PHOENIX, May 7, 2019 /PRNewswire/ -- Grand Canyon
Education, Inc. (NASDAQ: LOPE), ("GCE" or the "Company"), is a
publicly traded education services company that currently provides
services to 18 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 March 31, 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
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 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 period over
period.
Additionally, on January 22, 2019,
the Company completed the acquisition of Orbis Education Services,
LLC ("Orbis Education"), an educational services company that
supports healthcare education programs for 17 universities across
the United States for $361.2 million, net of cash acquired (the
"Acquisition"). Therefore, the results of operations for the
three month period ended March 31,
2019 include Orbis Education's financial results for the
period from January 22, 2019 to
March 31, 2019. As a result of
the Acquisition, we incurred transaction costs of $4.1 million and amortization of intangible
assets acquired of $1.7 million in
the three months ended March 31,
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 and Loss on Transaction expenses 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 periods. The table then adjusts these
as reported balances to reflect the Loss on Transaction, university
related expenses, and amortization of intangible assets 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. This table is
intended to increase transparency and to provide comparability of
our results of operations between the three month period ended
March 31, 2019, during all of which
we operated as an education services provider, and the three month
period ended March 31, 2018, during
all of which we owned and operated the University. 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.
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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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March 31,
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March
31,
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March
31,
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2019
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2018
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2019
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2018
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2019
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2018
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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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197,287
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—
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—
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—
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$
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197,287
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$
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—
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University related
revenue
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—
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$
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275,681
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—
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$
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(110,272)
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[b]
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—
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165,409
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Net
revenue
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$
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197,287
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$
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275,681
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—
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(110,272)
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$
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197,287
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$
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165,409
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Total costs and
expenses
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$
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124,856
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$
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185,589
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$
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(5,774)
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[c]
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$
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(88,199)
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[c]
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$
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119,082
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$
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97,390
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Operating
income
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$
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72,431
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$
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90,092
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$
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5,774
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[d]
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$
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(22,073)
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[d]
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$
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78,205
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$
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68,019
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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. We have also excluded amortization of
intangible assets and the Loss on Transaction. 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 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) intangible asset amortization.
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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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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 month period ending March 31,
2018, due to many changes in our business that impact income
and expenses after operating income. Included in the three
months ended March 31, 2019 are
interest income on Secured Note, interest expense on a
significantly larger credit facility with an increase of
approximately $191.1 million and the
correlating tax impact of these items. However, the Company
believes the presentation of non-GAAP net income and non-GAAP
diluted income per share information that excludes amortization of
intangible assets and loss on transactions expenses allows
investors to develop a more meaningful understanding of the
Company's performance over time. Accordingly, for the three
months ended March 31, 2019, the
table below provides reconciliations of these non-GAAP items to
GAAP net income and GAAP diluted income per share,
respectively:
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Three Months Ended
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March 31,
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2019
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GAAP Net
income
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$
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73,243
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Amortization of
intangible assets
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1,686
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Loss on
Transaction
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4,088
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Income tax effects of
adjustments (1)
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(781)
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As Adjusted, Non-GAAP
Net income
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$
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78,236
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GAAP Diluted income
per share
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$
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1.52
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Amortization of
intangible assets (2)
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$
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0.03
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Loss on Transaction
(3)
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$
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0.07
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As Adjusted, Non-GAAP
Diluted income per share
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$
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1.62
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(1)
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The income tax
effects of adjustments are based on the effective income tax rate
(13.5%) applicable to adjusted (non-GAAP) results.
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(2)
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The amortization of
acquired intangible assets per diluted share is net of an income
tax benefit of nil for the three months ended March 31,
2019.
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(3)
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Loss on Transaction
expenses per diluted share are net of an income tax benefit of
$0.01 for the three months ended March 31, 2019.
