PHOENIX, Nov. 6, 2019 /PRNewswire/ -- Grand Canyon
Education, Inc. (NASDAQ: LOPE), ("GCE" or the "Company"), is a
publicly traded education services company that currently provides
services to 21 university partners. GCE provides a full array
of support services in the post-secondary education sector and has
developed significant technological solutions, infrastructure and
operational processes to provide superior services in these areas
on a large scale. GCE today announced financial results for
the quarter ended September 30,
2019.
Explanatory Note
Prior to July 1, 2018, the Company
owned and operated Grand Canyon
University (the "University"), a comprehensive regionally
accredited university that offers graduate and undergraduate degree
programs, emphases and certificates across nine colleges both
online and on ground at its campus in Phoenix, Arizona, at leased facilities and at
facilities owned by third party employers of its students. On
July 1, 2018, the Company consummated
an Asset Purchase Agreement (the "Asset Purchase Agreement") with
Grand Canyon University, an
Arizona non-profit corporation
formerly known as Gazelle University ("GCU") in which it sold the
assets comprising the University to GCU in return for a secured
note and entered into a services agreement (the "Services
Agreement") with GCU pursuant to which the Company provides
identified technology and academic services, counseling services
and support, marketing and communication services, and several back
office services to GCU in return for 60% of GCU's tuition and fee
revenue (the "Transaction"). As a result of this Transaction,
GCE became an educational services company focused on providing a
full array of support services to institutions in the
post-secondary education sector.
Prior to July 1, 2018, our
business consisted exclusively of owning and operating the
University and the Company's results of operations discussed herein
for periods prior to July 1, 2018
reflect those operations. Commencing July 1, 2018, the Company's results of operations
do not include the operations of GCU but rather reflect the
operations of the Company as an education services provider
pursuant to the Services Agreement. Accordingly, the
Transaction resulted in a reduction in our net revenue for the
nine-month period over period.
Additionally, on January 22, 2019,
the Company acquired Orbis Education Services, LLC ("Orbis
Education"), an educational services company that supports
healthcare education programs for 21 universities across
the United States for $361.2 million, net of cash acquired (the
"Acquisition"). Therefore, the results of operations for the
three- and nine-month periods ended September 30, 2019 include Orbis Education's
financial results for the period from January 22, 2019 to September 30, 2019. As a result of the
Acquisition, we incurred transaction costs of $4.0 million and amortization of intangible
assets acquired of $6.0 million in
the nine months ended September 30,
2019.
Non-GAAP Information
The Company is providing certain non-GAAP financial measures in
this report, as the Company believes that these measures are
helpful in allowing investors to more accurately assess the ongoing
nature of the Company's operations as an educational services
provider and measure the Company's performance more consistently
across periods. The Company uses the presented non-GAAP
financial measures internally to allow management to focus on
period-to-period changes in the Company's core business
operations. Therefore, the Company believes that this
information is meaningful in addition to the information contained
in the GAAP presentation of financial information. The
presentation of this additional non-GAAP financial information is
not intended to be considered in isolation or as a substitute for
the financial information prepared and presented in accordance with
GAAP.
Specifically, the Company believes the presentation of non-GAAP
financial information that excludes amortization of intangible
assets, Loss on transaction expenses and contributions made in lieu
of state income taxes to school sponsoring organizations allows
investors to develop a more meaningful understanding of the
Company's performance over time in its educational services
business.
In order to enhance comparability between periods, we provide,
for periods prior to July 1, 2018,
net revenue, total costs and expenses and operating income on both
an as reported and comparable basis. To calculate the
comparable results, we have multiplied "university related revenue"
by 60%. The percentage used to make this calculation
corresponds to the percentage of GCU's tuition and fee revenue to
which the Company is entitled under the Services Agreement.
The following table sets forth the Company's as reported net
revenue, total costs and expenses, and operating income for the
respective three-month and nine-month periods. The table
then adjusts these as reported balances to reflect the Loss on
transaction, university related expenses, amortization of
intangible assets, and contributions made in lieu of state income
taxes to school sponsoring organizations and then shows the
Company's as adjusted "non-GAAP" net revenue, as adjusted
"non-GAAP" total costs and expenses, and as adjusted "non-GAAP"
operating income on a comparable basis. This table is
intended to increase transparency and to provide comparability of
our results of operations between the three- and nine-month periods
ended September 30, 2019, during all
of which we operated as an education services provider, and the
three- and nine-month periods ended September 30, 2018, during which we owned and
operated the University for the six months ended June 30, 2018 and operated as an education
services provider for the three months ended September 30, 2018. These as adjusted
"non-GAAP" measures in the tables below do not necessarily
represent actual results had the Company operated as an education
services provider during the full periods presented.
