Capella Education Company Reports Third Quarter 2009 Results

October 27, 2009 7:00 AM EDT

Revenue Up 28.1 Percent; Enrollment Up 27.7 Percent;

Operating Income Up 83.3 Percent

MINNEAPOLIS--(BUSINESS WIRE)-- Capella Education Company (NASDAQ: CPLA), a provider of exclusively online post-secondary education through its wholly owned subsidiary Capella University, today announced financial results for the three months ended Sept. 30, 2009.

"We are extremely pleased with our third quarter results as they continue to demonstrate the increasing value of the Capella brand, the quality of our academic programs and the attractiveness of Capella's business model, which is focused on delivering long-term sustainable growth and margin expansion," said Kevin Gilligan, chief executive officer of Capella Education Company. "Our results were driven by strong demand fundamentals and solid execution across the business, reflected particularly in enrollment growth in all of our degree programs and in the success of new product introductions including our newest market, Public Service Leadership."

For the three months ended Sept. 30, 2009:

    --  Revenues increased 28.1 percent to $83.6 million, compared to $65.2
        million in the third quarter of 2008.
    --  Total active enrollment increased by 27.7 percent from the end of the
        third quarter 2008 to 30,738 learners.
    --  About 2 percentage points of year-over-year revenue growth were related
        to a scheduling shift, concentrating a higher number of colloquia in the
        third quarter 2009.
    --  Operating income increased by 83.3 percent to $14.5 million, compared to
        $7.9 million for the same period in 2008. Operating margin was 17.4
        percent, compared to 12.2 percent for the third quarter 2008.
    --  Net income for the third quarter of 2009 was $9.8 million, compared to
        $5.8 million for the same period in 2008, an increase of 69.4 percent.
    --  Diluted net income per share was $0.57, compared to $0.34 for the same
        period in 2008.
    --  The company repurchased approximately 160,000 shares for total
        consideration of $10.1 million.

For the nine months ended Sept. 30, 2009, the Company reported:

    --  Revenues increased by 22.2 percent to $240.1 million, compared to $196.5
        million for the same period in 2008.
    --  Operating income for the nine months ended Sept. 30, 2009, was $41.0
        million or 17.1 percent of revenue, compared to $23.7 million or 12.1
        percent of revenue during the same period in 2008.
    --  Net income was $27.7 million or $1.62 per weighted average number of
        diluted shares outstanding compared to $17.6 million or $1.01 per share
        for the same period in 2008.

Balance Sheet and Cash Flow

As of Sept. 30, 2009, the Company had cash, cash equivalents, and marketable securities of $153.7 million, compared to $123.6 million at year-end 2008. The Company had no debt in 2009 or 2008.

Cash flow from operations was $49.4 million during the first nine months of 2009 compared to $32.1 million in the same period in 2008, an increase of 53.7 percent.

Fourth Quarter and Full Year 2009 Outlook

For the fourth quarter ending Dec. 31, 2009, total enrollment is expected to grow by 25.5 to 26.5 percent and revenue is expected to increase by 22.5 to 23.5 percent compared to the fourth quarter of 2008.

"Fourth quarter revenue growth is expected to be driven by a continuation of strong enrollment growth," said Lois Martin, senior vice president and chief financial officer. "Revenue growth is expected to be less than total enrollment growth, primarily due to the revenue impact of fewer scheduled colloquia in the fourth quarter as compared to the prior year. The timing of colloquia also impacts the sequential comparison of fourth quarter expectations to actual third quarter 2009 revenue growth."

Operating margins are anticipated to be approximately 23 to 24 percent of total revenue for the fourth quarter of 2009.

Full year 2009 average quarterly enrollment is expected to increase by approximately 24.5 percent, while annual revenue growth is anticipated to increase by slightly over 22 percent year-over-year. Annual operating margins are expected to be 18.5 to 19.0 percent of revenue.

"The very strong results this quarter and our optimism regarding our full-year results validate our strategy to focus on our learners, educational quality and excellence in operations to deliver against our financial goals," said Martin. "Learner inquiries and conversion to enrollments remain strong. We continue to realize great productivity gains in learner support and administrative functions, enabled by our integrated system and investments we have been making to improve productivity. At the same time, we continue to invest in our faculty, our courseroom, and program design to further support the learner experience and demonstrate exceptional learning outcomes."

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; regional 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 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; maintaining and expanding existing commercial relationships with employers and developing new such relationships; our failure to keep up with advances in technology important to the online learner experience; our ability to manage growth effectively; our ability to realize expected efficiency improvements from our ERP system and our use of business technology to accurately store, process and report relevant data; unforeseen changes in student enrollment or 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-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 third quarter 2009 results and fourth quarter 2009 outlook during a conference call scheduled today, Oct. 27, 2009, at 9:00 a.m. Eastern time (ET). To participate in the live call, investors should dial (866) 385-4179 (domestic) or (706) 679-1492 (international) at 8:50 a.m. (ET), conference ID 34460015. 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 Oct. 27, 2009, through Nov. 3, 2009, at (800) 642-1687 (domestic) or (706) 645-9291(international), conference ID 34460015. 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 graduate degree programs in business, information technology, education, human services, psychology, public health, and public safety, and bachelor's degree programs in business, information technology, 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 34 graduate and undergraduate degree programs with 122 specializations and more than 1050 courses. Nearly 31,000 learners were enrolled as of September 30, 2009. 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), www.ncahlc.org.

Capella University, Capella Tower, 225 South Sixth Street, Ninth Floor, Minneapolis, MN 55402, 1-888-CAPELLA (227-3552), www.capella.edu.

