GRAND CANYON EDUCATION, INC. PHOENIX, Oct. 28, 2015 /PRNewswire/ -- Grand Canyon Education, Inc. (NASDAQ: LOPE), a comprehensive regionally accredited university that offers over 160 graduate and undergraduate degree programs across eight colleges both online and on ground at our 200+ acre campus in Phoenix, Arizona, today announced financial results for the quarter ended September 30, 2015.
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For the three months ended September 30, 2015:
-- Net revenue increased 10.5% to $193.4 million for the third quarter of
2015, compared to $175.1 million for the third quarter of 2014.
-- End-of-period enrollment increased 10.2% to 75,073 at September 30,
2015, from 68,122 at September 30, 2014, as ground enrollment increased
19.9% to 15,473 at September 30, 2015, from 12,904 at September 30, 2014
and online enrollment increased 7.9% to 59,600 at September 30, 2015,
from 55,218 at September 30, 2014.
-- Operating income for the third quarter of 2015 was $49.0 million, an
increase of 6.6% as compared to $46.0 million for the same period in
2014. The operating margin for the third quarter of 2015 was 25.3%,
compared to 26.3% for the same period in 2014.
-- Adjusted EBITDA increased 8.5% to $64.7 million for the third quarter of
2015, compared to $59.6 million for the same period in 2014.
-- The tax rate in the third quarter of 2015 was 31.8% compared to 36.1% in
the third quarter of 2014. The variance in the effective tax rate is
attributable to non-recurring favorable items in the third quarter of
2015. The tax rate for both periods is less than the annual effective
tax rates due to the contributions made in lieu of state income taxes in
the third quarter of both years.
-- Net income increased 14.9% to $33.3 million for the third quarter of
2015, compared to $29.0 million for the same period in 2014.
-- Diluted net income per share was $0.70 for the third quarter of 2015,
compared to $0.62 for the same period in 2014.
For the nine months ended September 30, 2015:
-- Net revenue increased 12.2% to $562.2 million for the nine months ended
September 30, 2015, compared to $501.1 million for the same period in
2014.
-- Operating income for the nine months ended September 30, 2015 was $147.2
million, an increase of 15.7% as compared to $127.3 million for the same
period in 2014. The operating margin for the nine months ended September
30, 2015 was 26.2%, compared to 25.4% for the same period in 2014.
-- Adjusted EBITDA increased 13.7% to $186.2 million for the nine months
ended September 30, 2015, compared to $163.7 million for the same period
in 2014.
-- The tax rate in the nine months ended September 30, 2015 was 36.5%
compared to 37.9% for the same period in 2014. The tax rate for both
periods is less than the annual effective tax rates due to the
contributions made in lieu of state income taxes in the third quarter of
both years.
-- Net income increased 19.0% to $93.3 million for the nine months ended
September 30, 2015, compared to $78.4 million for the same period in
2014.
-- Diluted net income per share was $1.97 for the nine months ended
September 30, 2015, compared to $1.67 for the same period in 2014.
Balance Sheet and Cash Flow
The University financed its operating activities and capital expenditures during the nine months ended September 30, 2015 and 2014 primarily through cash provided by operating activities. Our unrestricted cash, cash equivalents and investments were $162.2 million and $166.0 million at September 30, 2015 and December 31, 2014, respectively. Our restricted cash, cash equivalents and investments at September 30, 2015 and December 31, 2014 were $64.7 million and $67.8 million, respectively.
The University generated $169.0 million in cash from operating activities for the nine months ended September 30, 2015 compared to $156.7 million for the nine months ended September 30, 2014. The increase in cash generated from operating activities between the nine months ended September 30, 2014 and the nine months ended September 30, 2015 is primarily due to increased net income.
Net cash used in investing activities was $152.9 million and $159.9 million for the nine months ended September 30, 2015 and 2014, respectively. Our cash used in investing activities was primarily related to capital expenditures. Capital expenditures were $169.7 million and $141.2 million for the nine months ended September 30, 2015 and 2014, respectively. During the nine-month period for 2015, capital expenditures primarily consisted of ground campus building projects such as the construction of four additional dormitories, an additional classroom building for our College of Science, Engineering and Technology, a new parking structure and land purchases adjacent to our Phoenix campus to support our growing traditional student enrollment as well as purchases of computer equipment, other internal use software projects and furniture and equipment to support our increasing employee headcount. During the nine-month period for 2014, capital expenditures primarily consisted of ground campus building projects such as the construction of an additional classroom building, additional residence halls, the expansion of our arena, and land purchases adjacent to our Phoenix campus to support our growing traditional student enrollment as well as purchases of computer equipment, other internal use software projects and furniture and equipment to support our increasing employee headcount. Also included in investing activities is the net short-term investment activity. In the first nine months of 2015 proceeds from the sale of short-term investments exceeded purchases by $16.8 million whereas in the first nine months of 2014 purchases exceeded proceeds by $18.7 million.
