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
Capella Education Company Reports Fourth Quarter and Full Year 2012 Results
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