Market Overview

Capella Education Company Reports Fourth Quarter and Full Year 2017 Results

Share:

Strong new enrollment growth in fourth quarter 2017

Capella
Education Company
(NASDAQ:CPLA), a leading educational services
company, today announced financial results for the three months and year
ended Dec. 31, 2017.

"We are pleased with our mid-single digit new enrollment growth in the
fourth quarter of 2017. After taking into consideration adjustments for
certain items in the fourth quarter, our financial performance was
consistent with our expectations," said Kevin Gilligan, chairman and
chief executive officer. "We are executing on our strategies to deliver
the most direct path between learning and employment and maintaining our
commitment to academic quality."

Mr. Gilligan continued, "We are continuing to make progress on our
merger process with Strayer Education, Inc. and have achieved key
milestones, including antitrust and shareholder approvals. We look
forward to completing the transaction and creating a national leader for
adults looking for the education they need to advance their careers in
best-in-class institutions for faculty and employees."

Selected Financial Data for the Three Months Ended Dec. 31, 2017

Capella Education Company revenues were $112.0 million in the fourth
quarter of 2017, up 0.7 percent compared to $111.3 million in the fourth
quarter of 2016. The operating loss on a GAAP basis was $1.6 million,
compared to operating income of $18.3 million for the same period in
2016. On an adjusted, non-GAAP basis, fourth quarter 2017 operating
income was $18.3 million. The fourth quarter 2017 period includes
goodwill and intangible asset impairment charges of $15.0 million within
the Job-Ready Skills segment, merger transaction costs of $3.7 million
and the impact of tax reform of $2.2 million for Capella Education
Company, and restructuring charges of $1.3 million within the
Post-Secondary and Job-Ready Skills segments. Diluted net loss per
common share from continuing operations on a GAAP basis was $0.63,
compared to diluted net income per common share from continuing
operations of $0.97 for the same period in 2016. On an adjusted,
non-GAAP basis, fourth quarter 2017 diluted net income per common share
from continuing operations was $0.86. In addition, other tax adjustments
reduced net income per common share from continuing operations for
fourth quarter 2017 by an additional $0.13.

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. A summary of
adjusted items by segment is included in the notes to the attached
non-GAAP reconciliation table.

Post-Secondary Segment

  • Fourth quarter 2017 revenues were $109.8 million, up 0.4 percent
    compared to $109.4 million in the same period a year ago. The increase
    in revenue is related to higher revenue-per-learner primarily as a
    result of learners selecting course materials made available to
    support their academic needs and a slight tuition price increase
    implemented in July, 2017.
  • Operating income was $19.8 million, compared to operating income of
    $20.7 million for the same period in 2016. The operating margin was
    18.0 percent in the fourth quarter 2017, compared to 18.9 percent in
    the fourth quarter of 2016. The fourth quarter 2017 period includes
    restructuring charges of $0.7 million to align the organization with
    2018 strategic priorities. Post-Secondary segment operating results
    are primarily attributable to Capella University.
  • Capella University new enrollment increased by 5.7 percent compared to
    fourth quarter 2016, including positive new enrollment growth across
    all degree programs.
  • Total Capella University active enrollment decreased 1.0 percent to
    37,517 learners, and early cohort persistence improved by
    approximately 1 percent as improvements moderated given gains of 21
    percent over a period of approximately 5 years.
  • FlexPath, Capella University's fastest-growing offerings, continued to
    positively impact new and total enrollment in the fourth quarter 2017,
    and is now 20 percent of Capella University's Bachelor's and Master's
    degrees total enrollment.

Job-Ready Skills Segment

  • Fourth quarter 2017 revenues were $2.2 million compared to $1.9
    million in the same period of 2016.
  • Operating loss was $17.7 million in the fourth quarter 2017, compared
    to a loss of $2.4 million in the fourth quarter of 2016. While the
    acquisitions of Hackbright and DevMountain have positively impacted
    revenue growth, the acquisitions have not achieved performance
    expectations, resulting in fourth quarter 2017 goodwill and intangible
    asset impairment charges of $15.0 million. In addition, the fourth
    quarter 2017 period includes restructuring charges of $0.6 million to
    right-size the cost structure in the Job-Ready Skills segment.