|
|
Three Months Ended
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
September
30,
|
|
September
30,
|
|
September
30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
As Reported
|
|
Adjustment
|
|
As Adjusted[a]
|
Service
revenue
|
|
$
|
193,289
|
|
$
|
155,454
|
|
$
|
—
|
|
$
|
—
|
|
$
|
193,289
|
|
$
|
155,454
|
University related
revenue
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
Net
revenue
|
|
$
|
193,289
|
|
$
|
155,454
|
|
$
|
—
|
|
$
|
—
|
|
$
|
193,289
|
|
$
|
155,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and
expenses
|
|
$
|
133,555
|
|
$
|
126,034
|
|
$
|
(6,182)
|
[c]
|
$
|
(25,897)
|
[c]
|
$
|
127,373
|
|
$
|
100,137
|
Operating
income
|
|
$
|
59,734
|
|
$
|
29,420
|
|
$
|
6,182
|
[d]
|
$
|
25,897
|
[d]
|
$
|
65,916
|
|
$
|
55,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
Nine Months Ended
|
|
Nine Months Ended
|
|
|
September
30,
|
|
September
30,
|
|
September
30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
As Reported
|
|
Adjustment
|
|
As Adjusted[a]
|
Service
revenue
|
|
$
|
565,396
|
|
$
|
155,454
|
|
$
|
—
|
|
$
|
—
|
|
$
|
565,396
|
|
$
|
155,454
|
University related
revenue
|
|
|
—
|
|
|
512,499
|
|
|
—
|
|
|
(205,000)
|
[b]
|
|
—
|
|
|
307,499
|
Net
revenue
|
|
$
|
565,396
|
|
$
|
667,953
|
|
$
|
—
|
|
$
|
(205,000)
|
|
$
|
565,396
|
|
$
|
462,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and
expenses
|
|
$
|
382,237
|
|
$
|
489,953
|
|
$
|
(14,013)
|
[c]
|
$
|
(195,053)
|
[c]
|
$
|
368,224
|
|
$
|
294,900
|
Operating
income
|
|
$
|
183,159
|
|
$
|
178,000
|
|
$
|
14,013
|
[d]
|
$
|
(9,947)
|
[d]
|
$
|
197,172
|
|
$
|
168,053
|
|
|
|
|
|
|
|
|
|
|
|
|
[a]
|
As Adjusted amounts
in these columns, to the extent of any adjustments, are non-GAAP
measures. We are providing these measures solely to to enhance
investor understanding of the underlying trends in our education
services provider business and to provide for better comparability
between periods in which we have operated as an education services
provider and historical periods when we owned and operated the
University. We have also excluded amortization of intangible
assets, the Loss on transaction, and contributions made in lieu of
state income taxes to school sponsoring organizations. The As
Adjusted amounts, to the extent of any adjustment, should not be
considered as a substitute for net revenue, total costs and
expenses, or operating income derived in accordance with and
reported under GAAP.
|
|
|
[b]
|
Adjustment to reduce
as reported University related revenue by 40% to reflect revenue
share percentage of 60% under the Services Agreement.
|
|
|
[c]
|
Adjustment to reduce
as reported total costs and expenses by an amount, for each period,
equal to the sum of (i) University related expenses, (ii) the Loss
on transaction, (iii) intangible asset amortization and (iv)
contributions made in lieu of state income taxes to school
sponsoring organizations.
|
|
|
[d]
|
Adjustment to
increase (decrease) as reported operating income by an amount, for
each period, equal to the total change from adjustments [b] and [c]
for the respective period.
|
Non-GAAP Net Income and Non-GAAP Diluted Income Per
Share
The Company believes the above table presentation will not be
comparable for net income and diluted income per share for the
three- and nine-month periods ending September 30, 2018, due to many changes in our
business that impact income and expenses after operating
income. Included in the three- and nine-months ended
September 30, 2019 are interest
income on Secured Note, interest expense on a significantly larger
credit facility with an increase of approximately $191.1 million and the correlating tax impact of
these items. However, the Company believes the presentation
of non-GAAP net income and non-GAAP diluted income per share
information that excludes amortization of intangible assets and
Loss on transaction expenses allows investors to develop a more
meaningful understanding of the Company's performance over
time. Accordingly, for the three- and nine-month periods
ended September 30, 2019, the table
below provides reconciliations of these non-GAAP items to GAAP net
income and GAAP diluted income per share, respectively:
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2019
|
|
|
2019
|
GAAP Net
income
|
|
$
|
58,151
|
|
$
|
182,506
|
Amortization of
intangible assets
|
|
|
2,179
|
|
|
6,044
|
Loss on
transaction
|
|
|
—
|
|
|
3,966
|
Income tax effects of
adjustments (1)
|
|
|
(451)
|
|
|
(1,827)
|
As Adjusted, Non-GAAP
Net income
|
|
$
|
59,879
|
|
$
|
190,689
|
|
|
|
|
|
|
|
GAAP Diluted income
per share
|
|
$
|
1.20
|
|
$
|
3.78
|
Amortization of
intangible assets (2)
|
|
$
|
0.04
|
|
$
|
0.10
|
Loss on transaction
(3)
|
|
$
|
-
|
|
$
|
0.07
|
As Adjusted, Non-GAAP
Diluted income per share
|
|
$
|
1.24
|
|
$
|
3.95
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The income tax
effects of adjustments are based on the effective income tax rate
applicable to adjusted (non-GAAP) results.
|
|
|
(2)
|
The amortization of
acquired intangible assets per diluted share is net of an income
tax benefit of $0.01 and $0.02 for the three and nine months ended
September 30, 2019, respectively.
|
|
|
(3)
|
Loss on transaction
expenses per diluted share are net of an income tax benefit of nil
and $0.01 for the three and nine months ended September 30, 2019,
respectively.
|
For the three months ended September 30,
2019:
- Service revenue was $193.3
million for the third quarter of 2019 compared to
$155.5 million for the third quarter
of 2018. The 24.3% increase year over year in comparable service
fee revenue was primarily due to our Orbis Education acquisition on
January 22, 2019 and the increase in
GCU enrollments between years.
