GRAND CANYON EDUCATION, INC. PHOENIX, Oct. 29, 2014 /PRNewswire/ -- Grand Canyon Education, Inc. (NASDAQ: LOPE), a regionally accredited university focused on offering graduate and undergraduate degree programs in eight colleges across over 160 degree programs on its 186 acre traditional campus in Phoenix, Arizona and online, today announced financial results for the quarter ended September 30, 2014.
For the three months ended September 30, 2014:
-- Net revenue increased 14.9% to $175.1 million for the third quarter of
2014, compared to $152.4 million for the third quarter of 2013.
-- At September 30, 2014, our enrollment was 68,122, an increase of 13.7%
from our enrollment of 59,914 at September 30, 2013. Ground enrollment
increased 24.9% to 12,904 from enrollment of 10,330 at September 30,
2013. Online enrollment increased 11.4% to 55,218 from enrollment of
49,584 at September 30, 2013.
-- Operating income for the third quarter of 2014 was $46.0 million, an
increase of 23.3% as compared to $37.3 million for the same period in
2013. The operating margin for the third quarter of 2014 was 26.3%,
compared to 24.5% for the same period in 2013.
-- Adjusted EBITDA increased 24.4% to $59.6 million for the third quarter
of 2014, compared to $47.9 million for the same period in 2013.
-- The tax rate in the third quarter of 2014 was 36.1% compared to 41.1% in
the third quarter of 2013. The effective tax rate was favorably affected
in 2014 by our contributions in lieu of state income taxes to school
tuition organizations made during the quarter as well as state tax rate
changes that began a gradual phase-in process during the first quarter
of 2014 and negatively impacted in 2013 by certain non-recurring tax
items.
-- Net income increased 28.7% to $29.0 million for the third quarter of
2014, compared to $22.5 million for the same period in 2013.
-- Diluted net income per share was $0.62 for the third quarter of 2014,
compared to $0.49 for the same period in 2013.
For the nine months ended September 30, 2014:
-- Net revenue increased 15.0% to $501.1 million for the nine months ended
September 30, 2014, compared to $435.9 million for the nine months ended
September 30, 2013.
-- Operating income for the nine months ended September 30, 2014 was $127.3
million, an increase of 24.3% as compared to $102.4 million for the same
period in 2013. The operating margin for the nine months ended September
30, 2014 was 25.4%, compared to 23.5% for the same period in 2013.
-- Adjusted EBITDA increased 23.5% to $163.7 million for the nine months
ended September 30, 2014, compared to $132.6 million for the same period
in 2013.
-- The tax rate in the nine months ended September 30, 2014 was 37.9%
compared to 40.2% in the nine months ended September 30, 2013. The
effective tax rate in 2014 is lower than the prior year due primarily to
our contributions in lieu of state income taxes to school tuition
organizations and state tax rate changes that began a gradual phase-in
process during the first quarter of 2014.
-- Net income increased 25.3% to $78.4 million for the nine months ended
September 30, 2014, compared to $62.6 million for the same period in
2013.
-- Diluted net income per share was $1.67 for the nine months ended
September 30, 2014, compared to $1.36 for the same period in 2013.
Balance Sheet and Cash Flow
The University financed its operating activities and capital expenditures during the nine months ended September 30, 2014 and 2013 primarily through cash provided by operating activities. Our unrestricted cash and cash equivalents and investments were $183.6 million and $164.2 million at September 30, 2014 and December 31, 2013, respectively. Our restricted cash and cash equivalents at September 30, 2014 and December 31, 2013 were $58.8 million and $64.4 million, respectively.
The University generated $156.7 million in cash from operating activities for the nine months ended September 30, 2014 compared to $101.8 million for the nine months ended September 30, 2013. The increase in cash generated from operating activities between the nine months ended September 30, 2013 and the nine months ended September 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 $159.9 million and $104.5 million for the nine months ended September 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 $18.7 million and $63.5 million during the nine months ended September 30, 2014 and 2013, respectively. Capital expenditures were $141.2 million and $59.2 million for the nine months ended September 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 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 nine months of 2013 we spent $11.2 million to purchase and refurbish a building that is located less than two miles from our Phoenix, Arizona campus. Investing activities were reduced in the first nine 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 $3.8 million and $4.5 million for the nine months ended September 30, 2014 and 2013, respectively. During the first nine months of 2014, proceeds from the exercise of stock options of $7.0 million and excess tax benefits from share-based compensation of $7.2 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 $5.0 million. During the first nine months of 2013, proceeds from the exercise of stock options of $14.8 million and excess tax benefits from share-based compensation of $3.7 million were partially offset by $9.0 million used to purchase treasury stock in accordance with the University's share repurchase program and principal payments on notes payable and capital leases which totaled $5.0 million.