Selected Financial Data for the Fiscal Year Ended Dec. 31, 2017

Capella Education Company revenues were $440.4 million in fiscal year
2017, up 2.6 percent compared to $429.4 million in 2016. Operating
income on a GAAP basis was $45.1 million, compared to $68.2 million for
the same period in 2016. On an adjusted, non-GAAP basis, full-year 2017
operating income was $65.1 million. The full-year 2017 period includes
goodwill and intangible asset impairment charges of $15.0 million within
the Job-Ready Skills segment, merger transaction costs of $3.7 million
and the impact of tax reform of $2.2 million for Capella Education
Company, and restructuring charges of $1.3 million within the
Post-Secondary and Job-Ready Skills segments. Diluted net income per
common share from continuing operations on a GAAP basis was $1.96,
compared to $3.58 for the same period in 2016. On an adjusted, non-GAAP
basis, full-year 2017 diluted net income per common share from
continuing operations was $3.43.

Balance Sheet and Cash Flow

At Dec. 31, 2017, Capella Education Company had cash and marketable
securities of $181.4 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
2017 was $63.7 million compared to $86.1 million in 2016.

Dividend and Share Repurchases

A quarterly cash dividend of $0.43 per outstanding share of common stock
was declared during the fourth quarter of 2017. The dividend was paid on
Jan. 18, 2018.

The Company repurchased approximately 51,000 shares of Capella stock for
total consideration of $3.5 million in fiscal year 2017. In the fourth
quarter of 2017, Capella Education Company repurchased approximately
14,000 shares of Capella stock for total consideration of $1.0 million.
The remaining authorization as of the end of the fourth quarter was
$27.0 million.

2018 Goals and Outlook

The Company's goal for 2018 is to deliver continued revenue growth. To
achieve this goal, annual new enrollment growth will be needed in a
continuing volatile enrollment environment, as well as stable or
improving early cohort persistence and continued revenue growth in the
Job-Ready Skills segment. In addition, the Company is managing the
Job-Ready Skills segment to be less dilutive in 2018.

The tax rate for recurring operations for Capella Education Company in
2018 is currently expected to be about 24 to 25 percent related to the
United States tax reform legislation passed at the end of 2017, which
reduced the federal corporate tax rate.

Merger Update

As announced on October 30, 2017, Capella Education Company and Strayer
Education, Inc. ("Strayer") (NASDAQ:STRA) agreed to combine in an
all-stock merger of equals transaction, creating a national leader in
education innovation. As previously disclosed, on November 22, 2017, the
U.S. Federal Trade Commission granted early termination of the
applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. In addition, on January 19, 2018, the Company
and Strayer announced that shareholders of both companies voted to
approve a proposal to effect the merger. The proposed
merger remains subject to the satisfaction of customary closing
conditions, including approvals by State regulators, and relevant
accreditation bodies. By letter dated February 26, 2018, the Department
of Education issued the results of its preacquisition review of the
proposed change in ownership of Capella. That letter confirms that,
subject to submission of additional documents following the Closing, the
University will have uninterrupted participation in the Title IV
Programs while the Department of Education completes its review of the
relevant documentation. Capella Education Company and Strayer continue
to expect that the merger will close in the third quarter of 2018.
Following the completion of the merger, Strategic Education, Inc. will
be the corporate entity under which both Capella University and Strayer
University will continue to operate as independent and separately
accredited institutions.

Conference Call

In light of the pending merger, the Company will not be providing
financial guidance or hold an investor conference call.

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 growing
acquisitions and 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 December 31, 2017 As of December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents $ 106,566 $ 93,570
Marketable securities, current 45,226 45,458
Accounts receivable, net of allowance of $7,979 at December 31, 2017
and $6,682 at December 31, 2016
22,733 20,708
Prepaid expenses and other current assets 9,523   17,877  
Total current assets 184,048 177,613
Marketable securities, non-current 29,570 23,320
Property and equipment, net 35,961 34,121
Goodwill 13,477 23,310
Intangibles, net 3,402 9,221
Deferred income taxes 2,839 1,853
Other assets 9,724   7,875  
Total assets $ 279,021   $ 277,313  
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,281 $ 4,367
Accrued liabilities 26,619 31,302
Dividends payable 5,228 4,945
Deferred revenue 13,849   12,398  
Total current liabilities 47,977 53,012
Deferred rent 12,365 13,693
Other liabilities 3,288   2,316  
Total liabilities 63,630 69,021
Shareholders' equity:
Common stock, $0.01 par value: Authorized shares — 100,000; Issued
and Outstanding shares — 11,635 at December 31, 2017 and 11,545 at
December 31, 2016
116 115
Additional paid-in capital 127,804 121,581
Accumulated other comprehensive loss (110 ) (93 )
Retained earnings 87,581   86,689  
Total shareholders' equity 215,391   208,292  
Total liabilities and shareholders' equity $ 279,021   $ 277,313  
 

