GRAND CANYON EDUCATION, INC. PHOENIX, May 9, 2016 /PRNewswire/ -- Grand Canyon Education, Inc. (NASDAQ: LOPE), a comprehensive regionally accredited university that offers over 200 graduate and undergraduate degree programs and certificates across nine colleges both online and on ground at its approximately 250-acre campus in Phoenix, Arizona, today announced financial results for the quarter ended March 31, 2016.
For the three months ended March 31, 2016:
-- Net revenue increased 16.9% to $227.0 million for the first quarter of
2016, compared to $194.1 million for the first quarter of 2015.
-- End-of-period enrollment increased 8.0% to 75,096 at March 31, 2016,
from 69,552 at March 31, 2015, as ground enrollment increased 17.0% to
14,158 at March 31, 2016, from 12,102 at March 31, 2015 and online
enrollment increased 6.1% to 60,938 at March 31, 2016, from 57,450 at
March 31, 2015.
-- Operating income for the first quarter of 2016 was $68.7 million, an
increase of 22.7% as compared to $56.0 million for the same period in
2015. The operating margin for the first quarter of 2016 was 30.3%,
compared to 28.8% for the same period in 2015. Operating income and the
operating margin for the first quarter of 2016 and 2015, excluding legal
and other professional fees incurred related to the proposed conversion
back to a not for profit status, was $69.9 million and 30.8% for the
first quarter of 2016, and $56.1 million and 28.9% for the same period
in 2015.
-- Adjusted EBITDA increased 24.2% to $83.3 million for the first quarter
of 2016, compared to $67.1 million for the same period in 2015.
-- The University recognized $1.7 million during the quarter on its
proportional share of equity interest income related to our ownership
interest in LoudCloud Systems, Inc.
-- The tax rate in the first quarter of 2016 was 38.0% compared to 38.8% in
the first quarter of 2015. Our effective tax rate in the first quarter
of 2016 was lower than the prior year due primarily to the continued
phase-in of market sourcing for apportionment of Arizona sales and a
0.5% decrease in the Arizona corporate income tax rate.
-- Net income increased 27.8% to $43.7 million for the first quarter of
2016, compared to $34.2 million for the same period in 2015.
-- Diluted net income per share was $0.93 for the first quarter of 2016,
compared to $0.72 for the same period in 2015. Excluding not for profit
transaction expenses and the gain of $1.7 million on the investment
discussed above, net of taxes, diluted net income per share was $0.92
for the first quarter of 2016, compared to $0.73 for the same period in
2015.
Balance Sheet and Cash Flow
The University financed its operating activities and capital expenditures during the three months ended March 31, 2016 and 2015 primarily through cash provided by operating activities. Our unrestricted cash and cash equivalents and investments were $132.9 million and $106.4 million at March 31, 2016 and December 31, 2015, respectively. Our restricted cash, cash equivalents and investments at March 31, 2016 and December 31, 2015 were $62.5 million and $75.4 million, respectively. Additionally, the University amended its credit facility in January 2016, and this revised agreement provides a revolving line of credit in the amount of $150 million through December 2017 to be utilized for working capital, capital expenditures and other general corporate purposes. Indebtedness under the credit facility is secured by our assets and is guaranteed by certain of our subsidiaries. No amounts were drawn on the revolver as of March 31, 2016.
The University generated $96.3 million in cash from operating activities for the three months ended March 31, 2016 compared to $68.2 million for the three months ended March 31, 2015. The increase in cash generated from operating activities between the three months ended March 31, 2015 and the three months ended March 31, 2016 is primarily due to increased net income and the timing of income tax and employee-related payments as well as changes in other working capital items, such as accounts payable.
Net cash used in investing activities was $56.0 million and $46.0 million for the three months ended March 31, 2016 and 2015, 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 $0.8 million and $0.2 million during the three months ended March 31, 2016 and 2015, respectively. Capital expenditures were $49.8 million and $44.2 million for the three months ended March 31, 2016 and 2015, respectively. During the three-month period for 2016, capital expenditures primarily consisted of ground campus building projects that started in late 2015, including three more apartment style residence halls, a 170,000 square foot classroom building for our College of Science, Engineering and Technology, a student service center, and a fourth parking structure, as well as land purchases adjacent to or near our Phoenix campus, and purchases of computer equipment, other internal use software projects and furniture and equipment to support our increasing employee headcount. Included in off-site development during 2016 is $7.7 million related to an off-site office building and parking garage that is in close proximity to our ground traditional campus. Employees that work in two leased office building in the Phoenix area will be consolidated into this new building when it is completed. In addition, during the first quarter of 2016, we received a $1.7 million return on our equity method investment. During the comparable three-month period for 2015, capital expenditures primarily consisted of ground campus building projects, including the construction of four additional dormitories, an additional classroom building for our College of Science, Engineering and Technology and a new parking structure 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. Included in off-site development for 2015 is $1.5 million we spent on the Maryvale Golf Course under a partnership agreement with the City of Phoenix. The revitalization was completed by the end of 2015 and the golf course is now known as Grand Canyon University Championship Golf Course.
