Solid performance in 2016; positioned for
continued growth in 2017
Capella Education Company (NASDAQ: CPLA), a leading
educational services company, today announced financial results for
the three months and year ended Dec. 31, 2016.
“We delivered solid results in 2016 and made significant
progress in executing our vision of providing the most direct path
between learning and employment,” said Kevin Gilligan, chairman and
chief executive officer. “We believe our ‘most direct path’
innovations, including our flexible degree and job-ready skills
offerings, will drive long-term growth by expanding our addressable
market, creating new sources of revenue, and better positioning us
to deliver differentiated value to both consumers and
employers.”
Results for the three months and year ended Dec. 31, 2016, and
comparisons to previous periods, are for consolidated Capella
Education Company continuing operations. Included in consolidated
results are Hackbright Academy and DevMountain operations from
their acquisition dates of April 22 and May 4, 2016, respectively.
The sale of Arden University was completed on Aug. 18, 2016 with
results presented as discontinued operations.
Selected Financial Data for the Three Months Ended Dec. 31,
2016
Revenues were $111.3 million in the fourth quarter of 2016, up
4.9 percent compared to $106.1 million in the fourth quarter of
2015. Operating income was $18.3 million, compared to $20.5 million
for the same period in 2015. The operating margin was 16.4 percent,
compared to 19.3 percent for the fourth quarter 2015. Diluted net
income per common share from continuing operations was $0.97,
compared to $1.05 for the same period in 2015.
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 $109.4 million, up 3.1 percent compared to $106.1
million in the fourth quarter of 2015. The operating margin was
18.9 percent, compared to 21.0 percent. Results are primarily
attributable to Capella University.
- Capella University total active
enrollment increased 2.5 percent to 37,882 learners, new enrollment
decreased by 1.1 percent compared to fourth quarter 2015, and early
cohort persistence improved by approximately 5 percent.
- Revenues for the Job-Ready Skills
segment were $1.9 million compared to $0.02 million in the fourth
quarter of 2015. The operating loss was $2.4 million, compared to
$1.8 million.
Selected Financial Data for the Fiscal Year Ended Dec. 31,
2016
Revenues were $429.4 million in fiscal year 2016, up 3.1 percent
compared to $416.5 million in 2015. Operating income was $68.2
million, compared to $70.3 million for the same period in 2015. The
operating margin was 15.9 percent, compared to 16.9 percent in
2015. Diluted net income per common share from continuing
operations was $3.58, compared to $3.55 for the same period in
2015.
Operating and Segment Highlights
- For the Post-Secondary segment, fiscal
year 2016 revenues were $424.1 million, up 2.0 percent compared to
$416.0 million in 2015. The operating margin was 18.1 percent,
compared to 17.6 percent in 2015. Results are primarily
attributable to Capella University.
- Capella University average quarterly
total enrollment increased by 2.5 percent, new enrollment decreased
by 0.9 percent from 2015, and early cohort persistence improved by
approximately 5 percent.
- Revenues for the Job-Ready Skills
segment were $5.3 million compared to $0.6 million in 2015. The
operating loss was $8.7 million in 2016, compared to $2.9 million
for 2015.
Balance Sheet and Cash Flow
At Dec. 31, 2016, Capella Education Company had cash and
marketable securities of $162.3 million, compared to $159.3 million
at Dec. 31, 2015, and no debt as of these dates.
Cash provided by operating activities from continuing operations
for 2016 was $85.1 million compared to $59.9 million in 2015. A
portion of the year-over-year increase in 2016 was due to $13.6
million of cash received as an incentive to extend the lease for
our headquarters in Minneapolis, MN.
Dividend and Share Repurchases
The company announced an increase in its quarterly cash dividend
to $0.41 per outstanding share of common stock during the fourth
quarter of 2016. The dividend was paid on Jan. 13, 2017.
The Company repurchased approximately 488,000 shares of Capella
stock for total consideration of $25.6 million in fiscal year 2016.
In the fourth quarter of 2016, Capella Education Company
repurchased approximately 51,000 shares of Capella stock for total
consideration of $3.1 million. The remaining authorization as of
the end of the fourth quarter was $30.4 million.
Outlook
For the first quarter ending March 31, 2017, consolidated
revenues for Capella Education Company are expected to be up 5.0 to
6.0 percent compared to first quarter 2016. Consolidated operating
margin is anticipated to be approximately 14.5 to 15.5 percent of
total revenue for the first quarter of 2017. Capella University new
enrollment is expected to be up in the low-single digit percentage
range year-over-year and total enrollment is expected to be up
about 1 percent year-over-year.
