CAPELLA EDUCATION CO - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - April 25, 2017

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Exhibit 99.1
NEWS RELEASE
capellagraphic1a01a08.jpg

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 First Quarter 2017 Results
Solid performance in first quarter 2017

MINNEAPOLIS, April 25, 2017 - Capella Education Company (NASDAQ: CPLA), a leading educational services company, today announced financial results for the three months ended March 31, 2017.

“We are pleased with our first quarter performance,” said Kevin Gilligan, chairman and chief executive officer. “Our strategy of delivering ‘the most direct path between learning and employment’ provides a differentiated value proposition to learners and employers. Capella’s competency-based learning model, along with our innovative FlexPath and job-ready skills offerings, position us for sustainable growth over the long-term.”  

Selected Financial Data for the Three Months Ended March 31, 2017

Revenues were $111.8 million in the first quarter of 2017, up 6.0 percent compared to $105.4 million in the first quarter of 2016. Operating income was $17.6 million, compared to $16.5 million for the same period in 2016. The operating margin was 15.7 percent, unchanged compared to the first quarter 2016. Diluted net income per common share from continuing operations was $0.94, compared to $0.86 for the same period in 2016.

Operating and Segment Highlights

•
The “Post-Secondary” segment is comprised of Capella University and Sophia Learning; the “Job-Ready Skills” segment consists of Capella Learning Solutions, Hackbright Academy and DevMountain.
•
For the Post-Secondary segment, revenues were $109.5 million, up 3.8 percent compared to $105.4 million in the first quarter of 2016. The operating margin was 18.5 percent, compared to 16.8 percent. Results are primarily attributable to Capella University.




•
Capella University total active enrollment increased 0.8 percent to 38,802 learners, new enrollment increased by 3.6 percent compared to first quarter 2016, and early cohort persistence improved by approximately 5 percent.
•
Revenues for the Job-Ready Skills segment were $2.3 million in the first quarter of 2017 compared to $0.02 million in the same period of 2016. The operating loss was $2.7 million, compared to a loss of $1.2 million in the first quarter of 2016.

Balance Sheet and Cash Flow

At March 31, 2017, Capella Education Company had cash and marketable securities of $171.8 million, compared to $162.3 million at Dec. 31, 2016, and no debt as of these dates.

Cash provided by operating activities from continuing operations for the three months ended March 31, 2017 was $16.2 million compared to $22.7 million in the same period a year ago.
 
Dividend

A quarterly cash dividend of $0.41 per outstanding share of common stock was declared during the first quarter of 2017. The dividend was paid on April 13, 2017.

Outlook

For the second quarter ending June 30, 2017, consolidated revenues for Capella Education Company are expected to be up 2.5 to 3.5 percent compared to second quarter 2016. Consolidated operating margin is anticipated to be approximately 13.5 to 14.5 percent of total revenue for the second quarter of 2017. Capella University new enrollment is expected to be down in the low-single digit percentage range year-over-year and total enrollment is expected to decline about one percent year-over-year.

“Continued learner success improvements and new enrollment growth for Capella University contributed to solid first quarter results,” said Steve Polacek, senior vice president and chief financial officer. “We expect quarterly variability in new enrollment growth, and planned investments will drive a different quarterly investment pattern in 2017 compared to 2016. Our focus on delivering our annual performance goals remains unchanged.”

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, gainful employment, return of Title IV funds, borrower defenses to repayment, financial responsibility standards, state authorization, 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; successfully defending litigation and other claims; any governmental action or review of our business, marketing, or financial aid practices, including by any state attorneys general, the federal Consumer Financial Protection Bureau, the Federal Trade Commission, the Minnesota Office of Higher Education or other state or federal 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; successfully integrating acquisitions; successfully growing Capella Learning Solutions’ new business lines; 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 include those described in the “Risk Factors” section of our most recent Annual Report on Form 10-K on file with the Securities and Exchange Commission (SEC) and any updates or developments described in our Quarterly Reports on Form 10-Q, or other documents the company files with the SEC.   
   