CAPELLA EDUCATION COMPANY

Consolidated Balance Sheets

                                         As of September 30,  As of December 31,
                                         2009                 2008

                                         (In thousands, except par value)

                                         (Unaudited)

ASSETS

Current assets:

Cash and cash equivalents                $ 81,498             $ 31,225

Marketable securities                      72,244               92,372

Accounts receivable, net of allowance
of $2,054 at September                     13,405               11,949
30, 2009 and $1,419 at December 31,
2008

Prepaid expenses and other current         8,690                5,184
assets

Deferred income taxes                      3,539                3,477

Total current assets                       179,376              144,207

Property and equipment, net                37,212               35,349

Total assets                             $ 216,588            $ 179,556

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable                         $ 5,754              $ 2,227

Accrued liabilities                        25,311               18,926

Income taxes payable                       --                   150

Deferred revenue                           11,215               9,495

Total current liabilities                  42,280               30,798

Deferred rent                              2,907                1,321

Other liabilities                          531                  531

Deferred income taxes                      6,381                6,069

Total liabilities                          52,099               38,719

Shareholders' equity:

Common stock, $0.01 par value:

Authorized shares -- 100,000

Issued and outstanding shares -- 16,656
at September                               167                  166
30, 2009 and 16,666 at December 31,
2008

Additional paid-in capital                 146,623              151,445

Accumulated other comprehensive income     1,389                575

Retained earnings (accumulated deficit)    16,310               (11,349 )

Total shareholders' equity                 164,489              140,837

Total liabilities and shareholders'      $ 216,588            $ 179,556
equity

CAPELLA EDUCATION COMPANY

Consolidated Statements of Income

                                   Three Months Ended  Nine Months Ended
                                   September 30,       September 30,

                                   2009      2008      2009       2008

                                   (In thousands, except per share amounts)

                                   (Unaudited)

Revenues                           $ 83,569  $ 65,239  $ 240,100  $ 196,539

Costs and expenses:

Instructional costs and services     34,819    29,568    99,451     89,428

Marketing and promotional            24,927    20,828    73,332     61,794

General and administrative           9,279     6,907     26,331     21,605

Total costs and expenses             69,025    57,303    199,114    172,827

Operating income                     14,544    7,936     40,986     23,712

Other income, net                    529       839       1,917      3,236

Income before income taxes           15,073    8,775     42,903     26,948

Income tax expense                   5,290     2,999     15,244     9,326

Net income                         $ 9,783   $ 5,776   $ 27,659   $ 17,622

Net income per common share:

Basic                              $ 0.59    $ 0.35    $ 1.66     $ 1.04

Diluted                            $ 0.57    $ 0.34    $ 1.62     $ 1.01

Weighted average number of common
shares outstanding:

Basic                                16,718    16,626    16,707     16,893

Diluted                              17,022    17,077    17,038     17,424

CAPELLA EDUCATION COMPANY

Consolidated Statements of Cash Flows

                                                        Nine Months Ended

                                                        September 30,

                                                        2009         2008

                                                        (In thousands)

                                                        (Unaudited)

Operating activities

Net income                                              $ 27,659     $ 17,622

Adjustments to reconcile net income to net cash
provided by operating
activities:

Provision for bad debts                                   5,372        3,882

Depreciation and amortization                             10,641       9,049

Amortization of investment premium                        1,255        1,381

Asset impairment                                          34           44

Gain realized on sale of marketable securities            --           (225    )

Stock-based compensation                                  2,484        3,259

Excess tax benefits from stock-based compensation         (2,384  )    (1,647  )

Deferred income taxes                                     (248    )    (776    )

Changes in operating assets and liabilities:

Accounts receivable                                       (6,828  )    (7,643  )

Prepaid expenses and other current assets                 (1,352  )    1,438

Accounts payable and accrued liabilities                  9,239        (3,387  )

Income taxes payable                                      219          4,629

Deferred rent                                             1,586        95

Deferred revenue                                          1,720        4,424

Net cash provided by operating activities                 49,397       32,145

Investing activities

Capital expenditures                                      (11,907 )    (9,891  )

Purchases of marketable securities                        --           (74,707 )

Sales and maturities of marketable securities             20,185       62,006

Net cash provided by (used in) investing activities       8,278        (22,592 )

Financing activities

Excess tax benefits from stock-based compensation         2,384        1,647

Net proceeds from exercise of stock options               4,943        2,681

Repurchase of common stock                                (14,729 )    (54,201 )

Net cash used in financing activities                     (7,402  )    (49,873 )

Net increase (decrease) in cash and cash equivalents      50,273       (40,320 )

Cash and cash equivalents at beginning of period          31,225       60,600

Cash and cash equivalents at end of period              $ 81,498     $ 20,280

Supplemental disclosures of cash flow information

Income taxes paid                                       $ 15,294     $ 5,472

Noncash transactions:

Purchase of equipment included in accounts payable and
accrued                                                 $ 981        $ 392
liabilities

CAPELLA EDUCATION COMPANY

Other Information

Enrollment by Degree(a):  September 30,

                          2009    2008    % Change

PhD/Doctoral              10,430  9,023   15.6 %

Master's                  14,764  11,095  33.1 %

Bachelor's                5,409   3,834   41.1 %

Other                     135     111     21.6 %

Total                     30,738  24,063  27.7 %

     Enrollment as of September 30, 2009 and 2008 is the enrollment as of the
(a)  last day of classes for the quarter ended September 30, 2009 and 2008,
     respectively.

    Source: Capella Education Company

Related Categories

Press Releases

Stocks Mentioned

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?