For the fiscal year ending Dec. 31, 2017, consolidated revenues
for Capella Education Company are expected to increase 3 to 5
percent year-over-year and operating margins are expected to be
similar to fiscal 2016 due to expected investments in advance of
accelerated revenue growth.
“We are particularly pleased with achieving five consecutive
years of strong learner success improvements, which was the primary
driver for total enrollment growth in 2016,” said Steve Polacek,
senior vice president and chief financial officer. “We are in a
strong financial position and are managing our investments
thoughtfully with the goal of driving accelerated growth.”
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, our Annual Report
on Form 10-K for 2016 and other documents the company files with
the SEC.
Conference Call
Capella will discuss its fourth quarter 2016 results and outlook
during a conference call scheduled today, Feb. 14, 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 Feb. 14 through Feb. 21, 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 December 31, 2016 As of
December 31, 2015 (Unaudited) ASSETS Current
assets: Cash and cash equivalents $ 93,570 $ 86,104 Marketable
securities, current 45,458 27,522 Accounts receivable, net of
allowance of $6,682 at December 31, 2016 and $6,340 at December 31,
2015 20,708 17,081 Prepaid expenses and other current assets 17,877
14,308 Currents assets of business held for sale —
4,251 Total current assets 177,613 149,266 Marketable
securities, non-current 23,320 45,679 Property and equipment, net
34,121 34,306 Goodwill 23,310 — Intangibles, net 9,221 — Deferred
income taxes 1,853 — Other assets 7,875 2,397 Noncurrent assets of
business held for sale — 18,707 Total
assets $ 277,313 $ 250,355
LIABILITIES AND
SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $
4,367 $ 1,470 Accrued liabilities 31,302 23,658 Dividends payable
4,945 4,824 Deferred revenue 12,398 7,796 Current liabilities of
business held for sale — 8,291 Total
current liabilities 53,012 46,039 Deferred rent 13,693 1,874 Other
liabilities 2,316 3,061 Deferred income taxes —
1,502 Total liabilities 69,021 52,476 Shareholders’
equity: Common stock, $0.01 par value: Authorized shares — 100,000;
Issued and Outstanding shares — 11,545 at December 31, 2016 and
11,824 at December 31, 2015 115 118 Additional paid-in capital
121,581 114,849 Accumulated other comprehensive loss (93 ) (272 )
Retained earnings 86,689 83,184 Total
shareholders’ equity 208,292 197,879
Total liabilities and shareholders’ equity $ 277,313 $
250,355
CAPELLA EDUCATION COMPANY
Consolidated Statements of Income (In thousands,
except per share amounts) Three Months
Ended December 31, Twelve Months Ended
December 31, 2016 2015 2016
2015 (Unaudited) (Unaudited)
(Unaudited) Revenues $ 111,308 $ 106,129 $ 429,390 $ 416,548
Costs and expenses: Instructional costs and services 47,526 45,575
185,995 182,883 Marketing and promotional 27,319 23,971 103,458
99,629 Admissions advisory 7,176 6,996 29,292 28,206 General and
administrative 11,027 9,055
42,438 35,498 Total costs and expenses 93,048
85,597 361,183 346,216
Operating income 18,260 20,532 68,207 70,332 Other income
(expense), net 98 (105 ) 177
(133 ) Income from continuing operations before income taxes
18,358 20,427 68,384 70,199 Income tax expense 6,891
7,734 25,980 26,569 Income from
continuing operations 11,467 12,693 42,404 43,630 Income (loss)
from discontinued operations, net of tax (41 ) (1,045
) 565 (3,442 ) Net income $ 11,426 $ 11,648
$ 42,969 $ 40,188 Basic net income (loss) per common
share: Continuing operations 1.00 1.07 3.65 3.61 Discontinued
operations (0.01 ) (0.09 ) 0.05 (0.28 )
Basic net income per common share $ 0.99 $ 0.98 $
3.70 $ 3.33 Diluted net income (loss) per common share
Continuing operations 0.97 1.05 3.58 3.55 Discontinued operations
— (0.09 ) 0.04 (0.28 ) Diluted
net income per common share $ 0.97 $ 0.96 $ 3.62 $
3.27 Weighted average number of common shares outstanding:
Basic 11,517 11,881 11,614 12,079 Diluted 11,812 12,087 11,856
12,301 Cash dividends declared per common share $ 0.41 $ 0.39 $
1.58 $ 1.50
CAPELLA EDUCATION COMPANY
Consolidated Statements of Cash Flows (In thousands)
Twelve Months Ended December 31, 2016
2015 (Unaudited) Operating
activities Net income $ 42,969 $ 40,188 Income (loss) from
discontinued operations, net of tax 565 (3,442
