GRAND CANYON EDUCATION, INC. 
By PHOENIX, Oct. 29, 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 September 30, 2013.
For the three months ended September 30, 2013:
-- Net revenue increased 14.1% to $152.4 million for the third quarter of
2013, compared to $133.6 million for the third quarter of 2012.
-- At September 30, 2013, our enrollment was 59,914, an increase of 14.7%
from our enrollment of 52,253 at September 30, 2012. Ground enrollment
increased 39.5% to 10,330 from enrollment of 7,404 at September 30,
2012. Online enrollment increased 10.6% to 49,584 from enrollment of
44,849 at September 30, 2012.
-- Operating income for the third quarter of 2013 was $37.3 million, an
increase of 19.5% as compared to $31.2 million for the same period in
2012. The operating margin for the third quarter of 2013 was 24.5%,
compared to 23.4% for the same period in 2012. Excluding estimated
litigation and regulatory reserves recorded during the periods,
operating income was $38.7 million and $31.7 million for the third
quarter of 2013 and 2012, respectively and operating margin was 25.4%
and 23.7% respectively.
-- Adjusted EBITDA increased 21.9% to $47.9 million for the third quarter
of 2013, compared to $39.3 million for the same period in 2012.
-- The tax rate in the third quarter of 2013 was 41.1% compared to 40.5% in
the third quarter of 2012.
-- Net income increased 22.1% to $22.5 million for the third quarter of
2013, compared to $18.5 million for the same period in 2012. Excluding
estimated litigation and regulatory reserves recorded during the periods
and income of $1.5 million from the settlement of a note receivable
recorded during the three months ended September 30, 2013, net income
was $22.4 million and $18.7 million for the third quarter of 2013 and
2012, respectively.
-- Diluted net income per share was $0.49 for the third quarter of 2013,
compared to $0.41 for the same period in 2012. Excluding estimated
litigation and regulatory reserves recorded during the periods and
income of $1.5 million from the settlement of a note receivable recorded
during the three months ended September 30, 2013, diluted net income per
share was $0.48 and $0.41 for the third quarter of 2013 and 2012,
respectively.
For the nine months ended September 30, 2013:
-- Net revenue increased 17.8% to $435.9 million for the nine months ended
September 30, 2013, compared to $370.0 million for the nine months ended
September 30, 2012.
-- Operating income for the nine months ended September 30, 2013 was $102.4
million, an increase of 26.7% as compared to $80.8 million for the same
period in 2012. The operating margin for the nine months ended September
30, 2013 was 23.5%, compared to 21.8% for the same period in 2012.
Excluding estimated litigation and regulatory reserves recorded during
the periods, operating income was $106.3 million and $84.3 million for
the nine months ended September 30, 2013 and 2012, respectively and
operating margin was 24.4% and 22.8% respectively.
-- Adjusted EBITDA increased 25.1% to $132.6 million for the nine months
ended September 30, 2013, compared to $106.0 million for the same period
in 2012.
-- The tax rate in the nine months ended September 30, 2013 was 40.2%
compared to 39.6% in the nine months ended September 30, 2012.
-- Net income increased 28.9% to $62.6 million for the nine months ended
September 30, 2013, compared to $48.5 million for the same period in
2012. Excluding estimated litigation and regulatory reserves recorded
during the periods and income of $3.6 million from the settlement of a
note receivable recorded during the nine months ended September 30,
2013, net of taxes, net income would have been $62.7 million and $50.6
million for the nine months ended September 30, 2013 and 2012,
respectively.
-- Diluted net income per share was $1.36 for the nine months ended
September 30, 2013, compared to $1.07 for the same period in 2012.
Excluding estimated litigation and regulatory reserves recorded during
the periods and income of $3.6 million from the settlement of a note
receivable recorded during the nine months ended September 30, 2013, net
of taxes, diluted net income per share would have been $1.37 and $1.12
for the nine months ended September 30, 2013 and 2012, respectively.
Balance Sheet and Cash Flow
As of September 30, 2013, the University had unrestricted cash and cash equivalents and investments of $170.3 million compared to $105.1 million at December 31, 2012 and restricted cash and cash equivalents at September 30, 2013 and December 31, 2012 of $49.8 million and $56.2 million, respectively.
The University generated $101.8 million in cash from operating activities for the nine months ended September 30, 2013 compared to $124.7 million for the same period in 2012. The decrease in cash generated from operating activities between the nine months ended September 30, 2012 and the nine months ended September 30, 2013 is primarily due to the timing of income tax and employee related payments and student deposits.
Net cash used in investing activities was $104.5 million and $74.3 million for the nine months ended September 30, 2013 and 2012, respectively. Our cash used in investing activities during 2013 was primarily related to the purchase of short-term investments and property and equipment, partially offset by proceeds received from the settlement of a note receivable. Purchases of short-term investments net of proceeds of these investments was $63.5 million during the nine months ended September 30, 2013. Capital expenditures were $59.2 million and $73.6 million for the nine months ended September 30, 2013 and 2012, respectively. 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 2012, capital expenditures primarily consisted of the construction costs associated with two additional dormitories, an Arts and Science classroom building, a remodel of our student union and a parking garage to support our increasing 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 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. The University had entered into a preliminary agreement to sell this property upon its completion but that agreement was not finalized.
