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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Capella Education Company (MM) | NASDAQ:CPLA | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 104.00 | 85.15 | 103.00 | 0 | 01:00:00 |
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Minnesota
(State or other jurisdiction of
incorporation or organization)
|
|
41-1717955
(I.R.S. Employer
Identification No.)
|
|
|
|
Capella Tower
225 South Sixth Street, 9
th
Floor
Minneapolis, Minnesota
(Address of principal executive offices)
|
|
55402
(Zip Code)
|
Large accelerated filer
|
o
|
Accelerated filer
|
x
|
|
|
|
|
Non-accelerated filer
|
o
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
o
|
|
|
Page
|
|
PART I – FINANCIAL INFORMATION
|
|
|
|
|
Item 1
|
||
Item 2
|
||
Item 3
|
||
Item 4
|
||
|
|
|
|
PART II – OTHER INFORMATION
|
|
|
|
|
Item 1
|
||
Item 1A
|
||
Item 2
|
||
Item 3
|
||
Item 4
|
||
Item 5
|
||
Item 6
|
||
|
As of March 31, 2016
|
|
As of December 31, 2015
|
||||
|
(Unaudited)
|
|
|
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
92,519
|
|
|
$
|
86,104
|
|
Marketable securities, current
|
32,041
|
|
|
27,522
|
|
||
Accounts receivable, net of allowance of $5,405 at March 31, 2016 and $6,340 at December 31, 2015
|
17,623
|
|
|
17,081
|
|
||
Prepaid expenses and other current assets
|
12,472
|
|
|
14,308
|
|
||
Current assets of business held for sale
|
21,996
|
|
|
4,251
|
|
||
Total current assets
|
176,651
|
|
|
149,266
|
|
||
Marketable securities, non-current
|
38,645
|
|
|
45,679
|
|
||
Property and equipment, net
|
34,206
|
|
|
34,306
|
|
||
Noncurrent assets of business held for sale
|
—
|
|
|
18,707
|
|
||
Other assets
|
6,641
|
|
|
2,397
|
|
||
Total assets
|
$
|
256,143
|
|
|
$
|
250,355
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
1,639
|
|
|
$
|
1,470
|
|
Accrued liabilities
|
27,436
|
|
|
23,658
|
|
||
Dividends payable
|
4,730
|
|
|
4,824
|
|
||
Deferred revenue
|
10,712
|
|
|
7,796
|
|
||
Current liabilities of business held for sale
|
8,202
|
|
|
8,291
|
|
||
Total current liabilities
|
52,719
|
|
|
46,039
|
|
||
Deferred rent
|
1,638
|
|
|
1,874
|
|
||
Other liabilities
|
2,000
|
|
|
3,061
|
|
||
Deferred income taxes
|
1,277
|
|
|
1,502
|
|
||
Total liabilities
|
57,634
|
|
|
52,476
|
|
||
Shareholders’ equity:
|
|
|
|
||||
Common stock, $0.01 par value: Authorized shares — 100,000; Issued and Outstanding shares — 11,722 at March 31, 2016 and 11,824 at December 31, 2015
|
117
|
|
|
118
|
|
||
Additional paid-in capital
|
116,533
|
|
|
114,849
|
|
||
Accumulated other comprehensive loss
|
(85
|
)
|
|
(272
|
)
|
||
Retained earnings
|
81,944
|
|
|
83,184
|
|
||
Total shareholders’ equity
|
198,509
|
|
|
197,879
|
|
||
Total liabilities and shareholders’ equity
|
$
|
256,143
|
|
|
$
|
250,355
|
|
|
Three Months Ended March 31,
|
||||||
|
2016
|
|
2015
|
||||
|
(Unaudited)
|
||||||
Revenues
|
$
|
105,448
|
|
|
$
|
105,701
|
|
Costs and expenses:
|
|
|
|
||||
Instructional costs and services
|
45,311
|
|
|
45,242
|
|
||
Marketing and promotional
|
25,879
|
|
|
26,341
|
|
||
Admissions advisory
|
7,423
|
|
|
6,952
|
|
||
General and administrative
|
10,308
|
|
|
9,556
|
|
||
Total costs and expenses
|
88,921
|
|
|
88,091
|
|
||
Operating income
|
16,527
|
|
|
17,610
|
|
||
Other expense, net
|
(9
|
)
|
|
(13
|
)
|
||
Income from continuing operations before income taxes
|
16,518
|
|
|
17,597
|
|
||
Income tax expense
|
6,242
|
|
|
6,660
|
|
||
Income from continuing operations
|
10,276
|
|
|
10,937
|
|
||
Loss from discontinued operations, net of tax
|
(978
|
)
|
|
(900
|
)
|
||
Net income
|
$
|
9,298
|
|
|
$
|
10,037
|
|
Basic net income (loss) per common share:
|
|
|
|
||||
Continuing operations
|
$
|
0.87
|
|
|
$
|
0.89
|
|
Discontinued operations
|
(0.08
|
)
|
|
(0.07
|
)
|
||
Basic net income per common share
|
$
|
0.79
|
|
|
$
|
0.82
|
|
Diluted net income (loss) per common share
|
|
|
|
||||
Continuing operations
|
$
|
0.86
|
|
|
$
|
0.88
|
|
Discontinued operations
|
(0.08
|
)
|
|
(0.08
|
)
|
||
Diluted net income per common share
