Capella Education (CPLA) 8-K Capella Education Company reports third quarter 2010 results

Exhibit 99.1

NEWS RELEASE

FOR IMMEDIATE RELEASE

Investor Contact:

Heide Erickson

Capella Education Company

612.977.5172

Heide.Erickson@capella.edu

Media Contact:

Mike Buttry

Capella Education Company

612.977.5499

Mike.Buttry@capella.edu

Capella Education Company reports third quarter 2010 results

Enrollment and revenue up 25.7 percent;

operating income increased 44.4 percent

MINNEAPOLIS, Oct. 26, 2010 -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 and nine months ended Sept. 30, 2010.

“Third quarter 2010 was another quarter of strong results,” said Kevin Gilligan, chairman and chief executive officer of Capella Education Company. “Quality post-secondary education remains very attractive due to the opportunity for high life-time return on investment for graduates. Capella has built a leadership position in online learning and a strong reputation for academic quality. Coupled with the breadth of our educational program offerings and focus on learner success, Capella is well-positioned to benefit from the long-term growth drivers in the higher education market.”

“In the near-term, the market environment is becoming more challenging as competition increases for high-quality prospective learners and consumers react to the prolonged uncertainty around the economy,” said Gilligan. “We are responding to this challenge in a disciplined way and remain confident our brand, advanced marketing analytics, and highly differentiated programs will set Capella apart in an increasingly competitive environment. We remain committed to managing our business for sustained long-term growth by differentiating through high-quality learning and career outcomes.”

For the quarter ended Sept. 30, 2010:

• Total enrollment increased by 25.7 percent from the prior year to 38,634 learners. Graduate program enrollment increased by 19.4 percent year-over-year to slightly over 30,000 learners.

• Revenues increased by 25.7 percent to $105.0 million, compared to $83.6 million for the third quarter in 2009.

• Operating income for the quarter was $21.0 million, or 20.0 percent of revenue, compared to $14.5 million, or 17.4 percent of revenue for the same period in 2009.

• Net income for the third quarter was $13.5 million, or $0.80 per share compared to $9.8 million, or $0.57 per share for the same period in 2009.

• During the quarter, the company repurchased approximately 300,000 shares for total consideration of $21.1 million. The remaining authorization under the current share repurchase program is $61.2 million as of Sept. 30, 2010.

For the nine-month period ended Sept. 30, 2010:

• Revenues increased by 29.7 percent to $311.4 million, compared to $240.1 million for the same period in 2009.

• Operating income for the nine-month period ended Sept. 30, 2010 was $66.7 million, or 21.4 percent of revenue, compared to $41.0 million, or 17.1 percent of revenue during the same period in 2009.

• Net income in 2010 was $43.2 million or $2.55 per share, compared to $27.7 million or $1.62 per share for the same period in 2009.

Balance Sheet and Cash Flow

As of Sept. 30, 2010, the Company had cash, cash equivalents, and marketable securities of $177.6 million, compared to $172.1 million at Dec. 31, 2009. The Company had no debt in 2010 or 2009.

Cash flow from operations for the nine months ended Sept. 30, 2010 was $52.8 million, compared to $49.4 million in the same period a year ago, an increase of 6.9 percent.

Outlook

For the fourth quarter ending Dec. 31, 2010, enrollment is expected to grow 16.0 to 17.0 percent year-over-year with revenue expected to grow 20.0 to 22.0 percent year-over-year. The operating margin is anticipated to be approximately 24.5 to 25.5 percent of total revenue for the fourth quarter of 2010.

Total enrollment growth for fourth quarter 2010 is anticipated to moderate due to tougher comparisons related to significant process improvements implemented in the second half of 2009 and lower new enrollments.

“New enrollment is anticipated to be slightly down from fourth quarter 2009, due to an increasingly challenging external market environment and our continued focus on attracting high-quality learners prepared for Capella’s rigorous academic experience,” said Steve Polacek, senior vice president and chief financial officer. “We plan to make modest increases in marketing expense while driving productivity and fixed cost leverage to deliver strong operating margin expansion.”

Based on reported year-to-date results and expectations for fourth quarter 2010, we anticipate fiscal year 2010 performance to be within the previously provided guidance ranges of 26.5 to 28.5 percent for annual revenue and average quarterly enrollment growth and operating margins of 21.5 to 22.5 percent of revenue.

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 and specialized accreditation standards and state and regional regulatory requirements; changes in the administration, 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, including as a result of current U.S. Department of Education rulemaking and recent Congressional review of our industry; 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 use of business technology to accurately store, process and report relevant data; changes in student enrollment including new enrollments and learner persistence; increases in 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 third quarter 2010 results and fourth quarter 2010 outlook during a conference call scheduled today, Oct. 26, 2010, at 9:00 a.m. Eastern time (ET). To participate in the live call, investors should dial 866.385.4179 (domestic) or 702.928.7882 (international) at 8:50 a.m. (ET), conference ID 14732536. The webcast, including the accompanying presentation, will be available on the Capella Education Company Web site atwww.capellaeducation.com. A replay of the call will be available starting on Oct. 26, 2010 through Nov. 2, 2010, at 800.642.1687 (domestic) or 706.645.9291 (international), conference ID 14732536. It will also be archived atwww.capellaeducation.com in the investor relations section for 60 days.