Net cash provided by financing activities was $4.5 million for the nine months ended September 30, 2013 and net cash used in financing activities was $2.0 million for the nine months ended September 30, 2012. 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 totaled $5.0 million. During the first nine months of 2012 proceeds from the exercise of stock options of $4.3 million were offset by $4.9 million used to purchase treasury stock in accordance with the University's share repurchase program and principal payments on notes payable and capital lease obligations totaled $1.8 million.
2013 Q4 and Annual Outlook
Q4 2013: Net revenue of $158.0;
Target Operating Margin
25.5%; Diluted EPS of
$0.51 using 46.9 million
diluted shares; student
counts of 59,250
Full Year 2013: Net revenue of $594.0
million; Target Operating
Margin 24.0%; Diluted EPS
of $1.88 using 46.1
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 2013 results and 2013 outlook during a conference call scheduled for today, October 29, 2013 at 4:30 p.m. Eastern time (ET). To participate in the live call, investors should dial 877-445-3230 (domestic and Canada) or 708-290-1158 (international), passcode 72617623 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 72617623. 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 59,900 students were enrolled as of September 30, 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 Nine Months Ended
September 30, September 30,
------------- -------------
2013 2012 2013 2012
---- ---- ---- ----
(In thousands, except per share data)
------------------------------------
Net revenue $152,399 $133,568 $435,892 $369,959
Costs and expenses:
Instructional costs and services 64,704 57,354 186,448 161,584
Admissions advisory and related, including $953 and $645 for the three months 24,578 22,342 70,917 62,702
ended September 30, 2013 and 2012, respectively, and $2,574 and $1,666 for
the nine months ended September 30, 2013 and 2012, respectively, to related
parties
Advertising 15,498 12,909 45,947 38,015
Marketing and promotional 1,299 1,199 4,117 3,047
General and administrative 9,035 8,561 26,064 23,806
----- ----- ------ ------
Total costs and expenses 115,114 102,365 333,493 289,154
------- ------- ------- -------
Operating income 37,285 31,203 102,399 80,805
Interest expense (528) (154) (1,635) (439)
Interest and other income 1,502 16 3,759 52
----- --- ----- ---
Income before income taxes 38,259 31,065 104,523 80,418
Income tax expense 15,714 12,594 41,969 31,880
------ ------ ------ ------
Net income $22,545 $18,471 $62,554 $48,538
======= ======= ======= =======
Earnings per share:
Basic income per share $0.50 $0.42 $1.40 $1.09
===== ===== ===== =====
Diluted income per share $0.49 $0.41 $1.36 $1.07
===== ===== ===== =====
Basic weighted average shares outstanding 44,963 44,365 44,631 44,395
====== ====== ====== ======
Diluted weighted average shares outstanding 46,424 45,339 45,936 45,220
====== ====== ====== ======
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 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,
------------- -------------
2013 2012 2013 2012
---- ---- ---- ----
(Unaudited, in thousands)
Net income $22,545 $18,471 $62,554 $48,538
Plus: interest expense
net of interest income 485 138 1,522 387
Plus: income tax expense 15,714 12,594 41,969 31,880
Plus: depreciation and
amortization 6,387 5,546 18,380 15,562
----- ----- ------ ------
EBITDA 45,131 36,749 124,425 96,367
------ ------ ------- ------
Plus: royalty to former
owner 74 74 222 222
Less: gain on proceeds
received from note
receivable (1,459) - (3,646) -
Plus: estimated
litigation and
regulatory reserves 1,387 450 3,937 3,660
Plus: share-based
compensation 2,763 2,032 7,668 5,748
----- ----- ----- -----
Adjusted EBITDA $47,896 $39,305 $132,606 $105,997
======= ======= ======== ========
GRAND CANYON EDUCATION, INC.