Net cash used in financing activities was $3.1 million for the nine months ended September 30, 2015 whereas net cash provided by financing activities was $3.8 million for the nine months ended September 30, 2014. During the first nine months of 2015 $4.2 million was used to purchase common shares withheld in lieu of income taxes resulting from restricted share awards while principal payments on notes payable and capital leases totaled $5.1 million. These uses were partially offset by proceeds from the exercise of stock options of $2.9 million and excess tax benefits from share-based compensation of $3.3 million. 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 $3.6 million used to purchase common shares withheld in lieu of income taxes resulting from restricted share awards, $1.7 million used to purchase treasury stock in accordance with the university's share repurchase program and principal payments on notes payable and capital leases totaled $5.0 million.
2015 Outlook by Quarter
Q4 2015: Net revenue of $211.9 million; Target Operating Margin 28.4%; Diluted EPS of $0.78 using 47.6 million diluted shares; student counts of 74,700
Full Year 2015: Net revenue of $774.1 million; Target Operating Margin 27.1%; Diluted EPS of $2.75 using 47.3 million diluted shares
Forward-Looking Statements
This news release contains "forward-looking statements" which include information relating to future events, future financial performance, strategies expectations, competitive environment, regulation, and availability of resources. These forward-looking statements include, without limitation, statements regarding: projections, predictions, expectations, estimates, and forecasts as to our business, financial and operating results, and future economic performance; and statements of management's goals and objectives and other similar expressions concerning matters that are not historical facts. Words such as "may," "should," "could," "would," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar expressions, as well as statements in future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to: our failure to comply with the extensive regulatory framework applicable to our industry, including Title IV of the Higher Education Act and the regulations thereunder, state laws and regulatory requirements, and accrediting commission requirements; the ability of our students to obtain federal Title IV funds, state financial aid, and private financing; risks associated with changes in applicable federal and state laws and regulations and accrediting commission standards, including pending rulemaking by the Department of Education; potential damage to our reputation or other adverse effects as a result of negative publicity in the media, in the industry or in connection with governmental reports or investigations, lawsuits, or otherwise, affecting us or other companies in the for-profit postsecondary education sector; our ability to properly manage risks and challenges associated with strategic initiatives, including the potential conversion of our university operations to non-profit status, the expansion of our campus, potential acquisitions of, or investments in, new businesses, acquisitions of new properties, or the development of new campuses; our ability to hire and train new, and develop and train existing, faculty and employees; the pace of growth of our enrollment; our ability to convert prospective students to enrolled students and to retain active students; our success in updating and expanding the content of existing programs and developing new programs in a cost-effective manner or on a timely basis; industry competition, including competition for qualified executives and other personnel; risks associated with the competitive environment for marketing our programs; failure on our part to keep up with advances in technology that could enhance the online experience for our students; the extent to which obligations under our loan agreement, including the need to comply with restrictive and financial covenants and to pay principal and interest payments, limits our ability to conduct our operations or seek new business opportunities; our ability to manage future growth effectively; general adverse economic conditions or other developments that affect job prospects of our students; and other factors discussed in reports on file with the Securities and Exchange Commission.
Forward-looking statements speak only as of the date the statements are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
Conference Call
Grand Canyon Education, Inc. will discuss its third quarter 2015 results and fourth quarter 2015 outlook during a conference call scheduled for today, October 28, 2015 at 4:30 p.m. Eastern time (ET). To participate in the live call, investors should dial 877-577-1769 (domestic and Canada) or 706-679-7806 (international), passcode 52780393 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 52780393. It will also be archived at www.gcu.edu in the investor relations section for 60 days.
About Grand Canyon Education, Inc.
Grand Canyon Education, Inc. is a comprehensive regionally accredited university that offers over 160 graduate and undergraduate degree programs across eight colleges both online and on ground at our 200+ acre campus in Phoenix, Arizona, at leased facilities and at facilities owned by third party employers of our students. Our undergraduate programs are designed to be innovative and meet the future needs of employers while providing students with the needed critical thinking and effective communication skills developed through a Christian, liberal arts foundation. 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 September 30, 2015. For more information about Grand Canyon Education, Inc., please visit http://www.gcu.edu.
Grand Canyon Education, Inc. is regionally accredited by The Higher Learning Commission, Grand Canyon University, 3300 W. Camelback Road, Phoenix, AZ 85017, www.gcu.edu.
GRAND CANYON EDUCATION, INC.