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For the three months ended March 31,
2019:
- Service revenue was $197.3
million for the first quarter of 2019 compared to University
related revenue of $275.7 million for
the first quarter of 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 University related revenue for the three months
ended March 31, 2018 was $165.4 million. The 19.3% 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 11.3% between
March 31, 2019 and March 31, 2018 to 101,679 from 91,378. This
increase is due to partner enrollments in programs serviced by
Orbis Education at March 31, 2019 of
3,384 and due to an increase in enrollments at GCU to 98,295, an
increase of 7.6%. Partner enrollments in programs serviced by Orbis
Education were 2,328 at March 31,
2018.
- Operating income for the three months ended March 31, 2019 was $72.4
million, a decrease of $17.7
million as compared to $90.1
million for the same period in 2018. The operating margin
for the three months ended March 31,
2019 was 36.7%, compared to 32.7% for the same period in
2018. As adjusted operating income and as adjusted operating margin
for the three months ended March 31,
2019, were $78.2 million and
39.6%, respectively. As adjusted operating income and as adjusted
operating margin for the three months ended March 31, 2018, were $68.0
million and 41.1%, respectively.
- The tax rate in the three months ended March 31, 2019 was 13.5% compared to 18.8% 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. 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 statements. The
favorable impact from excess tax benefits was $4.5 million and $5.3
million in the three months ended March 31, 2019 and 2018, respectively.
- Net income decreased 0.6% to $73.2
million for the first quarter of 2019, compared to
$73.7 million for the same period in
2018. As adjusted net income was $78.2
million for the first quarter of 2019.
- Diluted net income per share was $1.52 for the first quarter of 2019 and 2018. As
adjusted diluted net income per share was $1.62 for the first quarter of 2019.
- Adjusted EBITDA increased 14.4% to $85.4
million for the first quarter of 2019, compared to
$74.6 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,
through 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
$102.7 million at March 31, 2019. As of March 31, 2019, we had $300,000 of restricted cash and cash equivalents,
for pledged collateral for a newly acquired 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.
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
expectations for future capital expenditures for GCU are
$70.0 million for the nine months
remaining in the year ended December 31, 2019, and currently
no funding is anticipated for the year ended December 31,
2020.
Net cash provided by operating activities for the three months
ended March 31, 2019 was $76.3 million as compared to $119.0 million for the three months ended
March 31, 2018. The decrease in cash
generated from operating activities between the three months
ended March 31, 2018 and the
three months ended March 31,
2018 is primarily due to the changes in other working
capital such as receivables from our university partners and
deferred revenue as a result of the change from being the
owner-operator of GCU to being a service provider to 18 university
partners. As a service provider, we receive our service fees
from our university partners in arrears.
Net cash used in investing activities was $340.9 million and $38.5 million for the three months ended
March 31, 2019 and 2018,
respectively. Our cash used in investing activities was primarily
related to the Acquisition, funding to GCU for its capital
expenditures, 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 quarter of 2019 totaled $29.9 million. Proceeds from investments, net of
purchases of short term investments was $55.0 million for the three months ended
March 31, 2019. Purchases of
short-term investments net of proceeds of these investments was
$3.2 million during the
three months ended March 31,
2018. Capital expenditures were $4.6 million and $35.3 million for the three months
ended March 31, 2019 and 2018,
respectively. During the three-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 three-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 $171.3 million for the three months ended
March 31, 2019. Net cash used
in financing activities was $12.8
million for the three months ended March 31, 2018. During the three-month period for
2019, $250.0 million of proceeds were
drawn on the credit facility, and the term loan balance of the
prior credit agreement of $59.9
million was repaid along with $2.4
million of debt issuance costs. $8.1 million was used to purchase common shares
withheld in lieu of income taxes resulting from the vesting of
restricted share awards and $10.0
million was used to purchase treasury stock in accordance
with the Company's share repurchase program. Proceeds from
the exercise of stock options of $1.6
million were received in the three months ended March 31, 2019. During the three-month period for
2018, $11.5 million was used to
purchase common shares withheld in lieu of income taxes resulting
from restricted share awards and $0.5
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 $1.7 million, partially offset by proceeds from
the exercise of stock options of $0.9
million.
