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Capella Education Company Reports First Quarter 2013 Results

  Capella Education Company Reports First Quarter 2013 Results

Business Wire

MINNEAPOLIS -- April 23, 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 ended March 31, 2013.

“We are pleased with our execution during the first quarter as we compete more
effectively in a challenging market environment, while positioning Capella for
long-term sustainable growth,” said Kevin Gilligan, chairman and chief
executive officer. “Our confidence in our ability to return to total
enrollment growth in the first half of 2014 is increasing.”

For the three months ended March 31, 2013:

  *Revenues were $105.2 million, compared to $109.4 million in the first
    quarter of 2012, a decrease of 3.8 percent.
  *Capella University total active enrollment decreased 3.1 percent to 36,405
    and new enrollment increased by 8.2 percent from first quarter 2012.
  *Operating income was $15.2 million, compared to $17.9 million for the same
    period in 2012. Operating margin was 14.4 percent, compared to 16.4
    percent for the first quarter 2012.
  *Net income attributable to Capella Education Company for the first quarter
    of 2013 was $8.8 million, compared to $11.3 million for the same period in
    2012.
  *Diluted net income per share was $0.70, compared to $0.82 for the same
    period in 2012.

Balance Sheet and Cash Flow

As of March 31, 2013, the Company had cash, cash equivalents, and marketable
securities of $127.9 million, compared to $115.5 million at Dec. 31, 2012, and
no debt for the same periods.

Cash flow from operating activities for the three months ended March 31, 2013
was $18.1 million compared to $19.9 million in the same period a year ago.

Outlook

For the second quarter ending June 30, 2013, Capella University new enrollment
growth is expected to be similar to first quarter 2013. Total enrollment is
expected to decline by about 2 to 3 percent and consolidated revenue is
expected to decline by approximately 3 to 4 percent compared to second quarter
2012.

The consolidated operating margin is anticipated to be approximately 13 to 14
percent of total revenue for the second quarter of 2013 and for the fiscal
year 2013.

“We continue to optimize our cost structure while investing in learner
success, diversification and building a more competitive Capella to drive
long-term growth and shareholder value,” said Steve Polacek, senior vice
president and chief financial officer. “Our strong financial position, solid
regulatory track record, ability to innovate and focus on learner success
position us well for the future.”

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 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, marketing 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 our brand driven marketing strategy;
improving our learner persistence and 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 first quarter 2013 results and outlook during a
conference call scheduled today, April 23, 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#
22769329. 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
April 23, 2013 through April 30, 2013, at 855.859.2056 (domestic) or
404.537.3406 (international), conference ID# 22769329. 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 March 31, 2013, 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
                                          March 31, 2013     December 31, 2012
ASSETS                                    (Unaudited)
Current assets:
Cash and cash equivalents                 $    105,484       $   93,220
Marketable securities                          22,366            22,279
Accounts receivable, net of allowance
of $6,026 at March 31, 2013 and                16,679            15,900
$6,231 at December 31, 2012
Prepaid expenses and other current             8,834             11,124
assets
Deferred income taxes                         3,484            3,481     
Total current assets                           156,847           146,004
Property and equipment, net                    43,784            45,240
Goodwill                                       16,925            16,970
Intangibles, net                              4,204            4,674     
Total assets                              $    221,760       $   212,888   
                                                                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable                          $    6,229         $   5,798
Accrued liabilities                            30,030            26,392
Deferred revenue                              9,868            9,651     
Total current liabilities                      46,127            41,841
Deferred rent                                  3,561             4,150
Other liabilities                              1,763             6,425
Deferred income taxes                         7,948            8,370     
Total liabilities                              59,399            60,786
                                                                 
Shareholders’ equity:
Common stock, $0.01 par value:
Authorized shares — 100,000, issued
and outstanding shares — 12,393 at             124               124
March 31, 2013 and December 31, 2012
Additional paid-in capital                     99,205            97,716
Accumulated other comprehensive                92                (22       )
income (loss)
Retained earnings                             62,940           54,284    
Total shareholders’ equity                    162,361          152,102   
Total liabilities and shareholders’       $    221,760       $   212,888   
equity
                                                                           