Conference Call

Capella will discuss its first quarter 2017 results and outlook during a conference call scheduled today, April 25, 2017, at 9:00 a.m. Eastern time (ET). To participate in the live call, investors should dial 800.794.6623 (domestic) or 785.424.1227 (international) at 8:50 a.m. (ET), conference ID# 8176. 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 April 25 through May 2, 2017, at 800.839.2670 (domestic) or 402.220.7230 (international), conference ID# 8176. It will also be archived at www.capellaeducation.com in the investor relations section.

About Capella Education Company

Capella Education Company (http://www.capellaeducation.com) is an educational services company that provides access to high-quality education through online postsecondary degree programs and job-ready skills offerings needed in today’s market. Capella’s portfolio of companies is dedicated to closing the skills gap by providing the most direct path between learning and employment.


# # #





CAPELLA EDUCATION COMPANY
Consolidated Balance Sheets
(In thousands, except par value)
 
As of March 31, 2017
 
As of December 31, 2016
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
99,134

 
$
93,570

Marketable securities, current
51,809

 
45,458

Accounts receivable, net of allowance of $6,164 at March 31, 2017 and $6,682 at December 31, 2016
20,536

 
20,708

Prepaid expenses and other current assets
13,111

 
17,877

Total current assets
184,590

 
177,613

Marketable securities, non-current
20,898

 
23,320

Property and equipment, net
34,936

 
34,121

Goodwill
23,331

 
23,310

Intangibles, net
9,009

 
9,221

Deferred income taxes
975

 
1,853

Other assets
8,047

 
7,875

Total assets
$
281,786

 
$
277,313

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
3,186

 
$
4,367

Accrued liabilities
26,917

 
31,302

Dividends payable
4,944

 
4,945

Deferred revenue
14,967

 
12,398

Total current liabilities
50,014

 
53,012

Deferred rent
13,325

 
13,693

Other liabilities
1,879

 
2,316

Total liabilities
65,218

 
69,021

Shareholders’ equity:
 
 
 
Common stock, $0.01 par value: Authorized shares — 100,000; Issued and Outstanding shares — 11,587 at March 31, 2017 and 11,545 at December 31, 2016
116

 
115

Additional paid-in capital
123,452

 
121,581

Accumulated other comprehensive loss
(9
)
 
(93
)
Retained earnings
93,009

 
86,689

Total shareholders’ equity
216,568

 
208,292

Total liabilities and shareholders’ equity
$
281,786

 
$
277,313








CAPELLA EDUCATION COMPANY
Consolidated Statements of Income
(In thousands, except per share amounts)
 
 
Three Months Ended March 31,
 
2017

2016
 
(Unaudited)
Revenues
$
111,788


$
105,448

Costs and expenses:



Instructional costs and services
48,412


45,311

Marketing and promotional
27,525


25,879

Admissions advisory
7,663


7,423

General and administrative
10,587


10,308

Total costs and expenses
94,187


88,921

Operating income
17,601


16,527

Other income (expense), net
107


(9
)
Income from continuing operations before income taxes
17,708


16,518

Income tax expense
6,537


6,242

Income from continuing operations
11,171


10,276

Income (loss) from discontinued operations, net of tax
95

 
(978
)
Net income
$
11,266

 
$
9,298

Basic net income (loss) per common share:



Continuing operations
$
0.97


$
0.87

Discontinued operations
—


(0.08
)
Basic net income per common share
$
0.97

 
$
0.79

Diluted net income (loss) per common share
 
 
 
Continuing operations
$
0.94

 
$
0.86

Discontinued operations
—

 
(0.08
)
Diluted net income per common share
$
0.94

 
$
0.78

Weighted average number of common shares outstanding:



Basic
11,559


11,755

Diluted
11,936


11,953

Cash dividends declared per common share
$
0.41


$
0.39








CAPELLA EDUCATION COMPANY
Consolidated Statements of Cash Flows
(In thousands)
 
