PHOENIX, Feb. 20, 2019 /PRNewswire/ -- Grand Canyon
Education, Inc. (NASDAQ: LOPE), ("GCE" or the "Company"), is a
publicly traded education services company. 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 currently provides
services to Grand Canyon University, an
Arizona non-profit corporation
("GCU"), its client, that include technology and academic services,
counseling services and support, marketing and communication
services, and several back office services such as accounting,
reporting, tax, human resources, and procurement services. GCU owns
and operates a comprehensive regionally accredited university (the
"University") that offers over 240 graduate and undergraduate
degree programs, emphases and certificates across nine colleges
both online and on ground at its over 262 acre campus in
Phoenix, Arizona, at leased
facilities and at facilities owned by third party employers.
GCE today announced financial results for the quarter and year
ended December 31, 2018.
Explanatory Note
On July 1, 2018, the Company
consummated an Asset Purchase Agreement (the "Asset Purchase
Agreement") with GCU (formerly known as Gazelle University) in
which it sold the assets comprising the University to GCU in return
for a secured note and entered into a master 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").
Prior to July 1, 2018, the
Company's 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 Master Services Agreement.
Accordingly, the Transaction has resulted in a reduction in our net
revenue period over period.
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 master services
agreement. The following tables set forth the Company's as
reported net revenue, total costs and expenses, and operating
income for the respective three and twelve month periods. The
tables then adjust these as reported balances to reflect the
Transaction, and show 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.
These tables are intended to increase transparency and to provide
comparability of our results of operations between the three month
period and year ended December 31,
2018, during all or a part of which we operated as an
education services provider, and the three month period and year
ended December 31, 2017, during all
of which we owned and operated the University. These 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.
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Three Months Ended
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Three Months Ended
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Three Months Ended
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December 31,
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December 31,
|
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December 31,
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|
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2018
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2017
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2018
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2017
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2018
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2017
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As Reported
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Adjustment
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As Adjusted[a]
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Service
revenue
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$
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177,548
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|
|
—
|
|
|
—
|
|
|
—
|
|
$
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177,548
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|
$
|
—
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University related
revenue
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|
|
—
|
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$
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271,418
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|
|
—
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$
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(108,567)
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[b]
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—
|
|
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162,851
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Net
revenue
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$
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177,548
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$
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271,418
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|
|
—
|
|
|
—
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|
$
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177,548
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|
$
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162,851
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total costs and
expenses
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$
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97,399
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$
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180,072
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$
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(365)
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[c]
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$
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(86,917)
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[c]
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$
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97,034
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$
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93,155
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Operating
income
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$
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80,149
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$
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91,346
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$
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365
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[d]
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$
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(21,650)
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[d]
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$
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80,514
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$
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69,696
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Year Ended December 31,
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Year Ended December 31,
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Year Ended December 31,
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2018
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2017
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2018
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2017
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2018
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2017
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As Reported
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Adjustment
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As Adjusted[a]
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Service
revenue
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$
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333,002
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|
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—
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—
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|
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—
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$
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333,002
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$
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—
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University related
revenue
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512,499
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974,134
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(205,000)
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[b]
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(389,654)
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[b]
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307,499
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584,480
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Net
revenue
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$
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845,501
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$
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974,134
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|
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—
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—
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$
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640,501
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$
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584,480
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|
|
|
|
|
|
|
|
|
|
|
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Total costs and
expenses
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$
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587,352
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$
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691,380
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$
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(195,418)
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[c]
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$
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(326,726)
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[c]
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$
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391,934
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$
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364,654
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Operating
income
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$
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258,149
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$
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282,754
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$
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(9,582)
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[d]
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$
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(62,928)
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[d]
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$
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248,567
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$
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219,826
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|
|
|
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[a]
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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. 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.
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[b]
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Adjustment to reduce
as reported University related revenue by 40% to reflect
revenue share percentage of 60% under the master services
agreement.
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[c]
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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, and (iii) the contributions made in lieu of state
income taxes of $3.7 million for 2018 and $2.0 million for 2017
(which, in this table, are only excluded from the year ended
adjustments, since they were expensed in the third quarter of each
year).