CAPELLA EDUCATION COMPANY

Consolidated Statements of Income

(In thousands, except per share amounts)

   
 
Three Months Ended December 31, Year-Ended December 31,
2017   2016 2017   2016
(Unaudited)
Revenues $ 112,032 $ 111,308 $ 440,411 $ 429,390
Costs and expenses:
Instructional costs and services 48,679 47,526 195,081 185,995
Marketing and promotional 27,901 27,319 109,394 103,458
Admissions advisory 6,948 7,176 29,163 29,292
General and administrative 10,179 11,027 41,714 42,438
Goodwill and intangible asset impairment charges 14,955 14,955
Merger transaction costs 3,728 3,728
Restructuring charges 1,282     1,282  
Total costs and expenses 113,672   93,048     395,317   361,183
Operating income (loss) (1,640 ) 18,260 45,094 68,207
Other income, net 401   98     793   177
Income (loss) from continuing operations before income taxes (1,239 ) 18,358 45,887 68,384
Income tax expense 6,031   6,891   22,477   25,980
Income (loss) from continuing operations (7,270 ) 11,467 23,410 42,404
Income (loss) from discontinued operations, net of tax   (41 ) 95   565
Net income (loss) $ (7,270 ) $ 11,426   $ 23,505   $ 42,969
Basic net income (loss) per common share:
Continuing operations (0.63 ) 1.00 2.01 3.65
Discontinued operations   (0.01 ) 0.01   0.05
Basic net income (loss) per common share $ (0.63 ) $ 0.99   $ 2.02   $ 3.70
Diluted net income (loss) per common share
Continuing operations (0.63 ) 0.97 1.96 3.58
Discontinued operations     0.01   0.04
Diluted net income (loss) per common share $ (0.63 ) $ 0.97   $ 1.97   $ 3.62
Weighted average number of common shares outstanding:
Basic 11,628 11,517 11,623 11,614
Diluted 11,628 11,812 11,950 11,856
Cash dividends declared per common share $ 0.43 $ 0.41 $ 1.66 $ 1.58
 

CAPELLA EDUCATION COMPANY

Consolidated Statements of Cash Flows

(In thousands)

 
Year-Ended December 31,
2017   2016
Operating activities
Net income $ 23,505   $ 42,969
Income from discontinued operations, net of tax 95   565  
Income from continuing operations 23,410 42,404
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for bad debts 12,726 10,663
Depreciation and amortization 19,718 21,343
Amortization of investment discount/premium, net 1,410 2,129
Impairment of goodwill and intangible assets 14,955
Impairment of property and equipment 440 442
Loss on disposal of property and equipment 414 164
Share-based compensation 6,524 6,422
Excess tax benefits from share-based compensation (1,136 )
Deferred income taxes (909 ) (4,280 )
Changes in operating assets and liabilities, net of assets acquired
and liabilities assumed from business acquisitions:
Accounts receivable (14,751 ) (13,568 )
Prepaid expenses and other current assets (963 ) (470 )
Accounts payable and accrued liabilities (6,214 ) 9,063
Income taxes payable 6,822 (2,823 )
Deferred rent (1,328 ) 11,819
Deferred revenue 1,451   3,902  
Net cash provided by operating activities - continuing operations 63,705 86,074
Net cash provided by (used in) operating activities - discontinued
operations
95   (2,874 )
Net cash provided by operating activities 63,800 83,200
Investing activities
Acquisitions, net of cash acquired (32,101 )
Capital expenditures (22,097 ) (20,908 )
Investment in partnership interests (1,787 ) (3,551 )
Purchases of marketable securities (73,680 ) (29,216 )
Maturities of marketable securities 66,220   31,430  
Net cash used in investing activities - continuing operations (31,344 ) (54,346 )
Net cash provided by investing activities - discontinued operations 3,243   15,032  
Net cash used in investing activities (28,101 ) (39,314 )
Financing activities
Excess tax benefits from share-based compensation 1,136
Net proceeds from exercise of stock options 1,042 5,363
Taxes paid for restricted stock units (1,197 ) (931 )
Payment of dividends (19,078 ) (18,254 )
Repurchases of common stock (3,472 ) (25,633 )
Net cash used in financing activities - continuing operations (22,705 ) (38,319 )
Net cash used in financing activities - discontinued operations    
Net cash used in financing activities (22,705 ) (38,319 )
Effect of foreign exchange rates on cash 2   (24 )
Net increase in cash and cash equivalents 12,996 5,543
Cash and cash equivalents and cash of business held for sale at
beginning of year
93,570   88,027  
Cash and cash equivalents at end of year $ 106,566   $ 93,570  
Supplemental disclosures of cash flow information
Income taxes paid $ 16,616 $ 33,093
Non-cash investing and financing activities:
Purchase of equipment included in accounts payable and accrued
liabilities
$ 379 $ 784
Declaration of cash dividend to be paid 5,041 4,785
Receivable due from sale of business 3,084
 

