Capella Education Company (NASDAQ:CPLA), a leading
educational services company, today announced financial results for
the three and nine months ended Sept. 30, 2017. In a separate news
release today, Strayer Education, Inc. (“Strayer”) (NASDAQ: STRA)
and Capella Education Company (“Capella”) announced that they have
agreed to combine in an all-stock merger of equals transaction
creating a national leader in education innovation. Please refer to
that release for details on the merger. The following commentary is
just related to Capella’s financial results.
“We stabilized new enrollment trends for Capella University in
the third quarter of 2017, and new enrollment growth trending into
the fourth quarter is positive,” said Kevin Gilligan, chairman and
chief executive officer. “Our goal is to position Capella for
long-term sustainable growth by delivering the most direct path
between learning and employment, differentiate our offerings with
learners and employers, and create shareholder value.”
Selected Financial Data for the Three Months Ended Sept. 30,
2017
Revenues were $107.0 million in the third quarter of 2017, up
1.0 percent compared to $105.9 million in the third quarter of
2016. Operating income was $13.8 million, compared to $15.3 million
for the same period in 2016. The operating margin was 12.9 percent,
compared to 14.5 percent for the third quarter 2016. Diluted net
income per common share from continuing operations was $0.73,
compared to $0.81 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, third
quarter 2017 revenues were $104.4 million, up 0.9 percent compared
to $103.5 million in the same period a year ago. The operating
margin was 15.5 percent in the third quarter 2017, compared to 16.4
percent in the third quarter of 2016. Results are primarily
attributable to Capella University.
- Capella University total active
enrollment decreased 1.3 percent to 37,223 learners, new enrollment
decreased by 2.1 percent compared to third quarter 2016, and early
cohort persistence improved by approximately 2 percent.
- Revenues for the Job-Ready Skills
segment were $2.6 million in the third quarter of 2017 compared to
$2.4 million in the same period of 2016. The operating loss was
$2.4 million in the third quarter 2017, compared to a loss of $1.6
million in the third quarter of 2016.
Balance Sheet and Cash Flow
At Sept. 30, 2017, Capella Education Company had cash and
marketable securities of $186.9 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 nine months ended Sept. 30, 2017 was $56.3 million compared
to $76.8 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 third quarter of 2017. The
dividend was paid on Oct. 13, 2017.
In the third quarter of 2017, Capella Education Company
repurchased approximately 37,000 shares of Capella stock for total
consideration of $2.5 million. The remaining authorization as of
the end of the third quarter was $27.9 million.
Outlook
Due to the pending merger transaction, the Company is not
providing a financial outlook at this time and has also suspended
any prior guidance provided.
Conference Call
In light of the pending merger announced today, Oct. 30, 2017,
the Company will not be discussing the third quarter 2017 financial
results in an investor conference call. A conference call to
discuss the merger announcement is scheduled for today, Oct. 30,
2017, at 8:00 a.m. Eastern time (ET). To participate in the live
call please dial 866.547.1509 (domestic) or 920.663.6208
(international) at 7:50 a.m. (ET), conference ID# 6889128. The live
webcast and replay, including the accompanying presentation, will
be available on the Capella Education Company Web site at
www.capellaeducation.com in the investor relations section.
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; improving our conversion rate and
effectively optimizing our marketing strategy and spend;
successfully managing our learner success, doctoral enrollment and
degree completion efforts; keeping up with advances in technology
important to the online learner experience; effectively managing
data security risks; successfully integrating acquisitions;
successfully growing Capella Learning Solutions’ new business
lines; and managing risks associated with the overall competitive
environment and general economic conditions. The company also faces
risks and uncertainties relating to the proposed merger transaction
with Strayer Education, Inc., including the ability to satisfy the
conditions to consummation of the merger; the risk that required
governmental and regulatory approvals may delay the merger
transaction or result in the imposition of conditions that could
cause the parties to abandon the merger transaction or materially
impact the financial benefits of the transaction; the risk that the
businesses will not be integrated successfully; the risk that the
cost savings and anticipated synergies from the merger transaction
may not be fully realized or may take longer to realize than
expected; disruption from the proposed merger transaction making it
more difficult to maintain relationships with learners, employers,
employees or suppliers; the diversion of management time on
merger-related issues and the risk of shareholder class action
lawsuits against the company, its management team and board of
directors.