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[d]
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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.
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For the three months ended December 31,
2018:
- Service revenue was $177.5
million for the fourth quarter of 2018 compared to
University related revenue of $271.4
million for the fourth quarter of 2017. 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 University related
revenue for the three months ended December
31, 2017 was $162.9 million.
The 9.0% increase year over year in comparable revenue was
primarily due to an increase in GCU's enrollment and, to a lesser
extent, an increase in GCU's ancillary revenue (e.g. from housing,
food, etc.) resulting from the increased traditional student
enrollment, partially offset by an increase in institutional
scholarships.
- End-of-period enrollment at GCU increased 7.8% between
December 31, 2018 and December 31, 2017 to 97,369 from 90,297.
- Operating income for the three months ended December 31, 2018 was $80.1 million, a decrease of $11.2 million as compared to $91.3 million for the same period in 2017. The
operating margin for the three months ended December 31, 2018 was 45.1%, compared to 33.7%
for the same period in 2017. As adjusted operating income and as
adjusted operating margin for the three months ended December 31, 2018, were $80.5 million and 45.3%, respectively. As
adjusted operating income and as adjusted operating margin for the
three months ended December 31, 2017,
were $69.7 million and 42.8%,
respectively.
- The tax rate in the three months ended December 31, 2018 was 19.5% compared to 25.5% in
the same period in 2017. The lower effective tax rate year over
year is primarily a result of the Tax Cuts and Jobs Act (the "Act")
which was signed into law on December 22,
2017. The Act reduced the corporate federal tax rate from a
maximum of 35% to a flat 21% rate effective January 1, 2018. The Act created the opportunity
for the Company to submit method changes in conjunction with the
filing of its 2017 federal tax return during the three months ended
December 31, 2018. These method
changes resulted in a favorable impact to tax expense of $0.8 million. Additionally, our
contributions made in lieu of state income taxes to school
sponsoring organizations increased from $2.0
million in the third quarter of 2017 to $3.7 million in the third quarter of 2018. The
Company receives a dollar-for-dollar state tax credit for these
contributions, which are recorded in general and administrative
expenses in the third quarter. 75% of these amounts are recorded as
a reduction in income tax expense in this third quarter and 25% is
recorded as a reduction in income tax expense in the three months
ended December 31, 2018.
Additionally, the Company continues to receive the benefit from our
adoption of the share-based compensation standard. This standard
requires us to recognize excess tax benefits from share-based
compensation awards that vested or settled in the consolidated
income statement. The favorable impact from excess tax benefits was
$2.6 million and $1.1 million in the three months ended
December 31, 2018 and 2017,
respectively. The effective tax rates for both periods were lower
than our annual rates due to these contributions.
- Net income increased 10.7% to $75.5
million for the fourth quarter of 2018, compared to
$68.3 million for the same period in
2017.
- Diluted net income per share was $1.56 for the fourth quarter of 2018, compared to
$1.41 for the same period in
2017.
- Adjusted EBITDA increased 13.4% to $86.8
million for the fourth quarter of 2018, compared to
$76.6 million for the same period in
2017.
For the year ended December 31,
2018:
- Net revenue decreased 13.2% to $845.5
million for the year ended December
31, 2018, compared to $974.1
million for the same period in 2017. Service revenue was
$333.0 million and University related
revenue was $512.5 million for the
year ended December 31, 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 year ended December 31, 2018
was $640.5 million, while as adjusted
net revenue for the year ended December 31,
2017 were $584.5 million. The
9.6% increase year over year in comparable revenue was primarily
due to an increase in GCU's enrollment and, to a lesser extent, an
increase in GCU's ancillary revenue (e.g. from housing, food, etc.)
resulting from the increased traditional student enrollment,
partially offset by an increase in institutional scholarships.
- Operating income for the year ended December 31, 2018 was $258.1 million, a decrease of $24.7 million as compared to $282.8 million for the same period in 2017. The
operating margin for the year ended December
31, 2018 was 30.5%, compared to 29.0% for the same period in
2017. As adjusted operating income and as adjusted operating margin
for the year ended December 31, 2018,
were $248.6 million and 38.8%,
respectively. As adjusted operating income and as adjusted
operating margin for the year ended December
31, 2017 were $219.8 million
and 37.6%, respectively.
