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Capella Education Company Reports Fourth Quarter and Full Year 2012 Results

  Capella Education Company Reports Fourth Quarter and Full Year 2012 Results

Business Wire

MINNEAPOLIS -- February 12, 2013

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,
2012.

“We are encouraged by our progress in stabilizing new enrollment growth,
improving learner persistence and strengthening Capella’s competitive
position,” said Kevin Gilligan, chairman and chief executive officer. “Most
importantly, we are gaining traction as we execute our strategy to drive
affordability, speed-to-competency and certainty of outcomes for our learners
to differentiate Capella. While the overall market environment remains
challenging, our improving position heading into 2013 gives us confidence that
we are on the right path to return to total enrollment and revenue growth.”

For the three months ended Dec. 31, 2012:

  *Revenues were $107.0 million, compared to $110.0 million in the fourth
    quarter of 2011, a decrease of 2.7 percent.
  *Capella University total active enrollment decreased 3.6 percent to 36,329
    and new enrollment increased by 0.6 percent from fourth quarter 2011.
  *Operating income was $15.1 million, compared to $18.9 million for the same
    period in 2011. Operating margin was 14.1 percent, compared to 17.2
    percent for the fourth quarter 2011.
  *Net income attributable to Capella Education Company for the fourth
    quarter of 2012 was $8.6 million, compared to $12.1 million for the same
    period in 2011.
  *Diluted net income per share was $0.68, compared to $0.85 for the same
    period in 2011. The Company recorded a valuation allowance on foreign
    deferred income taxes that reduced diluted net income per share by $0.05
    for the fourth quarter of 2012.

For the fiscal year ended Dec. 31, 2012:

  *Revenues decreased by 1.9 percent to $421.9 million, compared to $430.0
    million for the same period in 2011.
  *Operating income for 2012 was $59.4 million, or 14.1 percent of revenue,
    compared to $80.1 million, or 18.6 percent of revenue during 2011.
  *Net income was $36.5 million or $2.76 per diluted share outstanding,
    compared to $52.1 million or $3.40 per diluted share for 2011.
  *Capella University average quarterly total enrollment growth decreased by
    4.1 percent compared to 2011.
  *Total Capella University new enrollment for 2012 increased 0.5 percent,
    compared to a 32.0 percent decrease in 2011.

Starting with the fourth quarter 2012, the Company is reclassifying its
financial statements by, among other changes, adding the “admissions advisory”
expense line. The result of these changes in classifications only impacted
operating expenses and did not impact revenue, operating or net income.
Additional details were provided in the Form 8-K filed with the Securities and
Exchange Commission on Feb. 7, 2013. Historical financial tables in the new
format and changes from the previous presentation are also available on our
website at www.capellaeducation.com in the investor relations section under
financial tables.

Balance Sheet and Cash Flow

As of Dec. 31, 2012, the Company had cash, cash equivalents, and marketable
securities of $115.5 million, compared to $127.0 million at Dec. 31, 2011, and
no debt for the same periods.

Cash flow from operating activities for 2012 was $64.8 million compared to
$80.3 million in 2011.

Share Repurchase

The Company repurchased approximately 1.5 million shares of Capella stock for
total consideration of $51.4 million in fiscal year 2012.In the fourth
quarter 2012, the Company repurchased approximately 411,000 shares of Capella
stock for total consideration of $12.6 million. The remaining authorization as
of the end of the fourth quarter was $8.3 million.

Outlook

For the first quarter ending March 31, 2013, Capella University new enrollment
growth is expected to be up about 5 percent compared to first quarter 2012.
Total enrollment is expected to decline by about 3 to 4 percent and
consolidated revenue is expected to decline by about 4.5 to 5.5 percent
compared to first quarter 2012.

The consolidated operating margin is anticipated to be approximately 12 to 13
percent of total revenue for the first quarter of 2013 compared to 16.4
percent in the same period last year. The year-over-year change is primarily
related to the anticipated decrease in Capella University’s total enrollments.

“2013 will be about execution, increasing market share and continued
improvements to drive more consistent, sustained growth,” said Steve Polacek,
senior vice president and chief financial officer. “We will continue investing
in learner success, further driving Capella’s differentiation and
diversification while diligently managing costs, as we position Capella for
long-term sustainable growth and shareholder returns.”

Forward-Looking Statements

Certain information in this news release does not relate to historical
financial information, including statements relating to our future prospects
and our expectations regarding our revenues, enrollment, and operating
performance, and may be deemed to constitute 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 certain risks
and uncertainties that could cause the company's actual results in the future
to differ materially from its historical results and those presently
anticipated or projected. The company undertakes no obligation to update its
forward-looking statements to reflect events or circumstances arising after
such date.