CAPELLA EDUCATION COMPANY

Segment Reporting

(In thousands)

   
Three Months Ended Year-Ended
December 31, December 31,
2017   2016 2017   2016
(Unaudited)
Revenues
Post-Secondary $ 109,837 $ 109,381 $ 430,665 $ 424,085
Job-Ready Skills 2,195   1,927   9,746   5,305  
Consolidated revenues $ 112,032   $ 111,308   $ 440,411   $ 429,390  
Operating income (loss)
Post-Secondary 19,817 20,680 74,005 76,935
Job-Ready Skills (17,729 ) (2,420 ) (25,183 ) (8,728 )
Merger transaction costs (3,728 )   (3,728 )  
Consolidated operating income (loss) (1,640 ) 18,260 45,094 68,207
Other income, net 401   98   793   177  
Income (loss) from continuing operations before income taxes $ (1,239 ) $ 18,358   $ 45,887   $ 68,384  
 

Within the summary of financial information by reportable segment table
above, the operating loss attributable to the Job-Ready Skills segment
for the three months and year-ended December 31, 2017 includes goodwill
and intangible asset impairment charges of $15.0 million and
restructuring charges of $0.6 million. Additionally, the operating
income attributable to the Post-Secondary segment for the three months
and year-ended December 31, 2017 includes restructuring charges of $0.7
million. Goodwill and intangible asset impairment charges represent the
excess of the carrying value of the Coding Schools reporting unit
relative to the fair value determined as part of the goodwill and
intangible asset annual impairment analysis. Restructuring charges
relate primarily to severance costs and other termination benefits
associated with former Company employees whose employment at the Company
was involuntarily terminated during the period as we aligned the
organization with 2018 strategic priorities and right-sized the cost
structure in the Job-Ready Skills segment.

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
prior quarters 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 EDUCATION COMPANY
Reconciliation of Non-GAAP
Financial Information

(In thousands, except per share
amounts)

Reconciliation of GAAP Financial Measures to Non-GAAP Measures

To provide additional transparency and clarity, we have provided the
following Non-GAAP measures of performance as adjusted for certain items
that we believe to be useful to readers of the financial statements.
These non-GAAP financial measures are useful in evaluating the
performance of the Company, as they provide additional insights to users
of the financial statements and highlight the impact of goodwill and
intangible asset impairment charges, transaction-related expenses
associated with the Company's pending merger agreement, restructuring
actions, and tax reform on the financial performance and operating
results of the Company. Management uses the following Non-GAAP adjusted
items as measures of operating performance for the Company, and certain
of these Non-GAAP adjusted items (not including the impact of tax
reform) are also components in the determination of management incentive
compensation. However, these items (such as adjusted net income and
adjusted diluted net income per common share) are not recognized
measurements under U.S. generally accepted accounting principles (GAAP)
and when analyzing our operating performance, investors should use these
adjusted measures in addition to, and not as an alternative for, the
corresponding unadjusted items (including unadjusted net income and
unadjusted diluted net income per common share, as reconciled within the
tables below and reported within the Consolidated Statement of Income)
as determined in accordance with GAAP. The adjusted Non-GAAP measures
are included in the column labeled 'As Adjusted (Non-GAAP)' and the
associated most directly comparable GAAP measures are shown within the
column labeled 'As Reported (GAAP).' Other companies may calculate these
adjusted operating performance metrics differently than we do, limiting
the usefulness of this measure for comparisons with other companies.

