Grand Canyon Education, Inc. Reports First Quarter 2013 Results

PHOENIX, May 7, 2013 /PRNewswire/ -- Grand Canyon Education, Inc. (NASDAQ: LOPE), a regionally accredited provider of online and campus-based postsecondary education services, today announced financial results for the quarter ended March 31, 2013.

For the three months ended March 31, 2013:

  • Net revenue increased 21.3% to $142.0 million for the first quarter of 2013, compared to $117.1 million for the first quarter of 2012.
  • At March 31, 2013, our enrollment was approximately 53,600, an increase of 15.7% from our enrollment of approximately 46,300 at March 31, 2012.  Ground enrollment increased 44.6% to approximately 7,300 from enrollment of approximately 5,000 at March 31, 2012.
  • Operating income for the first quarter of 2013 was $33.6 million, an increase of 38.9% as compared to $24.2 million for the same period in 2012. The operating margin for the first quarter of 2013 was 23.7%, compared to 20.7% for the same period in 2012. 
  • Adjusted EBITDA increased 34.0% to $41.7 million for the first quarter of 2013, compared to $31.1 million for the same period in 2012.
  • The tax rate in the first quarter of 2013 was 40.4% compared to 39.7% in the first quarter of 2012. 
  • Net income increased 44.8% to $20.9 million for the first quarter of 2013, compared to $14.5 million for the same period in 2012.  Included in interest income and other gains in the three months ended March 31, 2013 is $2.2 million related to a settlement of a note receivable that was collateralized by real estate, one property of which is adjacent to the University's campus.  Excluding the impact of this settlement, net of taxes, net income would have been $19.6 million for the three months ended March 31, 2013.
  • Diluted net income per share was $0.46 for the first quarter of 2013, compared to $0.32 for the same period in 2012.  Diluted net income per share would have been $0.43, excluding the impact, net of taxes, of the settlement of the note receivable during the first quarter of 2013.  

Balance Sheet and Cash Flow

As of March 31, 2013, the University had unrestricted cash and cash equivalents and investments of $151.5 million compared to $105.1 million at December 31, 2012 and restricted cash and cash equivalents at March 31, 2013 and December 31, 2012 of $49.9 million and $56.2 million, respectively.  

The University generated $31.7 million in cash from operating activities for the three months ended March 31, 2013 compared to $50.8 million for the same period in 2012. The decrease in cash generated from operating activities between the three months ended March 31, 2012 and the three months ended March 31, 2013 is primarily due to the timing of income tax and employee related payments. 

Net cash used in investing activities was $10.8 million and $16.9 million for the three months ended March 31, 2013 and 2012, respectively. Our cash used in investing activities was primarily related to the purchase of property and equipment and short-term investments, partially offset by proceeds received from the settlement of a note receivable.  Capital expenditures were $14.7 million and $16.9 million for the three months ended March 31, 2013 and 2012, respectively. In 2013, capital expenditures primarily consisted of ground campus building projects such as the construction costs of two additional dormitories and an expansion of our food services and library to support our 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.  In 2012, capital expenditures primarily consisted of construction costs associated with two additional dormitories, an Arts and Sciences classroom building, a remodel of our student union, and a parking garage as well as purchases of computer equipment, internal use software projects and furniture and equipment. 

Net cash provided by financing activities was $1.7 million and $1.5 million for the three months ended March 31, 2013 and 2012, respectively.  During the first three months of 2013 proceeds from the exercise of stock options of $5.9 million and excess tax benefits from share-based compensation of $3.5 million were partially offset by $6.0 million used to purchase treasury stock in accordance with the University's share repurchase program and principal payments on notes payable and capital leases that totaled $1.7 million.  During the first three months of 2012 proceeds from the exercise of stock options of $2.3 million were partially offset by principal payments on notes payable and capital lease obligations of $0.8 million.    

