Grand Canyon Education, Inc. Reports Second Quarter 2015 Results

Aug 10, 2015, 16:05 ET from Grand Canyon Education, Inc.

PHOENIX, Aug. 10, 2015 /PRNewswire/ -- Grand Canyon Education, Inc. (NASDAQ: LOPE), a comprehensive regionally accredited university that offers over 160 graduate and undergraduate degree programs across eight colleges both online and on ground at our 200+ acre campus in Phoenix, Arizona, today announced financial results for the quarter ended June 30, 2015.

For the three months ended June 30, 2015:

  • Net revenue increased 10.2% to $174.7 million for the second quarter of 2015, compared to $158.6 million for the second quarter of 2014.
  • End-of-period enrollment increased 9.1% to 62,935 at June 30, 2015, from 57,707 at June 30, 2014, as ground enrollment increased 10.9% to 5,254 at June 30, 2015, from 4,738 at June 30, 2014 and online enrollment increased 8.9% to 57,681 at June 30, 2015, from 52,969 at June 30, 2014.
  • Operating income for the second quarter of 2015 was $42.3 million, an increase of 11.5% as compared to $37.9 million for the same period in 2014. The operating margin for the second quarter of 2015 was 24.2%, compared to 23.9% for the same period in 2014.
  • Adjusted EBITDA increased 7.7% to $54.3 million for the second quarter of 2015, compared to $50.4 million for the same period in 2014.
  • The tax rate in the second quarter of 2015 was 39.0% compared to 38.9% in the second quarter of 2014.
  • Net income increased 11.7% to $25.8 million for the second quarter of 2015, compared to $23.1 million for the same period in 2014.
  • Diluted net income per share was $0.55 for the second quarter of 2015, compared to $0.49 for the same period in 2014.

For the six months ended June 30, 2015:

  • Net revenue increased 13.1% to $368.9 million for the six months ended June 30, 2015, compared to $326.0 million for the same period in 2014.
  • Operating income for the six months ended June 30, 2015 was $98.2 million, an increase of 20.8% as compared to $81.3 million for the same period in 2014. The operating margin for the six months ended June 30, 2015 was 26.6%, compared to 24.9% for the same period in 2014.
  • Adjusted EBITDA increased 16.5% to $121.3 million for the six months ended June 30, 2015, compared to $104.1 million for the same period in 2014.
  • The tax rate in the six months ended June 30, 2015 and 2014 was 38.9% for both periods.
  • Net income increased 21.5% to $60.0 million for the six months ended June 30, 2015, compared to $49.4 million for the same period in 2014.
  • Diluted net income per share was $1.27 for the six months ended June 30, 2015, compared to $1.05 for the same period in 2014.

Balance Sheet and Cash Flow

The University financed its operating activities and capital expenditures during the six months ended June 30, 2015 and 2014 primarily through cash provided by operating activities. Our unrestricted cash, cash equivalents and investments were $134.2 million and $166.0 million at June 30, 2015 and December 31, 2014, respectively. Our restricted cash, cash equivalents and investments at June 30, 2015 and December 31, 2014 were $63.7 million and $67.8 million, respectively. 

The University generated $81.7 million in cash from operating activities for the six months ended June 30, 2015 compared to $89.4 million for the six months ended June 30, 2014.  The decrease in cash generated from operating activities between the six months ended June 30, 2014 and the six months ended June 30, 2015 is primarily due to the timing of income tax related payments partially offset by increased net income.