|
$
|
0.78
|
|
|
$
|
0.80
|
|
Weighted average number of common shares outstanding:
|
|
|
|
||||
Basic
|
11,755
|
|
|
12,228
|
|
||
Diluted
|
11,953
|
|
|
12,485
|
|
||
Cash dividends declared per common share
|
$
|
0.39
|
|
|
$
|
0.37
|
|
|
Three Months Ended March 31,
|
||||||
|
2016
|
|
2015
|
||||
|
(Unaudited)
|
||||||
Net income
|
$
|
9,298
|
|
|
$
|
10,037
|
|
Other comprehensive income:
|
|
|
|
||||
Foreign currency translation gain
|
129
|
|
|
113
|
|
||
Unrealized gains on available for sale securities, net of tax
|
58
|
|
|
35
|
|
||
Comprehensive income
|
$
|
9,485
|
|
|
$
|
10,185
|
|
|
Three Months Ended March 31,
|
||||||
|
2016
|
|
2015
|
||||
|
(Unaudited)
|
||||||
Operating activities
|
|
|
|
||||
Net income
|
$
|
9,298
|
|
|
$
|
10,037
|
|
Loss from discontinued operations, net of tax
|
(978
|
)
|
|
(900
|
)
|
||
Income from continuing operations
|
10,276
|
|
|
10,937
|
|
||
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Provision for bad debts
|
1,926
|
|
|
3,139
|
|
||
Depreciation and amortization
|
5,209
|
|
|
5,314
|
|
||
Amortization of investment discount/premium, net
|
556
|
|
|
560
|
|
||
Loss on disposal of property and equipment
|
19
|
|
|
21
|
|
||
Share-based compensation
|
2,813
|
|
|
1,737
|
|
||
Excess tax benefits from share-based compensation
|
(324
|
)
|
|
(368
|
)
|
||
Deferred income taxes
|
(260
|
)
|
|
44
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable
|
(2,467
|
)
|
|
(1,259
|
)
|
||
Prepaid expenses and other current assets
|
(1,149
|
)
|
|
(2,114
|
)
|
||
Accounts payable and accrued liabilities
|
2,084
|
|
|
804
|
|
||
Income taxes payable
|
1,382
|
|
|
(493
|
)
|
||
Deferred rent
|
(236
|
)
|
|
(178
|
)
|
||
Deferred revenue
|
2,916
|
|
|
(35
|
)
|
||
Net cash provided by operating activities - continuing operations
|
22,745
|
|
|
18,109
|
|
||
Net cash (used in) provided by operating activities - discontinued operations
|
(750
|
)
|
|
1,454
|
|
||
Net cash provided by operating activities
|
21,995
|
|
|
19,563
|
|
||
Investing activities
|
|
|
|
||||
Capital expenditures
|
(5,309
|
)
|
|
(7,104
|
)
|
||
Investment in partnership interest
|
(2,246
|
)
|
|
—
|
|
||
Purchases of marketable securities
|
(8,507
|
)
|
|
(6,462
|
)
|
||
Maturities of marketable securities
|
10,560
|
|
|
6,980
|
|
||
Net cash used in investing activities - continuing operations
|
(5,502
|
)
|
|
(6,586
|
)
|
||
Net cash used in investing activities - discontinued operations
|
(31
|
)
|
|
(229
|
)
|
||
Net cash used in investing activities
|
(5,533
|
)
|
|
(6,815
|
)
|
||
Financing activities
|
|
|
|
||||
Excess tax benefits from share-based compensation
|
324
|
|
|
368
|
|
||
Net proceeds from exercise of stock options
|
967
|
|
|
633
|
|
||
Payment of dividends
|
(4,612
|
)
|
|
(4,532
|
)
|
||
Repurchases of common stock
|
(7,507
|
)
|
|
(3,715
|
)
|
||
Net cash used in financing activities - continuing operations
|
(10,828
|
)
|
|
(7,246
|
)
|
||
Effect of foreign exchange rates on cash
|
(39
|
)
|
|
(82
|
)
|
||
Net increase in cash and cash equivalents
|
5,595
|
|
|
5,420
|
|
||
Cash and cash equivalents and cash of business held for sale at beginning of period
|
88,027
|
|
|
94,003
|
|
||
Cash and cash equivalents and cash of business held for sale at end of period
|
93,622
|
|
|
99,423
|
|
||
Less cash of business held for sale at end of period
|
(1,103
|
)
|
|
(2,908
|
)
|
||
Cash and cash equivalents at end of period
|
$
|
92,519
|
|
|
$
|
96,515
|
|
Supplemental disclosures of cash flow information
|
|
|
|
||||
Income taxes paid
|
$
|
5,117
|
|
|
$
|
7,089
|
|
Non-cash investing and financing activities:
|
|
|
|
||||
Purchase of equipment included in accounts payable and accrued liabilities
|
$
|
670
|
|
|
$
|
536
|
|
Declaration of cash dividend to be paid
|
4,638
|
|
|
4,580
|
|
||
Repurchases of common stock included in accrued liabilities
|
$
|
—
|
|
|
$
|
191
|
|
|
As of March 31, 2016
|
|
As of December 31, 2015
|
||||
Assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
1,103
|
|
|
$
|
1,923
|
|
Accounts receivable, net