Consolidated Balance Sheets
ASSETS: September 30, December 31,
(In thousands, except par value) 2013 2012
------------------------------- ---- ----
Current assets (Unaudited)
Cash and cash equivalents $106,816 $105,111
Restricted cash and cash equivalents 49,800 55,964
Investments 63,492 -
Accounts receivable, net of allowance for doubtful accounts of $9,465 and 7,986 7,951
$8,657 at September 30, 2013 and December 31, 2012, respectively
Note receivable secured by real estate - 27,000
Income taxes receivable 13 -
Deferred income taxes 6,444 5,481
Other current assets 17,913 12,667
------ ------
Total current assets 252,464 214,174
Property and equipment, net 328,423 269,162
Restricted cash - 225
Prepaid royalties 4,806 5,299
Goodwill 2,941 2,941
Other assets 5,441 3,122
----- -----
Total assets $594,075 $494,923
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities
Accounts payable $22,934 $14,174
Accrued compensation and benefits 16,163 18,812
Accrued liabilities 16,542 17,467
Income taxes payable 989 8,704
Student deposits 52,077 57,745
Deferred revenue 58,503 28,614
Due to related parties 494 523
Current portion of capital lease obligations 89 87
Current portion of notes payable 6,605 6,601
----- -----
Total current liabilities 174,396 152,727
Capital lease obligations, less current portion 520 587
Other noncurrent liabilities 6,293 7,405
Deferred income taxes, noncurrent 10,412 7,045
Notes payable, less current portion 88,137 93,100
------ ------
Total liabilities 279,758 260,864
------- -------
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par value, 10,000 shares authorized; 0 shares issued - -
and outstanding at September 30, 2013 and December 31, 2012
Common stock, $0.01 par value, 100,000 shares authorized; 48,792 and 47,136 488 471
shares issued and 45,982 and 44,716 shares outstanding at September 30,
2013 and December 31, 2012, respectively
Treasury stock, at cost, 2,810 and 2,420 shares of common stock at September (48,145) (39,136)
30, 2013 and December 31, 2012
Additional paid-in capital 128,366 102,133
Accumulated other comprehensive income (loss) 240 (223)
Accumulated earnings 233,368 170,814
------- -------
Total stockholders' equity 314,317 234,059
------- -------
Total liabilities and stockholders' equity $594.075 $494,923
======== ========
GRAND CANYON EDUCATION, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
-------------
(In thousands) 2013 2012
------------- ---- ----
Cash flows provided by operating activities:
Net income $62,554 $48,538
Adjustments to reconcile net income to net cash provided by operating
activities:
Share-based compensation 7,668 5,748
Excess tax benefits from share-based
compensation (3,678) (336)
Amortization of debt issuance costs - 48
Provision for bad debts 14,881 13,492
Depreciation and amortization 18,602 15,784
Loss on asset disposal - 202
Gain on proceeds received from note
receivable (3,646) -
Deferred income taxes 2,404 (2,152)
Changes in assets and liabilities:
Restricted cash and cash equivalents 6,249 (912)
Accounts receivable (14,916) (10,552)
Prepaid expenses and other (5,854) (2,671)
Due to/from related parties (29) 101
Accounts payable 1,859 (962)
Accrued liabilities and employee related
liabilities (3,753) 9,046
Income taxes receivable/payable (4,055) 22,464
Deferred rent (721) 612
Deferred revenue 29,889 24,956
Student deposits (5,668) 1,328
------ -----
Net cash provided by operating activities 101,786 124,734
------- -------
Cash flows used in investing activities:
Capital expenditures (59,168) (73,619)
Purchase of land and building related to
offsite development (11,209) (818)
Purchases of investments (101,040) -
Proceeds from sale or maturity of
investments 37,548 -
Restricted funds held for derivative
collateral 140 180
Proceeds received from note receivable 29,187 -
------ ---
Net cash used in investing activities (104,542) (74,257)
-------- -------
Cash flows provided by (used in) financing activities:
Principal payments on notes payable and
capital lease obligations (5,024) (1,772)
Repurchase of common shares including
shares withheld in lieu of income taxes (9,009) (4,925)
Excess tax benefits from share-based
compensation 3,678 336
Net proceeds from exercise of stock options 14,816 4,339
------ -----
Net cash provided by (used in) financing
activities 4,461 (2,022)
----- ------
Net increase in cash and cash equivalents 1,705 48,455
Cash and cash equivalents, beginning of
period 105,111 21,189
------- ------
Cash and cash equivalents, end of period $106,816 $69,644
======== =======
Supplemental disclosure of cash flow information
Cash paid for interest $1,592 $446
Cash paid for income taxes $44,108 $19,615
Cash received for income tax refunds $715 $7,654
Supplemental disclosure of non-cash investing and financing
activities
Purchases of property and equipment
included in accounts payable $6,901 $7,636
Tax benefit of Spirit warrant intangible $201 $199
Shortfall tax expense from share-based
compensation $206 $200
The following is a summary of our student enrollment at September 30, 2013 and 2012 by degree type and by instructional delivery method:
2013(1) 2012(1)
------ ------
# of Students % of Total # of Students % of Total
------------- ---------- ------------- ----------
Graduate degrees(2) 22,394 37.4% 19,439 37.2%
Undergraduate degree 37,520 62.6% 32,814 62.8%
------ ---- ------ ----
Total 59,914 100.0% 52,253 100.0%
====== ===== ====== =====
2013(1) 2012(1)
------ ------
# of Students % of Total # of Students % of Total
------------- ---------- ------------- ----------
Online(3) 49,584 82.8% 44,849 85.8%
Ground(4) 10,330 17.2% 7,404 14.2%
------ ---- ----- ----
Total 59,914 100.0% 52,253 100.0%
====== ===== ====== =====
(1) Enrollment at September 30, 2013
and 2012 represents individual
students who attended a course
during the last two months of
the calendar quarter. Included
in enrollment at September 30,
2013 and 2012 is students
pursuing non-degree
certificates of 552 and 542,
respectively. The September 30,
2012 amount also included 223
high school dual credit
students. We are no longer
including these students in our
enrollment.
(2) Includes 3,971 and 2,745 students
pursuing doctoral degrees at
September 30, 2013 and 2012,
respectively.
(3) As of September 30, 2013 and
2012, 43.2% and 42.0%,
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.
