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| 8-K - FORM 8-K - CAPELLA EDUCATION CO | d8k.htm |
Exhibit 99.1
NEWS RELEASE
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 second quarter 2011 results
Revenue up 1.2 percent; earnings per share up 13 cents; operating margin of 22.5 percent of revenue
MINNEAPOLIS, July 26, 2011 - Capella Education Company (NASDAQ: CPLA), a provider of online post-secondary education through its wholly owned subsidiary Capella University, today announced financial results for the three months ended June 30, 2011.
“During the second quarter, we continued to position Capella for long-term growth by focusing on learner success, transforming our marketing strategy, strengthening and expanding our core product offerings and thoughtfully diversifying beyond our core offerings,” said Kevin Gilligan, chairman and chief executive officer of Capella Education Company. “The current market environment remains challenging. However, we are encouraged by the high ratings our learners continue to give their experience at Capella, the early results of our new marketing strategy and stabilizing new enrollment conversion rates. Our focus is on building a long-term sustainable value proposition for our shareholders that is based on the academic and career success of our learners.”
For the three months ended June 30, 2011:
| • | Revenues increased 1.2 percent to $106.4 million, compared to $105.2 million in the second quarter of 2010. Total active enrollment decreased 1.5 percent to 38,072. |
| • | New enrollment growth decreased by 41.6 percent from second quarter 2010. |
| • | Operating income increased by 6.3 percent to $23.9 million, compared to $22.5 million for the same period in 2010. Operating margin was 22.5 percent, compared to 21.4 percent for the second quarter 2010. |
| • | Net income for the second quarter of 2011 was $15.5 million, compared to $14.6 million for the same period in 2010. |
| • | Diluted net income per share was $0.99, compared to $0.86 for the same period in 2010. |
For the six-month period ended June 30, 2011:
| • | Revenues increased by 5.5 percent to $217.8 million, compared to $206.4 million for the same period in 2010. |
| • | Operating income for the six-month period ended June 30, 2011 was $46.4 million, or 21.3 percent of revenue, compared to $45.7 million, or 22.1 percent of revenue during the same period in 2010. This included a $1.9 million one-time charge related to a workforce reduction during the six-month period ended June 30, 2011. |
| • | Net income was $30.1 million or $1.89 per weighted average number of diluted shares outstanding, compared to $29.7 million or $1.75 per share for the same period in 2010. |
On June 2nd, the Department of Education released final gainful employment rules which establish minimum loan repayment and debt-to-income standards that certain programs must meet in order to retain eligibility for student assistance programs under Title IV of the Higher Education Act.
“We believe our programs will meet the requirements under the new gainful employment regulations,” Gilligan said.
Balance Sheet and Cash Flow
As of June 30, 2011, the Company had cash, cash equivalents, and marketable securities of $172.6 million, compared to $193.2 million at December 31, 2010, and no debt for the same periods.
Cash flow from operations for the six months ended June 30, 2011 was $45.0 million compared to $43.5 million in the same period a year ago, an increase of 3.5 percent.
Share Repurchase
The Company repurchased approximately 1.0 million shares of Capella stock for total consideration of $52.9 million during the six-month period ended June 30, 2011. In the second quarter 2011, the Company repurchased approximately 529,000 shares of Capella stock for total consideration of $25.6 million. The remaining authorization as of the end of the second quarter is $60.0 million.
Outlook
For the third quarter ending Sept. 30, 2011, revenue is expected to decline 2.5 to 4.0 percent and total enrollment is expected to decline by about 6 to 8 percent compared to third quarter 2010. The operating margin is anticipated to be approximately 13 to 14 percent of total revenue for the third quarter of 2011. While re-registration of existing learners is expected to remain strong, new enrollment growth is expected to decline in the third quarter of 2011 by approximately 30 percent from third quarter 2010.
“Capella’s strong balance sheet and significant cash position provide us with the flexibility to continue to invest in learner success, to drive long-term sustainable growth and to continue our aggressive share repurchase program,” said Steve Polacek, senior vice president and chief financial officer. “While we are committed to controlling costs, we are continuing our instructional, course room and learner services investments and, due to timing, expect marketing and promotional expenses to increase during the third quarter.”