|
2,310
|
|
|
2,055
|
|
||
Goodwill
|
16,677
|
|
|
16,862
|
|
||
Intangibles, net
|
1,254
|
|
|
1,389
|
|
||
Other assets
|
652
|
|
|
729
|
|
||
Assets of business held for sale
|
$
|
21,996
|
|
|
$
|
22,958
|
|
Liabilities
|
|
|
|
||||
Accounts payable and accrued liabilities
|
$
|
3,585
|
|
|
$
|
3,324
|
|
Deferred revenue
|
4,564
|
|
|
4,967
|
|
||
Other liabilities
|
53
|
|
|
—
|
|
||
Liabilities of business held for sale
|
$
|
8,202
|
|
|
$
|
8,291
|
|
|
Three Months Ended March 31,
|
||||||
|
2016
|
|
2015
|
||||
Revenues
|
$
|
3,270
|
|
|
$
|
3,373
|
|
Costs and expenses:
|
|
|
|
||||
Instructional costs and services
|
1,660
|
|
|
1,819
|
|
||
Marketing and promotional
|
1,293
|
|
|
1,159
|
|
||
Admissions advisory
|
273
|
|
|
252
|
|
||
General and administrative
|
953
|
|
|
973
|
|
||
Total costs and expenses
|
4,179
|
|
|
4,203
|
|
||
Operating loss
|
(909
|
)
|
|
(830
|
)
|
||
Other expense, net
|
(69
|
)
|
|
(133
|
)
|
||
Loss before income taxes
|
(978
|
)
|
|
(963
|
)
|
||
Income tax benefit
|
—
|
|
|
(63
|
)
|
||
Loss from discontinued operations, net of tax
|
$
|
(978
|
)
|
|
$
|
(900
|
)
|
|
Three Months Ended March 31,
|
||||||
|
2016
|
|
2015
|
||||
Numerator:
|
|
|
|
||||
Income from continuing operations
|
$
|
10,276
|
|
|
$
|
10,937
|
|
Loss from discontinued operations, net of tax
|
(978
|
)
|
|
(900
|
)
|
||
Net income
|
$
|
9,298
|
|
|
$
|
10,037
|
|
Denominator:
|
|
|
|
||||
Denominator for basic net income per common share— weighted average shares outstanding
|
11,755
|
|
|
12,228
|
|
||
Effect of dilutive stock options, restricted stock, and market stock units
|
198
|
|
|
257
|
|
||
Denominator for diluted net income per common share— weighted average shares outstanding
|
11,953
|
|
|
12,485
|
|
||
Basic net income (loss) per common share:
|
|
|
|
||||
Continuing operations
|
$
|
0.87
|
|
|
$
|
0.89
|
|
Discontinued operations
|
(0.08
|
)
|
|
(0.07
|
)
|
||
Basic net income per common share
|
$
|
0.79
|
|
|
$
|
0.82
|
|
Diluted net income (loss) per common share:
|
|
|
|
||||
Continuing operations
|
$
|
0.86
|
|
|
$
|
0.88
|
|
Discontinued operations
|
(0.08
|
)
|
|
(0.08
|
)
|
||
Diluted net income per common share
|
$
|
0.78
|
|
|
$
|
0.80
|
|
|
Three Months Ended March 31,
|
||||
|
2016
|
|
2015
|
||
Anti-dilutive securities excluded from diluted earnings per share calculation, for both continuing and discontinued operations
|
487
|
|
|
232
|
|
|
As of March 31, 2016
|
||||||||||||||
|
Amortized Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized (Losses)
|
|
Estimated Fair Value
|
||||||||
Tax-exempt municipal securities
|
$
|
63,778
|
|
|
$
|
43
|
|
|
$
|
(8
|
)
|
|
$
|
63,813
|
|
Corporate debt securities
|
6,873
|
|
|
17
|
|
|
(17
|
)
|
|
6,873
|
|
||||
Total
|
$
|
70,651
|
|
|
$
|
60
|
|
|
$
|
(25
|
)
|
|
$
|
70,686
|
|
|
|
|
|
|
|
|
|
||||||||
|
As of December 31, 2015
|
||||||||||||||
|
Amortized Cost
|
|
Gross Unrealized
Gains
|
|
Gross Unrealized (Losses)
|
|
Estimated Fair Value
|
||||||||
Tax-exempt municipal securities
|
$
|
67,333
|
|
|
$
|
13
|
|
|
$
|
(53
|
)
|
|
$
|
67,293
|
|
Corporate debt securities
|
5,926
|
|
|
—
|
|
|
(18
|
)
|
|
5,908
|
|
||||
Total
|
$
|
73,259
|
|
|
$
|
13
|
|
|
$
|
(71
|
)
|
|
$
|
73,201
|
|
|
As of March 31, 2016
|
|
As of December 31, 2015
|
||||
Due within one year
|
$
|
32,041
|
|
|
$
|
27,522
|
|
Due after one year through five years
|
38,645
|
|
|
45,679
|
|
||
Total
|
$
|
70,686
|
|
|
$
|
73,201
|
|
|
Three Months Ended March 31,
|
||||||
|
2016
|
|
2015
|
||||
Maturities of marketable securities
|
$
|
10,560
|
|
|
$
|
6,980
|
|
Total
|
$
|
10,560
|
|
|
$
|
6,980
|
|
|
|
Fair Value Measurements as of March 31, 2016 Using
|
||||||||||||||
Description
|
|
Fair Value
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
||||||||
Cash
|
|
$
|
45,862
|
|
|
$
|
45,862
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Money market
|
|
46,657
|
|
|
46,657
|
|
|
—
|
|
|
—
|
|
||||
Marketable securities:
|
|
|
|
|
|
|
|
|
||||||||
Tax-exempt municipal securities
|
|
63,813
|
|
|
—
|
|
|
63,813
|
|
|
—
|
|