2019
Outlook
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Q2
2019:
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Net revenue of $173.4
million; Target Operating Margin 27.7%; As Adjusted Diluted EPS of
$0.94 using 48.3 million diluted shares
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Q3
2019:
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Net revenue of $190.2
million; Target Operating Margin 31.1%; As Adjusted Diluted EPS of
$1.11 using 48.5 million diluted shares
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Q4
2019:
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Net revenue of $215.4
million; Target Operating Margin 40.3%; As Adjusted 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 $776.3
million; Target Operating Margin 35.1%; As Adjusted Diluted EPS of
$5.23 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 university partners; 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
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 first quarter 2019
results and 2019 outlook during a conference call scheduled for
today, May 7, 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 1358557 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 1358557. 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 18 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.
GRAND CANYON
EDUCATION, INC.
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Consolidated
Income Statements
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(Unaudited)
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Three Months
Ended
|
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March 31,
|
(In thousands,
except per share data)
|
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2019
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2018
|
Service
revenue
|
|
$
|
197,287
|
|
$
|
—
|
University related
revenue
|
|
|
—
|
|
|
275,681
|
Net
revenue
|
|
|
197,287
|
|
|
275,681
|
Costs and
expenses:
|
|
|
|
|
|
|
Technology and academic
services
|
|
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19,039
|
|
|
10,697
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Counseling services and
support
|
|
|
53,093
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|
|
50,747
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Marketing and
communication
|
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35,461
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|
|
28,527
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General and
administrative
|
|
|
11,489
|
|
|
7,419
|
Amortization of
intangible assets
|
|
|
1,686
|
|
|
—
|
University related
expenses
|
|
|
—
|
|
|
87,649
|
Loss on
Transaction
|
|
|
4,088
|
|
|
550
|
Total costs and
expenses
|
|
|
124,856
|
|
|
185,589
|
Operating
income
|
|
|
72,431
|
|
|
90,092
|
Interest income on
Secured Note
|
|
|
13,735
|
|
|
—
|
Interest
expense
|
|
|
(2,586)
|
|
|
(346)
|
Investment interest and
other
|
|
|
1,119
|
|
|
981
|
Income before
income taxes
|
|
|
84,699
|
|
|
90,727
|
Income tax
expense
|
|
|
11,456
|
|
|
17,046
|
Net
income
|
|
$
|
73,243
|
|
$
|
73,681
|
Earnings per
share:
|
|
|
|
|
|
|
Basic income per
share
|
|
$
|
1.54
|
|
$
|
1.55
|
Diluted income per
share
|
|
$
|
1.52
|
|
$
|
1.52
|
Basic weighted
average shares outstanding
|
|
|
47,699
|
|
|
47,432
|
Diluted weighted
average shares outstanding
|
|
|
48,274
|
|
|
48,397
|
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
|
|
|
March
31,
|
|
|
2019
|
|
2018
|
|
|
(Unaudited, in thousands)
|
Net income
|
|
$
|
73,243
|
|
$
|
73,681
|
Plus: interest
expense
|
|
|
2,586
|
|
|
346
|
Less: interest income
on Secured Note
|
|
|
(13,735)
|
|
|
—
|
Less: investment
interest and other
|
|
|
(1,119)
|
|
|
(981)
|
Plus: income tax
expense
|
|
|
11,456
|
|
|
17,046
|
Plus: amortization of
intangible assets
|
|
|
1,686
|
|
|
—
|
Plus: depreciation
and amortization
|
|
|
4,414
|
|
|
4,020
|
EBITDA, excluding
depreciation and amortization included in university related
expenses
|
|
|
78,531
|
|
|
94,112
|
Plus: loss on
Transaction
|
|
|
4,088
|
|
|
550
|
Plus: university
related expenses
|
|
|
—
|
|
|
87,649
|
Less: 40% of
university related revenue
|
|
|
—
|
|
|
(110,272)
|
Plus: estimated
litigation reserves
|
|
|
146
|
|
|
—
|
Plus: share-based
compensation
|
|
|
2,636
|
|
|
2,609
|
Adjusted
EBITDA
|
|
$
|
85,401
|
|
$
|
74,648
|
GRAND CANYON
EDUCATION, INC.