) Income from continuing operations 42,404 43,630 Adjustments to
reconcile net income to net cash provided by operating activities:
Provision for bad debts 10,663 14,275 Depreciation and amortization
21,343 21,917 Amortization of investment discount/premium, net
2,129 2,293 Impairment of property and equipment 442 896 Loss on
disposal of property and equipment 164 64 Share-based compensation
6,422 6,594 Excess tax benefits from share-based compensation
(1,136 ) (439 ) Deferred income taxes (4,280 ) (1,641 ) Changes in
operating assets and liabilities, net of assets acquired and
liabilities assumed from business acquisitions: Accounts receivable
(13,568 ) (15,150 ) Prepaid expenses and other current assets (470
) (7,162 ) Accounts payable and accrued liabilities 8,132 (3,344 )
Income taxes payable (2,823 ) (2,980 ) Deferred rent 11,819 (566 )
Deferred revenue 3,902 1,540 Net cash
provided by operating activities - continuing operations 85,143
59,927 Net cash provided by (used in) operating activities -
discontinued operations (2,874 ) 400 Net cash
provided by operating activities 82,269 60,327
Investing
activities Acquisitions, net of cash acquired (32,101 ) —
Capital expenditures (20,908 ) (20,417 ) Investment in partnership
interests (3,551 ) (934 ) Purchases of marketable securities
(29,216 ) (32,640 ) Maturities of marketable securities
31,430 30,175 Net cash used in investing
activities - continuing operations (54,346 ) (23,816 ) Net cash
provided by (used in) investing activities - discontinued
operations 15,032 (224 ) Net cash used in
investing activities (39,314 ) (24,040 )
Financing
activities Excess tax benefits from share-based compensation
1,136 439 Net proceeds from exercise of stock options 5,363 1,337
Payment of dividends (18,254 ) (18,012 ) Repurchases of common
stock (25,633 ) (26,006 ) Net cash used in financing
activities - continuing operations (37,388 ) (42,242 ) Effect of
foreign exchange rates on cash (24 ) (21 ) Net
increase (decrease) in cash and cash equivalents 5,543 (5,976 )
Cash and cash equivalents and cash of business held for sale at
beginning of year 88,027 94,003 Cash
and cash equivalents and cash of business held for sale at end of
year 93,570 88,027 Less cash of business held for sale at end of
year — (1,923 ) Cash and cash equivalents at
end of year $ 93,570 $ 86,104
Supplemental
disclosures of cash flow information Income taxes paid $ 33,093
$ 31,171 Non-cash investing and financing activities: Purchase of
equipment included in accounts payable and accrued liabilities $
784 $ 854 Declaration of cash dividend to be paid 4,785 4,646
Receivable due from sale of business 3,084 —
CAPELLA EDUCATION COMPANY Segment Reporting
(In thousands) Three Months
Ended Twelve Months Ended December
31, December 31, 2016 2015
2016 2015 (Unaudited)
(Unaudited) (Unaudited) Revenues Post-Secondary $
109,381 $ 106,108 $ 424,085 $ 415,964 Job-Ready Skills 1,927
21 5,305 584
Consolidated revenues $ 111,308 $ 106,129 $ 429,390
$ 416,548 Operating income (loss) Post-Secondary
20,680 22,289 76,935 73,248 Job-Ready Skills (2,420 )
(1,757 ) (8,728 ) (2,916 ) Consolidated operating
income 18,260 20,532 68,207 70,332 Other income (expense), net
98 (105 ) 177 (133 )
Income from continuing operations before income taxes $ 18,358
$ 20,427 $ 68,384 $ 70,199
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.
Quarterly revenues and operating income (loss) by reportable
segment for 2015 and prior quarters of 2016 can be found at the
Capella Education Company website at www.capellaeducation.com, under ‘Investor
Relations’, within the ‘Financial Information’ section in the
‘Fiscal Year & Quarterly Results’ spreadsheet.
CAPELLA UNIVERSITY Other Information
December 31, Capella
University Enrollment by Degree (a):
2016
2015
% Change
Doctoral 9,110 9,645 (5.5 )% Master's 17,865 16,882 5.8
%
Bachelor's 9,791 9,454 3.6
%
Other 1,116 995 12.2
%
Total 37,882 36,976 2.5
%
(a) Enrollment as of December 31, 2016 and
2015 is the enrollment as of the last day of classes for the
quarter ended December 31, 2016 and 2015, respectively.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170214005305/en/
Capella Education CompanyInvestor Contact:Heide
Erickson, 612-977-5172Heide.Erickson@capella.eduorMedia
Contact:Mike Buttry, 612-977-5499Mike.Buttry@capella.edu
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