||||
Corporate debt securities
|
|
6,873
|
|
|
—
|
|
|
6,873
|
|
|
—
|
|
||||
Total assets at fair value on a recurring basis
|
|
$
|
163,205
|
|
|
$
|
92,519
|
|
|
$
|
70,686
|
|
|
$
|
—
|
|
|
|
Fair Value Measurements as of December 31, 2015 Using
|
||||||||||||||
Description
|
|
Fair Value
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||||
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
||||||||
Cash
|
|
$
|
49,151
|
|
|
$
|
49,151
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Money market
|
|
36,953
|
|
|
36,953
|
|
|
—
|
|
|
—
|
|
||||
Marketable securities:
|
|
|
|
|
|
|
|
|
||||||||
Tax-exempt municipal securities
|
|
67,293
|
|
|
—
|
|
|
67,293
|
|
|
—
|
|
||||
Corporate debt securities
|
|
5,908
|
|
|
—
|
|
|
5,908
|
|
|
—
|
|
||||
Total assets at fair value on a recurring basis
|
|
$
|
159,305
|
|
|
$
|
86,104
|
|
|
$
|
73,201
|
|
|
$
|
—
|
|
|
As of March 31, 2016
|
|
As of December 31, 2015
|
||||
Accrued compensation and benefits
|
$
|
8,677
|
|
|
$
|
7,989
|
|
Accrued instructional
|
4,145
|
|
|
3,427
|
|
||
Accrued vacation
|
1,796
|
|
|
1,046
|
|
||
Accrued invoices
|
11,516
|
|
|
9,995
|
|
||
Other
(1)
|
1,302
|
|
|
1,201
|
|
||
Total
|
$
|
27,436
|
|
|
$
|
23,658
|
|
2016
|
$
|
4,199
|
|
2017
|
5,729
|
|
|
2018
|
4,879
|
|
|
2019
|
11
|
|
|
2020
|
—
|
|
|
2021 and thereafter
|
—
|
|
|
Total
|
$
|
14,818
|
|
Board authorizations:
|
|
||
July 2008
|
$
|
60,000
|
|
August 2010
|
60,662
|
|
|
February 2011
|
65,000
|
|
|
December 2011
|
50,000
|
|
|
August 2013
|
50,000
|
|
|
December 2015
|
50,000
|
|
|
Total amount authorized
|
335,662
|
|
|
Total value of shares repurchased
|
287,117
|
|
|
Residual authorization
|
$
|
48,545
|
|
|
Three Months Ended March 31,
|
||||||
|
2016
|
|
2015
|
||||
Shares repurchased
|
165
|
|
|
58
|
|
||
Total consideration, excluding commissions
|
$
|
7,500
|
|
|
$
|
3,904
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Dividend per Share
|
|
Total Dividend Amount
|
||||
February 18, 2016
|
|
March 10, 2016
|
|
April 15, 2016
|
|
$
|
0.39
|
|
|
$
|
4,638
|
|
|
Three Months Ended March 31,
|
||||||
|
2016
|
|
2015
|
||||
Instructional costs and services
|
$
|
208
|
|
|
$
|
228
|
|
Marketing and promotional
|
183
|
|
|
137
|
|
||
Admissions advisory
|
13
|
|
|
7
|
|
||
General and administrative
|
2,409
|
|
|
1,365
|
|
||
Share-based compensation expense included in operating income
|
2,813
|
|
|
1,737
|
|
||
Tax benefit from share-based compensation expense
|
1,063
|
|
|
643
|
|
||
Share-based compensation expense, net of tax
|
$
|
1,750
|
|
|
$
|
1,094
|
|
|
Foreign Currency Translation Loss
|
|
Unrealized Gain (Loss) on Marketable Securities
|
|
Accumulated Other Comprehensive Loss
(1)
|
||||||
Beginning balance, December 31, 2015
|
$
|
(235
|
)
|
|
$
|
(37
|
)
|
|
$
|
(272
|
)
|
Other comprehensive income
|
129
|
|
|
58
|
|
|
187
|
|
|||
Ending balance, March 31, 2016
|
$
|
(106
|
)
|
|
$
|
21
|
|
|
$
|
(85
|
)
|
(1)
|
Accumulated other comprehensive loss is presented net of tax of
$14 thousand
and
$21 thousand
as of
March 31, 2016
and
December 31, 2015
, respectively.
|
•
|
Capella University (the University) is a regionally accredited university that offers a variety of undergraduate and graduate degree programs for working adult professionals.
|
•
|
Arden University, Ltd. (Arden University), formerly known as Resource Development International Limited (RDI), is an independent provider of United Kingdom (UK) university qualifications that markets, develops and delivers programs worldwide via its offices and partners across Asia, North America, Africa and Europe.
|
•
|
Sophia Learning, LLC (Sophia) is an innovative learning platform leveraging technology to support self-paced learning, including courses eligible for transfer into credit at over 2,000 colleges and universities.
|
•
|
Capella Learning Solutions (CLS) provides online non-degree, high-demand, job-ready skills, training solutions and services to individuals and corporate partners which are delivered through Capella's learning platform.
|
•
|
Innovation.