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; maintaining our business in accordance with regional and
specialized accreditation standards and state regulatory and program approval
requirements; changes in the administration, funding and availability for
Title IV programs; responding to any additional governmental inquiries into
our financial aid practices; attracting and retaining high quality,
academically prepared learners; updating and expanding the content of existing
programs and developing new programs; the review of our business and financial
aid practices by governmental authorities, including changes in applicable
federal and state laws and regulations and accrediting agency policies;
responding to requests for information and complaints from the Minnesota
Office of Higher Education and other states; maintaining and expanding
existing commercial relationships with employers and developing new such
relationships; effectively instituting changes in our marketing and brand
management approach and with the use of aggregators; improving our learner
cohort retention rate; improving our conversion rates; keeping up with
advances in technology important to the online learner experience;
successfully identifying and integrating acquisitions; complying with
regulations applicable to our international operations; managing operational
challenges with acquired entities; using business technology to accurately
store, process and report relevant data; effectively implementing cost
reductions in our business; managing increases in our expenses; 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 fourth quarter 2012 results and outlook during a
conference call scheduled today, Feb. 12, 2013, 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#
85649196. The webcast, including the accompanying presentation, will be
available on the Capella Education Company Web site at
www.capellaeducation.com. A replay of the call will be available starting on
Feb. 12, 2013 through Feb. 19, 2013, at 855.859.2056 (domestic) or
404.537.3406 (international), conference ID# 85649196. It will also be
archived at www.capellaeducation.com in the investor relations section for 60
days.

About Capella Education Company

Founded in 1991, Capella Education Company is a leader in online education,
primarily through our wholly owned subsidiary Capella University, a regionally
accredited* online university. In addition, Capella Education Company offers
online education through Resource Development International Ltd. (RDI), an
independent provider of United Kingdom (UK) university distance learning
qualifications. Capella Education Company also owns an innovative startup
company called Sophia (http://www.sophia.org) - a social teaching and learning
platform that integrates education with technology.

Capella University offers online graduate degree programs in business,
counseling, education, health administration, homeland security, human
resource management, human services, information technology, nonprofit
management and leadership, nursing, psychology, public administration, public
health, public safety, and social work, and bachelor's degree programs in
business, information technology, nursing, psychology, and public safety.
These academic programs are designed to meet the needs of working adults,
combining high quality, competency-based curricula with the convenience and
flexibility of an online learning format. Currently, Capella University offers
43 graduate and undergraduate degree programs with 145 specializations. More
than 36,000 learners were enrolled as of Dec. 31, 2012, with about 75 percent
of learners enrolled in graduate degree programs. For more information about
Capella Education Company, please visit http://www.capellaeducation.com. For
more information about Capella University, please visit http://www.capella.edu
or call 1.888.CAPELLA (227.3552).

Resource Development International Ltd. partners with a number of the top 100
universities in the UK to develop, validate and deliver UK higher education
qualifications, predominantly through online courses. For more information,
visit http://www.rdi.co.uk.

Sophia is a first-of-its-kind social education platform that offers students
many ways to learn by making free, credible, academic content available to
anyone, anywhere, at anytime. The site offers tens of thousands of tutorials
created by hundreds of teachers and experts that are taught in a variety of
ways. The platform further enhances the learning process by offering quizzes,
assessing learning preferences and providing learning paths. For more
information, visit www.sophia.org.

*Capella University is accredited by The Higher Learning Commission and is a
member of the North Central Association of Colleges and Schools (NCA),
http://www.ncahlc.org. Capella University, Capella Tower, 225 South Sixth
Street, Ninth Floor, Minneapolis, MN 55402, 1.888.CAPELLA (227.3552),
http://www.capella.edu.


CAPELLA EDUCATION COMPANY
Consolidated Balance Sheets
(In thousands, except par value)
                                                        
                                       As of                 As of
                                       December 31, 2012     December 31, 2011
ASSETS                                 (Unaudited)
Current assets:
Cash and cash equivalents              $   93,220            $     61,977
Marketable securities                      22,279                  65,067
Accounts receivable, net of
allowance of $6,231 at December
31, 2012 and
$5,789 at December 31, 2011                15,900                  18,239
Prepaid expenses and other current         11,124                  12,493
assets
Deferred income taxes                     3,481                 3,452
Total current assets                       146,004                 161,228
Property and equipment, net                45,240                  50,713
Goodwill                                   16,970                  16,980
Intangibles, net                          4,674                 6,552
Total assets                           $   212,888          $     235,473
                                                                   
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current liabilities:
Accounts payable                       $   5,798             $     8,977
Accrued liabilities                        26,392                  29,306
Income taxes payable                       0                       2,427
Deferred revenue                          9,651                 7,769
Total current liabilities                  41,841                  48,479
Deferred rent                              4,150                   4,215
Other liabilities                          6,425                   6,425
Deferred income taxes                     8,370                 12,575
Total liabilities                          60,786                  71,694
                                                                   
