GRAND CANYON EDUCATION, INC. PHOENIX, July 31, 2014 /PRNewswire/ -- Grand Canyon Education, Inc. (NASDAQ: LOPE), 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, today announced financial results for the quarter ended June 30, 2014.
http://photos.prnewswire.com/prnvar/20140731/132277
Grand Canyon Education, Inc. Reports Second Quarter 2014 Results
For the three months ended June 30, 2014:
-- Net revenue increased 12.1% to $158.6 million for the second quarter of
2014, compared to $141.5 million for the second quarter of 2013.
-- At June 30, 2014, our enrollment was 57,707, an increase of 12.7% from
our enrollment of 51,200 at June 30, 2013. Ground enrollment increased
38.7% to 4,738 from enrollment of 3,415 at June 30, 2013. Online
enrollment increased 10.8% to 52,969 from enrollment of 47,785 at June
30, 2013.
-- Operating income for the second quarter of 2014 was $37.9 million, an
increase of 20.3% as compared to $31.5 million for the same period in
2013. The operating margin for the second quarter of 2014 was 23.9%,
compared to 22.3% for the same period in 2013.
-- Adjusted EBITDA increased 17.4% to $50.4 million for the second quarter
of 2014, compared to $43.0 million for the same period in 2013.
-- The tax rate in the second quarter of 2014 was 38.9% compared to 38.7%
in the second quarter of 2013. The low effective tax rate in the second
quarter of 2014 was primarily due to the phase-in of market sourcing for
apportionment of Arizona sales and to a lesser extent state tax rate
changes that both began to phase-in beginning in the first quarter of
2014 and in 2013 by certain non-recurring tax items.
-- Net income increased 21.0% to $23.1 million for the second quarter of
2014, compared to $19.1 million for the same period in 2013.
-- Diluted net income per share was $0.49 for the second quarter of 2014,
compared to $0.42 for the same period in 2013.
For the six months ended June 30, 2014:
-- Net revenue increased 15.0% to $326.0 million for the six months ended
June 30, 2014, compared to $283.5 million for the six months ended June
30, 2013.
-- Operating income for the six months ended June 30, 2014 was $81.3
million, an increase of 24.9% as compared to $65.1 million for the same
period in 2013. The operating margin for the six months ended June 30,
2014 was 24.9%, compared to 23.0% for the same period in 2013.
-- Adjusted EBITDA increased 23.0% to $104.1 million for the six months
ended June 30, 2014, compared to $84.7 million for the same period in
2013.
-- The tax rate in the six months ended June 30, 2014 was 38.9% compared to
39.6% in the six months ended June 30, 2013. The low effective tax rate
in the six months ended June 30, 2014 was primarily due to the phase-in
of market sourcing for apportionment of Arizona sales and to a lesser
extent state tax rate changes that both began to phase-in beginning in
the first quarter of 2014.
-- Net income increased 23.4% to $49.4 million for the six months ended
June 30, 2014, compared to $40.0 million for the same period in 2013.
-- Diluted net income per share was $1.05 for the six months ended June 30,
2014, compared to $0.88 for the same period in 2013.
Balance Sheet and Cash Flow
The University financed its operating activities and capital expenditures during the six months ended June 30, 2014 and 2013 primarily through cash provided by operating activities. Our unrestricted cash and cash equivalents and investments were $176.7 million and $164.2 million at June 30, 2014 and December 31, 2013, respectively. Our restricted cash and cash equivalents at June 30, 2014 and December 31, 2013 were $53.2 million and $64.4 million, respectively.
The University generated $89.4 million in cash from operating activities for the six months ended June 30, 2014 compared to $44.0 million for the six months ended June 30, 2013. The increase in cash generated from operating activities between the six months ended June 30, 2013 and the six months ended June 30, 2014 is primarily due to increased net income and the timing of income tax payments, deferred revenue and student deposits.
