Capella Education Company Reports Second Quarter 2015 Results

MINNEAPOLIS--()--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 six months ended June 30, 2015.

“We are pleased with a strong first half of 2015 and remain focused on delivering our annual 2015 growth goals,” said Kevin Gilligan, chairman and chief executive officer. “Our results demonstrate Capella’s differentiation in the market as we focus on executing our strategies for long-term growth.”

For the three months ended June 30, 2015:

  • Revenues were $108.0 million, compared to $104.8 million in the second quarter of 2014, an increase of 3.0 percent.
  • Capella University total active enrollment increased 4.3 percent to 37,346, new enrollment increased by 2.9 percent from second quarter 2014 and early cohort persistence improved by approximately 3 percent.
  • Operating income was $17.1 million, compared to $15.5 million for the same period in 2014. Operating margin was 15.8 percent, compared to 14.8 percent for the second quarter 2014. The 2014 period includes a lease amendment charge of approximately $2.7 million.
  • Net income for the second quarter of 2015 was $10.3 million, compared to $9.0 million for the same period in 2014.
  • Net income per diluted share was $0.83, compared to $0.72 for the same period in 2014.

For the six-month period ended June 30, 2015:

  • Revenues increased by 3.2 percent to $217.1 million, compared to $210.4 million for the same period in 2014.
  • Operating income for the six-month period ended June 30, 2015 was $33.9 million, or 15.6 percent of revenue, compared to $30.6 million, or 14.5 percent of revenue during the same period in 2014. The 2014 period includes a lease amendment charge of approximately $2.7 million.
  • Net income was $20.4 million, or $1.64 per diluted share, compared to $17.9 million, or $1.42 per diluted share, for the same period in 2014.

Balance Sheet and Cash Flow

As of June 30, 2015, the Company had cash and marketable securities of $176.3 million, compared to $167.1 million at Dec. 31, 2014, and no debt outstanding as of June 30, 2015.

Cash flow from operating activities for the six months ended June 30, 2015 was $40.9 million compared to $33.8 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 second quarter of 2015. The dividend was paid on July 15, 2015.

In the second quarter 2015, the Company repurchased approximately 126,000 shares of Capella stock for total consideration of $7.1 million. The remaining authorization as of the end of the second quarter was $21.0 million.

Outlook

For the third quarter ending Sept. 30, 2015, Capella University new enrollment growth is expected to be flat to slightly down year-over-year. Total enrollment is expected to grow about 3.0 to 4.0 percent year-over-year, and consolidated revenue is expected to be up about 1.0 to 2.0 percent compared to third quarter 2014.

The consolidated operating margin is anticipated to be approximately 12.5 to 13.5 percent of total revenue for the third quarter of 2015.

“Our third quarter 2015 outlook reflects the variability in the current market environment,” said Steve Polacek, senior vice president and chief financial officer. “We will continue to balance short- and long-term investments to support our learners and 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 are included under, among others, the heading "Risk Factors" in our most recent Form 10-K and Form 10-Qs on file with the Securities and Exchange Commission and other documents filed by the company with the Securities and Exchange Commission.

Conference Call

Capella will discuss its second quarter 2015 results and outlook during a conference call scheduled today, July 28, 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# 75388111. 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 July 28 through Aug. 4, 2015, at 855.859.2056 (domestic) or 404.537.3406 (international), conference ID# 75388111. 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 more than 37,000 learners as of June 30, 2015. In addition, Capella Education Company offers online education through 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 June 30, 2015 As of December 31, 2014
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 102,654 $ 94,003
Marketable securities, current 27,661 29,619
Accounts receivable, net of allowance of $5,886 at June 30, 2015 and $6,558 at December 31, 2014 16,224 17,902
Prepaid expenses and other current assets 13,289 9,007
Deferred income taxes 2,822   2,809  
Total current assets 162,650 153,340
Marketable securities, non-current 46,009 43,430
Property and equipment, net 38,300 37,246
Goodwill 16,865 16,961
Intangibles, net 1,658 1,927
Other assets 1,508   1,453  
Total assets $ 266,990   $ 254,357  
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 5,276 $ 6,832
Accrued liabilities 35,123 23,410
Dividends payable 4,667 4,622
Income taxes payable 709
Deferred revenue 12,163   11,718  
Total current liabilities 57,229 47,291
Deferred rent 2,083 2,440
Other liabilities 2,909 3,698
Deferred income taxes 5,473   5,894  
Total liabilities 67,694 59,323
 
Shareholders’ equity:
Common stock, $0.01 par value: Authorized shares — 100,000; Issued and Outstanding shares — 12,117 at June 30, 2015 and 12,243 at December 31, 2014 121 122
Additional paid-in capital 114,687 112,417
Accumulated other comprehensive loss (269 ) (335 )
Retained earnings 84,757   82,830  
Total shareholders’ equity 199,296   195,034  
Total liabilities and shareholders’ equity $ 266,990   $ 254,357  
 