Redeemable noncontrolling interest         0                       1,180
                                                                   
Shareholders’ equity:
Common stock, $0.01 par value:
Authorized shares — 100,000,
issued and outstanding shares —
12,393 at
December 31, 2012 and 13,882 at            124                     139
December 31, 2011
Additional paid-in capital                 97,716                  103,900
Accumulated other comprehensive            (22       )             307
income (loss)
Retained earnings                         54,284                58,253
Total shareholders’ equity                152,102               162,599
Total liabilities and                  $   212,888          $     235,473
shareholders’ equity
                                                                   


CAPELLA EDUCATION COMPANY
Consolidated Statements of Income
(In thousands, except per share amounts)
                                              
                   Three Months Ended              Year Ended
                   December 31,                    December 31,
                   2012          2011            2012          2011
                   (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)
Revenues           $ 107,001       $  109,983      $ 421,890       $  430,043
Costs and
expenses:
Instructional
costs and            49,388           46,061         191,947          173,404
services
Marketing and        24,276           25,606         100,809          103,973
promotional
Admissions           7,493            7,351          30,151           31,607
advisory
General and          10,737           10,785         39,600           37,790
administrative
Reduction of        0              1,305         0              3,167
workforce
Total costs         91,894         91,108        362,507        349,941
and expenses
Operating            15,107           18,875         59,383           80,102
income
Other income        (41     )       337           (45     )       1,811
(expense), net
Income before        15,066           19,212         59,338           81,913
income taxes
Income tax          6,417          7,333         23,047         30,370
expense
Net income           8,649            11,879         36,291           51,543
Net loss
attributable
to                  0              178           186            572
noncontrolling
interest
Net income
attributable
to Capella         $ 8,649        $  12,057       $ 36,477       $  52,115
Education
Company
                                                                      
Net income
attributable
to Capella
Education
Company per
common share:
Basic              $ 0.69          $  0.85         $ 2.77          $  3.42
Diluted            $ 0.68          $  0.85         $ 2.76          $  3.40
                                                                      
Weighted
average number
of common
shares
outstanding:
Basic              12,575          14,212          13,156          15,241
Diluted            12,645          14,264          13,220          15,314
                                                                   


CAPELLA EDUCATION COMPANY
Consolidated Statements of Cash Flows
(In thousands)
                                               
                                                  As of December 31,
                                                  2012          2011
                                                  (Unaudited)
Operating activities
Net income                                        $ 36,291        $ 51,543
Adjustments to reconcile net income to net
cash provided by operating
activities:
Provision for bad debts                             17,310          10,565
Depreciation and amortization                       29,255          24,165
Amortization of investment discount/premium         692             2,049
Impairment of property and equipment                1,150           35
Loss (gain) on disposal of property and             81              (30      )
equipment
Share-based compensation                            4,880           4,883
Excess tax benefit from share-based                 (69     )       (248     )
compensation
Deferred income taxes                               (3,584  )       2,516
Changes in operating assets and liabilities,
net of assets acquired and liabilities
assumed:
Accounts receivable                                 (14,979 )       (13,789  )
Prepaid expenses and other current assets           2,586           (3,424   )
Accounts payable and accrued liabilities            (6,296  )       (612     )
Income tax payable                                  (4,306  )       1,559
Deferred rent                                       (65     )       750
Deferred revenue                                   1,882         342      
Net cash provided by operating activities           64,828          80,304
                                                                    
Investing activities
Capital expenditures                                (23,278 )       (29,587  )
Proceeds from the sale of property and              303             0
equipment
Payment for acquisition, net of cash acquired       0               (12,640  )
Redemption of noncontrolling interest               (1,576  )       0
Purchases of marketable securities                  (13,887 )       (3,500   )
Sales and maturities of marketable securities      55,545        51,442   
Net cash provided by investing activities           17,107          5,715
                                                                    
Financing activities
Excess tax benefit from share-based                 69              248
compensation
Net proceeds from exercise of stock options         628             1,634
Repurchases of common stock                        (51,418 )      (103,375 )
Net cash used in financing activities              (50,721 )      (101,493 )
                                                                    
Effect of foreign exchange rates on cash           29            35       
                                                                    
Net increase (decrease) in cash and cash            31,243          (15,439  )
equivalents
Cash and cash equivalents at beginning of          61,977        77,416   
year
Cash and cash equivalents at end of year          $ 93,220       $ 61,977   
                                                                    
Supplemental disclosures of cash flow
information
Income taxes paid                                 $ 30,947        $ 26,340
Noncash transactions:
Purchase of equipment included in accounts        $ 472           $ 348
payable and accrued liabilities
                                                                    


CAPELLA UNIVERSITY
Other Information
                                                
                               December 31,
Enrollment by Degree ^(a):     2012     2011       % Change
PhD/Doctoral                   11,023     11,619     (5.1  )%
Master’s                       15,596     17,049     (8.5  )%
Bachelor’s                     8,800      8,489      3.7   %
Other                          910        547        66.4  %
Total                          36,329     37,704     (3.6  )%
                                                           

(a) Enrollment as of December 31, 2012 and 2011 is the enrollment as of the
last day of classes for the quarter ended December 31, 2012 and 2011,
respectively.

Contact:

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