We operate in a very competitive market environment. While we have demonstrated that we can effectively compete and differentiate in our market, our long-term success will depend on our ability to continue innovating around our competency-based learning capacities to develop new academic models and developing new business models. We will need to balance investments that may put pressure on near-term operating income performance with our goal to achieve operating performance improvements and deliver short and long-term shareholder value.
|
•
|
Enrollment and persistence.
New enrollment and learner persistence improvements are key drivers for total enrollment and revenue growth as well as the Company’s operating performance. New enrollment is an early indicator of future growth, and early cohort persistence is an indicator of the sustainability of growth. These metrics should be viewed over multiple quarters since quarterly volatility is common.
|
•
|
Doctoral enrollment
. During the first quarter of 2016, year-over-year doctoral total enrollment declined by 3.7 percent. It will take time for our doctoral programs to return to enrollment growth due to a combination of factors, including the extended decision cycles for prospects at the doctoral level, stronger doctoral graduations, as well as our continued learner success efforts at the doctoral level. Our doctoral offerings are comprised of professional doctorate programs and PhD programs. Enrollment in our professional doctorate programs has increased. At the same time, PhD enrollment, which represents the largest component of our doctoral offerings, has been declining. The primary difference between PhD and professional doctorate programs is the intent and deliverable of the independent research phase. Compared to a PhD, professional doctorate programs can potentially offer a more affordable and direct path to the educational goals of certain professionals.
|
•
|
Learner success
. As we continue to position Capella to drive sustainable growth, we are focused on improving learner success rates particularly in the first four quarters of enrollment while maintaining a high standard of academic quality and rigor. The first four quarters of enrollment are particularly critical because learners tend to persist at a very high rate after that period. In the first quarter of 2016, we achieved a two percent improvement in early cohort persistence over the same period in the prior year. Going forward, we will increasingly focus on the entire learner lifecycle. Certain initiatives to improve learner success can affect our growth and profitability in the
|
•
|
Investing in our actionable analytics capabilities to further leverage data, refine our models, and accurately predict the likelihood of prospective, new, and current learners persisting to critical thresholds of success;
|
•
|
Providing timely and clear information to our learners, faculty, advisors and staff to help learners persist and successfully complete their programs;
|
•
|
Redesigning programs to remove barriers for learner progression and to deliver operational process efficiencies;
|
•
|
Piloting, implementing, and optimizing programs such as assessments and orientations to create personalized pathways for different learner groups which focus on transitioning learners into the online environment, creating a supportive community, and providing a proactive support structure;
|
•
|
Optimizing our marketing approaches to increase emphasis on attracting learners who are more likely to persist in our programs;
|
•
|
Promoting affordability and encouraging learners to persist by offering learner success grants to new learners who meet admissions requirements, enroll, apply within certain timeframes, and stay continuously enrolled; and,
|
•
|
Diversifying outside of Capella University by creating innovative new learning technologies which have potential to increase affordability and better serve the life-long learning needs of working adult professionals and therefore increase learner success.
|
•
|
Marketing strategy.
We have made significant strides in shifting from a demand driven strategy towards a comprehensive marketing strategy which is focused on building relationships with prospective learners early in their decision cycle. This strategy is also designed to attract prospective learners that are committed to and able to succeed in their academic endeavors. The marketing strategy includes:
|
•
|
Introducing prospective learners to Capella with a differentiated message in channels such as mass media and strategic relationships with employers and professional organizations,
|
•
|
Connecting with prospective learners by generating and nurturing inquiries through direct media such as natural search, our website, and display media, and
|
•
|
Engaging with prospective learners by developing meaningful relationships such as through social media, via mobile devices, or by way of direct engagement.
|
•
|
Establishing new growth platforms.
We seek to drive long-term growth that is an extension of our core competencies into new and expanded markets. One of our key growth platforms is FlexPath. FlexPath is a learning model that decouples from the credit-hour requirements and allows learners to complete coursework at their own pace and complete activities to demonstrate specific competencies by the end of the learner’s 12-week subscription period. Capella University was the first institution with approval from the Higher Learning Commission and the Department of Education to offer and provide Title IV funding for programs at the Bachelor's and Master's degree levels. These approvals allow learners enrolled in FlexPath to apply for federal financial aid. Only a few other universities received approvals by their accreditor and the Department of Education to offer similar programs. We have experienced delays in the direct assessment approval process related to our pending, new FlexPath programs at both the Higher Learning Commission and the Department of Education as they have continued to refine their application requirements and processes to ensure the quality of direct assessment programs. Additionally, the Department of Education has indicated that direct assessment program specializations will also require specific approval to offer Title IV. It is possible this will add another step in the approval process with both the Department of Education and the Higher Learning Commission.
|
•
|
CLS offerings.