Net cash used in investing activities was $130.1 million and $64.1 million for the six months ended June 30, 2014 and 2013, respectively. Our cash used in investing activities was primarily related to the purchase of short-term investments and capital expenditures. Purchases of short-term investments net of proceeds of these investments was $48.1 million and $48.4 million during the six months ended June 30, 2014 and 2013, respectively. Capital expenditures were $82.0 million and $38.0 million for the six months ended June 30, 2014 and 2013, respectively. In 2014, capital expenditures primarily consisted of ground campus building projects such as the construction of an additional classroom building, additional residence halls that will accommodate another 1,600 students, 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. In 2013, capital expenditures primarily consisted of ground campus building projects such as the construction costs for 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 addition, during the first six months of 2013 we spent $6.9 million to purchase and refurbish an administration building. Investing activities were reduced in the first six months of 2013 by proceeds in the amount of $29.2 million received on a note receivable. In the second half of 2014 we will start construction on an additional classroom building that will be dedicated to our new Engineering and Information Technology programs, four additional residence halls that will accommodate another 3,000 students and one additional parking garage. In addition, the University intends to open a campus in the East Valley in the Fall of 2016. We anticipate capital expenditures in 2014 and 2015 for the projects described above as well as for technology enhancements and equipment for our growing employee base will be $175 million and $185 million, respectively.
Net cash provided by financing activities was $5.0 million and $5.7 million for the six months ended June 30, 2014 and 2013, respectively. 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 $5.3 million used to purchase treasury stock in accordance with the University's share repurchase program and principal payments on notes payable and capital leases which totaled $3.3 million. During the first six months of 2013 proceeds from the exercise of stock options of $14.1 million and excess tax benefits from share-based compensation of $3.5 million were partially offset by $8.5 million used to purchase treasury stock in accordance with the University's share repurchase program and principal payments on notes payable and capital leases which totaled $3.3 million.
2014 Outlook by Quarter
Q3 2014: Net revenue of $169.0
million; Target Operating
Margin 24.7%; Diluted EPS
of $0.53 using 47.6
million diluted shares;
student counts of 67,000
Q4 2014: Net revenue of $181.6
million; Target Operating
Margin 27.8%; Diluted EPS
of $0.63 using 48.0
million diluted shares;
student counts of 66,700
Full Year 2014: Net revenue of $676.6
million; Target Operating
Margin 25.7%; Diluted EPS
of $2.21 using 47.4
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 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 second quarter 2014 results and 2014 outlook during a conference call scheduled for today, July 31, 2014 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 66435380 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 66435380. 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 179 acre traditional campus in Phoenix, Arizona and onsite at facilities we lease and at facilities owned by third party employers. Approximately 57,700 students were enrolled as of June 30, 2014. 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 Six Months Ended
June 30, June 30,
-------- --------
2014 2013 2014 2013
---- ---- ---- ----
(In thousands, except per share data)
------------------------------------
Net revenue $158,594 $141,463 $326,026 $283,493
Costs and expenses:
Instructional costs and services 67,847 61,747 138,525 121,744
Admissions advisory and related, including $806 and $867 for the three months ended June 30, 2014 and
2013, respectively, and $1,611 and $1,621 for the six months ended June 30, 2014 and 2013,
