Capella News

MINNEAPOLIS, Feb. 12, 2009 - Capella Education Company (NASDAQ: CPLA), a provider of exclusively online post-secondary education through its wholly owned subsidiary Capella University, today announced financial results for the three months ended Dec. 31, 2008.

“We achieved strong enrollment and revenue growth, as well as operating leverage in 2008, while completing a significant, multi-year infrastructure investment,” said Stephen Shank, chairman and chief executive officer of Capella Education Company. ldquo;In addition, we made great progress on our commitment to build a business that delivers sustainable, profitable growth for our shareholders. We continued to invest in expanding and strengthening our academic offerings and providing our learners with exceptional learning outcomes and an improved learner experience,” concluded Shank.

For the fiscal year ended Dec. 31, 2008:

* Revenues for the year increased 20.4 percent to $272.3 million, compared to $226.2 million in 2007.
* Total active enrollment increased by 20.5 percent to 26,883 learners. Average quarterly enrollment during 2008 increased by 20.2 percent. New enrollment grew 17.1 percent in 2008.
* Operating income increased 33.9 percent to $40.1 million, compared to $30.0 million in 2007. The operating margin in 2008 was 14.7 percent, compared to 13.2 percent in 2007, a 150 basis point improvement.
* Net income was $28.8 million, an increase of 26.4 percent, compared to $22.8 million in 2007.
* Diluted net income per share was $1.66, compared to $1.33 in 2007.
* The company repurchased approximately 1,039,000 shares for total consideration of $58.3 million during 2008.

For the nine months ended Dec. 31, 2008:

* Revenues increased 18.4 percent to $75.8 million, compared to $64.0 million in the fourth quarter of 2007.
* Operating income increased by 29.4 percent to $16.4 million, compared to $12.7 million for the same period in 2007. The operating margin was 21.6 percent, compared to 19.8 percent for the fourth quarter 2007.
* Net income for the fourth quarter of 2008 was $11.2 million, compared to $9.1 million for the same period in 2007, an increase of 22.8 percent.
* Diluted net income per share was $0.66, compared to $0.51 for the same period in 2007.
* The company repurchased approximately 96,400 shares for total consideration of $4.1 million.

“The demand dynamics of Capella, including lead flow, application intake and learner persistence remain strong,” said Lois Martin, senior vice president and chief financial officer. “Our strong operating results, combined with a strong balance sheet with no debt and a strong cash position, as well as solid free cash flow, reflect the strength of our business model.”

Balance Sheet and Cash Flow
As of Dec. 31, 2008, the Company had cash, cash equivalents and marketable securities of $123.6 million, compared to $143.8 million at Dec. 31, 2007. The year-over year change reflects payments related to the repurchase of $58.3 million of common stock, partially offset by increased cash flow from operations. The Company had no debt in 2008 or 2007.

Cash flow from operations was $44.8 million during full-year 2008 compared to $37.2 million in 2007. Capital expenditures on a cash basis were $14.4 million for 2008, which compares to $16.1 million in capital expenditures in 2007, a decrease of $1.7 million as a result of the completion of the multi-year Enterprise Resource Planning (ERP) system in July 2008. Depreciation and amortization for full year 2008 increased to $12.2 million from $9.8 million for the same period in 2007, primarily due to depreciation associated with the ERP system implementation completed in 2008.

2009 Annual Outlook
For fiscal year 2009, we expect revenue and average quarterly enrollment growth of 18 to 21 percent from fiscal 2008. Operating margins are expected to be approximately 16.5 to 17.5 percent of revenue. The annual tax rate is anticipated to be approximately 36 percent. Capital expenditures are projected to be 4 to 5 percent of revenue.

“We expect to continue to capture significant productivity benefits in 2009, supported by our best-in-class integrated infrastructure,” said Martin. “Capella has a fundamentally differentiated business, a clear vision and solid strategies in place, which delivered robust results in 2008 and provides a strong platform for continued growth,” concluded Martin.