Three Months Ended December 31, 2017

 

Three Months
Ended December
31, 2017

 

Goodwill and
Intangible Asset
Impairment
Charges
(a)

 

Merger
Transaction
Costs (b)

 

Restructuring
Charges (c)

 

Tax Reform
Impact

 

Three Months
Ended December
31, 2017

As Reported
(GAAP)

Non-GAAP Adjustments

As Adjusted
(Non-GAAP)

(Unaudited)
Operating income (loss) $ (1,640 ) $ 14,955   $ 3,728   $ 1,282   $ $ 18,325
Other income, net 401           401
Income (loss) from continuing operations before income taxes (1,239 ) 14,955 3,728 1,282 18,726
Income tax expense (d) 6,031   3,747   390   480     (2,224 ) 8,424
Income (loss) from continuing operations (7,270 ) 11,208 3,338 802 2,224 10,302
Income (loss) from discontinued operations, net of tax            
Net income (loss) $ (7,270 ) $ 11,208   $ 3,338   $ 802     $ 2,224   $ 10,302
Basic net income (loss) per common share:
Continuing operations $ (0.63 ) $ 0.96 $ 0.29 $ 0.07 $ 0.19 $ 0.89
Discontinued operations            
Basic net income (loss) per common share $ (0.63 ) $ 0.96   $ 0.29   $ 0.07     $ 0.19   $ 0.89
Diluted net income (loss) per common share:
Continuing operations $ (0.63 ) $ 0.94 $ 0.28 $ 0.07 $ 0.19 $ 0.86
Discontinued operations            
Diluted net income (loss) per common share $ (0.63 ) $ 0.94   $ 0.28   $ 0.07     $ 0.19   $ 0.86
Weighted average number of common shares outstanding:
Basic 11,628 11,628
Diluted (e) 11,628 11,935
 

Note: Per share amounts for basic and diluted net income (loss) per
common share may not sum across due to rounding.

(a) Goodwill and intangible asset impairment charges relate to non-cash
expenses arising from the impairment of goodwill and indefinite-lived
intangible asset balances applicable to the Coding Schools reporting
unit (included within the Job-Ready Skills segment) as determined during
the performance of our annual goodwill and intangible asset impairment
analysis. Based on the results of the valuation analysis performed, the
fair value of the Coding Schools reporting unit, and the fair value of
the Hackbright and DevMountain trade names, were determined to be less
than their respective carrying values as of the valuation date, and
$15.0 million of impairment charges were recorded during the three
months ended December 31, 2017. Of this amount, $9.9 million relates to
a goodwill impairment charge and $5.1 million relates to an intangible
asset (trade name) impairment charge.

(b) During the three months ended December 31, 2017, the Company
incurred $3.7 million in transaction costs related to the Merger
agreement, primarily attributable to consulting, legal, and investment
banking fees incurred by the Company in connection with the proposed
Merger agreement.

(c) Restructuring charges relate primarily to severance costs and other
termination benefits associated with former Company employees whose
employment at the Company was involuntarily terminated during the period
as we aligned the organization with 2018 strategic priorities and
right-sized the cost structure in the Job-Ready Skills segment, which
resulted in restructuring charges of $1.3 million during the three
months ended December 31, 2017. Severance and related termination
benefits are recorded during the period in which no additional services
are required to be performed by the former employee in order to receive
severance benefits.

(d) During the three months ended December 31, 2017, the effective tax
rate as reported was significantly impacted by Non-GAAP adjustment items
presented above. The adjusted effective tax rate after taking into
account the Non-GAAP adjustment items included in the Non-GAAP
reconciliation above was 45%, which is higher than our historical
effective tax rate due to other tax adjustments totaling $1.5 million,
which were recorded during the fourth quarter of 2017.