 
CAPELLA EDUCATION COMPANY
 
Consolidated Statements of Income
(In thousands, except per share amounts)
       
Three Months Ended June 30, Six Months Ended June 30,
2015     2014 2015     2014
(Unaudited)
Revenues $ 108,007 $ 104,832 $ 217,081 $ 210,428
Costs and expenses:
Instructional costs and services 47,369 45,530 94,430 92,830
Marketing and promotional 25,798 23,113 53,298 48,874
Admissions advisory 7,353 7,146 14,557 14,073
General and administrative 10,372 10,889 20,901 21,354
Lease amendment charges   2,690     2,690  
Total costs and expenses 90,892   89,368   183,186   179,821  
Operating income 17,115 15,464 33,895 30,607
Other income (expense), net 54   (171 ) (92 ) (513 )
Income before income taxes 17,169 15,293 33,803 30,094
Income tax expense 6,838   6,249   13,435   12,233  
Net income $ 10,331   $ 9,044   $ 20,368   $ 17,861  
Net income per common share:
Basic $ 0.85 $ 0.74 $ 1.67 $ 1.45
Diluted $ 0.83 $ 0.72 $ 1.64 $ 1.42
Weighted average number of common shares outstanding:
Basic 12,187 12,293 12,207 12,317
Diluted 12,400 12,518 12,442 12,564
Cash dividends declared per common share $ 0.37 $ 0.35 $ 0.74 $ 0.70
 
 
CAPELLA EDUCATION COMPANY
 
Consolidated Statements of Cash Flows
(In thousands)
   
Six Months Ended June 30,
2015     2014
(Unaudited)
Operating activities
Net income $ 20,368 $ 17,861
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for bad debts 6,311 6,900
Depreciation and amortization 11,233 12,056
Amortization of investment discount/premium, net 1,134 817
Impairment of property and equipment 277
Loss on disposal of property and equipment 27 70
Share-based compensation 3,894 2,758
Excess tax benefits from share-based compensation (400 ) (392 )
Deferred income taxes (460 ) (574 )
Payment of contingent consideration (906 )
Changes in operating assets and liabilities:
Accounts receivable (4,674 ) (4,550 )
Prepaid expenses and other current assets (2,918 ) (235 )
Accounts payable and accrued liabilities 8,290 (60 )
Income taxes payable (2,116 ) 605
Deferred rent (357 ) (505 )
Deferred revenue 585   (273 )
Net cash provided by operating activities 40,917 33,849
Investing activities
Capital expenditures (12,343 ) (10,814 )
Investment in partnership interest (57 ) (1,063 )
Purchases of marketable securities (18,246 ) (42,093 )
Maturities of marketable securities 16,485   6,975  
Net cash used in investing activities (14,161 ) (46,995 )
Financing activities
Excess tax benefits from share-based compensation 400 392
Net proceeds from exercise of stock options 1,087 1,638
Payment of dividends (9,065 ) (8,659 )
Repurchases of common stock (10,493 ) (9,926 )
Payment of contingent consideration   (5,945 )
Net cash used in financing activities (18,071 ) (22,500 )
Effect of foreign exchange rates on cash (34 ) 4  
Net increase (decrease) in cash and cash equivalents 8,651 (35,642 )
Cash and cash equivalents at beginning of period 94,003   124,097  
Cash and cash equivalents at end of period $ 102,654   $ 88,455  
Supplemental disclosures of cash flow information
Income taxes paid $ 15,987 $ 12,539
Noncash transactions:
Purchase of equipment included in accounts payable and accrued liabilities $ 585 $ 1,988
Declaration of cash dividend to be paid $ 4,561 $ 4,354
Repurchases of common stock included in accrued liabilities $ 499 $
 
 
CAPELLA UNIVERSITY
 
Other Information
       
June 30
Enrollment by Degree (a): 2015     2014 % Change
PhD/Doctoral 10,008 10,524 (4.9 )%
Master's 16,576 14,989 10.6 %
Bachelor's 9,803 9,345 4.9 %
Other 959   933   2.8 %
Total 37,346   35,791   4.3 %
 

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

Contacts

Capella Education Company
Investor Contact:
Heide Erickson, 612-977-5172
Heide.Erickson@capella.edu
or
Media Contact:
Mike Buttry, 612-977-5499
Mike.Buttry@capella.edu

Contacts

Capella Education Company
Investor Contact:
Heide Erickson, 612-977-5172
Heide.Erickson@capella.edu
or
Media Contact:
Mike Buttry, 612-977-5499
Mike.Buttry@capella.edu