First Quarter 2009 Outlook
For the first quarter ending March 31, 2009, enrollment is expected to grow by 17.5 to 19.0 percent and revenue by 16.0 to 17.5 percent compared to the first quarter of 2008. The operating margin is anticipated to be approximately 14.5 to 15.5 percent of total revenue for the first quarter of 2009.

“The enrollment and revenue expectations for the first quarter 2009 are lower than our annual growth expectations primarily because some new learners accelerated their course start date from January 2009 into fourth quarter 2008,” concluded Martin.

Forward-Looking Statements
Certain information in this news release does not relate to historical financial information, including statements relating to our future prospects and our expectations regarding our revenues, enrollment, and operating performance, and may be deemed to constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company cautions investors not to place undue reliance on any such forward-looking statements, which are based on information available at the time those statements are made or management’s good faith belief as of that time with regard to future events, and should not be read as a guarantee of future performance or results. Such statements are subject to certain risks and uncertainties that could cause the company’s actual results in the future to differ materially from its historical results and those presently anticipated or projected. The company undertakes no obligation to update its forward-looking statements to reflect events or circumstances arising after such date.

Among these risks and uncertainties are any failure to materially comply with the extensive regulatory framework applicable to us, including compliance with Title IV of the Higher Education Act and the regulations thereunder; regional accreditation standards and state and regional regulatory requirements; changes in funding and availability for Title IV programs; responding to any additional governmental inquiries into our financial aid practices; attracting and retaining learners; updating and expanding the content of existing programs and developing new programs; the review of our business and financial aid practices by governmental authorities, including action by Federal Student Aid on the final audit report of the Office of Inspector General of the U.S. Department of Education arising out of its ongoing compliance audit of Capella University; changes in applicable federal and state laws and regulations and accrediting agency policies; maintaining and expanding existing commercial relationships with employers and developing new such relationships; our failure to keep up with advances in technology important to the online learner experience; our ability to manage growth effectively; our ability to realize expected efficiency improvements from our ERP system and our use our business technology to accurately store, process and report relevant data; reclassification of our adjunct faculty; unforeseen changes in student enrollment or our expenses; and risks associated with the overall competitive environment and general economic conditions.

Other factors that could cause the company’s results to differ materially from those contained in its forward-looking statements are included under, among others, the heading “Risk Factors” in our most recent Form 10-K and Form 10-Qs on file with the Securities and Exchange Commission and other documents filed by the company with the Securities and Exchange Commission.

Conference Call
Capella will discuss its fourth quarter 2008 results and first quarter and full year 2009 outlook during a conference call scheduled today, Feb. 12, at 9:00 a.m. Eastern time (ET). To participate in the live call, investors should dial (888) 221-9576 (domestic) or (913) 312-9330 (international) at 8:50 a.m. (ET). The webcast will be available on the Capella Education Company Web site at www.capellaeducation.com. . A replay of the call will be available from Feb. 12, 2009, through Feb. 18, 2009, by calling (888) 203-1112 (domestic) or (719) 457-0820 (international), passcode 5834285. It will also be archived at www.capellaeducation.com in the investor relations section for 60 days.

About Capella Education Company
Founded in 1991, Capella Education Company (NASDAQ: CPLA) is a national leader in online education and parent company of Capella University, a regionally accredited* online university. Capella University offers graduate degree programs in business, information technology, education, human services, psychology, public health, and public safety, and bachelor’s degree programs in business, information technology, and public safety. These academic programs are designed to meet the needs of working adults, combining high quality, competency-based curricula with the convenience and flexibility of an online learning format. Currently, Capella University offers 23 graduate and undergraduate degree programs with 114 specializations and more than 1050 courses. More than 26,800 learners were enrolled as of Dec. 31, 2008. For more information about Capella Education Company, please visit http://www.capella.edu or call 1.888.CAPELLA (227.3552).

*Capella University is accredited by The Higher Learning Commission and is a member of the North Central Association of Colleges and Schools (NCA), www.ncahlc.org.
Capella University, 225 South Sixth Street, Ninth Floor, Minneapolis, MN 55402, 1-888-CAPELLA (227-3552), www.capella.edu.