In 2013, the Company introduced the first set of CLS offerings - online training solutions and services to corporate partners. In 2015, CLS expanded its offerings to include non-degree, high-demand, job-ready skills and training solutions and services to individuals and corporate partners. Throughout the remainder of 2016, we plan to continue expanding our non-degree online training offerings, including through our relationships with CareerBuilder
®
and the International Institute for Analytics (IIA).
|
•
|
Redesign of programs and specializations
. We continue to evaluate our existing offerings for opportunities to drive affordability and speed to competency, enhance learner success, meet employer needs, maintain programmatic approvals and fulfill evolving regulatory standards. Utilizing our competency-based curriculum mapping, we are focused on maximizing efficiencies in our existing programs, resulting in improved learning and career outcomes.
|
•
|
Current
market and regulatory environment.
The environment remains very competitive. We believe our initiatives to improve learner success and innovation in our academic and business model will position us to continue to be a leader in the online postsecondary education market. Additionally, we are working to even more closely align with employers. Developments in the federal regulatory environment impact us as well, including the enacting of Gainful Employment (GE) rules and the reauthorization of the Higher Education Act of 1965, as amended, and the current Department of Education rulemaking processes. Many states have also become more active in regulating online education, especially regarding approval to operate requirements, and enforcement of consumer protection laws by state attorneys general, with a focus on proprietary institutions. While we have a strong track record of regulatory compliance, such actions, even if not directed at Capella University, may result in unforeseen consequences and may make our operating environment more challenging.
|
•
|
Divestiture of Arden University.
On February 11, 2016, we announced our intention to divest Arden University. While we have begun a process to sell Arden, we cannot predict when such a sale will occur or the terms of the sale. We believe the fair value of the Arden University reporting unit remains in excess of the carrying value as of March 31, 2016. Management will assess goodwill for impairment in the fourth quarter of 2016 if the business has not been divested prior to that time.
|
•
|
Business Acquisitions.
On
April 22, 2016
, the Company acquired
100%
of the share capital of Sutter Studios, Inc. d/b/a Hackbright Academy (Hackbright) for approximately
$18.0 million
in cash, subject to customary adjustments for working capital, debt, and seller transaction expenses. Hackbright is a leading software engineering school for women, with a mission to increase female representation in the technology sector. Hackbright, headquartered in San Francisco, offers in-person, immersive 12-week full-time educational programs in software engineering as well as part-time programs. Capella’s acquisition of Hackbright Academy will expand Capella’s existing business of providing innovative education offerings which provide a more direct path from learning to employment. Upon acquisition, the Company changed the official corporate name of Hackbright to Hackbright Academy, Inc.
|
•
|
U.S. Legislation and Congressional Activity.
It is unclear when Congress will reauthorize the Higher Education Act (HEA) which governs federal financial assistance for higher education. When reauthorization of HEA is
|
•
|
College Rating System.
On December 19, 2014, the U.S. Department of Education released a draft of a College Ratings Framework which was intended to serve as a discussion document on the best way to measure access, affordability and outcomes. The Department requested feedback by February 17, 2015 with the expressed goal of having a rating system in place by the end of 2015. On June 25, 2015, the Department of Education announced that it no longer intended to introduce a college ratings system and instead would create a consumer-facing tool for learners and families, which was released on September 12, 2015 as an update to the College Scorecard. The Department of Education updated the scorecard once more on March 10, 2016. We support the Department of Education in its efforts to increase transparency. It will remain challenging for consumers to make comparisons given the incomplete data sets and methodologies used to determine the metrics for each institution and also given the significant differences in learner populations across institutions.
|
•
|
Gainful Employment (GE).
The Department of Education published a final rule on October 30, 2014 that went into effect on July 1, 2015. The final rule applies to all GE programs, which include non-degree programs at public and private non-profit institutions, and all programs offered by proprietary institutions. The rule establishes a “debt-to-earnings” (DTE) ratio that GE programs must satisfy over the course of annual measurement periods to remain eligible for Title IV federal student aid. We do not know which of our programs, if any, will be impacted by the DTE ratio requirements and will not know until we receive earnings data from the Department of Education, which we expect at some point in 2016. We have taken and continue to take steps to avoid or mitigate potential adverse consequences, but it remains possible that one or more of our programs could be determined to be in the “zone” or “fail” the initial or future calculations, as those terms are defined in the rule. The final rule also requires institutions to provide certifications regarding a GE program’s satisfaction of programmatic accreditation and state licensure requirements as part of the institutional program participation agreements with the Department of Education. The certification requirements went into effect on December 31, 2015 in connection with the Department of Education's program participation agreement recertification; however, new programs introduced between July 1 and December 31, 2015 were to be certified prior to such program’s introduction to establish eligibility for Title IV federal financial aid. We worked with the Department of Education to clarify various issues related to the new certification requirements, and certified our programs as required by the final GE rule and requirements of the Department of Education. The final rule also includes requirements for the reporting of learner and program data by institutions to the Department of Education and expands the disclosure requirements that have been in effect since July 1, 2011. The rule makes other conforming and technical revisions to the Title IV program participation agreement and related regulations. Refer to the more detailed discussion of recent rulemaking and regulatory activity pertaining to the area of Gainful Employment within the
Regulatory Environment
section of our
2015
Annual Report on Form 10-K.
|
•
|
Current negotiated rulemaking.