Net cash used in financing activities was $14.5 million and $1.3 million for the three months ended March 31, 2016 and 2015, respectively. During the three-month period for 2016, $14.6 million was used to purchase treasury stock in accordance with the University's share repurchase program and $4.6 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 $2.1 million and debit issuance costs for the increase in our revolving line of credit totaled $0.2 million, partially offset by proceeds from the exercise of stock options of $3.5 million and excess tax benefits from share-based compensation of $3.5 million. During the comparable three-month period for 2015, $4.2 million was used to purchase common shares withheld in lieu of income taxes resulting from restricted share awards and principal payments on notes payable and capital leases totaled $1.7 million, partially offset by proceeds from the exercise of stock options of $1.7 million and excess tax benefits from share-based compensation of $2.8 million.
2016 Outlook by Quarter
Q2 2016: Net revenue of $189.0 million; Target Operating Margin
22.0%; Diluted EPS of $0.54 using 47.2 million diluted shares; student counts of 66,600
Q3 2016: Net revenue of $205.0 million; Target Operating Margin
23.5%; Diluted EPS of $0.62 using 47.7 million diluted shares; student counts of 81,000
Q4 2016: Net revenue of $240.0 million; Target Operating Margin
31.0%; Diluted EPS of $0.96 using 47.9 million diluted shares; student counts of 80,700
Full Year 2016: Net revenue of $861.0 million; Target Operating Margin 27.1%; Diluted EPS of $3.05 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, as well as; 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 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 first quarter 2016 results and 2016 outlook during a conference call scheduled for today, May 9, 2016 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 90446449 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 90446449. 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 200 graduate and undergraduate degree programs and certificates across nine colleges both online and on ground at our approximately 250-acre campus in Phoenix, Arizona, at leased facilities and at facilities owned by third party employers of our students. We are committed to providing an academically rigorous educational experience with a focus on professionally relevant programs that meet the objectives 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-oriented, liberal arts foundation. We offer master and doctoral degrees in contemporary fields that are designed to provide students with the capacity for transformational leadership in their chosen industry, emphasizing the immediate relevance of theory, application, and evaluation to promote personal and organizational change. Approximately 75,100 students were enrolled as of March 31, 2016. 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
March 31,
---------
2016 2015
---- ----
(In thousands, except per share data)
------------------------------------
Net revenue $226,958 $194,127
Costs and expenses:
Instructional costs and services 94,654 78,687
Admissions advisory and related, including
$294 and $505 to related parties for the
three months ended March 31, 2016 and
2015, respectively 29,544 28,333
Advertising 21,107 20,031
Marketing and promotional 2,242 1,694
General and administrative 10,720 9,396
------ -----
Total costs and expenses 158,267 138,141
------- -------
Operating income 68,691 55,986
Interest expense (329) (375)
Interest and other income 2,048 257
----- ---
Income before income taxes 70,410 55,868
Income tax expense 26,745 21,689
------ ------
Net income $43,665 $34,179
======= =======
Earnings per share:
Basic income per share $0.96 $0.75
===== =====
Diluted income per share $0.93 $0.72
===== =====
Basic weighted average shares outstanding 45,622 45,789
====== ======
Diluted weighted average shares
outstanding 46,860 47,201
====== ======
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 (loss) recognized on investments. 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 and does not consider the items for which we make adjustments (as listed above) to be 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 in that, among other things it does not reflect:
-- cash expenditures for capital expenditures or contractual commitments;
-- changes in, or cash requirements 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 and reported under 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
March 31,
---------
2016 2015
---- ----
(Unaudited, in
thousands)
Net income $43,665 $34,179
Plus: interest expense net of interest
income 30 118
Plus: income tax expense 26,745 21,689
Plus: depreciation and amortization 10,393 8,080
------ -----
EBITDA 80,833 64,066
------ ------
Plus: royalty to former owner 74 74
Plus: fixed asset write-offs 55 -
Plus: estimated litigation and
regulatory reserves - 191
Plus: costs related to proposed
conversion back to a non-profit
status 1,167 141
Less: gain on equity method investment (1,749) -
Plus: share-based compensation 2,898 2,603
----- -----
Adjusted EBITDA $83,278 $67,075
======= =======
GRAND CANYON EDUCATION, INC.