respectively, to related parties 26,208 23,346 52,469 46,339
Advertising 15,751 14,520 32,463 30,449
Marketing and promotional 1,907 1,383 3,698 2,818
General and administrative 8,994 8,978 17,548 17,029
----- ----- ------ ------
Total costs and expenses 120,707 109,974 244,703 218,379
------- ------- ------- -------
Operating income 37,887 31,489 81,323 65,114
Interest expense (356) (439) (879) (1,107)
Interest and other income 197 62 334 2,257
--- --- --- -----
Income before income taxes 37,728 31,112 80,778 66,264
Income tax expense 14,659 12,048 31,421 26,255
------ ------ ------ ------
Net income $23,069 $19,064 $49,357 $40,009
======= ======= ======= =======
Earnings per share:
Basic income per share $0.51 $0.43 $1.09 $0.90
===== ===== ===== =====
Diluted income per share $0.49 $0.42 $1.05 $0.88
===== ===== ===== =====
Basic weighted average shares outstanding 45,598 44,681 45,403 44,463
====== ====== ====== ======
Diluted weighted average shares outstanding 46,990 45,929 46,917 45,690
====== ====== ====== ======
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, 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, and the gain recognized on the settlement of notes receivable 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,
--------
2014 2013 2014 2013
---- ---- ---- ----
(Unaudited, in thousands)
Net income $23,069 $19,064 $49,357 $40,009
Plus: interest expense net of interest income 159 377 545 1,037
Plus: income tax expense 14,659 12,048 31,421 26,255
Plus: depreciation and amortization 6,997 6,116 13,852 11,993
----- ----- ------ ------
EBITDA 44,884 37,605 95,175 79,294
------ ------ ------ ------
Plus: royalty to former owner 74 74 148 148
Plus: prepaid royalty impairment and other fixed asset impairments 1,969 - 3,056 -
Less: gain on proceeds received from note receivable - - - (2,187)
Plus: estimated litigation and regulatory reserves 870 2,541 897 2,495
Plus: share-based compensation 2,633 2,735 4,837 4,905
----- ----- ----- -----
Adjusted EBITDA $50,430 $42,955 $104,113 $84,655
======= ======= ======== =======
GRAND CANYON EDUCATION, INC.
Consolidated Balance Sheets
ASSETS: June 30, December 31,
(In thousands, except par value) 2014 2013
------------------------------- ---- ----
Current assets (Unaudited)
Cash and cash equivalents $20,214 $55,824
Restricted cash and cash equivalents 53,233 64,368
Investments 156,492 108,420
Accounts receivable, net 8,515 7,217
Income taxes receivable - 3,599
Deferred income taxes 5,472 5,159
Other current assets 17,208 19,116
------ ------
Total current assets 261,134 263,703
Property and equipment, net 416,242 339,596
Prepaid royalties 3,799 4,641
Goodwill 2,941 2,941
Other assets 4,428 5,219
----- -----
Total assets $688,544 $616,100
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities
Accounts payable $33,290 $24,231
Accrued compensation and benefits 21,059 20,093
Accrued liabilities 15,604 14,554
Income taxes payable 6,163 7
Student deposits 54,867 66,772
Deferred revenue 41,686 32,816
Due to related parties 500 454
Current portion of capital lease obligations 90 89
Current portion of notes payable 6,611 6,607
----- -----
Total current liabilities 179,870 165,623
Capital lease obligations, less current portion 452 497
Other noncurrent liabilities 6,146 6,811
Deferred income taxes, noncurrent 11,596 11,832
Notes payable, less current portion 83,187 86,493
------ ------
Total liabilities 281,251 271,256
------- -------
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par value, 10,000 shares authorized; 0 shares issued - -
and outstanding at June 30, 2014 and December 31, 2013
Common stock, $0.01 par value, 100,000 shares authorized; 49,666 and 48,890 shares issued and 46,691 and 46,045 shares outstanding at June 30, 2014
and December 31, 2013, respectively 497 489
Treasury stock, at cost, 2,975 and 2,845 shares of common stock at June 30, 2014 and December 31, 2013, respectively (53,770) (48,432)
Additional paid-in capital 151,528 132,904
Accumulated other comprehensive income 156 358
Retained earnings 308,882 259,525
------- -------
Total stockholders' equity 407,293 344,844
------- -------
Total liabilities and stockholders' equity $688,544 $616,100