2013 Outlook by Quarter

Q2 2013:  

Net revenue between $137.0 million and $138.5 million; Target Operating Margin 22.5%; Diluted EPS between $0.39 and $0.40 using 45.8 million diluted shares; student counts between 48,900 to 49,500

Q3 2013:    

Net revenue between $145.0 million and $147.0 million; Target Operating Margin 23.5%; Diluted EPS between $0.43 and $0.44 using 46.4 million diluted shares; student counts between 57,250 to 58,250

Q4 2013:  

Net revenue between $153.5 million and $156.0 million; Target Operating Margin 24.5%; Diluted EPS between $0.48 and $0.49 using 46.8 million diluted shares; student counts between 56,750 to 57,750



Full Year 2013:   

Net revenue between $577.5 million and $583.5 million; Target Operating Margin 23.5%; Diluted EPS between $1.76 and $1.79 using 46.1 million diluted shares

STOCK REPURCHASE PROGRAM

The University also announced today that the Company's Board of Directors has increased the authorization under its existing stock repurchase program by $25.0 million ($75.0 million total) and also extended the expiration date on the repurchase authorization to September 30, 2014.  The Company had less than $3.4 million left under its initial $50.0 million authorization as of May 7, 2013.  Accordingly, the Company may repurchase from time to time at management's discretion approximately $3.4 million of the Company's common stock, which is what is left under the initial authorizations and an additional $25.0 million during the period ending September 30, 2014, unless such period is extended or shortened by the Board of Directors.

The purchases may be made in the open market at prevailing market prices or in privately negotiated transactions in compliance with applicable securities laws and other legal requirements. The level of purchase activity is subject to market conditions and other investment opportunities. The plan does not obligate Grand Canyon Education to acquire any particular amount of common stock and may be suspended or discontinued at any time. The repurchase program may be funded using the Company's available cash, short-term investments and revolving credit facility.

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: 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: our failure to comply with the extensive regulatory framework applicable to our industry, including Title IV of the Higher Education Act and the regulations thereunder, state laws and regulatory requirements, and accrediting commission requirements;  the results of the ongoing program review being conducted by the Department of Education of our compliance with Title IV program requirements, and possible fines or other administrative sanctions resulting therefrom; the ability of our students to obtain federal Title IV funds, state financial aid, and private financing; risks associated with changes in applicable federal and state laws and regulations and accrediting commission standards, including pending rulemaking by the Department of Education; potential damage to our reputation or other adverse effects as a result of negative publicity in the media, in the industry or in connection with governmental reports or investigations or otherwise, affecting us or other companies in the for-profit postsecondary education sector; our ability to properly manage risks and challenges associated with potential acquisitions of, or investments in, new businesses, acquisitions of new properties, or the expansion of our campus to new locations; our ability to hire and train new, and develop and train existing, faculty and employees; the pace of growth of our enrollment; our ability to convert prospective students to enrolled students and to retain active students; 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; industry competition, including competition for qualified executives and other personnel; risks associated with the competitive environment for marketing our programs; failure on our part to keep up with advances in technology that could enhance the online experience for our students; the extent to which obligations under our loan agreement, including the need to comply with restrictive and financial covenants and to pay principal and interest payments, limits our ability to conduct our operations or seek new business opportunities; our ability to manage future growth effectively; general adverse economic conditions or other developments that affect job prospects in our core disciplines; and other factors discussed in reports on file with the Securities and Exchange Commission.

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 2013 results and 2013 outlook during a conference call scheduled for today, May 7, 2013 at 4:30 p.m. Eastern time (ET). To participate in the live call, investors should dial 877-815-5362 (domestic and Canada) or 706-679-7806 (international), passcode 46592953 at 4:25 p.m. (ET). The Webcast will be available on the Grand Canyon Education, Inc. Web site at www.gcu.edu.

A replay of the call will be available approximately two hours following the conclusion of the call through May 14, 2013, at 855-859-2056 (domestic) or 404-537-3406 (international), passcode 46592953. It will also be archived at www.gcu.edu in the investor relations section for 60 days.

About Grand Canyon Education, Inc.
Grand Canyon Education, Inc. is a regionally accredited provider of postsecondary education services focused on offering graduate and undergraduate degree programs in its core disciplines of education, healthcare, business, and liberal arts. In addition to its online programs, it offers programs on ground at its approximately 115 acre traditional campus in Phoenix, Arizona and onsite at facilities we lease and at facilities owned by third party employers. Approximately 53,600 students were enrolled as of March 31, 2013. For more information about Grand Canyon Education, Inc., please visit http://www.gcu.edu.

Grand Canyon Education, Inc. is regionally accredited by The Higher Learning Commission of the North Central Association of Colleges and Schools (NCA), http://www.ncahlc.org. Grand Canyon University, 3300 W. Camelback Road, Phoenix, AZ 85017, www.gcu.edu.