Three Months Ended March 31,
 
2017
 
2016
 
(Unaudited)
Operating activities
 
Net income
$
11,266

 
$
9,298

Income (loss) from discontinued operations, net of tax
95

 
(978
)
Income from continuing operations
11,171

 
10,276

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for bad debts
2,416

 
1,926

Depreciation and amortization
5,126

 
5,209

Amortization of investment discount/premium, net
471

 
556

Impairment of property and equipment
367

 
—

Loss on disposal of property and equipment
3

 
19

Share-based compensation
1,274

 
2,813

Excess tax benefits from share-based compensation
—

 
(324
)
Deferred income taxes
894

 
(260
)
Changes in operating assets and liabilities:

 
 
 
Accounts receivable
(2,244
)
 
(2,467
)
Prepaid expenses and other current assets
(2,366
)
 
(1,149
)
Accounts payable and accrued liabilities
(6,996
)
 
2,084

Income taxes payable
3,901

 
1,382

Deferred rent
(367
)
 
(236
)
Deferred revenue
2,569

 
2,916

Net cash provided by operating activities - continuing operations
16,219

 
22,745

Net cash provided by (used in) operating activities - discontinued operations
95

 
(750
)
Net cash provided by operating activities
16,314

 
21,995

Investing activities
 
 
 
Capital expenditures
(5,782
)
 
(5,309
)
Investment in partnership interests
(292
)
 
(2,246
)
Purchases of marketable securities
(14,809
)
 
(8,507
)
Maturities of marketable securities
10,540

 
10,560

Net cash used in investing activities - continuing operations
(10,343
)
 
(5,502
)
Net cash provided by (used in) investing activities - discontinued operations
3,243

 
(31
)
Net cash used in investing activities
(7,100
)
 
(5,533
)
Financing activities
 
 
 
Excess tax benefits from share-based compensation
—

 
324

Net payments related to share-based award activities
1,081

 
967

Payment of dividends
(4,733
)
 
(4,612
)
Repurchases of common stock
—

 
(7,507
)
Net cash used in financing activities - continuing operations
(3,652
)
 
(10,828
)
Effect of foreign exchange rates on cash
2

 
(39
)
Net increase in cash and cash equivalents
5,564

 
5,595

Cash and cash equivalents and cash of business held for sale at beginning of period
93,570

 
88,027

Cash and cash equivalents and cash of business held for sale at end of period
99,134

 
93,622

Less cash of business held for sale at end of period
—

 
(1,103
)
Cash and cash equivalents at end of period
$
99,134

 
$
92,519

Supplemental disclosures of cash flow information
 
 
 
Income taxes paid
$
1,714

 
$
5,117

Non-cash investing and financing activities:
 
 
 
Purchase of equipment included in accounts payable and accrued liabilities
$
1,102

 
$
670

Declaration of cash dividend to be paid
4,813

 
4,638





CAPELLA EDUCATION COMPANY
Segment Reporting
(In thousands)

 
Three Months Ended March 31,
 
2017
 
2016
 
(Unaudited)
Revenues
 
 
 
     Post-Secondary
$
109,481

 
$
105,427

     Job-Ready Skills
2,307

 
21

Consolidated revenues
$
111,788

 
$
105,448

Operating income (loss)
 
 
 
     Post-Secondary
$
20,251

 
$
17,718

     Job-Ready Skills
(2,650
)
 
(1,191
)
Consolidated operating income
17,601

 
16,527

Other income (expense), net
107

 
(9
)
Income from continuing operations before income taxes
$
17,708

 
$
16,518


Note: The summary of financial information by reportable segment above excludes the results of operations for Arden University, which are presented as discontinued operations in our Consolidated Statements of Income.  







CAPELLA UNIVERSITY
Other Information
 
March 31,
 
 
Capella University Enrollment by Degree (a):
2017
 
2016
 
% Change
Doctoral
9,326

 
9,857

 
(5.4
)%
Master's
18,293

 
17,809

 
2.7
 %
Bachelor's
10,100

 
9,784

 
3.2
 %
Other
1,083

 
1,053

 
2.8
 %
Total
38,802

 
38,503

 
0.8
 %

(a) Enrollment in the table above includes GuidedPath learners who are actively enrolled during the last month of the quarters and FlexPath learners who are actively enrolled as of the last day of the quarters ended March 31, 2017 and 2016, respectively.


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