0001104349-18-000011.txt : 20180502 0001104349-18-000011.hdr.sgml : 20180502 20180502065918 ACCESSION NUMBER: 0001104349-18-000011 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20180502 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20180502 DATE AS OF CHANGE: 20180502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPELLA EDUCATION CO CENTRAL INDEX KEY: 0001104349 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-33140 FILM NUMBER: 18797438 BUSINESS ADDRESS: STREET 1: 225 SOUTH 6TH STREET STREET 2: 9TH FLOOR CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: (612) 659-5360 MAIL ADDRESS: STREET 1: 225 SOUTH 6TH STREET STREET 2: 9TH FLOOR CITY: MINNEAPOLIS STATE: MN ZIP: 55402 8-K 1 cpla52188-k.htm 8-K Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 2, 2018
 
Capella Education Company
(Exact name of Registrant as specified in its charter)
 
 
 
 
 
 
Minnesota
 
001-33140
 
41-1717955
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
 
 
 
225 South 6th Street, 9th Floor
Minneapolis, Minnesota
 
55402
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (888) 227-3552
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company

¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

¨







Item 2.02.
Results of Operations and Financial Condition.
On May 2, 2018, we reported our first quarter 2018 financial results. The press release dated May 2, 2018 is furnished as Exhibit 99.1 to this report.
Item 9.01.
Financial Statements and Exhibits
99.1 Press release dated May 2, 2018.

(d)    Exhibits

Exhibit No.
 
Description
99.1
 

    








SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
CAPELLA EDUCATION COMPANY
 
 
 
 
Date: May 2, 2018
 
 
 
By
 
 /s/ Renee L. Jackson
 
 
 
 
 
 
Renee L. Jackson
 
 
 
 
 
 
Senior Vice President and General Counsel



EX-99.1 2 cpla_8-k5218ex991.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
NEWS RELEASE
capellagraphic1a01a11.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 First Quarter 2018 Results
Positive new enrollment growth in first quarter 2018

MINNEAPOLIS, May 2, 2018 - Capella Education Company (NASDAQ: CPLA), a leading educational services company, today announced financial results for the three months ended March 31, 2018.

“We are pleased with our start to the year, including positive new enrollment growth continuing into the first quarter of 2018,” said Kevin Gilligan, chairman and chief executive officer. “We continue to make progress on our merger with Strayer Education, Inc. while executing our strategies to deliver the most direct path between learning and employment and maintain our commitment to academic quality.”

Selected Financial Data for the Three Months Ended March 31, 2018
 
Revenues were $112.0 million in the first quarter of 2018, up 0.2 percent compared to $111.8 million in the first quarter of 2017. Operating income was $17.9 million, compared to $17.6 million for the same period in 2017. The operating margin was 16.0 percent, compared to 15.7 percent in the first quarter 2017. The first quarter 2018 period includes merger transaction costs of $0.5 million for Capella Education Company. Diluted net income per common share from continuing operations was $1.16, compared to $0.94 for the same period in 2017. Merger transaction costs reduced diluted net income per common share from continuing operations for first quarter 2018 by $0.04.
 
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.








Post-Secondary Segment

First quarter 2018 revenues were $109.2 million, down 0.3 percent compared to $109.5 million in the same period a year ago.
Operating income was $19.4 million, compared to operating income of $20.3 million for the same period in 2017. The operating margin was 17.8 percent in the first quarter 2018, compared to 18.5 percent in the first quarter of 2017. Post-Secondary segment operating results are primarily attributable to Capella University.
Capella University new enrollment increased by 1.8 percent compared to first quarter 2017, primarily due to strong performance at the bachelor’s degree level.
Total Capella University active enrollment decreased 1.6 percent to 38,181 learners, and early cohort persistence was stable after gains of approximately 22 percent over a period of more than 6 years.
FlexPath, Capella University’s fastest-growing offerings, continued to positively impact new and total enrollment in the first quarter 2018, and is now 22 percent of Capella University’s Bachelor’s and Master’s degrees total enrollment.

Job-Ready Skills Segment

First quarter 2018 revenues were $2.8 million compared to $2.3 million in the same period of 2017.
Operating loss was $1.0 million in the first quarter 2018, compared to a loss of $2.7 million in the first quarter of 2017.

Balance Sheet and Cash Flow

At March 31, 2018, Capella Education Company had cash and marketable securities of $192.7 million, compared to $181.4 million at Dec. 31, 2017, and no debt as of these dates.
 
Cash provided by operating activities from continuing operations for the three months ended March 31, 2018 was $21.3 million compared to $17.0 million in the same period a year ago.

Dividend and Share Repurchases

A quarterly cash dividend of $0.43 per outstanding share of common stock was declared on Feb. 21, 2018 and paid on April 13, 2018. In addition, a quarterly cash dividend of the same amount was declared on April 30, 2018 and is payable on June 29, 2018.  