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 new U.S. Department of Education rules, including those regarding incentive compensation, state authorization, and gainful employment; maintaining our business in accordance with regional and specialized accreditation standards and state and regional regulatory 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
action by Federal Student Aid on the final audit report of the Office of Inspector General of the U.S. Department of Education arising out of its ongoing compliance audit of Capella University; changes in applicable federal and state laws and regulations and accrediting agency policies, including as a result of current U.S. Department of Education rulemaking and recent Congressional review of our industry; 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 conversion rates; our failure to keep up with advances in technology important to the online learner experience; our ability to successfully indentify and integrate acquisitions; complying with regulations applicable to our international operations; our use of business technology to accurately store, process and report relevant data; changes in student enrollment including new enrollments and learner persistence; effectively implementing cost reductions in our business; managing increases in our expenses; and 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-Q 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 2011 results and outlook during a conference call scheduled today, July 26, 2011, 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# 77975608. 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 July 26, 2011 through Aug. 2, 2011, at 800.642.1687 (domestic) or 706.645.9291(international), conference ID# 77975608. 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 national leader in online education and parent company of Capella University, a regionally accredited* online university. 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 135 specializations. More than 38,000 learners were enrolled as of June 30, 2011. 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).
| * | 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), www.capella.edu. |
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CAPELLA EDUCATION COMPANY
Consolidated Balance Sheets
(In thousands, except par value)
| As
of June 30, 2011 |
As
of December 31, 2010 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 72,153 | $ | 77,416 | ||||
| Marketable securities |
100,455 | 115,818 | ||||||
| Accounts receivable, net of allowance of $2,697 at June 30, 2011 and $3,783 at December 31, 2010 |
12,247 | 13,680 | ||||||
| Prepaid expenses and other current assets |
9,647 | 8,290 | ||||||
| Deferred income taxes |
2,621 | 2,444 | ||||||
| Total current assets |
197,123 | 217,648 | ||||||
| Property and equipment, net |
46,694 | 44,910 | ||||||
| Total assets |
$ | 243,817 | $ | 262,558 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 4,492 | $ | 4,599 | ||||
| Accrued liabilities |
27,626 | 29,962 | ||||||
| Income taxes payable |
102 | 344 | ||||||
| Deferred revenue |
5,022 | 5,885 | ||||||
| Total current liabilities |
37,242 | 40,790 | ||||||
| Deferred rent |
4,342 | 3,466 | ||||||
| Other liabilities |
525 | 855 | ||||||
| Deferred income taxes |
11,862 | 7,838 | ||||||
| Total liabilities |
53,971 | 52,949 | ||||||
| Redeemable noncontrolling interest |
778 | 1,023 | ||||||
| Shareholders’ equity: |
||||||||
| Common stock, $0.01 par value: |
||||||||
| Authorized shares — 100,000, issued and outstanding shares — 15,338 at June 30, 2011 and 16,306 at December 31, 2010 |
153 | 163 | ||||||
| Additional paid-in capital |
65,592 | 115,075 | ||||||
| Accumulated other comprehensive income |
609 | 758 | ||||||
| Retained earnings |
122,714 | 92,590 | ||||||
| Total shareholders’ equity |
189,068 | 208,586 | ||||||
| Total liabilities and shareholders’ equity |
$ | 243,817 | $ | 262,558 | ||||
CAPELLA EDUCATION COMPANY
Consolidated Statements of Income
(In thousands, except per share amounts)
| Three Months
Ended June 30, |
Six Months
Ended June 30, |
|||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| (Unaudited) | ||||||||||||||||
| Revenues |