Consolidated Income Statements
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2015 2014 2015 2014
---- ---- ---- ----
(In thousands, except per share data)
------------------------------------
Net revenue $193,393 $175,056 $562,246 $501,082
Costs and expenses:
Instructional
costs and
services 83,180 71,714 237,224 210,239
Admissions
advisory and $2,373 for the
related, nine months
including $412 ended September
and $762 for 30, 2015 and
the three 2014,
months ended respectively,
September 30, to related
2015 and 2014, parties
respectively,
and $1,406 and 27,506 27,324 83,211 79,793
Advertising 19,360 16,491 57,810 48,954
Marketing and
promotional 1,827 1,931 5,309 5,629
General and
administrative 12,536 11,640 31,466 29,188
------ ------ ------ ------
Total costs and
expenses 144,409 129,100 415,020 373,803
------- ------- ------- -------
Operating income 48,984 45,956 147,226 127,279
Interest expense (313) (576) (834) (1,455)
Interest and
other income 201 43 585 377
--- --- --- ---
Income before
income taxes 48,872 45,423 146,977 126,201
Income tax
expense 15,530 16,407 53,680 47,828
------ ------ ------ ------
Net income $33,342 $29,016 $93,297 $78,373
======= ======= ======= =======
Earnings per share:
Basic income per
share $0.72 $0.64 $2.03 $1.72
===== ===== ===== =====
Diluted income
per share $0.70 $0.62 $1.97 $1.67
===== ===== ===== =====
Basic weighted
average shares
outstanding 46,063 45,651 45,956 45,486
====== ====== ====== ======
Diluted weighted
average shares
outstanding 47,320 47,051 47,262 46,962
====== ====== ====== ======
GRAND CANYON EDUCATION, INC.
Adjusted EBITDA
Adjusted EBITDA is defined as net income plus interest expense net of interest income, plus income tax expense, and plus depreciation and amortization (EBITDA), as adjusted for (i) the amortization of prepaid royalty payments recorded in conjunction with a settlement of a dispute with our former owner; (ii) contributions to Arizona school tuition organizations in lieu of the payment of state income taxes; (iii) share-based compensation and (iv) one-time, unusual charges or gains, such as litigation and regulatory reserves, impairment charges and asset write-offs, exit or lease termination costs or the gain recognized on the settlement of a third party note receivable. We present Adjusted EBITDA because we consider it to be an important supplemental measure of our operating performance. We also make certain compensation decisions based, in part, on our operating performance, as measured by Adjusted EBITDA, and our loan agreement requires us to comply with covenants that include performance metrics substantially similar to Adjusted EBITDA. All of the adjustments made in our calculation of Adjusted EBITDA are adjustments to items that management does not consider to be reflective of our core operating performance. Management considers our core operating performance to be that which can be affected by our managers in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period. Royalty expenses paid to our former owner, contributions made to Arizona school tuition organizations in lieu of the payment of state income taxes, share-based compensation, one time unusual charges or gains such as estimated litigation and regulatory reserves, exit costs, contract and lease termination fees are not considered reflective of our core performance.
We believe Adjusted EBITDA allows us to compare our current operating results with corresponding historical periods and with the operational performance of other companies in our industry because it does not give effect to potential differences caused by variations in capital structures (affecting relative interest expense, including the impact of write-offs of deferred financing costs when companies refinance their indebtedness), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses), the book amortization of intangibles (affecting relative amortization expense), and other items that we do not consider reflective of underlying operating performance. We also present Adjusted EBITDA because we believe it is frequently used by securities analysts, investors, and other interested parties as a measure of performance.
In evaluating Adjusted EBITDA, investors should be aware that in the future we may incur expenses similar to the adjustments described above. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by expenses that are unusual, non-routine, or non-recurring. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for net income, operating income, or any other performance measure derived in accordance with and reported under GAAP or as an alternative to cash flow from operating activities or as a measure of our liquidity. Some of these limitations are that it does not reflect:
-- cash expenditures for capital expenditures or contractual commitments;
-- changes in, or cash requirement for, our working capital requirements;
-- interest expense, or the cash required to replace assets that are being
depreciated or amortized; and
-- the impact on our reported results of earnings or charges resulting from
the items for which we make adjustments to our EBITDA, as described
above and set forth in the table below.
In addition, other companies, including other companies in our industry, may calculate these measures differently than we do, limiting the usefulness of Adjusted EBITDA as a comparative measure. Because of these limitations, Adjusted EBITDA should not be considered as a substitute for net income, operating income, or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or as a measure of our liquidity. We compensate for these limitations by relying primarily on our GAAP results and only use Adjusted EBITDA as a supplemental performance measure.