- End-of-period enrollment in the programs at our university
partners for which we provide services increased 10.2% between
September 30, 2019 and September 30, 2018 to 108,821 from 98,715. This
increase is due to partner enrollments in programs serviced by
Orbis Education at September 30, 2019
of 3,975 and due to an increase in enrollments at GCU to 104,846,
an increase of 6.2%. Partner enrollments in programs serviced by
Orbis Education were 3,104 at September 30,
2018.
- Operating income for the three months ended September 30, 2019 was $59.7 million, an increase of $30.3 million as compared to $29.4 million for the same period in 2018. The
operating margin for the three months ended September 30, 2019 was 30.9%, compared to 18.9%
for the same period in 2018. As adjusted operating income and as
adjusted operating margin for the three months ended September 30, 2019, were $65.9 million and 34.1%, respectively. As
adjusted operating income and as adjusted operating margin for the
three months ended September 30,
2018, were $55.3 million and
35.6%, respectively.
- The tax rate in the three months ended September 30, 2019 was 20.7% compared to 20.5% in
the same period in 2018. The slight increase in the effective tax
rate resulted from lower excess tax benefits of $0.4 million in the third quarter of 2019 as
compared to $1.4 million in the same
period in 2018, partially offset by an increase in contributions in
lieu of state income taxes to school sponsoring organizations from
$3.7 million in the third quarter of
2018 to $4.0 million in the same
period in 2019.
- Net income increased 72.3% to $58.2
million for the third quarter of 2019, compared to
$33.8 million for the same period in
2018. As adjusted net income was $59.9
million for the third quarter of 2019.
- Diluted net income per share was $1.20 and $0.70 for
the third quarter of 2019 and 2018, respectively. As adjusted
diluted net income per share was $1.24 for the third quarter of 2019.
- Adjusted EBITDA increased 19.1% to $73.3
million for the third quarter of 2019, compared to
$61.6 million for the same period in
2018.
For the nine months ended September 30,
2019:
- Net revenue decreased 15.4% to $565.4
million for the nine months ended September 30, 2019 compared to $668.0 million for the same period in 2018.
Service revenue was $155.5 million
and University related revenue was $512.5
million for the nine months ended September 30, 2018. As an education services
provider to GCU, the Company receives, as service revenue, 60% of
GCU's tuition and fee revenue and no longer has University related
revenue, thus resulting in the decrease from the prior period. On a
comparable basis, as adjusted net revenue for the nine months ended
September 30, 2018 was $463.0 million. The 22.1% increase year over year
in comparable service fee revenue was primarily due to our Orbis
Education acquisition on January 22,
2019 and the increase in GCU enrollments between years.
- Operating income for the nine months ended September 30, 2019 was $183.2 million, an increase of $5.2 million as compared to $178.0 million for the same period in 2018. The
operating margin for the nine months ended September 30, 2019 was 32.4%, compared to 26.6%
for the same period in 2018. As adjusted operating income and as
adjusted operating margin for the nine months ended September 30, 2019, were $197.2 million and 34.9%, respectively. As
adjusted operating income and as adjusted operating margin for the
nine months ended September 30, 2018,
were $168.1 million and 36.3%,
respectively.
- The tax rate in the nine months ended September 30, 2019 was 18.3% compared to 20.6% in
the same period in 2018. The decrease in the effective tax rate
resulted from an agreement with the Arizona Department of Revenue
regarding previously filed refund claims related to income tax
obligations for prior calendar years, which resulted in a favorable
tax impact of $5.9 million recorded
as a discrete tax item in the first quarter of 2019. In addition,
the effective tax rate was favorably impacted by a recent law
change with respect to Arizona
state taxes, and an increase in the third quarter for contributions
in lieu of state income taxes to school sponsoring organizations
from $3.7 million in the nine months
ended September 30, 2018 to
$4.0 for the same period in 2019.
These increases were offset by a slight decrease in excess tax
benefits to $7.2 million from
$7.9 million in the nine months ended
September 30, 2019 and 2018,
respectively.
- Net income increased 18.9% to $182.5
million for the nine months ended September 30, 2019, compared to $153.5 million for the same period in 2018. As
adjusted net income was $190.7
million for the nine months ended September 30, 2019.
- Diluted net income per share was $3.78 and $3.17 for
the nine months ended September 30,
2019 and 2018, respectively. As adjusted diluted net income
per share was $3.95 for the nine
months ended September 30, 2019.
- Adjusted EBITDA increased 17.2% to $219.3 million for the nine months ended
September 30, 2019, compared to
$187.2 million for the same period in
2018.
Balance Sheet and Cash Flow
During 2019, we financed our Acquisition of Orbis Education for
$361.2 million, net of cash acquired,
from an increase in our credit facility of $190.1 million and the use of $171.1 million of operating cash on hand.
Our unrestricted cash and cash equivalents and investments were
$133.9 million at September 30, 2019. As of September 30, 2019, we had $300,000 of restricted cash and cash equivalents,
reflecting amounts serving as pledged collateral for a site
lease.