The Company had $27.0 million of share repurchase authorization remaining at March 31, 2018. No shares were repurchased in the first quarter of 2018.

2018 Goals and Outlook

The Company’s goal for 2018 is to deliver continued revenue growth. To achieve this goal, annual new enrollment growth will be needed in a continuing volatile enrollment environment, as well as stable or improving early cohort persistence and continued revenue growth in the Job-Ready Skills segment. In addition, the Company is managing the Job-Ready Skills segment to be less dilutive in 2018 and expects the annual tax rate to be slightly above 25 percent.









Merger Update

As announced on Oct. 30, 2017, Capella Education Company and Strayer Education, Inc. (“Strayer”) (NASDAQ:STRA) agreed to combine in an all-stock merger of equals transaction, creating a national leader in education innovation. As previously disclosed, on Nov. 22, 2017, the U.S. Federal Trade Commission granted early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. In addition, on Jan. 19, 2018, the Company and Strayer announced that shareholders of both companies voted to approve the proposals to effect the merger. The proposed merger remains subject to the satisfaction of customary closing conditions, including approvals by State regulators and relevant accreditation bodies. By letter dated Feb. 26, 2018, the Department of Education issued the results of its preacquisition review of the proposed change in ownership of Capella. That letter confirms that, subject to submission of additional documents following the closing, the University will have uninterrupted participation in the Title IV Programs while the Department of Education completes its review of the relevant documentation. Capella Education Company and Strayer continue to expect that the merger will close in the third quarter of 2018. Following the completion of the merger, Strategic Education, Inc. will be the corporate entity under which both Capella University and Strayer University will continue to operate as independent and separately accredited institutions.

Conference Call

In light of the pending merger, the Company will not be providing financial guidance or hold an investor conference call.
 
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; improving our conversion rate and effectively





optimizing our marketing strategy and spend; successfully managing our learner success, doctoral enrollment and degree completion efforts; keeping up with advances in technology important to the online learner experience; effectively managing data security risks; successfully growing acquisitions and new business lines; and managing risks associated with the overall competitive environment and general economic conditions. The company also faces risks and uncertainties relating to the proposed merger transaction with Strayer Education, Inc., including the ability to satisfy the conditions to consummation of the merger; the risk that required governmental and regulatory approvals may delay the merger transaction or result in the imposition of conditions that could cause the parties to abandon the merger transaction or materially impact the financial benefits of the transaction; the risk that the businesses will not be integrated successfully; the risk that the cost savings and anticipated synergies from the merger transaction may not be fully realized or may take longer to realize than expected; disruption from the proposed merger transaction making it more difficult to maintain relationships with learners, employers, employees or suppliers; the diversion of management time on merger-related issues and the risk of shareholder class action lawsuits against the company, its management team and board of directors.

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, or other documents the company files with the SEC.      

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 March 31, 2018
 
As of December 31, 2017
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
118,077

 
$
106,566

Marketable securities, current
43,167

 
45,226

Accounts receivable, net of allowance of $8,187 at March 31, 2018 and $7,979 at December 31, 2017
23,798

 
22,733

Prepaid expenses and other current assets
9,491

 
9,523

Total current assets
194,533

 
184,048

Marketable securities, non-current
31,457

 
29,570

Property and equipment, net
35,915

 
35,961

Goodwill
13,477

 
13,477

Intangibles, net
3,240

 
3,402

Deferred income taxes
1,932

 
2,839

Other assets
10,234

 
9,724

Total assets
$
290,788

 
$
279,021

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,607

 
$
2,281

Accrued liabilities
28,365

 
26,619

Dividends payable
5,302

 
5,228

Deferred revenue
15,789

 
13,849

Total current liabilities
51,063

 
47,977

Deferred rent
12,127

 
12,365

Other liabilities
2,612

 
3,288

Total liabilities
65,802

 
63,630

Shareholders’ equity:
 
 
 
Common stock, $0.01 par value: Authorized shares — 100,000, Issued and Outstanding shares — 11,659 at March 31, 2018 and 11,635 at December 31, 2017
117

 
116

Additional paid-in capital
128,655

 
127,804

Accumulated other comprehensive loss
(210
)
 
(110
)
Retained earnings
96,424

 
87,581

Total shareholders’ equity
224,986

 
215,391

Total liabilities and shareholders’ equity
$
290,788

 
$
279,021









CAPELLA EDUCATION COMPANY
Consolidated Statements of Income
(In thousands, except per share amounts)
 
 
Three Months Ended March 31,
 
2018
 
2017
 
(Unaudited)
Revenues
$
111,967

 
$
111,788

Costs and expenses:

 

Instructional costs and services
48,432

 
48,412

Marketing and promotional
28,016

 
27,525

Admissions advisory
7,192

 
7,663

General and administrative
9,879

 
10,587

Merger-related costs
522

 