- The tax rate for the year ended December
31, 2018 was 20.2% compared to 28.3% in the same period in
2017. The lower effective tax rate year over year is primarily as a
result of the Act. The contributions in lieu of state income taxes
to school sponsoring organizations contributed to the lower
effective tax rate as our contributions increased from $2.0 million in the year ended December 31, 2017 to $3.7
million in the year ended December
31, 2018. Additionally, the Company continues to receive the
benefit from our adoption of the share-based compensation standard.
This standard requires us to recognize excess tax benefits from
share-based compensation awards that vested or settled in the
consolidated income statement. The favorable impact from excess tax
benefits was $10.5 million and
$16.5 million in the years ended
December 31, 2018 and 2017,
respectively. The inclusion of excess tax benefits and deficiencies
as a component of our income tax expense will increase volatility
within our provision for income taxes as the amount of excess tax
benefits or deficiencies from share-based compensation awards are
dependent on our stock price at the date the restricted awards
vest, our stock price on the date an option is exercised, and the
quantity of options exercised.
- Net income increased 12.6% to $229.0
million for the year ended December
31, 2018, compared to $203.3
million for the same period in 2017. Net income for the year
ended December 31, 2018, excluding
costs incurred related to the Transaction of $18.4 million, University related expenses of
$6.2 million for the six months ended
December 31, 2018, and contributions
in lieu of state income taxes of $3.7
million, was $246.5 million.
Net income for the year ended December 31,
2017, excluding contributions in lieu of state income taxes
of $2.0 million and transaction costs
of $0.6 million, was $202.9 million.
- Diluted net income per share was $4.73 for the year ended December 31, 2018, compared to $4.22 for the same period in 2017. Diluted net
income per share, excluding costs incurred related to the
Transaction and acquisition costs of $18.4
million, University related expenses of $6.2 million for the six months ended
December 31, 2018, and contributions
in lieu of state income taxes of $3.7
million, was $5.09 for the
year ended December 31, 2018. Diluted
net income per share, excluding the contributions made in lieu of
state income taxes of $2.0 million
and transaction costs of $0.6
million, was $4.21 for the
year ended December 31, 2017.
- Adjusted EBITDA increased 11.8% to $274.1 million for the year ended December 31, 2018, compared to $245.1 million for the same period in 2017. The
difference in the year over year increase in Adjusted EBITDA in
comparison to the year over year increase in adjusted diluted net
income per share is due to interest income earned by the Company of
$26.9 million in the six months ended
December 31, 2018 on the Secured Note
of GCU and the lower effective tax rate.
Balance Sheet and Cash Flow
During 2018, we financed our operating activities and capital
expenditures primarily through cash provided by operating
activities. Our unrestricted cash, cash equivalents and investments
were $120.3 million at
December 31, 2018. As of December
31, 2018, we had restricted cash and cash equivalents of
$61.7 million, which represented cash
collateral related to our credit agreement.
On July 1, 2018, in conjunction
with the Asset Purchase Agreement, we received a Secured Note from
GCU for the purchase of the Transferred Assets in the initial
principal amount of $870.1
million. 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. We
provided funding of $30 million to
GCU for the six months ended December 31,
2018 for GCU approved
capital expenditures, increasing the principal balance of the
Secured Note to $900.1 million as of
December 31, 2018. Funding
expectations for future capital expenditures for GCU are
$100 million for the year ended
December 31, 2019.
On January 22, 2019, we acquired
Orbis Education Services, LLC for $365.8
million in cash (inclusive of closing date
adjustments). Concurrent with the closing of the acquisition,
GCE 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 provide a credit facility of $325.0
million comprised of a term loan facility of $243.75 million and a revolving credit facility
of $81.25 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
$6.25 million drawn under the
revolver and cash on hand, were used to pay the purchase price in
the acquisition.