Net cash used in investing activities was $94.7 million and $130.1 million for the six months ended June 30, 2015 and 2014, respectively. Our cash used in investing activities was primarily related to capital expenditures.  Capital expenditures were $111.9 million and $82.0 million for the six months ended June 30, 2015 and 2014, respectively.  During the first six months of 2015, capital expenditures primarily consisted of ground campus building projects such as the construction of four additional dormitories, an additional classroom building for our College of Science, Engineering and Technology, a new parking structure and land purchases adjacent to our Phoenix campus to support our 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.  During the first six months of 2014, capital expenditures primarily consisted of ground campus building projects such as the construction of an additional classroom building, additional residence halls, the expansion of our arena, and land purchases adjacent to our Phoenix campus to support our 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.  Also included in investing activities is the net short-term investment activity.   In the first six months of 2015 proceeds from the sale of short-term investments exceeded purchases by $17.3 million whereas in the first six months of 2014 purchases exceeded proceeds by $48.1 million

Net cash used in financing activities was $1.5 million for the six months ended June 30, 2015 whereas net cash provided by financing activities was $5.0 million for the six months ended June 30, 2014. During the first six months of 2015 $4.2 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 $3.4 million. These uses were partially offset by proceeds from the exercise of stock options of $2.7 million and excess tax benefits from share-based compensation of $3.4 million.  During the first six months of 2014, proceeds from the exercise of stock options of $6.6 million and excess tax benefits from share-based compensation of $7.1 million were partially offset by $3.6 million used to purchase common shares withheld in lieu of income taxes resulting from restricted share awards, $1.7 million used to purchase treasury stock in accordance with the university's share repurchase program and principal payments on notes payable and capital leases totaled $3.3 million

2015 Outlook by Quarter

Q3 2015:

Net revenue of $191.8 million; Target Operating Margin 24.7%; Diluted EPS of $0.65 using 47.6 million diluted shares; student counts of 75,600

Q4 2015:

Net revenue of $211.9 million; Target Operating Margin 28.4%; Diluted EPS of $0.78 using 47.9 million diluted shares; student counts of 75,200

Full Year 2015:

Net revenue of $772.6 million; Target Operating Margin 26.6%; Diluted EPS of $2.70 using 47.5 million diluted shares

 

Forward-Looking Statements

This news release contains "forward-looking statements" which include information relating to future events, future financial performance, strategies expectations, competitive environment, regulation, and availability of resources. These forward-looking statements include, without limitation, statements regarding: 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 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, lawsuits, or otherwise, affecting us or other companies in the for-profit postsecondary education sector; our ability to properly manage risks and challenges associated with strategic initiatives, including the potential conversion of our university operations to non-profit status, the expansion of our campus, potential acquisitions of, or investments in, new businesses, acquisitions of new properties, or the development of new campuses; 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 of our students; 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 second quarter 2015 results and 2015 outlook during a conference call scheduled for today, August 10, 2015 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 75266655 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, at 855-859-2056 (domestic) or 404-537-3406 (international), passcode 75266655. 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 comprehensive regionally accredited university that offers over 160 graduate and undergraduate degree programs across eight colleges both online and on ground at our 200+ acre campus in Phoenix, Arizona, at leased facilities and at facilities owned by third party employers of our students.  Our undergraduate programs are designed to be innovative and meet the future needs of employers while providing students with the needed critical thinking and effective communication skills developed through a Christian, liberal arts foundation. Approximately 62,900 students were enrolled as of June 30, 2015. 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, Grand Canyon University, 3300 W. Camelback Road, Phoenix, AZ 85017, www.gcu.edu.

GRAND CANYON EDUCATION, INC.

Consolidated Income Statements 

(Unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

2015

2014

2015

2014

 (In thousands, except per share data)

Net revenue

$174,726

$158,594

$368,853

$326,026

Costs and expenses:

  Instructional costs and services

75,357

67,847

154,044

138,525

  Admissions advisory and related, including $489 and $806 for the three months ended June 30, 2015 and 2014, respectively, and $994 and $1,611 for the six months ended June 30, 2015 and 2014, respectively, to related parties

27,372

26,208

55,705

52,469

  Advertising

18,419

15,751

38,450

32,463

  Marketing and promotional

1,788

1,907

3,482

3,698

  General and administrative

9,534

8,994

18,930

17,548

Total costs and expenses

132,470

120,707

270,611

244,703

Operating income

42,256

37,887

98,242

81,323

  Interest expense

(146)

