Capella Education Company Reports Second Quarter 2013 Results

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Capella Education Company Reports Second Quarter 2013 Results

MINNEAPOLIS--(BUSINESS WIRE)-- Capella Education Company (NAS: 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 June 30, 2013.

"We are very pleased with our performance in the second quarter and continue to be encouraged by the progress we are making in a still difficult market environment,"said Kevin Gilligan, chairman and chief executive officer. "The pace of innovation at Capella positions us to drive further differentiation and build a long-term sustainable business model designed to create learner and shareholder value."

For the three months ended June 30, 2013:

  • Revenues were $103.7 million, compared to $106.2 million in the second quarter of 2012, a decrease of 2.3 percent.
  • Capella University total active enrollment decreased 0.9 percent to 36,003 and new enrollment, calculated at census date, increased by 12.7 percent from second quarter 2012.
  • Operating income was $17.5 million, compared to $18.1 million for the same period in 2012. Operating margin was 16.8 percent, compared to 17.0 percent for the second quarter 2012.
  • Net income attributable to Capella Education Company for the second quarter of 2013 was $10.4 million, compared to $11.4 million for the same period in 2012.
  • Net income per diluted share was $0.83, compared to $0.85 for the same period in 2012.

For the six-month period ended June 30, 2013:

  • Revenues decreased by 3.1 percent to $208.9 million, compared to $215.6 million for the same period in 2012.
  • Operating income for the six-month period ended June 30, 2013 was $32.6 million, or 15.6 percent of revenue, compared to $36.0 million, or 16.7 percent of revenue during the same period in 2012.
  • Net income attributable to Capella Education Company was $19.2 million, or $1.54 per diluted share, compared to $22.7 million, or $1.67 per diluted share, for the same period in 2012.

Balance Sheet and Cash Flow

As of June 30, 2013, the Company had cash, cash equivalents, and marketable securities of $144.8 million, compared to $115.5 million at Dec. 31, 2012, and no debt for the same periods.

Cash flow from operating activities for the six months ended June 30, 2013 was $41.6 million compared to $35.6 million in the same period a year ago.


For the third quarter ending Sept. 30, 2013, Capella University new enrollment growth, calculated at census date, is expected to decline in the mid-single digit percentage range compared to particularly strong new enrollment performance in the third quarter 2012. Total enrollment is expected to decline by about 2 to 4 percent and consolidated revenue is expected to be flat to up 1 percent compared to third quarter 2012.

The consolidated operating margin is anticipated to be approximately 8 to 9 percent of total revenue for the third quarter of 2013, and about 13 to 14 percent of total revenue for the fiscal year 2013.

"We continue to expect quarterly volatility in new enrollment growth in the current market environment," said Steve Polacek, senior vice president and chief financial officer. "We are balancing this volatility with new learner success improvements. Our focus remains on diligent cost management, returning to total enrollment growth and investing in our business to drive both short- and long-term performance."

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 implementing upgrades to our course room; 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-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 2013 results and outlook during a conference call scheduled today, July 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# 94688481. The webcast, including the accompanying presentation, will be available on the Capella Education Company Web site at A replay of the call will be available starting on July 23, 2013 through July 30, 2013, at 855.859.2056 (domestic) or 404.537.3406 (international), conference ID# 94688481. It will also be archived at 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 ( - 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. As of June 30, 2013, approximately 36,000 learners were enrolled with about 70 percent of learners enrolled in graduate degree programs. For more information about Capella Education Company, please visit For more information about Capella University, please visit 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

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

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

Consolidated Balance Sheets
(In thousands, except par value)
    As of     As of
June 30, 2013 December 31, 2012
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 107,581 $ 93,220
Marketable securities 37,228 22,279
Accounts receivable, net of allowance of $5,923 at June 30, 2013 and $6,231 at December 31, 2012 14,861 15,900
Prepaid expenses and other current assets 11,688 11,124
Deferred income taxes   3,486   3,481  
Total current assets 174,844 146,004
Property and equipment, net 42,269 45,240
Goodwill 16,885 16,970
Intangibles, net   3,734   4,674  
Total assets $ 237,732 $ 212,888  
Current liabilities:
Accounts payable $ 6,562 $ 5,798
Accrued liabilities 35,714 26,392
Deferred revenue   9,451   9,651  
Total current liabilities 51,727 41,841
Deferred rent 3,437 4,150
Other liabilities 2,190 6,425
Deferred income taxes   8,344   8,370  
Total liabilities 65,698 60,786
Shareholders' equity:
Common stock, $0.01 par value:
Authorized shares — 100,000, issued and outstanding shares — 12,393 at June 30, 2013 and December 31, 2012 124 124
Additional paid-in capital 100,005 97,716
Accumulated other comprehensive income (loss) 145 (22 )
Retained earnings   71,760   54,284  
Total shareholders' equity   172,034   152,102  
Total liabilities and shareholders' equity $ 237,732 $ 212,888  
Consolidated Statements of Income
(In thousands, except per share amounts)
    Three Months Ended     Six Months Ended
June 30, June 30,
2013     2012 2013     2012
Revenues $ 103,693 $ 106,180 $ 208,935 $ 215,580
Costs and expenses:
Instructional costs and services 44,900 46,704 91,867 95,137
Marketing and promotional 24,101 25,437 49,602 50,859
Admissions advisory 6,727 7,482 13,498 15,170
General and administrative   10,500     8,501   21,328     18,421
Total costs and expenses   86,228     88,124   176,295     179,587
Operating income 17,465 18,056 32,640 35,993
Other income (expense), net   (25 )   60   (225 )   17
Income before income taxes 17,440 18,116 32,415 36,010
Income tax expense   7,018     6,704   13,238     13,491
Net income 10,422 11,412 19,177 22,519
Net loss attributable to noncontrolling interest         186
Net income attributable to Capella Education Company $ 10,422   $ 11,412 $ 19,177   $ 22,705
Net income attributable to Capella Education Company per common share:
Basic $ 0.84 $ 0.85 $ 1.55 $ 1.68
Diluted $ 0.83 $ 0.85 $ 1.54 $ 1.67
Weighted average number of common shares outstanding:
Basic 12,394 13,369 12,394 13,541
Diluted 12,498 13,425 12,489 13,604
Consolidated Statements of Cash Flows
(In thousands)
    Six Months Ended June 30,
2013     2012
Operating activities
Net income $ 19,177 $ 22,519
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for bad debts 7,060 7,043
Depreciation and amortization 13,596 14,403
Amortization of investment discount/premium 308 475
Impairment of property and equipment 229 956
Loss on disposal of property and equipment 39 77
Share-based compensation 2,606 1,933
Excess tax benefits from share-based compensation (66 ) (37 )
Deferred income taxes (43 ) (1,631 )
Changes in operating assets and liabilities:
Accounts receivable (6,044 ) (5,154 )
Prepaid expenses and other current assets 820 (54 )
Accounts payable and accrued liabilities 6,189 (3,109 )
Income tax payable (1,486 ) (2,766 )
Deferred rent (713 ) (95 )
Deferred revenue   (116 )   1,069  
Net cash provided by operating activities 41,556 35,629
Investing activities
Capital expenditures (10,310 ) (11,697 )
Proceeds from the sale of property and equipment 303
Redemption of noncontrolling interest (1,576 )
Purchases of marketable securities (22,426 )
Sales and maturities of marketable securities   7,135     32,035  
Net cash provided by (used in) investing activities (25,601 ) 19,065
Financing activities
Excess tax benefits from share-based compensation 66 37
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