Concurrent with the closing of the Acquisition, we entered into
an amended and restated credit agreement dated January 22, 2019 and two related amendments dated
January 31, 2019 and dated
February 1, 2019, that together
provided a credit facility of $325.0
million comprised of a term loan facility of $243.8 million and a revolving credit facility of
$81.3 million, both with a five-year
maturity date. The term facility is subject to quarterly
amortization of principal, commencing with the fiscal quarter ended
June 30, 2019, in equal installments
of 5% of the principal amount of the term facility per
quarter. Both the term loan and revolver have monthly
interest payments currently at 30 Day LIBOR plus an applicable
margin of 2%. The proceeds of the term loan, together with
$6.3 million drawn under the revolver
and cash on hand, were used to pay the purchase price in the
Acquisition. Concurrent with the entry into the amended and
restated credit agreement and the completion of the Acquisition, we
repaid our existing term loan of $59.9
million and our cash collateral of $61.7 million was released.
The Company entered into a second amendment for the credit
facility on October 31, 2019.
This amendment, among other things, increased the revolving
commitment by $68.8 million to
$150.0 million. The term loan
was reduced by the same $68.8 million
to $150.6 million. Our
consolidated balance sheet was adjusted to reflect the amounts owed
per the terms of the credit facility. The Company elected to
repay the $68.8 million revolver
balance on November 1, 2019.
On July 1, 2018, in consideration for the transfer of
assets under the Asset Purchase Agreement, we received a secured
note from GCU in the initial principal amount of $870.1 million (the "Secured Note"). The
Secured Note contains customary commercial credit terms,
including affirmative and negative covenants applicable to GCU, and
provides that the Secured Note bears interest at an annual
rate of 6.0%, has a maturity date of June 30, 2025, and is
secured by all of the assets of GCU. The Secured
Note provides for GCU to make interest only payments during
the term, with all principal and accrued and unpaid interest due at
maturity and also provides that we will loan additional amounts to
GCU to fund approved capital expenditures during the first
three years of the term. Funding for capital
expenditures for GCU since July 1,
2018 totaled $139.8 million as
of September 30, 2019. GCU
repaid $60.0 million during the third
quarter of 2019 and another $40.0
million in October of 2019, further reducing total
outstanding capital expenditure borrowings to GCU to $99.8 million. The second amendment to our
credit facility, described above, increased the total principal
amount that the Company may have outstanding at any one time under
its credit agreement with GCU in the form of loans to GCU to
finance capital expenditures by GCU from $200.0 million to $300.0
million.
Net cash provided by operating activities for the nine months
ended September 30, 2019 was
$195.1 million as compared to
$96.5 million for the nine
months ended September 30, 2018.
The increase in cash generated from operating activities
between the nine months ended September
30, 2018 and the nine months ended September 30, 2019 is primarily due to the
increase in net income and changes in other working capital such as
receivables from our university partners, accounts payable and
accrued liabilities as a result of the change from being the
owner-operator of GCU to being a service provider to 21 university
partners. As a service provider, we generally receive
our service fees from our university partners in
arrears.
Net cash used in investing activities was $431.1 million and $215.7 million for the nine months ended
September 30, 2019 and 2018,
respectively. Our cash used in investing activities was
primarily related to the Acquisition, the funding of capital
expenditures to GCU, and the liquidation of short-term investments
and capital expenditures. We paid $361.2 million, net of cash acquired, to acquire
Orbis Education on January 22, 2019.
Funding to GCU for capital expenditures during the first nine
months of 2019 totaled $109.8
million, net of repayments made by GCU of $60.0 million in the third quarter of 2019.
Proceeds from investments, net of purchases of short-term
investments, was $55.3 million and
$19.1 million for the
nine months ended September 30,
2019 and 2018, respectively. Capital expenditures were
$15.2 million and $90.5 million for the nine months ended
September 30, 2019 and 2018,
respectively. During the nine-month period for 2019, capital
expenditures primarily consisted of leasehold improvements and
equipment for new partner locations, internally developed software,
as well as purchases of computer equipment, other internal use
software projects and furniture and equipment to support our
increasing employee headcount. During the nine-month period
for 2018, capital expenditures primarily consisted of the
University's ground campus construction projects as well as
purchases of computer equipment, other internal use software
projects and furniture and equipment to support our increasing
employee headcount.
Net cash provided by financing activities was $174.0 million for the nine months ended
September 30, 2019. Net cash
used in financing activities was $22.3
million for the nine months ended September 30, 2018. During the nine-month period
for 2019, we drew $270.0 million of
proceeds on the credit facility, repaid the term loan balance of
the prior credit agreement of $59.9
million, and made $12.1
million of principal payments on the new credit
facility. In addition, $2.4
million of debt issuance costs were incurred on the new
credit facility and $8.1 million was
used to purchase common shares withheld in lieu of income taxes
resulting from the vesting of restricted share awards and
$17.3 million was used to purchase
treasury stock in accordance with the Company's share repurchase
program. Proceeds from the exercise of stock options of
$3.7 million were received in the
nine months ended September 30, 2019.
During the nine-month period for 2018, $15.2 million was used to purchase common shares
withheld in lieu of income taxes resulting from the vesting of
restricted share awards and $4.1
million was used to purchase treasury stock in accordance
with the Company's share repurchase program. Principal
payments on notes payable and capital leases totaled $5.1 million, partially offset by proceeds from
the exercise of stock options of $2.1
million.