Net cash provided by operating activities for the years ended
December 31, 2018 and 2017 was $199.1 million and $304.9 million, respectively. Cash provided
by operations in 2018 and 2017 resulted from our increased net
income adjusted
for non-cash charges for share-based compensation,
depreciation and amortization, timing of income tax and employee
related payments and changes in other working capital. The
significant decrease in net cash from operating activities between
2017 and 2018 is primarily due to the decrease in the Company's
liabilities between December 31, 2017
and 2018 due to the Transaction, the increase in the accounts
receivable due from GCU as GCU pays us one month in arrears for the
educational services we provide, the decrease in non-cash charges
subsequent to the Transaction and the timing of income tax payments
between years.
Net cash used in investing activities was $238.2 million and $152.1 million for the years ended
December 31, 2018 and 2017, respectively. Cash used in
investing activities for the year ended December 31, 2018 was primarily related to the
Transaction, the purchase of short-term investments and capital
expenditures partially offset by proceeds from the sale of
investments. The Transaction resulted in $131.6 million of cash being transferred to GCU
at its close on July 1, 2018.
Proceeds from investment, net of purchases of short-term
investments was $18.2 million for the
year ended December 31, 2018.
Capital expenditures during the year ended December 31, 2018 of $94.5 million is primarily due to the amount
spent on the University's ground campus construction projects
through the date of the Transaction as well as purchases of
computer equipment, other internal use software projects and
furniture and equipment to support our increasing employee
headcount. Cash used in investing activities for the year
ended December 31, 2018 also includes
$30.0 million in funding to GCU
subsequent to the Transaction for GCU approved campus construction projects
such as residence halls, classroom buildings and parking
garages. Our cash used in investing activities for 2017 is
primarily related to the purchase of short-term investments and
capital expenditures, partially offset by proceeds from the sale or
maturity of short-term investments. Purchases of short-term
investments, net of proceeds of these investments, was $28.8 million for the year ended December 31, 2017. Capital expenditures
were $113.6 million for the year
ended December 31, 2017. In
2017, capital expenditures primarily consisted of University campus
construction projects and land acquisitions adjacent to the campus
to support the growing traditional student enrollment, as well as
purchases of computer equipment, other internal use software
projects and furniture and equipment to support our increasing
employee headcount. Included in off-site development for 2017
is $10.4 million that we spent to
build a student services center and parking garage that is in close
proximity to the University's ground campus. GCE employees
that worked in two leased office buildings in the Phoenix area were relocated to this new
building by the end of 2016.
Net cash used in financing activities was $26.8 million and $35.7 million for the years ended
December 31, 2018 and 2017, respectively. During 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 $9.6
million was used to purchased treasury stock in accordance
with the Company's share repurchase program. Principal
payments on notes payable and capital leases totaled $6.7 million, partially offset by proceeds from
the exercise of stock options of $4.6
million. During 2017, $25.0 million was used to repay our
revolving line of credit, $1.5 million was used to purchase treasury
stock in accordance with the Company's share repurchase program and
$9.8 million was used to
purchase common shares withheld in lieu of income taxes resulting
from restricted share awards while principal payments on notes
payable and capital leases totaled $6.8 million, partially offset by proceeds
from the exercise of stock options of $7.4 million.