$ | 106,400 | $ | 105,157 | $ | 217,754 | $ | 206,390 | ||||||||
| Costs and expenses: |
||||||||||||||||
| Instructional costs and services |
42,506 | 41,286 | 85,005 | 79,161 | ||||||||||||
| Marketing and promotional |
30,818 | 28,586 | 66,139 | 58,555 | ||||||||||||
| General and administrative |
9,173 | 12,803 | 18,378 | 22,977 | ||||||||||||
| Reduction of workforce |
0 | 0 | 1,862 | 0 | ||||||||||||
| Total costs and expenses |
82,497 | 82,675 | 171,384 | 160,693 | ||||||||||||
| Operating income |
23,903 | 22,482 | 46,370 | 45,697 | ||||||||||||
| Other income, net |
472 | 528 | 997 | 1,026 | ||||||||||||
| Income before income taxes |
24,375 | 23,010 | 47,367 | 46,723 | ||||||||||||
| Income tax expense |
8,996 | 8,436 | 17,488 | 16,987 | ||||||||||||
| Net income |
15,379 | 14,574 | 29,879 | 29,736 | ||||||||||||
| Net loss attributable to noncontrolling interest |
136 | 0 | 245 | 0 | ||||||||||||
| Net income attributable to Capella Education Company |
$ | 15,515 | $ | 14,574 | $ | 30,124 | $ | 29,736 | ||||||||
| Net income attributable to Capella Education Company per common share: |
||||||||||||||||
| Basic |
$ | 1.00 | $ | 0.87 | $ | 1.90 | $ | 1.77 | ||||||||
| Diluted |
$ | 0.99 | $ | 0.86 | $ | 1.89 | $ | 1.75 | ||||||||
| Weighted average number of common shares outstanding: |
||||||||||||||||
| Basic |
15,589 | 16,771 | 15,884 | 16,776 | ||||||||||||
| Diluted |
15,666 | 17,010 | 15,976 | 17,029 | ||||||||||||
CAPELLA EDUCATION COMPANY
Consolidated Statements of Cash Flows
(In thousands)
| Six Months Ended June 30, | ||||||||
| 2011 | 2010 | |||||||
| (Unaudited) | ||||||||
| Operating activities |
||||||||
| Net income |
$ | 29,879 | $ | 29,736 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Provision for bad debts |
3,605 | 3,577 | ||||||
| Depreciation and amortization |
11,050 | 8,647 | ||||||
| Amortization of investment discount/premium |
1,163 | 916 | ||||||
| Gain on disposal of property and equipment |
(33 | ) | 0 | |||||
| Stock-based compensation |
1,910 | 1,366 | ||||||
| Excess tax benefits from stock-based compensation |
(88 | ) | (2,872 | ) | ||||
| Deferred income taxes |
3,938 | 111 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(2,172 | ) | (3,839 | ) | ||||
| Prepaid expenses and other current assets |
(1,357 | ) | (427 | ) | ||||
| Accounts payable and accrued liabilities |
(2,425 | ) | 6,020 | |||||
| Income tax payable |
(472 | ) | 0 | |||||
| Deferred rent |
876 | 107 | ||||||
| Deferred revenue |
(863 | ) | 152 | |||||
| Net cash provided by operating activities |
45,011 | 43,494 | ||||||
| Investing activities |
||||||||
| Capital expenditures |
(12,962 | ) | (14,039 | ) | ||||
| Purchases of marketable securities |
(3,500 | ) | (26,262 | ) | ||||
| Maturities of marketable securities |
17,460 | 0 | ||||||
| Net cash provided by (used in) investing activities |
998 | (40,301 | ) | |||||
| Financing activities |
||||||||
| Excess tax benefits from stock-based compensation |
88 | 2,872 | ||||||
| Net proceeds from exercise of stock options |
1,457 | 4,018 | ||||||
| Repurchase of common stock |
(52,817 | ) | (14,989 | ) | ||||
| Net cash used in financing activities |
(51,272 | ) | (8,099 | ) | ||||
| Net decrease in cash and cash equivalents |
(5,263 | ) | (4,906 | ) | ||||
| Cash and cash equivalents at beginning of period |
77,416 | 102,405 | ||||||
| Cash and cash equivalents at end of period |
$ | 72,153 | $ | 97,499 | ||||
| Supplemental disclosures of cash flow information |
||||||||
| Income taxes paid |
$ | 14,045 | $ | 16,618 | ||||
| Noncash transactions: |
||||||||
| Purchase of equipment included in accounts payable and accrued liabilities |
$ | 949 | $ | 1,908 | ||||
CAPELLA EDUCATION COMPANY
Other Information
| June 30, | ||||||||||||
| 2011 | 2010 | % Change | ||||||||||
| Enrollment by Degree (a): |
||||||||||||
| PhD/Doctoral |
11,894 | 11,908 | (0.1 | )% | ||||||||
| Master’s |
17,780 | 18,286 | (2.8 | )% | ||||||||
| Bachelor’s |
8,132 | 8,269 | (1.7 | )% | ||||||||
| Other |
266 | 206 | 29.1 | % | ||||||||
| Total |
38,072 | 38,669 | (1.5 | )% | ||||||||
| (a) | Enrollment as of June 30, 2011 and 2010 is the enrollment as of the last day of classes for the quarter ended June 30, 2011 and 2010, respectively. |