======== ========
GRAND CANYON EDUCATION, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
--------
(In thousands) 2014 2013
------------- ---- ----
Cash flows provided by operating activities:
Net income $49,357 $40,009
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation 4,837 4,905
Excess tax benefits from share-based compensation (7,085) (3,465)
Provision for bad debts 7,061 9,485
Depreciation and amortization 14,000 12,141
Prepaid royalty impairment 966 -
Gain on proceeds received from note receivable - (2,187)
Deferred income taxes (862) 1,050
Other including fixed asset impairments 2,090 -
Changes in assets and liabilities:
Restricted cash and cash equivalents 11,135 4,508
Accounts receivable (8,359) (10,179)
Prepaid expenses and other 2,062 (4,123)
Due to/from related parties 46 (66)
Accounts payable (1,151) 119
Accrued liabilities and employee related liabilities 2,087 2,180
Income taxes receivable/payable 16,956 (7,842)
Deferred rent (665) (446)
Deferred revenue 8,870 2,971
Student deposits (11,905) (5,024)
------- ------
Net cash provided by operating activities 89,440 44,036
------ ------
Cash flows used in investing activities:
Capital expenditures (82,013) (38,008)
Purchase of land and building related to off-site development - (6,936)
Purchases of investments (87,217) (55,219)
Proceeds from sale or maturity of investments 39,145 6,780
Restricted funds held for derivative collateral - 140
Proceeds received from note receivable - 29,187
--- ------
Net cash used in investing activities (130,085) (64,056)
-------- -------
Cash flows provided by financing activities:
Principal payments on notes payable and capital lease obligations (3,346) (3,336)
Repurchase of common shares including shares withheld in lieu of income taxes (5,338) (8,491)
Excess tax benefits from share-based compensation 7,085 3,465
Net proceeds from exercise of stock options 6,634 14,072
----- ------
Net cash provided by financing activities 5,035 5,710
----- -----
Net decrease in cash and cash equivalents (35,610) (14,310)
Cash and cash equivalents, beginning of period 55,824 105,111
------ -------
Cash and cash equivalents, end of period $20,214 $90,801
======= =======
Supplemental disclosure of cash flow information
Cash paid for interest $916 $1,059
Cash paid for income taxes $14,885 $33,096
Cash received for income tax refunds $2 $4
Supplemental disclosure of non-cash investing and financing activities
Purchases of property and equipment included in accounts payable $10,210 $2,033
Tax benefit of Spirit warrant intangible $130 $134
Shortfall tax expense from share-based compensation $14 $205
The following is a summary of our student enrollment at June 30, 2014 and 2013 by degree type and by instructional delivery method:
2013(1)
2014(1)
------
# of Students % of Total # of Students % of Total
------------- ---------- ------------- ----------
Graduate degrees(2) 24,438 42.3% 21,208 41.4%
Undergraduate degree 33,269 57.7% 29,992 58.6%
------ ---- ------ ----
Total 57,707 100.0% 51,200 100.0%
====== ===== ====== =====
2014(1) 2013(1)
------ ------
# of Students % of Total # of Students % of Total
------------- ---------- ------------- ----------
Online(3) 52,969 91.8% 47,785 93.3%
Ground(4) 4,738 8.2% 3,415 6.7%
----- --- ----- ---
Total 57,707 100.0% 51,200 100.0%
====== ===== ====== =====
(1) Enrollment at June 30, 2014 and
2013 represents individual
students who attended a course
during the last two months of
the calendar quarter. Included
in enrollment at June 30, 2014
and 2013 are students pursuing
non-degree certificates of 795
and 765, respectively. The June
30, 2013 amount also included
197 high school dual credit
students. We are no longer
including these students in our
enrollment.
(2) Includes 4,930 and 3,584 students
pursuing doctoral degrees at
June 30, 2014 and 2013,
respectively.
(3) As of June 30, 2014 and 2013,
44.4% and 42.8%, 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. This amount is lower
in the second quarter than in
other quarters as it only
includes those traditional on-
campus students taking summer
school.
Logo - http://photos.prnewswire.com/prnh/20140731/132277
SOURCE Grand Canyon Education, Inc.