Total costs and expenses
94,041

 
94,187

Operating income
17,926

 
17,601

Other income, net
496

 
107

Income from continuing operations before income taxes
18,422

 
17,708

Income tax expense
4,575

 
6,537

Income from continuing operations
13,847

 
11,171

Income from discontinued operations, net of tax

 
95

Net income
$
13,847

 
$
11,266

Basic net income per common share:
 
 
 
   Continuing operations
$
1.19

 
$
0.97

   Discontinued operations

 

Basic net income per common share
$
1.19

 
$
0.97

Diluted net income per common share:
 
 
 
   Continuing operations
$
1.16

 
$
0.94

   Discontinued operations

 

Diluted net income per common share
$
1.16

 
$
0.94

Weighted average number of common shares outstanding:
 
 
 
Basic
11,645

 
11,559

Diluted
11,950

 
11,936

Cash dividend declared per common share
$
0.43

 
$
0.41









CAPELLA EDUCATION COMPANY
Consolidated Statements of Cash Flows
(In thousands)
 
Three Months Ended March 31,
 
2018
 
2017
 
(Unaudited)
Operating activities
 
Net income
$
13,847

 
$
11,266

Income from discontinued operations, net of tax

 
95

Income from continuing operations
13,847

 
11,171

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for bad debts
2,604

 
2,416

Depreciation and amortization
4,845

 
5,126

Amortization of investment discount/premium, net
292

 
471

Impairment of property and equipment

 
367

Loss on disposal of property and equipment
1

 
3

Share-based compensation
1,751

 
1,274

Deferred income taxes
938

 
894

Changes in operating assets and liabilities
 
 
 
Accounts receivable
(3,669
)
 
(2,244
)
Prepaid expenses and other current assets
375

 
(2,366
)
Accounts payable and accrued liabilities
(1,062
)
 
(6,168
)
Income taxes payable
(414
)
 
3,901

Deferred rent
(238
)
 
(367
)
Deferred revenue
2,020

 
2,569

Net cash provided by operating activities - continuing operations
21,290

 
17,047

Net cash provided by operating activities - discontinued operations

 
95

Net cash provided by operating activities
21,290

 
17,142

Investing activities
 
 
 
Capital expenditures
(3,706
)
 
(5,782
)
Investment in partnership interests
(426
)
 
(292
)
Purchases of marketable securities
(12,051
)
 
(14,809
)
Maturities of marketable securities
11,800

 
10,540

Net cash used in investing activities - continuing operations
(4,383
)
 
(10,343
)
Net cash provided by investing activities - discontinued operations

 
3,243

Net cash used in investing activities
(4,383
)
 
(7,100
)
Financing activities
 
 
 
Net proceeds for exercise of stock options
220

 
1,081

Taxes paid for restricted stock units
(618
)
 
(828
)
Payment of dividends
(4,997
)
 
(4,733
)
Net cash used in financing activities - continuing operations
(5,395
)
 
(4,480
)
Effect of foreign exchange rates on cash
(1
)
 
2

Net increase in cash and cash equivalents
11,511

 
5,564

Cash and cash equivalents at beginning of period
106,566

 
93,570

Cash and cash equivalents at end of period
$
118,077

 
$
99,134

Supplemental disclosures of cash flow information
 
 
 
Income taxes paid
$
4,127

 
$
1,714

Non-cash investing and financing activities:
 
 
 
Purchase of equipment included in accounts payable and accrued liabilities
$
1,311

 
$
1,102

Declaration of cash dividend to be paid
5,090

 
4,813






CAPELLA EDUCATION COMPANY
Segment Reporting
(In thousands)

 
Three Months Ended March 31,
 
2018
 
2017
 
(Unaudited)
Revenues
 
 
 
     Post-Secondary
$
109,185

 
$
109,481

     Job-Ready Skills
2,782

 
2,307

Consolidated Revenues
$
111,967

 
$
111,788

Operating income (loss)
 
 
 
     Post-Secondary
$
19,444

 
$
20,251

     Job-Ready Skills
(996
)
 
(2,650
)
     Merger-related costs
(522
)
 

Consolidated operating income
17,926

 
17,601

Other income, net
496

 
107

Income from continuing operations before income taxes
$
18,422

 
$
17,708


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.  








CAPELLA UNIVERSITY
Other Information
 
March 31,
 
 
Capella University Enrollment by Degree (a):
2018
 
2017
 
% Change
Doctoral
9,170

 
9,326

 
(1.7
)%
Master's
17,734

 
18,293

 
(3.1
)%
Bachelor's
10,188

 
10,100

 
0.9
 %
Other
1,089

 
1,083

 
0.6
 %
Total
38,181

 
38,802

 
(1.6
)%

(a) Enrollment in the table above includes learners who are actively enrolled during the last month of the quarters ended March 31, 2018 and 2017, respectively.


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