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.
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 September 30, 2017 As of
December 31, 2016 (Unaudited) ASSETS Current
assets: Cash and cash equivalents $ 112,216 $ 93,570 Marketable
securities, current 55,113 45,458
Accounts receivable, net of allowance of
$7,507 at September 30, 2017 and$6,682 at December 31, 2016
22,981 20,708 Prepaid expenses and other current assets 9,488
17,877 Total current assets 199,798 177,613
Marketable securities, non-current 19,554 23,320 Property and
equipment, net 36,510 34,121 Goodwill 23,331 23,310 Intangibles,
net 8,665 9,221 Deferred income taxes — 1,853 Other assets 8,853
7,875 Total assets $ 296,711 $ 277,313
LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities:
Accounts payable $ 682 $ 4,367 Accrued liabilities 30,323 31,302
Dividends payable 4,987 4,945 Deferred revenue 17,468 12,398
Total current liabilities 53,460 53,012 Deferred rent 12,641
13,693 Deferred income taxes 721 — Other liabilities 2,017
2,316 Total liabilities 68,839 69,021 Shareholders’ equity:
Common stock, $0.01 par value: Authorized
shares — 100,000, Issued andOutstanding shares — 11,637 at
September 30, 2017 and 11,545 at December 31, 2016
116 115 Additional paid-in capital 127,056 121,581 Accumulated
other comprehensive loss (16 ) (93 ) Retained earnings 100,716
86,689 Total shareholders’ equity 227,872
208,292 Total liabilities and shareholders’ equity $ 296,711
$ 277,313
CAPELLA EDUCATION
COMPANY Consolidated Statements of Income (In
thousands, except per share amounts)
Three Months Ended September 30, Nine Months Ended
September 30, 2017 2016 2017
2016 (Unaudited) Revenues $ 107,007 $ 105,909 $
328,379 $ 318,082 Costs and expenses: Instructional costs and
services 49,621 47,656 146,402 138,469 Marketing and promotional
26,660 25,338 81,493 76,140 Admissions advisory 7,112 7,408 22,215
22,116 General and administrative 9,852 10,159 31,535
31,410 Total costs and expenses 93,245 90,561
281,645 268,135 Operating income 13,762 15,348 46,734
49,947 Other income, net 229 46 392 79
Income from continuing operations before income taxes 13,991 15,394
47,126 50,026 Income tax expense 5,237 5,807 16,446
19,089 Income from continuing operations 8,754 9,587 30,680
30,937 Income from discontinued operations, net of tax —
2,963 95 606 Net income $ 8,754 $ 12,550
$ 30,775 $ 31,543 Basic net income per common share:
Continuing operations $ 0.75 $ 0.83 $ 2.64 $ 2.66 Discontinued
operations — 0.26 0.01 0.05 Basic net income
per common share $ 0.75 $ 1.09 $ 2.65 $ 2.71
Diluted net income per common share: Continuing operations $ 0.73 $
0.81 $ 2.57 $ 2.61 Discontinued operations — 0.25 —
0.05 Diluted net income per common share $ 0.73 $
1.06 $ 2.57 $ 2.66 Weighted average number of common
shares outstanding: Basic 11,659 11,538 11,621 11,647 Diluted
11,936 11,790 11,955 11,872 Cash dividend declared per common share
$ 0.41 $ 0.39 $ 1.23 $ 1.17
CAPELLA EDUCATION
COMPANY Consolidated Statements of Cash Flows
(In thousands) Nine Months Ended
September 30, 2017 2016 (Unaudited)
Operating activities Net income $ 30,775 $ 31,543 Income
from discontinued operations, net of tax 95 606
Income from continuing operations 30,680 30,937 Adjustments to
reconcile net income to net cash provided by operating activities:
Provision for bad debts 9,267 7,686 Depreciation and amortization
14,936 15,751 Amortization of investment discount/premium, net
1,133 1,608 Impairment of property and equipment 440 404 Loss on
