases of common stock
(25,633
)
 
(26,006
)
Net cash used in financing activities - continuing operations
(37,388
)
 
(42,242
)
Effect of foreign exchange rates on cash
(24
)
 
(21
)
Net increase (decrease) in cash and cash equivalents
5,543

 
(5,976
)
Cash and cash equivalents and cash of business held for sale at beginning of year
88,027

 
94,003

Cash and cash equivalents and cash of business held for sale at end of year
93,570

 
88,027

Less cash of business held for sale at end of year
—

 
(1,923
)
Cash and cash equivalents at end of year
$
93,570

 
$
86,104

Supplemental disclosures of cash flow information
 
 
 
Income taxes paid
$
33,093

 
$
31,171

Non-cash investing and financing activities:
 
 
 
Purchase of equipment included in accounts payable and accrued liabilities
$
784

 
$
854

Declaration of cash dividend to be paid
4,785

 
4,646

Receivable due from sale of business
3,084

 
—





CAPELLA EDUCATION COMPANY
Segment Reporting
(In thousands)

 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2016
 
2015
 
2016
 
2015
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
 
 
Revenues
 
 
 
 
 
 
 
     Post-Secondary
$
109,381

 
$
106,108

 
$
424,085

 
$
415,964

     Job-Ready Skills
1,927

 
21

 
5,305

 
584

Consolidated revenues
$
111,308

 
$
106,129

 
$
429,390

 
$
416,548

Operating income (loss)
 
 
 
 
 
 
 
     Post-Secondary
20,680

 
22,289

 
76,935

 
73,248

     Job-Ready Skills
(2,420
)
 
(1,757
)
 
(8,728
)
 
(2,916
)
Consolidated operating income
18,260

 
20,532

 
68,207

 
70,332

Other income (expense), net
98

 
(105
)
 
177

 
(133
)
Income from continuing operations before income taxes
$
18,358

 
$
20,427

 
$
68,384

 
$
70,199


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 Statements 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
 
December 31,
 
 
Capella University Enrollment by Degree (a):
2016
 
2015
 
% Change
Doctoral
9,110

 
9,645

 
(5.5
)%
Master's
17,865

 
16,882

 
5.8
 %
Bachelor's
9,791

 
9,454

 
3.6
 %
Other
1,116

 
995

 
12.2
 %
Total
37,882

 
36,976

 
2.5
 %

(a) Enrollment as of December 31, 2016 and 2015 is the enrollment as of the last day of classes for the quarter ended December 31, 2016 and 2015, respectively.