2019
Outlook
|
|
|
Q4
2019:
|
Net revenue of $213.9 million;
Target Operating Margin 39.1%; As Adjusted Diluted EPS of $1.54
using 48.3 million diluted shares
|
|
|
Full Year
2019:
|
Net revenue of $779.3
million; Target Operating Margin 35.5%; As Adjusted Diluted EPS of
$5.49 using 48.3 million diluted shares
|
Forward-Looking Statements
This news release contains "forward-looking statements" which
include information relating to future events, future financial
performance, strategies expectations, competitive environment,
regulation, and availability of resources. These
forward-looking statements include, without limitation, statements
regarding: the Transaction; proposed new programs; statements as to
whether regulatory developments or other matters may or may not
have a material adverse effect on our financial position, results
of operations, or liquidity; statements concerning projections,
predictions, expectations, estimates, and forecasts as to our
business, financial and operating results, and future economic
performance; and statements of management's goals and objectives
and other similar expressions concerning matters that are not
historical facts. Words such as "may," "should," "could,"
"would," "predicts," "potential," "continue," "expects,"
"anticipates," "future," "intends," "plans," "believes,"
"estimates" and similar expressions, as well as statements in
future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of
future performance or results and will not necessarily be accurate
indications of the times at, or by, which such performance or
results will be achieved. Forward-looking statements are
based on information available at the time those statements are
made or management's good faith belief as of that time with respect
to future events and are subject to risks and uncertainties that
could cause actual performance or results to differ materially from
those expressed in or suggested by the forward-looking statements.
Important factors that could cause such differences include,
but are not limited to: the occurrence of any event, change or
other circumstance that could give rise to the termination of any
of our key university partner agreements; our ability to properly
manage risks and challenges associated with strategic initiatives,
including potential acquisitions or divestitures of, or investments
in, new businesses, acquisitions of new properties and new
university partners, and expansion of services provided to our
existing university partners; our failure to comply with the
extensive regulatory framework applicable to us either directly as
a third party education services provider or indirectly through our
university partners, including Title IV of the Higher Education Act
and the regulations thereunder, state laws and regulatory
requirements, and accrediting commission requirements; competition
from other education services companies in our geographic region
and market sector, including competition for students, qualified
executives and other personnel; the pace of growth of our
university partners' enrollment and its effect on the pace of our
own growth; our ability to, on behalf of our university partners,
convert prospective students to enrolled students and to retain
active students to graduation; our success in updating and
expanding the content of existing programs and developing new
programs in a cost-effective manner or on a timely basis for our
university partners; and other factors discussed in reports on file
with the Securities and Exchange Commission, including as set forth
in Part I, Item 1A of our Annual Report on Form 10-K for period
ended December 31, 2018.
Forward-looking statements speak only as of the date the
statements are made. You should not put undue reliance on any
forward-looking statements. We assume no obligation to update
forward-looking statements to reflect actual results, changes in
assumptions, or changes in other factors affecting forward-looking
information, except to the extent required by applicable securities
laws. If we do update one or more forward-looking statements,
no inference should be drawn that we will make additional updates
with respect to those or other forward-looking statements.
Conference Call
Grand Canyon Education, Inc. will discuss its third quarter 2019
results and fourth quarter and full year 2019 outlook during a
conference call scheduled for today, November 6, 2019 at 4:30
p.m. Eastern time (ET). To participate in the live
call, investors should dial 877-577-1769 (domestic and Canada) or 706-679-7806 (international),
passcode 3437458 at 4:25 p.m. (ET).
The Webcast will be available on the Grand Canyon Education, Inc.
Web site at www.gce.com.
A replay of the call will be available approximately two hours
following the conclusion of the call, at 855-859-2056 (domestic) or
404-537-3406 (international), passcode 3437458. It will also
be archived at www.gce.com in the investor relations section for 60
days.
About Grand Canyon Education, Inc.
Grand Canyon Education (GCE), incorporated in 2008, is a
publicly traded education services company that currently provides
services to 21 university partners. GCE is uniquely
positioned in the education services industry in that its
leadership has 30 years of proven expertise in providing a full
array of support services in the post-secondary education sector
and has developed significant technological solutions,
infrastructure and operational processes to provide superior
services in these areas on a large scale. GCE provides
services that support students, faculty and staff of partner
institutions such as marketing, strategic enrollment management,
counseling services, financial services, technology, technical
support, compliance, human resources, classroom operations, content
development, faculty recruitment and training, among others.
For more information about Grand Canyon Education, Inc. visit
the Company's website at www.gce.com.
Grand Canyon Education, Inc., 2600 W. Camelback Road,
Phoenix, AZ 85017,
www.gce.com.
Investor Relations Contact:
Dan Bachus
Chief Financial Officer
Grand Canyon Education, Inc.
602-639-6648
Dan.bachus@gce.com
GRAND CANYON
EDUCATION, INC.