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
(In thousands,
except par value)
|
|
2019
|
|
2018
|
|
|
(Unaudited)
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
88,467
|
|
$
|
120,346
|
Restricted cash and
cash equivalents
|
|
|
300
|
|
|
61,667
|
Investments
|
|
|
14,243
|
|
|
69,002
|
Accounts receivable,
net
|
|
|
74,653
|
|
|
46,830
|
Interest receivable on
Secured Note
|
|
|
4,785
|
|
|
4,650
|
Income tax
receivable
|
|
|
3,423
|
|
|
8
|
Other current
assets
|
|
|
12,337
|
|
|
6,963
|
Total current
assets
|
|
|
198,208
|
|
|
309,466
|
Property and
equipment, net
|
|
|
116,239
|
|
|
111,039
|
Right-of-use
assets
|
|
|
13,186
|
|
|
—
|
Secured Note
receivable
|
|
|
929,998
|
|
|
900,093
|
Amortizable
intangible assets, net
|
|
|
208,594
|
|
|
—
|
Goodwill
|
|
|
151,228
|
|
|
2,941
|
Other
assets
|
|
|
2,020
|
|
|
478
|
Total
assets
|
|
$
|
1,619,473
|
|
$
|
1,324,017
|
LIABILITIES AND
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
13,295
|
|
$
|
14,274
|
Accrued compensation
and benefits
|
|
|
17,985
|
|
|
15,427
|
Accrued
liabilities
|
|
|
15,543
|
|
|
8,907
|
Income taxes
payable
|
|
|
23,500
|
|
|
5,442
|
Deferred
revenue
|
|
|
5,168
|
|
|
—
|
Current portion of
lease liability
|
|
|
2,089
|
|
|
—
|
Current portion of
notes payable
|
|
|
48,422
|
|
|
36,468
|
Total current
liabilities
|
|
|
126,002
|
|
|
80,518
|
Deferred income
taxes, noncurrent
|
|
|
9,427
|
|
|
6,465
|
Lease liability, less
current portion
|
|
|
11,177
|
|
|
—
|
Notes payable, less
current portion
|
|
|
199,994
|
|
|
23,437
|
Total
liabilities
|
|
|
346,600
|
|
|
110,420
|
Commitments and
contingencies
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
Preferred stock,
$0.01 par value, 10,000 shares authorized; 0 shares issued and
outstanding at March 31, 2019 and December 31,
2018
|
|
|
—
|
|
|
—
|
Common stock, $0.01
par value, 100,000 shares authorized; 52,922 and 52,690 shares
issued and 48,246 and 48,201 shares outstanding at
March 31, 2019 and December 31, 2018,
respectively
|
|
|
529
|
|
|
527
|
Treasury stock, at
cost, 4,676 and 4,489 shares of common stock at
March 31, 2019 and December 31, 2018,
respectively
|
|
|
(143,579)
|
|
|
(125,452)
|
Additional paid-in
capital
|
|
|
261,071
|
|
|
256,806
|
Accumulated other
comprehensive loss
|
|
|
(560)
|
|
|
(453)
|
Retained
earnings
|
|
|
1,155,412
|
|
|
1,082,169
|
Total
stockholders' equity
|
|
|
1,272,873
|
|
|
1,213,597
|
Total liabilities
and stockholders' equity
|
|
$
|
1,619,473
|
|
$
|
1,324,017
|
GRAND CANYON
EDUCATION, INC.