CAPELLA EDUCATION COMPANY
Consolidated Statements of Income
(In thousands, except per share amounts)

                                                Three Months Ended March 31,
                                                  2013           2012
                                                  (Unaudited)
                                                                             
Revenues                                          $  105,242       $ 109,400
Costs and expenses:
Instructional costs and services                     46,967          48,433
Marketing and promotional                            25,501          25,422
Admissions advisory                                  6,771           7,688
General and administrative                          10,828        9,920   
Total costs and expenses                            90,067        91,463  
Operating income                                     15,175          17,937
Other income (expense), net                         (200    )      (43     )
Income before income taxes                           14,975          17,894
Income tax expense                                  6,220         6,787   
Net income                                           8,755           11,107
Net loss attributable to noncontrolling             -             186     
interest
Net income attributable to Capella Education      $  8,755        $ 11,293  
Company
                                                                     
Net income attributable to Capella Education
Company per common share:
Basic                                             $  0.71          $ 0.82
Diluted                                           $  0.70          $ 0.82
                                                                     
Weighted average number of common shares
outstanding:
Basic                                             12,393           13,714
Diluted                                           12,478           13,783
                                                                             


CAPELLA EDUCATION COMPANY
Consolidated Statements of Cash Flows
(In thousands)

                                                Three Months Ended March 31,
                                                  2013           2012
                                                  (Unaudited)
Operating activities
Net income                                        $  8,755         $ 11,107
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for bad debts                              3,721           3,509
Depreciation and amortization                        7,130           7,221
Amortization of investment discount/premium          116             271
Impairment of property and equipment                 77              956
Loss on disposal of property and equipment           -               50
Share-based compensation                             1,582           1,115
Excess tax benefit from share-based                  (4      )       (34     )
compensation
Deferred income taxes                                (440    )       (266    )
Changes in operating assets and liabilities:
Accounts receivable                                  (4,517  )       (2,440  )
Prepaid expenses and other current assets            1,860           3,475
Accounts payable and accrued liabilities             (233    )       (8,078  )
Income tax payable                                   424             3,205
Deferred rent                                        (589    )       (124    )
Deferred revenue                                    261           (108    )
Net cash provided by operating activities            18,143          19,859
                                                                     
Investing activities
Capital expenditures                                 (5,600  )       (5,580  )
Proceeds from the sale of property and               -               303
equipment
Purchases of marketable securities                   (6,582  )       -
Sales and maturities of marketable securities       6,385         19,065  
Net cash provided by (used in) investing             (5,797  )       13,788
activities
                                                                     
Financing activities
Excess tax benefit from share-based                  4               34
compensation
Net proceeds from exercise of stock options          71              230
Repurchases of common stock                         (132    )      (12,935 )
Net cash used in financing activities               (57     )      (12,671 )
                                                                     
Effect of foreign exchange rates on cash            (25     )      (8      )
                                                                     
Net increase in cash and cash equivalents            12,264          20,968
Cash and cash equivalents at beginning of           93,220        61,977  
period
Cash and cash equivalents at end of period        $  105,484      $ 82,945  
                                                                     
Supplemental disclosures of cash flow
information
Income taxes paid                                 $  6,243         $ 3,836
Noncash transactions:
Purchase of equipment included in accounts        $  210           $ 634
payable and accrued liabilities
                                                                             

  
      CAPELLA UNIVERSITY
      Other Information
      
                                    March 31,                
      Enrollment by Degree             2013       2012         % Change
      ^(a):
      PhD/Doctoral                     11,153       11,831        (5.7  )%
      Master’s                          15,367         16,556         (7.2  )%
      Bachelor’s                        8,983          8,461          6.2   %
      Other                            902          705            27.9  %
      Total                            36,405       37,553         (3.1  )%

      Enrollment as of March 31, 2013 and 2012 is the enrollment as of the
(a)  last day of classes for the quarter ended March 31, 2013 and 2012,
      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
 
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