2014 Outlook by Quarter
Q4 2014: Net revenue of $184.5 million; Target Operating Margin 27.8%; Diluted EPS of $0.66 using 47.4 million diluted shares; student counts of 67,300
Full Year 2014: Net revenue of $685.6 million, Target Operating Margin 26.1%; Diluted EPS of $2.33 using 47.0 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 third quarter 2014 results and fourth quarter 2014 outlook during a conference call scheduled for today, October 29, 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 19050664 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 19050664. 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 university focused on offering graduate and undergraduate degree programs in eight colleges across over 160 degree programs on its 186 acre traditional campus in Phoenix, Arizona and online. Approximately 68,100 students were enrolled as of September 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 Nine Months Ended
September 30, September 30,
------------- -------------
2014 2013 2014 2013
---- ---- ---- ----
(In thousands, except per share data)
------------------------------------
Net
revenue $175,056 $152,399 $501,082 $435,892
Costs and expenses:
Instructional
costs and
services 71,714 64,704 210,239 186,448
Admissions
advisory 30, 2014 30, 2014
and and 2013, and 2013,
related, respectively, respectively,
including and $2,373 to related
$762 and and $2,574 parties
$953 for for the
the three nine
months months
ended ended
September 27,324 24,578 79,793 70,917
Advertising 16,491 15,498 48,954 45,947
Marketing
and
promotional 1,931 1,299 5,629 4,117
General
and
administrative 11,640 9,035 29,188 26,064
------ ----- ------ ------
Total
costs and
expenses 129,100 115,114 373,803 333,493
------- ------- ------- -------
Operating
income 45,956 37,285 127,279 102,399
Interest
expense (576) (528) (1,455) (1,635)
Interest
and other
income 43 1,502 377 3,759
--- ----- --- -----
Income
before
income
taxes 45,423 38,259 126,201 104,523
Income tax
expense 16,407 15,714 47,828 41,969
------ ------ ------ ------
Net income $29,016 $22,545 $78,373 $62,554
======= ======= ======= =======
Earnings per share:
Basic
income
per share $0.64 $0.50 $1.72 $1.40
===== ===== ===== =====
Diluted
income
per share $0.62 $0.49 $1.67 $1.36
===== ===== ===== =====
Basic
weighted
average
shares
outstanding 45,651 44,963 45,486 44,631
====== ====== ====== ======
Diluted
weighted
average
shares
outstanding 47,051 46,424 46,962 45,936
====== ====== ====== ======
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, 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 Nine Months Ended
September 30, September 30,
------------- -------------
2014 2013 2014 2013
---- ---- ---- ----
(Unaudited, in thousands)
Net income $29,016 $22,545 $78,373 $62,554
Plus:
interest
expense
net of
interest
income 533 485 1,078 1,522
Plus:
income tax
expense 16,407 15,714 47,828 41,969
Plus:
depreciation
and
amortization 7,344 6,387 21,196 18,380
----- ----- ------ ------
EBITDA 53,300 45,131 148,475 124,425
------ ------ ------- -------
Plus:
royalty to
former
owner 74 74 222 222
Plus:
prepaid
royalty
impairment
and other
fixed
asset
impairments 385 - 3,441 -
Plus:
contributions
in lieu of
state
income
taxes 2,750 - 2,750 -
Plus: lease
termination
costs 518 - 518 -
Less: gain
on
proceeds
received
from note
receivable - (1,459) - (3,646)
Plus:
estimated
litigation
and
regulatory
reserves - 1,387 897 3,937
Plus:
share-
based
compensation 2,575 2,763 7,412 7,668
----- ----- ----- -----
Adjusted
EBITDA $59,602 $47,896 $163,715 $132,606
======= ======= ======== ========
GRAND CANYON EDUCATION, INC
Consolidated Balance Sheets
ASSETS: September 30, December 31,
(In thousands, except par
value) 2014 2013
------------------------- ---- ----
Current assets (Unaudited)
Cash and cash equivalents $56,482 $55,824
Restricted cash and cash
equivalents 58,801 64,368
Investments 127,126 108,420
Accounts receivable, net 8,289 7,217
Income taxes receivable 22 3,599
Deferred income taxes 4,940 5,159
Other current assets 19,511 19,116
------ ------
Total current assets 275,171 263,703
Property and equipment, net 469,294 339,596
Prepaid royalties 3,725 4,641
Goodwill 2,941 2,941
Other assets 4,367 5,219
----- -----
Total assets $755,498 $616,100
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities
Accounts payable $32,925 $24,231
Accrued compensation and
benefits 18,893 20,093
Accrued liabilities 14,084 14,554
Income taxes payable 7,799 7
Student deposits 60,472 66,772
Deferred revenue 76,908 32,816
Due to related parties 471 454
Current portion of capital
lease obligations 91 89
Current portion of notes
payable 6,613 6,607
----- -----
Total current liabilities 218,256 165,623
Capital lease obligations,
less current portion 429 497
Other noncurrent
liabilities 4,075 6,811
Deferred income taxes,