disposal of property and equipment 380 143 Share-based compensation
5,184 5,434 Excess tax benefits from stock-based compensation —
(378 ) Deferred income taxes 2,594 (5,016 ) Changes in operating
assets and liabilities Accounts receivable (11,541 ) (9,938 )
Prepaid expenses and other current assets 996 (1,603 ) Accounts
payable and accrued liabilities (6,031 ) 7,863 Income taxes payable
4,280 4,058 Deferred rent (1,052 ) 12,193 Deferred revenue 5,069
7,692 Net cash provided by operating activities -
continuing operations 56,335 76,834 Net cash provided by (used in)
operating activities - discontinued operations 95 (2,831 )
Net cash provided by operating activities 56,430 74,003
Investing activities Acquisitions, net of cash acquired —
(32,101 ) Capital expenditures (17,763 ) (14,703 ) Investment in
partnership interests (868 ) (3,551 ) Purchases of marketable
securities (55,437 ) (21,810 ) Maturities of marketable securities
48,535 25,635 Net cash used in investing activities -
continuing operations (25,533 ) (46,530 ) Net cash provided by
investing activities - discontinued operations 3,243 13,792
Net cash used in investing activities (22,290 ) (32,738 )
Financing activities Excess tax benefits from share-based
compensation — 378 Net payments related to share-based award
activities 1,273 2,339 Payment of dividends (14,293 ) (13,756 )
Repurchases of common stock (2,476 ) (22,517 ) Net cash used in
financing activities - continuing operations (15,496 ) (33,556 )
Effect of foreign exchange rates on cash 2 (23 ) Net
increase in cash and cash equivalents 18,646 7,686 Cash and cash
equivalents and cash of business held for sale at beginning of
period 93,570 88,027 Cash and cash equivalents at end
of period $ 112,216 $ 95,713
Supplemental
disclosures of cash flow information Income taxes paid $ 9,575
$ 20,044 Non-cash investing and financing activities: Purchase of
equipment included in accounts payable and accrued liabilities $
609 $ 523 Declaration of cash dividend to be paid 4,847 4,554
Repurchases of common stock included in accrued liabilities 21 —
Receivable due from sale of business — 4,539
CAPELLA EDUCATION COMPANY
Segment Reporting (In thousands)
Three Months Ended September 30, Nine
Months Ended September 30, 2017 2016
2017 2016 (Unaudited) Revenues
Post-Secondary $ 104,373 $ 103,488 $ 320,828 $ 314,704 Job-Ready
Skills 2,634 2,421 7,551 3,378
Consolidated Revenues $ 107,007 $ 105,909 $ 328,379
$ 318,082 Operating income (loss) Post-Secondary $
16,183 $ 16,970 $ 54,188 $ 56,254 Job-Ready Skills (2,421 ) (1,622
) (7,454 ) (6,307 ) Consolidated operating income 13,762 15,348
46,734 49,947 Other income, net 229 46 392 79
Income from continuing operations before income taxes $
13,991 $ 15,394 $ 47,126 $ 50,026
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
September 30, Capella University Enrollment by
Degree (a): 2017 2016 %
Change Doctoral 8,932 9,257 (3.5 )% Master's 17,462 17,761 (1.7
)% Bachelor's 9,752 9,644 1.1 % Other 1,077 1,046 3.0
% Total 37,223 37,708 (1.3 )% (a) Enrollment
in the table above includes learners who are actively enrolled
during the last month of the quarters ended September 30, 2017 and
2016, respectively.
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version on businesswire.com: http://www.businesswire.com/news/home/20171030005354/en/
Investors:Capella Education CompanyHeide Erickson,
612-977-5172Heide.Erickson@capella.eduorMedia:Capella
Education CompanyMike Buttry,
612-977-5499Mike.Buttry@capella.edu
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