(356)

(521)

(879)

  Interest and other income

127

197

384

334

Income before income taxes

42,237

37,728

98,105

80,778

Income tax expense

16,461

14,659

38,150

31,421

Net income 

$  25,776

$  23,069

$  59,955

$  49,357

Earnings per share:

Basic income per share

$      0.56

$      0.51

$      1.31

$      1.09

Diluted income per share

$      0.55

$      0.49

$      1.27

$      1.05

Basic weighted average shares outstanding

46,012

45,598

45,901

45,403

Diluted weighted average shares outstanding

47,263

46,990

47,233

46,917

 

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; (iii) share-based compensation and (iv) one-time, unusual charges or gains, such as litigation and regulatory reserves, impairment charges and asset write-offs, exit or lease termination costs or the gain recognized on the settlement of a third party 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, share-based compensation, one time unusual charges or gains such as estimated litigation and regulatory reserves, exit costs, contract and lease termination fees 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 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

Six Months Ended

June 30, 

June 30, 

2015

2014

2015

2014

(Unaudited, in thousands)

Net income

$25,776

$23,069

$  59,955

$  49,357

Plus: interest expense net of interest income

19

159

137

545

Plus: income tax expense

16,461

14,659

38,150

31,421

Plus: depreciation and amortization

8,159

6,997

16,239

13,852

EBITDA

50,415

44,884

114,481

95,175

Plus: royalty to former owner

74

74

148

148

Plus: prepaid royalty impairment and other fixed asset impairments

872

1,969

872

3,056

Plus: estimated litigation and regulatory reserves

50

870

241

897

Plus: share-based compensation

2,909

2,633

5,512

4,837

Adjusted EBITDA

$54,320

$50,430

$121,254

$104,113

 

GRAND CANYON EDUCATION, INC.

Consolidated Balance Sheets

ASSETS:

June 30,

December 31,

(In thousands, except par value)

2015

2014

Current assets

(Unaudited)

Cash and cash equivalents 

$      50,710

$         65,238

Restricted cash, cash equivalents and investments 

63,696

67,840

Investments 

83,533

100,784

Accounts receivable, net  

8,158

7,605

Deferred income taxes 

6,441

6,149

Other current assets 

18,539

19,429

Total current assets 

231,077

267,045

Property and equipment, net 

588,275

478,170

Prepaid royalties 

3,503

3,650

Goodwill 

2,941

2,941

Other assets 

3,145

3,907

Total assets 

$    828,941

$       755,713

LIABILITIES AND STOCKHOLDERS' EQUITY:

Current liabilities

Accounts payable 

$      36,410

$         22,715

Accrued compensation and benefits 

23,101

23,995

Accrued liabilities 

14,883

13,533

Income taxes payable 

220

4,906

Student deposits 

64,895

69,584

Deferred revenue 

42,409

36,868

Due to related parties 

401

403

Current portion of capital lease obligations 

518

91

Current portion of notes payable 

6,620

6,616

Total current liabilities 

189,457

178,711

Capital lease obligations, less current portion 

170

406

Other noncurrent liabilities 

3,953

4,513

Deferred income taxes, noncurrent 

15,469

15,974

Notes payable, less current portion 

76,565

79,877

Total liabilities 

285,614

279,481

Commitments and contingencies

Stockholders' equity

Preferred stock, $0.01 par value, 10,000 shares authorized; 0 shares issued and outstanding at June 30, 2015 and December 31, 2014 

-

-

Common stock, $0.01 par value, 100,000 shares authorized; 50,237 and 49,746 shares issued and 47,133 and 46,744 shares outstanding at June 30, 2015 and December 31, 2014, respectively 

502

497

Treasury stock, at cost, 3,104 and 3,002 shares of common stock at June 30, 2015 and December 31, 2014, respectively 

(58,000)

(53,770)

Additional paid-in capital 

170,194

158,549

Accumulated other comprehensive loss 

(315)

(35)

Retained earnings 

430,946

370,991

Total stockholders' equity 

543,327

476,232

Total liabilities and stockholders' equity 

$    828,941

$       755,713

 

GRAND CANYON EDUCATION, INC.

Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended

June 30,

(In thousands)

2015

2014

Cash flows provided by operating activities:

Net income

$  59,955

$  49,357

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

Share-based compensation

5,512

4,837

Excess tax benefits from share-based compensation

(3,361)

(7,085)

Provision for bad debts

7,412

7,061

Depreciation and amortization

16,387

14,000

Deferred income taxes

(1,077)

(862)

Prepaid royalty impairment 

-

966

Other, including fixed asset impairments

872

2,090

Changes in assets and liabilities:

Restricted cash, cash equivalents and investments

4,144

11,135

Accounts receivable

(7,965)

(8,359)

Prepaid expenses and other

1,373

2,062

Due to/from related parties

(2)

46

Accounts payable

(1,083)

(1,151)

Accrued liabilities and employee related liabilities

422

2,087

Income taxes receivable/payable

(1,214)

16,956

Deferred rent

(560)

(665)

Deferred revenue

5,541

8,870

Student deposits

(4,689)

(11,905)

Net cash provided by operating activities

81,667

89,440

Cash flows used in investing activities:

Capital expenditures

(111,903)

(82,013)

Purchases of investments

(25,023)

(87,217)

Proceeds from sale or maturity of investments

42,274

39,145

Net cash used in investing activities

(94,652)

(130,085)

Cash flows (used in) provided by financing activities:

Principal payments on notes payable and capital lease obligations

(3,374)

(3,346)

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

(4,230)

(5,338)

Excess tax benefits from share-based compensation

3,361

7,085

Net proceeds from exercise of stock options

2,700

6,634

Net cash (used in) provided by financing activities

(1,543)

5,035

Net decrease in cash and cash equivalents

(14,528)

(35,610)

Cash and cash equivalents, beginning of period

65,238

55,824

Cash and cash equivalents, end of period

$  50,710

$  20,214

Supplemental disclosure of cash flow information

Cash paid for interest

$       534

$       916

Cash paid for income taxes

$  39,986

$  14,885

Supplemental disclosure of non-cash investing and financing activities

Purchases of property and equipment included in accounts payable

$  20,623

$  10,210

Purchases of equipment through capital lease obligations

$       257

$            -

Tax benefit of Spirit warrant intangible

$       129

$       130

Shortfall tax expense from share-based compensation

$         18

$         14

 

The following is a summary of our student enrollment at June 30, 2015 and 2014 by degree type and by instructional delivery method:

2015(1) 

2014(1) 

# of Students

% of Total 

# of Students 

% of Total 

Graduate degrees(2) 

28,224

44.80%

24,438

42.30%

Undergraduate degree 

34,711

55.20%

33,269

57.70%

Total 

62,935

100.00%

57,707

100.00%

2015(1) 

2014(1) 

# of Students 

% of Total 

# of Students 

% of Total 

Online(3) 

57,681

91.70%

52,969

91.80%

Ground(4) 

5,254

8.30%

4,738

8.20%

Total 

62,935

100.00%

57,707

100.00%

 

(1)

Enrollment at June 30, 2015 and 2014 represents individual students who attended a course during the last two months of the calendar quarter.  Included in enrollment at June 30, 2015 and 2014 are students pursuing non-degree certificates of 858 and 795, respectively. 

(2)

Includes 6,106 and 4,930 students pursuing doctoral degrees at June 30, 2015 and 2014, respectively.

(3)

As of June 30, 2015 and 2014, 47.2% and 44.4%, respectively, of our working adult students (online and professional studies students) were pursuing graduate degrees.

(4)

Includes both our traditional on-campus ground students attending summer semester, and our professional studies students.

 

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SOURCE Grand Canyon Education, Inc.



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