Consolidated Balance Sheets
ASSETS: March 31, December 31,
(In thousands, except par
value) 2016 2015
------------------------- ---- ----
Current assets (Unaudited)
Cash and cash equivalents $48,793 $23,036
Restricted cash, cash
equivalents and investments 62,481 75,384
Investments 84,128 83,364
Accounts receivable, net 7,454 8,298
Income tax receivable 3,215 3,952
Other current assets 20,026 20,863
------ ------
Total current assets 226,097 214,897
Property and equipment, net 725,091 667,483
Prepaid royalties 3,281 3,355
Goodwill 2,941 2,941
Other assets 3,293 3,306
----- -----
Total assets $960,703 $891,982
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities
Accounts payable $38,019 $34,149
Accrued compensation and
benefits 21,648 17,895
Accrued liabilities 17,424 13,846
Income taxes payable 17,913 29
Student deposits 63,137 76,742
Deferred revenue 57,575 37,876
Due to related parties 189 675
Current portion of capital
lease obligations 160 697
Current portion of notes
payable 6,628 6,625
----- -----
Total current liabilities 222,693 188,534
Capital lease obligations,
less current portion 381 788
Other noncurrent liabilities 4,066 4,302
Deferred income taxes,
noncurrent 17,764 14,855
Notes payable, less current
portion 71,594 73,252
------ ------
Total liabilities 316,498 281,731
------- -------
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par
value, 10,000 shares
authorized; 0 shares issued
and outstanding at March 31,
2016 and December 31, 2015 - -
Common stock, $0.01 par
value, 100,000 shares
authorized; 50,533 and
50,288 shares issued and
46,614 and 46,877 shares
outstanding at March 31,
2016 and December 31, 2015,
respectively 505 503
Treasury stock, at cost,
3,919 and 3,411 shares of
common stock at March 31,
2016 and December 31, 2015,
respectively (88,507) (69,332)
Additional paid-in capital 186,828 177,167
Accumulated other
comprehensive loss (688) (489)
Retained earnings 546,067 502,402
------- -------
Total stockholders' equity 644,205 610,251
------- -------
Total liabilities and
stockholders' equity $960,703 $891,982
======== ========
GRAND CANYON EDUCATION, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
---------
(In thousands) 2016 2015
------------- ---- ----
Cash flows provided by operating activities:
Net income $43,665 $34,179
Adjustments to reconcile net income to net cash provided by
operating activities:
Share-based compensation 2,898 2,603
Excess tax benefits from share-based
compensation (3,495) (2,816)
Provision for bad debts 4,520 3,968
Depreciation and amortization 10,467 8,154
Deferred income taxes 2,710 1,001
Other (1,694) -
Changes in assets and liabilities:
Restricted cash, cash equivalents and
investments 12,903 9,965
Accounts receivable (3,676) (3,052)
Prepaid expenses and other 404 (283)
Due to/from related parties (486) 17
Accounts payable (7,014) (165)
Accrued liabilities and employee
related liabilities 7,331 (4,526)
Income taxes receivable/payable 21,927 13,508
Deferred rent (236) (268)
Deferred revenue 19,699 16,539
Student deposits (13,605) (10,635)
------- -------
Net cash provided by operating
activities 96,318 68,189
------ ------
Cash flows used in investing activities:
Capital expenditures (49,781) (44,212)
Purchases of land, building and golf
course improvements related to off-
site development (7,718) (1,525)
Proceeds received from note
receivable 501 -
Return of equity method investment 1,749 -
Purchases of investments (13,688) (10,710)
Proceeds from sale or maturity of
investments 12,924 10,479
------ ------
Net cash used in investing activities (56,013) (45,968)
------- -------
Cash flows used in financing activities:
Principal payments on notes payable
and capital lease obligations (2,133) (1,676)
Debt issuance costs (194) -
Repurchase of common shares including
shares withheld in lieu of income
taxes (19,175) (4,178)
Excess tax benefits from share-based
compensation 3,495 2,816
Net proceeds from exercise of stock
options 3,459 1,735
----- -----
Net cash used in financing activities (14,548) (1,303)
------- ------
Net increase in cash and cash
equivalents 25,757 20,918
Cash and cash equivalents, beginning
of period 23,036 65,238
------ ------
Cash and cash equivalents, end of
period $48,793 $86,156
======= =======
Supplemental disclosure of cash flow information
Cash paid for interest $332 $386
Cash paid for income taxes $1,715 $6,800
Supplemental disclosure of non-cash investing and financing
activities
Purchases of property and equipment
included in accounts payable $23,161 $17,611
Tax benefit of Spirit warrant
intangible $63 $65
Shortfall tax expense from share-
based compensation $252 $11
The following is a summary of our student enrollment at March 31, 2016 and 2015 by degree type and by instructional delivery method:
2016(1) 2015(1)
------ ------
# of Students % of Total # of Students % of Total
------------- ---------- ------------- ----------
Graduate degrees(2) 30,519 40.6% 27,767 39.9%
Undergraduate degree 44,577 59.4% 41,785 60.1%
------ ---- ------ ----
Total 75,096 100.0% 69,552 100.0%
====== ===== ====== =====
2016(1) 2015(1)
------ ------
# of Students % of Total # of Students % of Total
------------- ---------- ------------- ----------
Online(3) 60,938 81.1% 57,450 82.6%
Ground(4) 14,158 18.9% 12,102 17.4%
------ ---- ------ ----
Total 75,096 100.0% 69,552 100.0%
====== ===== ====== =====
(1) Enrollment at March 31, 2016 and
2015 represents individual
students who attended a course
during the last two months of
the calendar quarter. Included
in enrollment at March 31, 2016
and 2015 are students pursuing
non-degree certificates of 927
and 864, respectively.
(2) Includes 6,648 and 5,792 students
pursuing doctoral degrees at
March 31, 2016 and 2015,
respectively.
(3) As of March 31, 2016 and 2015,
48.5% and 46.6%, respectively,
of our working adult students
(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.
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SOURCE Grand Canyon Education, Inc.