 

GRAND CANYON EDUCATION, INC.
Consolidated Income Statements
(Unaudited)




    Three Months Ended

             March 31,           


2013

2012

 (In thousands, except per share data)



Net revenue

$142,030

$117,131

Costs and expenses:



Instructional costs and services

59,997

50,824

Admissions advisory and related, including $753 and $432 to related parties for March 31, 2013 and 2012, respectively

22,993

19,991

Advertising, including $0 and $15 to related parties for March 31, 2013 and 2012, respectively

15,929

13,639

Marketing and promotional

1,435

929

General and administrative

8,051

7,544

Total costs and expenses

108,405

92,927

Operating income

33,625

24,204

Interest expense

(668)

(207)

Interest income and other income

2,195

10

Income before income taxes

35,152

24,007

Income tax expense

14,207

9,538

Net income

$    20,945

$    14,469

Earnings per share:



Basic income per share

$        0.47

$        0.33

Diluted income per share

$        0.46

$        0.32

Basic weighted average shares outstanding

44,242

44,371

Diluted weighted average shares outstanding

45,449

45,151

 

GRAND CANYON EDUCATION, INC.

Adjusted EBITDA

Adjusted EBITDA is defined as net income plus interest expense net of interest income, plus income tax expense, and plus depreciation and amortization (EBITDA), as adjusted for (i) the amortization of prepaid royalty payments recorded in conjunction with a settlement of a dispute with our former owner; (ii) contributions to Arizona school tuition organizations in lieu of the payment of state income taxes, which we typically make in the fourth quarter of a fiscal year; (iii) share-based compensation and (iv) one-time, unusual charges or gains, such as litigation and regulatory reserves, exit or lease termination costs or the gain recognized on the settlement of the note receivable. 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.  Royalty expenses paid to our former owner, contributions made to Arizona school tuition organizations in lieu of the payment of state income taxes, estimated litigation and regulatory reserves, exit costs, contract and lease termination fees, unusual gains from settlements of receivables, and share-based compensation are not considered 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, and you should not consider it in isolation, or 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.  Some of these limitations are that it does not reflect:

  • cash expenditures for capital expenditures or contractual commitments;
  • changes in, or cash requirement 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 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 using Adjusted EBITDA only supplementally.  

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,            




2013

2012



(Unaudited, in thousands)

Net income



$    20,945

$    14,469

Plus: interest expense net of interest income



660

197

Plus: income tax expense



14,207

9,538

Plus: depreciation and amortization



5,877

4,958

EBITDA



41,689

29,162

Plus: royalty to former owner



74

74

Less: gain on proceeds received from note receivable



(2,187)

Plus: estimated litigation and regulatory reserves



(46)

200

Plus: share-based compensation



2,170

1,694

Adjusted EBITDA



$    41,700

$    31,130

 

 

GRAND CANYON EDUCATION, INC.
Consolidated Balance Sheets




ASSETS:

March 31,

December 31,

(In thousands, except par value)

2013

2012

Current assets

(Unaudited)


Cash and cash equivalents

$      127,739

$      105,111

Restricted cash and cash equivalents

49,680

55,964

Investments

23,802

Accounts receivable, net of allowance for doubtful accounts of $8,389 and
      $8,657 at March 31, 2013 and December 31, 2012, respectively

7,651

7,951

Note receivable secured by real estate

27,000

Deferred income taxes

5,279

5,481

Other current assets

13,847

12,667

Total current assets

227,998

214,174

Property and equipment, net

283,584

269,162

Restricted cash

225

225

Prepaid royalties

5,135

5,299

Goodwill

2,941

2,941

Other assets

4,011

3,122

Total assets

$      523,894

$      494,923

LIABILITIES AND STOCKHOLDERS' EQUITY:

Current liabilities



Accounts payable

$        20,353

$        14,174

Accrued compensation and benefits

13,163

18,812

Accrued liabilities

17,585

17,467

Income taxes payable

9,215

8,704

Student deposits

51,277

57,745

Deferred revenue

38,963

28,614

Due to related parties

429

523

Current portion of capital lease obligations

88

87

Current portion of notes payable

6,601

6,601

Total current liabilities

157,674

152,727

Capital lease obligations, less current portion

565

587

Other noncurrent liabilities

7,141

7,405

Deferred income taxes, noncurrent

8,601

7,045

Notes payable, less current portion

91,449

93,100

Total liabilities

265,430

260,864

Commitments and contingencies



Stockholders' equity



Preferred stock, $0.01 par value, 10,000 shares authorized; 0 shares issued and outstanding at March 31, 2013 and December 31, 2012

