Steve Shank Chairman & CEO. Lois Martin Senior VP & CFO. Capella. Education Company. February 2009

Transcription

1 Steve Shank Chairman & CEO Lois Martin Senior VP & CFO Capella Education Company February 2009

2 2 Forward-looking statements Statement Under the Private Securities Litigation Reform Act of 1995 Statements in this presentation concerning Capella Education Company s future prospects are forward-looking statements under the Federal securities laws. There can be no assurance that future results will be achieved, and actual results could differ materially from forecasts, estimates, and summary information contained in this presentation. Important factors that could cause actual results to differ materially are included but are not limited to those listed in Capella Education Company s most recent 10-K and 10-Q, filed with the Securities and Exchange Commission. Other and changed factors may also be discussed in future 8-K, 10-K and 10-Q filings. All filings are and will be available for viewing on our Web site at capellaeducation.com

3 3 Agenda Investment highlights Agenda? Profile of Capella Market fundamentals Growth and performance drivers Strategic priorities and financial goals

4 4 Investment highlights of Capella Education Company Positioned in rapidly growing online education segment Graduate focus, high life-time value of learners Focused market strategy Quality reputation Compelling financial model

5 5 Unique profile of Capella University Learners 82% are enrolled in graduate programs Mid-career adult professionals Average age 39 years 70% female 45% minority Average household income $50K to $70K

6 6 Market Fundamentals in Higher Education Market

7 7 Online education the fastest growing segment of the education market Multiple of 2002 enrollment level Relative Enrollment Growth On-line enrollment E 2010E Source for online enrollment: Eduventures (2008) Source for total postsecondary enrollment: 2008 Digest of Education Statistics, Table 3; Department of Education 3 million Total post-secondary enrollment 19 million

8 8 Increased demand and earning potential Only 29% of adults have a four-year or more degree Significant return on investment Bachelor s degree 19% Master s degree 7% PhD or Doctoral 3% High school graduate or below 46% Median Annual Earnings $75,638 $47,240 $56,707 $28,290 Some college or AA degree 25% High school graduate Bachelor's degree Master's degree Doctoral degree Source: U.S. Census Bureau, Current Population Survey, 2008 Annual Social and Economic Supplement.

9 9 Large, attractive markets served by Capella Capella plays in large markets with a competitive and attractive value proposition Substantial growth opportunity in those markets for Capella Fragmented competition New offerings increase size of addressable market Differentiated position in quality segment Data for Professions Served by Capella: Total Employment of Adults (Age 25+) Total Post-Secondary Enrollment (Age 25+) Capella Enrollment Business Management/IT 15.1 million 1.3 million ~10,000 Education 6.3 million 0.5 million ~5,000 Health & Human Services 6.2 million 0.3 million ~10,000 Source: Bureau of Labor Statistics, Company Estimates

10 10 Capella Growth and Performance Drivers

11 11 Capella s strong annual revenue growth Revenue drivers: Market growth New enrollment growth Persistence Annual tuition increases Introduction of new programs and specializations Revenue (in millions) (CAGR 23%) $179.9 $149.2 $117.7 $226.2 $

12 12 High life-time value of Capella learners Long average time with Capella: 3 to 5 years 20 to 25% of Bachelor graduates and 15 to 20% of Master s graduates pursue another degree at Capella High average annual revenue per learner Very low loan default rate of 1.5% (1) and bad debt of less than 2% High propensity to recommend Capella (about 90% (2) ) BACHELOR'S 17% PhD/DOCTORAL 36% MASTER'S 47% (1) Department of Education; Capella 2006 Default Rate (2) Capella Alumni Outcome Survey 11/5/08.