2019 Outlook
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Q1
2019:
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Net revenue of $195.5
million; Target Operating Margin 37.8%; Diluted EPS
of $1.49 using 48.3 million diluted shares
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Q2
2019:
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Net revenue of $174.4
million; Target Operating Margin 27.6%; Diluted EPS
of $0.94 using 48.3 million diluted shares
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Q3
2019:
|
Net revenue of $190.2
million; Target Operating Margin 31.1%; Diluted EPS
of $1.11 using 48.5 million diluted shares
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Q4
2019:
|
Net revenue of $215.4
million; Target Operating Margin 40.3%; Diluted EPS
of $1.56 using 48.6 million diluted shares
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Full Year
2019:
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Net revenue of $775.5
million; Target Operating Margin 34.6%; Diluted EPS
of $5.10 using 48.4 million diluted shares
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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 failure of the Company to operate
successfully as a third party education services provider to GCU
and its other customers; GCU's failure to operate the University as
successfully as it was previously operated by the Company; the
occurrence of any event, change or other circumstance that could
give rise to the termination of any of our key customer agreements;
our ability to properly manage risks and challenges associated with
strategic initiatives, including potential acquisitions or
divestitures of, or investments in, new businesses (including our
acquisition of Orbis Education), acquisitions of new properties and
new university clients, and expansion of services provided to our
existing university clients; 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 clients, 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 client's enrollment and its effect on the pace of our
own growth; our ability to, on behalf of our university client,
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 clients; 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 fourth quarter and
full year 2018 results and 2019 outlook during a conference call
scheduled for today, February 20,
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 3894767 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 3894767. 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. 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, curriculum
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
|
|
Year Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
(In thousands,
except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
revenue
|
|
$
|
177,548
|
|
$
|
—
|
|
$
|
333,002
|
|
$
|
—
|
University related
revenue
|
|
|
—
|
|
|
271,418
|
|
|
512,499
|
|
|
974,134
|
Net
revenue
|
|
|
177,548
|
|
|
271,418
|
|
|
845,501
|
|
|
974,134
|
Costs and
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology and academic
services
|
|
|
11,098
|
|
|
10,739
|
|
|
43,574
|
|
|
41,834
|
Counseling services and
support
|
|
|
51,989
|
|
|
50,213
|
|
|
204,690
|
|
|
188,595
|
Marketing and
communication
|
|
|
27,252
|
|
|
26,227
|
|
|
117,420
|
|
|
109,092
|
General and
administrative
|
|
|
6,695
|
|
|
5,975
|
|
|
29,968
|
|
|
27,157
|
University related
expenses
|
|
|
(405)
|
|
|
86,356
|
|
|
173,330
|
|
|
324,140
|
Loss on
Transaction
|
|
|
770
|
|
|
562
|
|
|
18,370
|
|
|
562
|
Total costs and
expenses
|
|
|
97,399
|
|
|
180,072
|
|
|
587,352
|
|
|
691,380
|
Operating
income
|
|
|
80,149
|
|
|
91,346
|
|
|
258,149
|
|
|
282,754
|
Interest income on
Secured Note
|
|
|
13,699
|
|
|
—
|
|
|
26,947
|
|
|
—
|
Interest
expense
|
|
|
(575)
|
|
|
(527)
|
|
|
(1,536)
|
|
|
(2,169)
|
Investment interest and
other
|
|
|
521
|
|
|
757
|
|
|
3,440
|
|
|
2,943
|
Income before
income taxes
|
|
|
93,794
|
|
|
91,576
|
|
|
287,000
|
|
|
283,528
|
Income tax
expense
|
|
|
18,263
|
|
|
23,320
|
|
|
57,989
|
|
|
80,209
|
Net
income
|
|
$
|
75,531
|
|
$
|
68,256
|
|
$
|
229,011
|
|
$
|
203,319
|
Earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per
share
|
|
$
|
1.58
|
|
$
|
1.44
|
|
$
|
4.81
|
|
$
|
4.31
|
Diluted income per
share
|
|
$
|
1.56
|
|
$
|
1.41
|
|
$
|
4.73
|
|
$
|
4.22
|
Basic weighted
average shares outstanding
|
|
|
47,708
|
|
|
47,342
|
|
|
47,608
|
|
|
47,140
|
Diluted weighted
average shares outstanding
|
|
|
48,422
|
|
|
48,382
|
|
|
48,414
|
|
|
48,235
|
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
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
|
|
Year Ended
|
|
|
December 31,
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
|
(Unaudited, in thousands)
|
Net income
|
|
$
|
75,531
|
|
$
|
68,256
|
|
$
|
229,011
|
|
$
|
203,319
|
Plus: interest
expense
|
|
|
575
|
|
|
527
|
|
|
1,536
|
|
|
2,169
|
Less: interest income
on Secured Note
|
|
|
(13,699)
|
|
|
—
|
|
|
(26,947)
|
|
|
—
|
Less: investment
interest and other
|
|
|
(521)
|
|
|
(757)
|
|
|
(3,440)
|
|
|
(2,943)
|
Plus: income tax
expense
|
|
|
18,263
|
|
|
23,320
|
|
|
57,989
|
|
|
80,209
|
Plus: depreciation
and amortization
|
|
|
3,890
|
|
|
4,472
|
|
|
15,571
|
|
|
15,612
|
EBITDA, excluding
depreciation and amortization included in university related
expenses
|
|
|
84,039
|
|
|
95,818
|
|
|
273,720
|
|
|
298,366
|
Plus: contributions
in lieu of state income taxes
|
|
|
—
|
|
|
—
|
|
|
3,718
|
|
|
2,025
|
Plus: loss on
Transaction
|
|
|
770
|
|
|
562
|
|
|
18,370
|
|
|
562
|
Plus: university
related expenses
|
|
|
(405)
|
|
|
86,356
|
|
|
173,330
|
|
|
324,140
|
Less: 40% of
university related revenue
|
|
|
—
|
|
|
(108,567)
|
|
|
(205,000)
|
|
|
(389,654)
|
Plus: share-based
compensation
|
|
|
2,444
|
|
|
2,403
|
|
|
9,914
|
|
|
9,683
|
Adjusted
EBITDA
|
|
$
|
86,848
|
|
$
|
76,572
|
|
$
|
274,052
|
|
$
|
245,122
|
GRAND CANYON
EDUCATION, INC.