Common stock, $0.01 par value, 100,000 shares authorized; 48,167 and 47,136 shares issued and 45,492 and 44,716 shares outstanding at March 31, 2013 and December 31, 2012, respectively

482

471

Treasury stock, at cost, 2,676 and 2,420 shares of common stock at March 31, 2013 and December 31, 2012

(45,142)

(39,136)

Additional paid-in capital

111,556

102,133

Accumulated other comprehensive loss

(191)

(223)

Accumulated earnings

191,759

170,814

Total stockholders' equity

258,464

234,059

Total liabilities and stockholders' equity

$      523,894

$      494,923

 

 

GRAND CANYON EDUCATION, INC.
Consolidated Statements of Cash Flows
(Unaudited)




Three Months Ended

March 31,

(In thousands)

2013

2012




Cash flows provided by operating activities:


Net income

$    20,945

$    14,469

Adjustments to reconcile net income to net cash provided by operating activities:



Share-based compensation

2,170

1,694

Excess tax benefits from share-based compensation

(3,499)

(65)

Amortization of debt issuance costs

15

Provision for bad debts

4,941

4,122

Depreciation and amortization

5,951

5,032

Loss on asset disposal

182

Gain on proceeds received from note receivable

(2,187)

Deferred income taxes

1,739

(247)

Changes in assets and liabilities:



Restricted cash and cash equivalents

6,284

5,661

Accounts receivable

(4,641)

(150)

Prepaid expenses and other

(2,069)

(1,104)

Due to/from related parties

(94)

52

Accounts payable

2,112

742

Accrued liabilities and employee related liabilities

(5,531)

(2,798)

Income taxes receivable/payable

1,904

16,556

Deferred rent

(193)

622

Deferred revenue

10,349

11,756

Student deposits

(6,468)

(5,699)

Net cash provided by operating activities

31,713

50,840

Cash flows used in investing activities:



Capital expenditures

(14,704)

(16,876)

Purchase of land and building related to future development

(1,438)

Purchases of investments

(23,810)

Proceeds received from note receivable

29,187

Net cash used in investing activities

(10,765)

(16,876)

Cash flows provided by financing activities:



Principal payments on notes payable and capital lease obligations

(1,672)

(829)

Repurchase of common shares including shares withheld in lieu of income taxes

(6,006)

Excess tax benefits from share-based compensation

3,499

65

Net proceeds from exercise of stock options

5,859

2,311

Net cash provided by financing activities

1,680

1,547

Net increase in cash and cash equivalents

22,628

35,511

Cash and cash equivalents, beginning of period

105,111

21,189

Cash and cash equivalents, end of period

$  127,739

$    56,700

Supplemental disclosure of cash flow information



Cash paid for interest

$         573

$         253

Cash paid for income taxes

$    10,566

$      1,061

Cash received for income tax refunds

$             2

$      7,522

Supplemental disclosure of non-cash investing and financing activities



Purchases of property and equipment included in accounts payable

$      4,067

$      5,395

Tax benefit of Spirit warrant intangible

$           67

$           59

Shortfall tax expense from share-based compensation

$           74

$           17

 

The following is a summary of our student enrollment at March 31, 2013 and 2012 (which included less than 810 students pursuing non-degree certificates in each period) by degree type and by instructional delivery method:



                     2013(1)               


                    2012(1)                 




  # of Students

% of Total


# of Students 

% of Total 

Graduate degrees(2)



20,217

37.7%


18,054

39.0%

Undergraduate degree       



33,342

62.3%


28,224

61.0%

Total



53,559

100.0%


46,278

100.0%



                     2013(1)               


                    2012(1)                 




  # of Students  

% of Total


# of Students 

% of Total 

Online(3)



46,258

86.4%


41,229

89.1%

Ground(4)



7,301

13.6%


5,049

10.9%

Total



53,559

100.0%


46,278

100.0%



(1)

Enrollment at March 31, 2013 and 2012 represents individual students who attended a course during the last two months of the calendar quarter. 

(2)

Includes 3,329 and 2,221 students pursuing doctoral degrees at March 31, 2013 and 2012, respectively.

(3)

As of March 31, 2013 and 2012, 42.2% and 42.5%, respectively, of our online and professional studies students were pursuing graduate degrees.

(4)

Includes both our traditional on-campus ground students, as well as our professional studies students.

 

SOURCE Grand Canyon Education, Inc.



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