13 13 Respected for excellence in education National reputation as high quality institution Recognized for excellence in Applied Technology 82% of faculty have doctoral degrees Partnership with employers, professional groups and agencies to ensure competency rich curriculum Leader in national transparency and outcomes initiative Track record of satisfied learners

14 14 Differentiation: why learners choose Capella Focus on specific markets and selected professions builds awareness and recognition Emphasis on providing superior learner experience Program accreditations, licensures and endorsements provide tangible proof of quality and professional recognition Course room designed to produce graduates with measurable competencies and learning outcomes

15 15 Capella s strong annual operating margin improvement Scalability of online business model Leverage of infrastructure Increased enrollment effectiveness Improvements in productivity and customer service Minimal future capital requirements Scalability: one third of costs are fixed Disciplined approach towards strategic investments using analytical capabilities Operating Margin 8.4% (CAGR 42% 2 ) 10.0% 9.9% 13.2% 14.7% (1) Implemented FAS 123R 2 CAGR Operating Income

16 16 Drivers for future operating margin expansion 5% 14.7% Service excellence Optimize technology Enhanced data analytics Learner support/ self-service Enrollment effectiveness Course sequencing/loading New markets/businesses Fixed cost leverage Automation Standardization/centralization New programs & specializations

17 17 Strong free cash flow increases Attractive financial model Upfront tuition payments Strong cash flow conversion EBITDA CAGR 36% Free cash flow CAGR 38% ($ in millions) $60 $50 $40 $30 $20 FCF EBITDA Minimal capital expenditure requirements $10 $ Free cash flow: net cash provided by operating activities less capital expenditures 2 In 2004, we reversed the valuation allowance that was previously applied to our net deferred tax assets (DTA). In 2005, we utilized a large portion of our net operating loss carry-forwards (NOL), which decreased the net DTA balance and therefore is reflected as an increase in operating cash flows ($6.2M).

18 18 Strong financial position Impressive revenue growth Strong demand High life-time value Differentiated market position Highly scalable model driving significant margin improvement Growth funded from cash flow generated by operations No debt Strong cash position of $124 million Minimal capital expenditures Cash flow from operations up 21%

19 19 Strategic priorities and financial goals

20 20 Strategic priorities

21 21 Financial goals 2009 to 2011 Annual enrollment growth of 18 to 22 % Annual revenue growth of 18 to 22 % Annual operating income improvements of 30+ % Capital expenditures of 5 to 6 % of revenue

22 22 Drivers for future success Business Excellence Differentiated Strategy Focused Execution Marketing and Sales Capabilities New Business Development Technology Integrated Platform Analytical Capabilities Leadership in Learning Technologies Academic Excellence Leadership in Learning Learner Focus Learning and Career Outcomes Transparency Learning Innovation

23 Thank You 23

24 24 Non-GAAP reconciliations CAPELLA EDUCATION COMPANY NON-GAAP YEAR-TO-DATE FREE CASH FLOW (In thousands) The following table provides a reconciliation of cash flow from operations to free cash flow for the year-to-date periods noted below: Quarter Ending Quarter Ending March 31, 2007 June 30, 2007 September 30, 2007 December 31, 2007 March 31, 2008 June 30, 2008 September 30, 2008 December 31, 2008 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Net cash provided by operating activities $ 6,281 $ 13,994 $ 27,744 $ 37,179 $ 10,084 $ 19,174 $ 32,145 $ 44,836 Capital expenditures (3,556) (10,253) (14,070) (16,061) (4,449) (7,058) (9,891) (14,375) Free cash flow $ 2,725 $ 3,741 $ 13,674 $ 21,118 $ 5,635 $ 12,116 $ 22,254 $ 30,461 CAPELLA EDUCATION COMPANY NON-GAAP QUARTERLY EBITDA (In thousands) The following table provides a reconciliation of net income to EBITDA for the quarterly period noted below: Quarter Ending Quarter Ending March 31, 2007 June 30, 2007 September 30, 2007 December 31, 2007 March 31, 2008 June 30, 2008 September 30, 2008 December 31, 2008 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Net Income $ 3,844 $ 4,783 $ 5,062 $ 9,095 $ 5,488 $ 6,358 $ 5,776 $ 11,166 Other Income (net) (1,092) (1,132) (1,253) (1,426) (1,389) (1,008) (839) (825) Income Tax Expense 2,248 2,312 2,514 4,995 3,013 3,314 2,999 6,049 Depreciation and Amortization 2,410 2,340 2,527 2,495 2,765 3,092 3,192 3,197 EBITDA $ 7,410 $ 8,303 $ 8,850 $ 15,159 $ 9,877 $ 11,756 $ 11,128 $ 19,587