|
Consolidated
Balance Sheets
|
|
|
|
As of December 31,
|
(In thousands,
except par value)
|
|
2018
|
|
2017
|
ASSETS:
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
120,346
|
|
$
|
153,474
|
Restricted cash and
cash equivalents
|
|
|
61,667
|
|
|
94,534
|
Investments
|
|
|
69,002
|
|
|
89,271
|
Accounts receivable,
net
|
|
|
46,830
|
|
|
10,908
|
Interest receivable on
Secured Note
|
|
|
4,650
|
|
|
—
|
Income taxes
receivable
|
|
|
8
|
|
|
2,086
|
Other current
assets
|
|
|
6,963
|
|
|
24,589
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
309,466
|
|
|
374,862
|
Property and
equipment, net
|
|
|
111,039
|
|
|
922,284
|
Secured Note
receivable
|
|
|
900,093
|
|
|
—
|
Prepaid
royalties
|
|
|
—
|
|
|
2,763
|
Goodwill
|
|
|
2,941
|
|
|
2,941
|
Other
assets
|
|
|
478
|
|
|
723
|
Total
assets
|
|
$
|
1,324,017
|
|
$
|
1,303,573
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
14,274
|
|
$
|
29,139
|
Accrued compensation
and benefits
|
|
|
15,427
|
|
|
23,173
|
Accrued
liabilities
|
|
|
8,907
|
|
|
20,757
|
Income taxes
payable
|
|
|
5,442
|
|
|
16,182
|
Student
deposits
|
|
|
—
|
|
|
95,298
|
Deferred
revenue
|
|
|
—
|
|
|
46,895
|
Current portion of
notes payable
|
|
|
36,468
|
|
|
6,691
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
80,518
|
|
|
238,135
|
Other noncurrent
liabilities
|
|
|
—
|
|
|
1,200
|
Deferred income
taxes, non-current
|
|
|
6,465
|
|
|
18,362
|
Notes payable, less
current portion
|
|
|
23,437
|
|
|
59,925
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
110,420
|
|
|
317,622
|
Commitments and
contingencies
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
Preferred stock,
$0.01 par value, 10,000 shares authorized; 0 shares issued and
outstanding at December 31, 2018 and 2017
|
|
|
—
|
|
|
—
|
Common stock, $0.01
par value, 100,000 shares authorized; 52,690 and 52,277 shares
issued and 48,201 and 48,125 shares outstanding at
December 31, 2018 and 2017, respectively
|
|
|
527
|
|
|
523
|
Treasury stock, at
cost, 4,489 and 4,152 shares of common stock at December 31,
2018 and 2017, respectively
|
|
|
(125,452)
|
|
|
(100,694)
|
Additional paid-in
capital
|
|
|
256,806
|
|
|
232,670
|
Accumulated other
comprehensive loss
|
|
|
(453)
|
|
|
(724)
|
Retained
earnings
|
|
|
1,082,169
|
|
|
854,176
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
1,213,597
|
|
|
985,951
|
Total liabilities
and stockholders' equity
|
|
$
|
1,324,017
|
|
$
|
1,303,573
|
GRAND CANYON
EDUCATION, INC.