On April 1, 2016 the Department of Education released a supplemental notice of proposed rule making (NPRM) related to teacher preparation and Teacher Education Assistance for College and Higher Education (TEACH) grant requirements for distance education programs. This NPRM is a continuation of the teacher preparation negotiating rule making that was announced on October 26, 2011. Comments are due by May 1, 2016. No other NPRMs from this round of negotiated rulemaking have been issued.
|
•
|
State Authorization Reciprocity Agreement (SARA).
SARA is a nationwide state regulatory initiative intended to make distance education courses more accessible to learners across state lines and make it easier for states to regulate and institutions to participate in interstate distance education. On January 27, 2015, Minnesota became the 19
th
state to join SARA, and on March 6, 2015, Capella University was approved as an institutional participant in SARA.
|
•
|
Program Participation Agreement.
The Department of Education approved Capella University's Program Participation Agreement (PPA) in August 2014. Capella University is fully certified by the Department of Education to participate in Title IV programs through June 30, 2020.
|
•
|
Student Loan Cohort Default Rates
. To remain eligible to participate in Title IV programs, an educational institution's student loan cohort default rates must remain below certain specified levels. Under current regulations, an educational institution will lose its eligibility to participate in Title IV programs if its three-year measuring period student loan cohort default rate equals or exceeds 30% for three consecutive cohort years, or 40% for any given year. Capella University's three-year cohort default rates for the 2012 and 2011 cohorts are 8.9% and 13.0%, respectively. The decrease is in part due to our learner success initiatives and our efforts to help our learners make informed financial decisions both during and after the time they are at Capella, including educating learners about repayment options. The average cohort default rates for proprietary institutions nationally were 15.8% and 19.1%, in fiscal years 2012 and 2011, respectively.
|
•
|
Higher Learning Commission.
The Higher Learning Commission, Capella University’s accrediting body, is developing new standards and an approval process under which it evaluates new competency-based education and direct assessment programs such as FlexPath. In 2015, we received approval to begin offering the RN-to-BSN degree pathway program under the FlexPath model from the Higher Learning Commission. Accreditors, including the Higher Learning Commission, are developing a robust evaluative framework and high standards, which we believe is foundational to realize the underlying potential of direct assessment programs.
|
|
Three Months Ended March 31,
|
||||||||||||||||||||||
|
(Unaudited)
|
|
$ Change
|
|
% Change
|
|
% of Revenue
|
||||||||||||||||
$ in thousands
|
2016
|
|
2015
|
|
2016 vs. 2015
|
|
2016
|
|
2015
|
|
2016 vs. 2015
|
||||||||||||
Revenues
|
$
|
105,448
|
|
|
$
|
105,701
|
|
|
$
|
(253
|
)
|
|
(0.2
|
)%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
0.0
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Instructional costs and services
|
45,311
|
|
|
45,242
|
|
|
69
|
|
|
0.2
|
|
|
43.0
|
|
|
42.8
|
|
|
0.2
|
|
|||
Marketing and promotional
|
25,879
|
|
|
26,341
|
|
|
(462
|
)
|
|
(1.8
|
)
|
|
24.5
|
|
|
24.9
|
|
|
(0.4
|
)
|
|||
Admissions advisory
|
7,423
|
|
|
6,952
|
|
|
471
|
|
|
6.8
|
|
|
7.0
|
|
|
6.6
|
|
|
0.4
|
|
|||
General and administrative
|
10,308
|
|
|
9,556
|
|
|
752
|
|
|
7.9
|
|
|
9.8
|
|
|
9.0
|
|
|
0.8
|
|
|||
Total costs and expenses
|
88,921
|
|
|
88,091
|
|
|
830
|
|
|
0.9
|
|
|
84.3
|
|
|
83.3
|
|
|
1.0
|
|
|||
Operating income
|
16,527
|
|
|
17,610
|
|
|
(1,083
|
)
|
|
(6.1
|
)
|
|
15.7
|
|
|
16.7
|
|
|
(1.0
|
)
|
|||
Other expense, net
|
(9
|
)
|
|
(13
|
)
|
|
4
|
|
|
(30.8
|
)
|
|
—
|
|
|
(0.1
|
)
|
|
0.1
|
|
|||
Income from continuing operations before income taxes
|
16,518
|
|
|
17,597
|
|
|
(1,079
|
)
|
|
(6.1
|
)
|
|
15.7
|
|
|
16.6
|
|
|
(0.9
|
)
|
|||
Income tax expense
|
6,242
|
|
|
6,660
|
|
|
(418
|
)
|
|
(6.3
|
)
|
|
5.9
|
|
|
6.3
|
|
|
(0.4
|
)
|
|||
Effective tax rate
|
37.8
|
%
|
|
37.8
|
%
|
|
|
|
|
|
|
|
|
|
|
||||||||
Income from continuing operations
|
$
|
10,276
|
|
|
$
|
10,937
|
|
|
$
|
(661
|
)
|
|
(6.0
|
)%
|
|
9.7
|
%
|
|
10.3
|
%
|
|
(0.6
|
)%
|
Loss from discontinued operations, net of tax
|
(978
|
)
|
|
(900
|
)
|
|
(78
|
)
|
|
8.7
|
|
|
(0.9
|
)
|
|
(0.9
|
)
|
|
—
|
|
|||
Net income
|
$
|
9,298
|
|
|
$
|
10,037
|
|
|
$
|
(739
|
)
|
|
(7.4