|
Consolidated
Income Statements
|
(Unaudited)
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
|
September 30,
|
|
September 30,
|
(In thousands,
except per share data)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service
revenue
|
|
$
|
193,289
|
|
$
|
155,454
|
|
$
|
565,396
|
|
$
|
155,454
|
University related
revenue
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
512,499
|
Net
revenue
|
|
|
193,289
|
|
|
155,454
|
|
|
565,396
|
|
|
667,953
|
Costs and
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and academic
services
|
|
|
24,231
|
|
|
11,101
|
|
|
65,384
|
|
|
32,476
|
Counseling services and
support
|
|
|
56,249
|
|
|
51,116
|
|
|
163,641
|
|
|
152,701
|
Marketing and
communication
|
|
|
37,340
|
|
|
31,546
|
|
|
109,033
|
|
|
90,168
|
General and
administrative
|
|
|
13,556
|
|
|
10,092
|
|
|
34,169
|
|
|
23,273
|
Amortization of
intangible assets
|
|
|
2,179
|
|
|
—
|
|
|
6,044
|
|
|
—
|
University related
expenses
|
|
|
—
|
|
|
6,569
|
|
|
—
|
|
|
173,735
|
Loss on
transaction
|
|
|
—
|
|
|
15,610
|
|
|
3,966
|
|
|
17,600
|
Total costs and
expenses
|
|
|
133,555
|
|
|
126,034
|
|
|
382,237
|
|
|
489,953
|
Operating
income
|
|
|
59,734
|
|
|
29,420
|
|
|
183,159
|
|
|
178,000
|
Interest income on
Secured Note
|
|
|
16,208
|
|
|
13,248
|
|
|
44,425
|
|
|
13,248
|
Interest
expense
|
|
|
(2,875)
|
|
|
(558)
|
|
|
(8,368)
|
|
|
(961)
|
Investment interest and
other
|
|
|
255
|
|
|
371
|
|
|
4,042
|
|
|
2,919
|
Income before
income taxes
|
|
|
73,322
|
|
|
42,481
|
|
|
223,258
|
|
|
193,206
|
Income tax
expense
|
|
|
15,171
|
|
|
8,720
|
|
|
40,752
|
|
|
39,726
|
Net
income
|
|
$
|
58,151
|
|
$
|
33,761
|
|
$
|
182,506
|
|
$
|
153,480
|
Earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per
share
|
|
$
|
1.21
|
|
$
|
0.71
|
|
$
|
3.82
|
|
$
|
3.22
|
Diluted income per
share
|
|
$
|
1.20
|
|
$
|
0.70
|
|
$
|
3.78
|
|
$
|
3.17
|
Basic weighted
average shares outstanding
|
|
|
47,920
|
|
|
47,682
|
|
|
47,833
|
|
|
47,592
|
Diluted weighted
average shares outstanding
|
|
|
48,337
|
|
|
48,422
|
|
|
48,317
|
|
|
48,429
|
GRAND CANYON EDUCATION, INC.
Adjusted EBITDA (Non-GAAP Financial Measure)
Adjusted EBITDA is defined as net income plus interest expense,
less interest income and other gain (loss) recognized on
investments, plus income tax expense, and plus depreciation and
amortization (EBITDA), as adjusted for (i) contributions to
private Arizona school tuition
organizations in lieu of the payment of state income taxes; (ii)
loss on the transaction; (iii) university related expenses; (iv)
share-based compensation, (v) the revenue share rate on the master
services agreement, and (vi) one-time, unusual charges or gains,
such as litigation and regulatory reserves, impairment charges and
asset write-offs, and exit or lease termination costs. We
have reclassified depreciation and amortization related to
university assets and share-based compensation for former GCE
employees that now work for the university to University related
expenses to provide comparability between periods. We present
Adjusted EBITDA because we consider it to be an important
supplemental measure of our operating performance. We also
make certain compensation decisions based, in part, on our
operating performance, as measured by Adjusted EBITDA, and our loan
agreement requires us to comply with covenants that include
performance metrics substantially similar to Adjusted EBITDA.
All of the adjustments made in our calculation of Adjusted EBITDA
are adjustments to items that management does not consider to be
reflective of our core operating performance. Management
considers our core operating performance to be that which can be
affected by our managers in any particular period through their
management of the resources that affect our underlying revenue and
profit generating operations during that period and does not
consider the items for which we make adjustments (as listed above)
to be reflective of our core performance.
We believe Adjusted EBITDA allows us to compare our current
operating results with corresponding historical periods and with
the operational performance of other companies in our industry
because it does not give effect to potential differences caused by
variations in capital structures (affecting relative interest
expense, including the impact of write-offs of deferred financing
costs when companies refinance their indebtedness), tax positions
(such as the impact on periods or companies of changes in effective
tax rates or net operating losses), the book amortization of
intangibles (affecting relative amortization expense), and other
items that we do not consider reflective of underlying operating
performance. We also present Adjusted EBITDA because we
believe it is frequently used by securities analysts, investors,
and other interested parties as a measure of performance.
In evaluating Adjusted EBITDA, investors should be aware that in
the future we may incur expenses similar to the adjustments
described above. Our presentation of Adjusted EBITDA should
not be construed as an inference that our future results will be
unaffected by expenses that are unusual, non-routine, or
non-recurring. Adjusted EBITDA has limitations as an
analytical tool in that, among other things it does not
reflect:
- cash expenditures for capital expenditures or contractual
commitments;
- changes in, or cash requirements for, our working capital
requirements;
- interest expense, or the cash required to replace assets that
are being depreciated or amortized; and
- the impact on our reported results of earnings or charges
resulting from the items for which we make adjustments to our
EBITDA, as described above and set forth in the table below.
In addition, other companies, including other companies in our
industry, may calculate these measures differently than we do,
limiting the usefulness of Adjusted EBITDA as a comparative
measure. Because of these limitations, Adjusted EBITDA should
not be considered as a substitute for net income, operating income,
or any other performance measure derived in accordance with and
reported under GAAP, or as an alternative to cash flow from
operating activities or as a measure of our liquidity. We
compensate for these limitations by relying primarily on our GAAP
results and only use Adjusted EBITDA as a supplemental performance
measure.