|
Consolidated
Statements of Cash Flows
|
(Unaudited)
|
|
|
|
Year Ended
|
|
|
December 31,
|
(In
thousands)
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
Cash flows
provided by operating activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
229,011
|
|
$
|
203,319
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
19,508
|
|
|
12,688
|
Provision for bad
debts
|
|
|
8,669
|
|
|
18,478
|
Depreciation and
amortization
|
|
|
35,673
|
|
|
54,228
|
Deferred income
taxes
|
|
|
(11,507)
|
|
|
(5,160)
|
Loss on transaction,
net of costs and asset impairment
|
|
|
12,605
|
|
|
—
|
Other
|
|
|
2,101
|
|
|
3,883
|
Changes in assets and
liabilities:
|
|
|
|
|
|
|
Accounts receivable
from GCU
|
|
|
(51,480)
|
|
|
—
|
Accounts
receivable
|
|
|
(7,784)
|
|
|
(19,848)
|
Prepaid expenses and
other
|
|
|
1,553
|
|
|
(2,399)
|
Accounts
payable
|
|
|
(14,306)
|
|
|
5,378
|
Accrued liabilities
and employee related liabilities
|
|
|
(15,700)
|
|
|
3,079
|
Income taxes
receivable/payable
|
|
|
(8,662)
|
|
|
16,048
|
Deferred
rent
|
|
|
(189)
|
|
|
(369)
|
Deferred
revenue
|
|
|
6,881
|
|
|
6,156
|
Student
deposits
|
|
|
(7,288)
|
|
|
9,417
|
Net cash provided
by operating activities
|
|
|
199,085
|
|
|
304,898
|
Cash flows used in
investing activities:
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(94,527)
|
|
|
(113,586)
|
Purchases of land and
building improvements related to off-site development
|
|
|
(330)
|
|
|
(10,368)
|
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
|
|
|
(29,996)
|
|
|
—
|
Return of equity method
investment
|
|
|
—
|
|
|
685
|
Purchases of
investments
|
|
|
(46,948)
|
|
|
(94,054)
|
Proceeds from sale or
maturity of investments
|
|
|
65,116
|
|
|
65,259
|
Net cash used in
investing activities
|
|
|
(238,235)
|
|
|
(152,064)
|
Cash flows used in
financing activities:
|
|
|
|
|
|
|
Principal payments on
notes payable and capital lease obligations
|
|
|
(6,719)
|
|
|
(6,805)
|
Net borrowings from
revolving line of credit
|
|
|
—
|
|
|
(25,000)
|
Repurchase of common
shares including shares withheld in lieu of income taxes
|
|
|
(24,758)
|
|
|
(11,300)
|
Net proceeds from
exercise of stock options
|
|
|
4,632
|
|
|
7,372
|
Net cash used in
financing activities
|
|
|
(26,845)
|
|
|
(35,733)
|
Net (decrease)
increase in cash and cash equivalents and restricted
cash
|
|
|
(65,995)
|
|
|
117,101
|
Cash and cash
equivalents and restricted cash, beginning of period
|
|
|
248,008
|
|
|
130,907
|
Cash and cash
equivalents and restricted cash, end of period
|
|
$
|
182,013
|
|
$
|
248,008
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
Cash paid for
interest
|
|
$
|
1,511
|
|
$
|
2,252
|
Cash paid for income
taxes
|
|
$
|
78,195
|
|
$
|
69,606
|
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
|
|
$
|
1,121
|
|
$
|
6,682
|
Reclassification of
capitalized costs – adoption of ASC 606
|
|
$
|
9,015
|
|
$
|
—
|
Reclassification of
deferred revenue – adoption of ASC 606
|
|
$
|
7,451
|
|
$
|
—
|
Reclassification of tax
effect within accumulated other comprehensive income
|
|
$
|
156
|
|
$
|
—
|
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SOURCE Grand Canyon Education, Inc.