|
)%
|
|
8.8
|
%
|
|
9.5
|
%
|
|
(0.7
|
)%
|
|
March 31,
|
|
|
|||||
Enrollment by Degree
(a)
:
|
2016
|
|
2015
|
|
% Change
|
|||
Doctoral
|
9,857
|
|
|
10,233
|
|
|
(3.7
|
)%
|
Master's
|
17,809
|
|
|
16,451
|
|
|
8.3
|
%
|
Bachelor's
|
9,784
|
|
|
9,835
|
|
|
(0.5
|
)%
|
Other
|
1,053
|
|
|
1,017
|
|
|
3.5
|
%
|
Total
|
38,503
|
|
|
37,536
|
|
|
2.6
|
%
|
•
|
Adjustments resulting from the translation of assets and liabilities of the foreign subsidiaries into U.S. dollars using exchange rates in effect at the balance sheet dates. These translation adjustments are recorded in accumulated other comprehensive income;
|
•
|
Earnings volatility translation of income and expense items of the foreign subsidiaries using an average monthly exchange rate for the respective periods; and
|
•
|
Gains and losses resulting from foreign exchange rate changes related to intercompany receivables and payables that are not of a long-term investment nature and are not denominated in the functional currencies of the respective entities, as well as gains and losses from foreign currency transactions. These items are recorded in other expense, net in the consolidated statements of income.
|
Period
|
Total Number of Shares
Purchased
|
|
Average Price Paid per
Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
|
Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
|
||||||
1/1/2016 to 1/31/2016
|
58,976
|
|
|
$
|
42.31
|
|
|
58,976
|
|
|
$
|
53,549,431
|
|
2/1/2016 to 2/29/2016
|
62,080
|
|
|
44.91
|
|
|
62,080
|
|
|
50,761,619
|
|
||
3/1/2016 to 3/31/2016
|
44,144
|
|
|
50.22
|
|
|
44,144
|
|
|
48,544,724
|
|
||
Total
|
165,200
|
|
|
45.40
|
|
|
165,200
|
|
|
48,544,724
|
|
(1)
|
The Company announced its current share repurchase program in July 2008. As of
March 31, 2016
, the Company's Board of Directors has authorized repurchases up to an aggregate amount of
$335.7 million
in value of common stock under the current program. The Board of Directors authorizes the Company to repurchase outstanding shares of common stock, from time to time, depending on market conditions and other considerations. There is no expiration date on the repurchase authorizations, and repurchases occur at the Company's discretion.
|
Number
|
|
Description
|
|
Method of Filing
|
|
|
|
|
|
3.1
|
|
Amended and Restated Articles of Incorporation.
|
|
Incorporated by reference to Exhibit 3.1 to the
Company’s Current Report on Form 8-K filed with the SEC on November 20, 2006.
|
|
|
|
|
|
3.2
|
|
Second Amended and Restated By-Laws.
|
|
Incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed with the SEC on December 10, 2008.
|
|
|
|
|
|
4.1
|
|
Specimen of common stock certificate.
|
|
Incorporated by reference to Exhibit 4.1 to Amendment No. 4 to the Company’s Registration Statement on Form S-1 filed with the SEC on October 20, 2006.
|
|
|
|
|
|
10.1*
|
|
Form of Capella Education Company Long-Term Performance Cash Plan Award Agreement.
|
|
Filed electronically.
|
|
|
|
|
|
10.2*
|
|
Form of Capella Education Company Management Incentive Plan Award Agreement.
|
|
Filed electronically.
|
|
|
|
|
|
10.3*
|
|
Employment agreement between Capella Education Company and Peter Ramstad, dated January 29, 2015.
|
|
Filed electronically.
|
|
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Filed electronically.
|
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Filed electronically.
|
|
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
Filed electronically.
|
|
|
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
Filed electronically.
|
|
|
|
|
|
EX-101.INS
|
|
XBRL Instance Document
(1)
|
|
Filed electronically.
|
|
|
|
|
|
EX-101.SCH
|
|
XBRL Taxonomy Extension Schema Document
(1)
|
|
Filed electronically.
|
|
|
|
|
|
EX-101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
(1)
|
|
Filed electronically.
|
|
|
|
|
|
EX-101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
(1)
|
|
Filed electronically.
|
|
|
|
|
|
EX-101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
(1)
|
|
Filed electronically.
|
|
|
|
|
|
EX-101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
(1)
|
|
Filed electronically.
|
(1)
|
The XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
|
CAPELLA EDUCATION COMPANY
|
|
/s/ J. Kevin Gilligan
|
April 26, 2016
|
J. Kevin Gilligan
Chief Executive Officer
|
(Principal Executive Officer)
|
|
/s/ Steven L. Polacek
|
April 26, 2016
|
Steven L. Polacek
Senior Vice President and Chief Financial Officer
|
(Principal Financial and Accounting Officer)
|
|
1 Year Capella Education Company (MM) Chart |
1 Month Capella Education Company (MM) Chart |
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