|
Consolidated
Statements of Cash Flows
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
March 31,
|
(In
thousands)
|
|
2019
|
|
2018
|
Cash flows
provided by operating activities:
|
|
|
|
|
|
|
Net income
|
|
$
|
73,243
|
|
$
|
73,681
|
Adjustments to
reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
Share-based
compensation
|
|
|
2,636
|
|
|
3,469
|
Provision for bad
debts
|
|
|
—
|
|
|
4,997
|
Depreciation and
amortization
|
|
|
4,414
|
|
|
13,947
|
Amortization of
intangible assets
|
|
|
1,686
|
|
|
—
|
Deferred income
taxes
|
|
|
2,855
|
|
|
1,928
|
Loss on transaction,
net of costs and asset impairment
|
|
|
4,088
|
|
|
—
|
Other, including fixed
asset impairments
|
|
|
(186)
|
|
|
539
|
Changes in assets and
liabilities:
|
|
|
|
|
|
|
Accounts receivable
from university partners
|
|
|
(24,722)
|
|
|
—
|
Accounts
receivable
|
|
|
—
|
|
|
(3,558)
|
Prepaid expenses and
other
|
|
|
(3,425)
|
|
|
(1,332)
|
Right-of-use assets
and lease liabilities
|
|
|
80
|
|
|
—
|
Accounts
payable
|
|
|
(4,903)
|
|
|
563
|
Accrued
liabilities
|
|
|
805
|
|
|
7,665
|
Income taxes
receivable/payable
|
|
|
14,643
|
|
|
14,809
|
Deferred
rent
|
|
|
—
|
|
|
(36)
|
Deferred
revenue
|
|
|
5,123
|
|
|
24,686
|
Student
deposits
|
|
|
—
|
|
|
(22,350)
|
Net cash provided
by operating activities
|
|
|
76,337
|
|
|
119,008
|
Cash flows used in
investing activities:
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(4,586)
|
|
|
(35,347)
|
Additions of
amortizable content
|
|
|
(157)
|
|
|
—
|
Acquisition, net of
cash acquired
|
|
|
(361,184)
|
|
|
—
|
Funding to GCU for
capital expenditures
|
|
|
(29,905)
|
|
|
—
|
Purchases of
investments
|
|
|
(1,772)
|
|
|
(17,122)
|
Proceeds from sale or
maturity of investments
|
|
|
56,752
|
|
|
13,944
|
Net cash used in
investing activities
|
|
|
(340,852)
|
|
|
(38,525)
|
Cash flows
provided by (used in) financing activities:
|
|
|
|
|
|
|
Principal payments on
notes payable
|
|
|
(59,850)
|
|
|
(1,716)
|
Debt issuance
costs
|
|
|
(2,385)
|
|
|
—
|
Proceeds from notes
payable
|
|
|
243,750
|
|
|
—
|
Net borrowings from
revolving line of credit
|
|
|
6,250
|
|
|
—
|
Repurchase of common
shares including shares withheld in lieu of income taxes
|
|
|
(18,127)
|
|
|
(12,032)
|
Net proceeds from
exercise of stock options
|
|
|
1,631
|
|
|
919
|
Net cash provided
by (used in) financing activities
|
|
|
171,269
|
|
|
(12,829)
|
Net (decrease)
increase in cash and cash equivalents and restricted
cash
|
|
|
(93,246)
|
|
|
67,654
|
Cash and cash
equivalents and restricted cash, beginning of period
|
|
|
182,013
|
|
|
248,008
|
Cash and cash
equivalents and restricted cash, end of period
|
|
$
|
88,767
|
|
$
|
315,662
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
Cash paid for
interest
|
|
$
|
1,667
|
|
$
|
321
|
Cash paid for income
taxes
|
|
$
|
420
|
|
$
|
375
|
Supplemental
disclosure of non-cash investing and financing
activities
|
|
|
|
|
|
|
Purchases of property
and equipment included in accounts payable
|
|
$
|
736
|
|
$
|
13,081
|
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
|
|
$
|
—
|
Investor Relations Contact:
Dan Bachus
Chief Financial Officer
Grand Canyon Education, Inc.
602-639-6648
Dan.bachus@gce.com
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SOURCE Grand Canyon Education, Inc.