The following table provides a reconciliation of net income to
Adjusted EBITDA, which is a non-GAAP measure for the periods
indicated:
|
|
Three Months Ended
|
|
Nine
Months Ended
|
|
|
September
30,
|
|
September
30,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(Unaudited, in thousands)
|
|
|
|
|
|
|
Net income
|
|
$
|
58,151
|
|
$
|
33,761
|
|
$
|
182,506
|
|
$
|
153,480
|
Plus: interest
expense
|
|
|
2,875
|
|
|
558
|
|
|
8,368
|
|
|
961
|
Less: interest income
on Secured Note
|
|
|
(16,208)
|
|
|
(13,248)
|
|
|
(44,425)
|
|
|
(13,248)
|
Less: investment
interest and other
|
|
|
(255)
|
|
|
(371)
|
|
|
(4,042)
|
|
|
(2,919)
|
Plus: income tax
expense
|
|
|
15,171
|
|
|
8,720
|
|
|
40,752
|
|
|
39,726
|
Plus: amortization of
intangible assets
|
|
|
2,179
|
|
|
—
|
|
|
6,044
|
|
|
—
|
Plus: depreciation
and amortization
|
|
|
4,755
|
|
|
3,812
|
|
|
13,821
|
|
|
11,681
|
EBITDA, excluding
depreciation and amortization included in university related
expenses
|
|
|
66,668
|
|
|
33,232
|
|
|
203,024
|
|
|
189,681
|
Plus: contributions
in lieu of state income taxes
|
|
|
4,003
|
|
|
3,718
|
|
|
4,003
|
|
|
3,718
|
Plus: loss on
transaction
|
|
|
—
|
|
|
15,610
|
|
|
3,966
|
|
|
17,600
|
Plus: university
related expenses
|
|
|
—
|
|
|
6,569
|
|
|
—
|
|
|
173,735
|
Less: 40% of
university related revenue
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(205,000)
|
Plus: estimated
litigation reserves
|
|
|
121
|
|
|
—
|
|
|
594
|
|
|
—
|
Plus: share-based
compensation
|
|
|
2,555
|
|
|
2,449
|
|
|
7,740
|
|
|
7,472
|
Adjusted
EBITDA
|
|
$
|
73,347
|
|
$
|
61,578
|
|
$
|
219,327
|
|
$
|
187,206
|
GRAND CANYON
EDUCATION, INC.
|
Consolidated
Balance Sheets
|
|
|
|
September 30,
|
|
December 31,
|
(In thousands,
except par value)
|
|
2019
|
|
2018
|
|
|
(Unaudited)
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
119,709
|
|
$
|
120,346
|
Restricted cash and
cash equivalents
|
|
|
300
|
|
|
61,667
|
Investments
|
|
|
14,152
|
|
|
69,002
|
Accounts receivable,
net
|
|
|
83,377
|
|
|
46,830
|
Interest receivable on
Secured Note
|
|
|
5,192
|
|
|
4,650
|
Income tax
receivable
|
|
|
3,559
|
|
|
8
|
Other current
assets
|
|
|
11,255
|
|
|
6,963
|
Total current
assets
|
|
|
237,544
|
|
|
309,466
|
Property and
equipment, net
|
|
|
118,637
|
|
|
111,039
|
Right-of-use
assets
|
|
|
27,730
|
|
|
—
|
Secured Note
receivable
|
|
|
1,009,912
|
|
|
900,093
|
Amortizable
intangible assets, net
|
|
|
204,236
|
|
|
—
|
Goodwill
|
|
|
160,871
|
|
|
2,941
|
Other
assets
|
|
|
1,742
|
|
|
478
|
Total
assets
|
|
$
|
1,760,672
|
|
$
|
1,324,017
|
LIABILITIES AND
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
20,742
|
|
$
|
14,274
|
Accrued compensation
and benefits
|
|
|
23,689
|
|
|
15,427
|
Accrued
liabilities
|
|
|
18,947
|
|
|
8,907
|
Income taxes
payable
|
|
|
3,396
|
|
|
5,442
|
Deferred
revenue
|
|
|
9,201
|
|
|
—
|
Current portion of
lease liability
|
|
|
2,709
|
|
|
—
|
Current portion of
notes payable
|
|
|
45,332
|
|
|
36,468
|
Total current
liabilities
|
|
|
124,016
|
|
|
80,518
|
Deferred income
taxes, noncurrent
|
|
|
18,310
|
|
|
6,465
|
Other long term
liability
|
|
|
16
|
|
|
—
|
Lease liability, less
current portion
|
|
|
25,440
|
|
|
—
|
Notes payable, less
current portion
|
|
|
211,060
|
|
|
23,437
|
Total
liabilities
|
|
|
378,842
|
|
|
110,420
|
Commitments and
contingencies
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
Preferred stock,
$0.01 par value, 10,000 shares authorized; 0 shares issued and
outstanding at September 30, 2019 and December 31,
2018
|
|
|
—
|
|
|
—
|
Common stock, $0.01
par value, 100,000 shares authorized; 53,050 and 52,690 shares
issued and 48,303 and 48,201 shares outstanding at
September 30, 2019 and December 31, 2018,
respectively
|
|
|
530
|
|
|
527
|
Treasury stock, at
cost, 4,747 and 4,489 shares of common stock at
September 30, 2019 and December 31, 2018,
respectively
|
|
|
(150,872)
|
|
|
(125,452)
|
Additional paid-in
capital
|
|
|
268,279
|
|
|
256,806
|
Accumulated other
comprehensive loss
|
|
|
(782)
|
|
|
(453)
|
Retained
earnings
|
|
|
1,264,675
|
|
|
1,082,169
|
Total
stockholders' equity
|
|
|
1,381,830
|
|
|
1,213,597
|
Total liabilities
and stockholders' equity
|
|
$
|
1,760,672
|
|
$
|
1,324,017
|
GRAND CANYON
EDUCATION, INC.