(e) During quarterly periods in which the Company reports a net loss,
basic and diluted loss per share are disclosed as the same amount, as
including the impact of dilutive securities would be antidilutive to the
calculation.

Year-Ended December 31, 2017

 

Year Ended
December 31,
2017

 

Goodwill and
Intangible Asset
Impairment
Charges
(a)

 

Merger
Transaction
Costs (b)

 

Restructuring
Charges (c)

 

Tax Reform
Impact

 

Year Ended
December 31,
2017

As Reported
(GAAP)

Non-GAAP Adjustments

As Adjusted
(Non-GAAP)

Operating income $ 45,094 $ 14,955   $ 3,728   $ 1,282   $ $ 65,059
Other income, net 793           793
Income from continuing operations before income taxes 45,887 14,955 3,728 1,282 65,852
Income tax expense (d) 22,477   3,747   390   480     (2,224 ) 24,870
Income from continuing operations 23,410 11,208 3,338 802 2,224 40,982
Income from discontinued operations, net of tax 95             95
Net income $ 23,505   $ 11,208   $ 3,338   $ 802     $ 2,224   $ 41,077
Basic net income per common share:
Continuing operations $ 2.01 $ 0.96 $ 0.29 $ 0.07 $ 0.19 $ 3.53
Discontinued operations 0.01            
Basic net income per common share $ 2.02   $ 0.96   $ 0.29   $ 0.07     $ 0.19   $ 3.53
Diluted net income per common share:
Continuing operations $ 1.96 $ 0.94 $ 0.28 $ 0.07 $ 0.19 $ 3.43
Discontinued operations 0.01             0.01
Diluted net income per common share $ 1.97   $ 0.94   $ 0.28   $ 0.07     $ 0.19   $ 3.44
Weighted average number of common shares outstanding:
Basic 11,623 11,623
Diluted 11,950 11,950
 

Note: Per share amounts for basic and diluted net income per common
share may not sum across due to rounding.

(a) Goodwill and intangible asset impairment charges relate to non-cash
expenses arising from the impairment of goodwill and indefinite-lived
intangible asset balances applicable to the Coding Schools reporting
unit (included within the Job-Ready Skills segment) as determined during
the performance of our annual goodwill and intangible asset impairment
analysis. Based on the results of the valuation analysis performed, the
fair value of the Coding Schools reporting unit, and the fair value of
the Hackbright and DevMountain trade names, were determined to be less
than their respective carrying values as of the valuation date, and
$15.0 million of impairment charges were recorded during the twelve
months ended December 31, 2017. Of this amount, $9.9 million relates to
a goodwill impairment charge and $5.1 million relates to an intangible
asset (trade name) impairment charge.

(b) During the year-ended December 31, 2017, the Company incurred $3.7
million in transaction costs related to the Merger agreement, primarily
attributable to consulting, legal, and investment banking fees incurred
by the Company in connection with the proposed Merger agreement.

(c) Restructuring charges relate primarily to severance costs and other
termination benefits associated with former Company employees whose
employment at the Company was involuntarily terminated during the period
as we aligned the organization with 2018 strategic priorities and
right-sized the cost structure in the Job-Ready Skills segment, which
resulted in restructuring charges of $1.3 million during the year-ended
December 31, 2017. Severance and related termination benefits are
recorded during the period in which no additional services are required
to be performed by the former employee in order to receive severance
benefits.

(d) During the year-ended December 31, 2017, the effective tax rate as
reported was 49.0%, of which 11.2% was driven by Non-GAAP adjustment
items. The adjusted effective tax rate after taking into account the
Non-GAAP adjustment items included in the Non-GAAP reconciliation above
was 37.8%, which is in line with our historical effective tax rate.

CAPELLA UNIVERSITY

Other Information

   
December 31,
Capella University Enrollment by Degree (a): 2017   2016 % Change
Doctoral 9,096 9,110 (0.2 )%
Master's 17,437 17,865 (2.4 )%
Bachelor's 9,856 9,791 0.7 %
Other 1,128   1,116   1.1 %
Total 37,517   37,882   (1.0 )%

(a) Enrollment as of December 31, 2017 and 2016 includes learners who
are actively enrolled during the last month of the quarters ended
December 31, 2017 and 2016, respectively.

View Comments and Join the Discussion!