noncurrent 11,716 11,832
Notes payable, less current
portion 81,532 86,493
------ ------
Total liabilities 316,008 271,256
------- -------
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par
value, 10,000 shares
authorized; 0 shares
issued and outstanding at
September 30, 2014 and
December 31, 2013 - -
Common stock, $0.01 par
value, 100,000 shares
authorized; 49,686 and
48,890 shares issued and
46,697 and 46,045 shares
outstanding at September
30, 2014 and December 31,
2013, respectively 497 489
Treasury stock, at cost,
2,989 and 2,845 shares of
common stock at September
30, 2014 and December 31,
2013, respectively (53,770) (48,432)
Additional paid-in capital 154,636 132,904
Accumulated other
comprehensive income 229 358
Retained earnings 337,898 259,525
------- -------
Total stockholders' equity 439,490 344,844
------- -------
Total liabilities and
stockholders' equity $755,498 $616,100
======== ========
GRAND CANYON EDUCATION, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
-------------
(In thousands) 2014 2013
------------- ---- ----
Cash flows provided by operating activities:
Net income $78,373 $62,554
Adjustments to reconcile net income to net cash provided by
operating activities:
Share-based compensation 7,412 7,668
Excess tax benefits from share-based
compensation (7,232) (3,678)
Provision for bad debts 10,835 14,881
Depreciation and amortization 21,418 18,602
Prepaid royalty impairment 966 -
Gain on proceeds received from note
receivable - (3,646)
Deferred income taxes (137) 2,404
Other including fixed asset impairments 2,475 -
Changes in assets and liabilities:
Restricted cash and cash equivalents 5,567 6,249
Accounts receivable (11,907) (14,916)
Prepaid expenses and other (317) (5,854)
Due to/from related parties 17 (29)
Accounts payable (2,956) 1,859
Accrued liabilities and employee related
liabilities (1,610) (3,753)
Income taxes receivable/payable 18,782 (4,055)
Deferred rent (2,736) (721)
Deferred revenue 44,092 29,889
Student deposits (6,300) (5,668)
------ ------
Net cash provided by operating activities 156,742 101,786
------- -------
Cash flows used in investing activities:
Capital expenditures (141,217) (59,168)
Purchase of land and building related to
off-site development - (11,209)
Purchases of investments (101,185) (101,040)
Proceeds from sale or maturity of
investments 82,479 37,548
Restricted funds held for derivative
collateral - 140
Proceeds received from note receivable - 29,187
--- ------
Net cash used in investing activities (159,923) (104,542)
-------- --------
Cash flows provided by financing activities:
Principal payments on notes payable and
capital lease obligations (5,021) (5,024)
Repurchase of common shares including
shares withheld in lieu of income taxes (5,338) (9,009)
Excess tax benefits from share-based
compensation 7,232 3,678
Net proceeds from exercise of stock
options 6,966 14,816
----- ------
Net cash provided by financing activities 3,839 4,461
----- -----
Net increase in cash and cash equivalents 658 1,705
Cash and cash equivalents, beginning of
period 55,824 105,111
------ -------
Cash and cash equivalents, end of period $56,482 $106,816
======= ========
Supplemental disclosure of cash flow information
Cash paid for interest $1,327 $1,592
Cash paid for income taxes $29,223 $44,108
Cash received for income tax refunds $364 $715
Supplemental disclosure of non-cash investing and financing
activities
Purchases of property and equipment
included in accounts payable $11,650 $6,901
Tax benefit of Spirit warrant intangible $195 $201
Shortfall tax expense from share-based
compensation $14 $206
The following is a summary of our student enrollment at September 30, 2014 and 2013 by degree type and by instructional delivery method:
2014(1) 2013(1)
------ ------
# of Students % of Total # of Students % of Total
------------- ---------- ------------- ----------
Graduate degrees(2) 26,007 38.2% 22,394 37.4%
Undergraduate degree 42,115 61.8% 37,520 62.6%
------ ---- ------ ----
Total 68,122 100.0% 59,914 100.0%
====== ===== ====== =====
2014(1) 2013(1)
------ ------
# of Students % of Total # of Students % of Total
------------- ---------- ------------- ----------
Online(3) 55,218 81.1% 49,584 82.8%
Ground(4) 12,904 18.9% 10,330 17.2%
------ ---- ------ ----
Total 68,122 100.0% 59,914 100.0%
====== ===== ====== =====
(1) Enrollment at September 30, 2014
and 2013 represents individual
students who attended a course
during the last two months of
the calendar quarter. Included
in enrollment at September 30,
2014 and 2013 are students
pursuing non-degree
certificates of 621 and 552,
respectively.
(2) Includes 5,336 and 3,971 students
pursuing doctoral degrees at
September 30, 2014 and 2013,
respectively.
(3) As of September 30, 2014 and
2013, 45.2% and 43.2%,
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.