|
Consolidated
Statements of Cash Flows
|
(Unaudited)
|
|
|
|
Nine Months
Ended
|
|
|
September 30,
|
(In
thousands)
|
|
2019
|
|
2018
|
Cash flows
provided by operating activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
182,506
|
|
$
|
153,480
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
7,740
|
|
|
17,066
|
Provision for bad
debts
|
|
|
—
|
|
|
8,669
|
Depreciation and
amortization
|
|
|
13,821
|
|
|
31,783
|
Amortization of
intangible assets
|
|
|
6,044
|
|
|
—
|
Deferred income
taxes
|
|
|
1,873
|
|
|
(13,551)
|
Loss on transaction,
net of costs and asset impairment
|
|
|
3,966
|
|
|
12,605
|
Other, including fixed
asset impairments
|
|
|
(369)
|
|
|
1,411
|
Changes in assets and
liabilities:
|
|
|
|
|
|
|
Accounts receivable
and interest receivable from university partners
|
|
|
(33,853)
|
|
|
(69,501)
|
Accounts
receivable
|
|
|
—
|
|
|
(7,784)
|
Prepaid expenses and
other
|
|
|
(2,187)
|
|
|
(555)
|
Right-of-use assets
and lease liabilities
|
|
|
419
|
|
|
—
|
Accounts
payable
|
|
|
1,485
|
|
|
(11,938)
|
Accrued
liabilities
|
|
|
10,130
|
|
|
(8,666)
|
Income taxes
receivable/payable
|
|
|
(5,597)
|
|
|
(15,887)
|
Deferred
rent
|
|
|
—
|
|
|
(189)
|
Deferred
revenue
|
|
|
9,156
|
|
|
6,881
|
Student
deposits
|
|
|
—
|
|
|
(7,288)
|
Net cash provided
by operating activities
|
|
|
195,134
|
|
|
96,536
|
Cash flows used in
investing activities:
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(15,178)
|
|
|
(90,482)
|
Additions of
amortizable content
|
|
|
(191)
|
|
|
—
|
Acquisition, net of
cash acquired
|
|
|
(361,184)
|
|
|
—
|
Disposition
|
|
|
—
|
|
|
(131,550)
|
Funding to GCU at
closing in excess of required capital
|
|
|
—
|
|
|
(7,377)
|
Repayment of excess
funds by GCU
|
|
|
—
|
|
|
7,377
|
Funding to GCU for
capital expenditures
|
|
|
(169,819)
|
|
|
(12,803)
|
Repayment by GCU for
capital expenditures
|
|
|
60,000
|
|
|
—
|
Purchases of
investments
|
|
|
(1,695)
|
|
|
(31,455)
|
Proceeds from sale or
maturity of investments
|
|
|
56,957
|
|
|
50,561
|
Net cash used in
investing activities
|
|
|
(431,110)
|
|
|
(215,729)
|
Cash flows
provided by (used in) financing activities:
|
|
|
|
|
|
|
Principal payments on
notes payable
|
|
|
(71,959)
|
|
|
(5,076)
|
Debt issuance
costs
|
|
|
(2,385)
|
|
|
—
|
Proceeds from notes
payable
|
|
|
243,750
|
|
|
—
|
Net borrowings from
revolving line of credit
|
|
|
26,250
|
|
|
—
|
Repurchase of common
shares including shares withheld in lieu of income taxes
|
|
|
(25,420)
|
|
|
(19,288)
|
Net proceeds from
exercise of stock options
|
|
|
3,736
|
|
|
2,095
|
Net cash provided
by (used in) financing activities
|
|
|
173,972
|
|
|
(22,269)
|
Net decrease in
cash and cash equivalents and restricted cash
|
|
|
(62,004)
|
|
|
(141,462)
|
Cash and cash
equivalents and restricted cash, beginning of period
|
|
|
182,013
|
|
|
248,008
|
Cash and cash
equivalents and restricted cash, end of period
|
|
$
|
120,009
|
|
$
|
106,546
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
Cash paid for
interest
|
|
$
|
7,751
|
|
$
|
738
|
Cash paid for income
taxes
|
|
$
|
45,786
|
|
$
|
69,161
|
Supplemental
disclosure of non-cash investing and financing
activities
|
|
|
|
|
|
|
Sale transaction to GCU
through Secured Note financing
|
|
$
|
—
|
|
$
|
870,097
|
Purchases of property
and equipment included in accounts payable
|
|
$
|
1,796
|
|
$
|
924
|
Reclassification of
capitalized costs – adoption of ASC 606
|
|
$
|
—
|
|
$
|
9,015
|
Reclassification of
deferred revenue – adoption of ASC 606
|
|
$
|
—
|
|
$
|
7,451
|
Lease adoption - gross
up of right of use assets and lease liabilities
|
|
$
|
498
|
|
$
|
—
|
Reclassification of tax
effect within accumulated other comprehensive income
|
|
$
|
—
|
|
$
|
156
|
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SOURCE Grand Canyon Education, Inc.