About Capella Education Company

Founded in 1991, Capella Education Company is a national leader in online education and parent company of Capella University, a regionally accredited* online university. Capella University offers online graduate degree programs in business, counseling, education, health administration, human services, information technology, nursing, psychology, public administration, public health, public safety, and social work, and bachelor’s degree programs in business, information technology, nursing, psychology, public administration, 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 43 graduate and undergraduate degree programs with 137 specializations. More than 38,000 learners were enrolled as of Sept. 30, 2010. For more information about Capella Education Company, please visithttp://www.capellaeducation.com. For more information about Capella University, please visithttp://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, Capella Tower, 225 South Sixth Street, Ninth Floor, Minneapolis, MN 55402, 1.888.CAPELLA (227.3552),www.capella.edu.

CAPELLA EDUCATION COMPANY

Consolidated Balance Sheets

(In thousands, except par value)

	As of September 30, 2010		As of December 31, 2009
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	79,098	$	102,405
Marketable securities		98,522		69,670
Accounts receivable, net of allowance of $3,884 at September 30, 2010 and $2,362 at December 31, 2009		17,202		12,691
Prepaid expenses and other current assets		13,293		6,564
Deferred income taxes		2,166		2,186
Total current assets		210,281		193,516
Property and equipment, net		44,334		37,984
Total assets	$	254,615	$	231,500
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,624	$	5,027
Accrued liabilities		27,787		24,328
Income taxes payable		—		61
Deferred revenue		9,080		7,876
Total current liabilities		41,491		37,292
Deferred rent		3,353		2,952
Other liabilities		434		434
Deferred income taxes		6,351		6,556
Total liabilities		51,629		47,234
Shareholders’ equity:
Common stock, $0.01 par value:
Authorized shares — 100,000
Issued and outstanding shares —16,531 at September 30, 2010 and 16,763 at December 31, 2009		165		168
Additional paid-in capital		127,232		151,445
Accumulated other comprehensive income		1,055		1,333
Retained earnings		74,534		31,320
Total shareholders’ equity		202,986		184,266
Total liabilities and shareholders’ equity	$	254,615	$	231,500

CAPELLA EDUCATION COMPANY

Consolidated Statements of Income

(In thousands, except per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
	(Unaudited)
Revenues	$	105,010	$	83,569	$	311,400	$	240,100
Costs and expenses:
Instructional costs and services		43,035		34,819		122,196		99,451
Marketing and promotional		29,584		24,927		88,139		73,332
General and administrative		11,384		9,279		34,361		26,331
Total costs and expenses		84,003		69,025		244,696		199,114
Operating income		21,007		14,544		66,704		40,986
Other income, net		504		529		1,530		1,917
Income before income taxes		21,511		15,073		68,234		42,903
Income tax expense		8,033		5,290		25,020		15,244
Net income	$	13,478	$	9,783	$	43,214	$	27,659
Net income per common share:
Basic	$	0.81	$	0.59	$	2.58	$	1.66
Diluted	$	0.80	$	0.57	$	2.55	$	1.62
Weighted average number of common shares outstanding:
Basic		16,634		16,718		16,728		16,707
Diluted		16,807		17,022		16,954		17,038

CAPELLA EDUCATION COMPANY

Consolidated Statements of Cash Flows

(In thousands)

	Nine Months Ended September 30,
	2010			2009
	(Unaudited)
Operating activities
Net income	$	43,214		$	27,659
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for bad debts		6,314			5,372
Depreciation and amortization		13,502			10,641
Amortization of investment premium		1,440			1,255
Asset impairment		18			34
Stock-based compensation		2,438			2,484
Excess tax benefits from stock-based compensation		(4,144	)		(2,384	)
Deferred income taxes		(21	)		(248	)
Changes in operating assets and liabilities:
Accounts receivable		(10,825	)		(6,828	)
Prepaid expenses and other current assets		(3,050	)		(1,352	)
Accounts payable and accrued liabilities		2,311			9,239
Income taxes payable		7			219
Deferred rent		401			1,586
Deferred revenue		1,204			1,720
Net cash provided by operating activities		52,809			49,397
Investing activities
Capital expenditures		(19,244	)		(11,907	)
Purchases of marketable securities		(37,884	)		—
Sales and maturities of marketable securities		7,150			20,185
Net cash provided by (used in) investing activities		(49,978	)		8,278
Financing activities
Excess tax benefits from stock-based compensation		4,144			2,384
Net proceeds from exercise of stock options		6,175			4,943
Repurchase of common stock		(36,457	)		(14,729	)
Net cash used in financing activities		(26,138	)		(7,402	)
Net increase (decrease) in cash and cash equivalents		(23,307	)		50,273
Cash and cash equivalents at beginning of period		102,405			31,225
Cash and cash equivalents at end of period	$	79,098		$	81,498
Supplemental disclosures of cash flow information
Income taxes paid	$	25,059		$	15,294
Noncash transactions:
Purchase of equipment included in accounts payable and accrued liabilities	$	1,760		$	981

CAPELLA EDUCATION COMPANY

Other Information

Enrollment by Degree(a):	September 30,
	2010		2009		% Change
PhD/Doctoral		11,620		10,430		11.4	%
Master’s		18,451		14,764		25.0	%
Bachelor’s		8,368		5,409		54.7	%
Other		195		135		44.4	%
Total		38,634		30,738		25.7	%

(a) Enrollment as of September 30, 2010 and 2009 is the enrollment as of the last day of classes for the quarter ended September 30, 2010 and 2009, respectively.