The following table provides a reconciliation of net income to Adjusted EBITDA, which is a non-GAAP measure for the periods indicated:
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2015 2014 2015 2014
---- ---- ---- ----
(Unaudited, in thousands)
Net income $33,342 $29,016 $93,297 $78,373
Plus: interest
expense net of
interest income 112 533 249 1,078
Plus: income tax
expense 15,530 16,407 53,680 47,828
Plus: depreciation
and amortization 8,677 7,344 25,138 21,196
----- ----- ------ ------
EBITDA 57,661 53,300 172,364 148,475
------ ------ ------- -------
Plus: royalty to
former owner 74 74 222 222
Plus: prepaid
royalty impairment
and other fixed
asset impairments 1,226 385 2,098 3,441
Plus: contributions
in lieu of state
income taxes 2,750 2,750 2,750 2,750
Plus: estimated
litigation and
regulatory reserves 66 - 307 897
Plus: lease
termination costs - 518 - 518
Plus: share-based
compensation 2,911 2,575 8,423 7,412
----- ----- ----- -----
Adjusted EBITDA $64,688 $59,602 $186,164 $163,715
======= ======= ======== ========
GRAND CANYON EDUCATION, INC.
Consolidated Balance Sheets
ASSETS: September 30, December 31,
(In
thousands,
except
par
value) 2015 2014
----------- ---- ----
Current
assets (Unaudited)
Cash
and
cash
equivalents $78,177 $65,238
Restricted
cash,
cash
equivalents
and
investments 64,737 67,840
Investments 84,016 100,784
Accounts
receivable,
net 9,500 7,605
Deferred
income
taxes 5,651 6,149
Other
current
assets 21,152 19,429
------ ------
Total
current
assets 263,233 267,045
Property
and
equipment,
net 639,631 478,170
Prepaid
royalties 3,429 3,650
Goodwill 2,941 2,941
Other
assets 3,377 3,907
----- -----
Total
assets $912,611 $755,713
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities
Accounts
payable $41,482 $22,715
Accrued
compensation
and
benefits 21,580 23,995
Accrued
liabilities 14,819 13,533
Income
taxes
payable 612 4,906
Student
deposits 65,978 69,584
Deferred
revenue 86,712 36,868
Due
to
related
parties 382 403
Current
portion
of
capital
lease
obligations 495 91
Current
portion
of
notes
payable 6,723 6,616
----- -----
Total
current
liabilities 238,783 178,711
Capital
lease
obligations,
less
current
portion 153 406
Other
noncurrent
liabilities 3,689 4,513
Deferred
income
taxes,
noncurrent 14,590 15,974
Notes
payable,
less
current
portion 75,759 79,877
------ ------
Total
liabilities 332,974 279,481
------- -------
Commitments and contingencies
Stockholders' equity
Preferred
stock, and
$0.01 outstanding
par at
value, September
10,000 30,
shares 2015
authorized; and
0 December
shares 31,
issued - -
Common
stock, shares 30,
$0.01 issued 2015
par and and
value, 47,138 December
100,000 and 31,
shares 46,744 2014,
authorized; shares respectively
50,247 outstanding
and at
49,746 502 497
Treasury
stock, at
at September
cost, 30,
3,109 2015
and and
3,002 December
shares 31,
of 2014,
common respectively
stock (58,000) (53,770)
Additional
paid-
in
capital 173,301 158,549
Accumulated
other
comprehensive
loss (454) (35)
Retained
earnings 464,288 370,991
------- -------
Total
stockholders'
equity 579,637 476,232
------- -------
Total
liabilities
and
stockholders'
equity $912,611 $755,713
======== ========
GRAND CANYON EDUCATION, INC.
Consolidated Statements of Cash
Flows
(Unaudited)
Nine Months Ended
-----------------
September 30,
-------------
(In thousands) 2015 2014
------------- ---- ----
Cash flows provided by operating
activities:
Net income $93,297 $78,373
Adjustments to reconcile net
income to net cash provided by
operating activities:
Share-based compensation 8,423 7,412
Excess tax benefits from share-
based compensation (3,343) (7,232)
Provision for bad debts 11,412 10,835
Depreciation and amortization 25,360 21,418
Deferred income taxes (1,305) (137)
Prepaid royalty impairment - 966
Other, including fixed asset
impairments 2,098 2,475
Changes in assets and
liabilities:
Restricted cash, cash equivalents
and investments 3,103 5,567
Accounts receivable (13,307) (11,907)
Prepaid expenses and other (1,549) (317)
Due to/from related parties (21) 17
Accounts payable 1,400 (2,956)
Accrued liabilities and employee
related liabilities (1,181) (1,610)
Income taxes receivable/payable (791) 18,782
Deferred rent (824) (2,736)
Deferred revenue 49,844 44,092
Student deposits (3,606) (6,300)
------ ------
Net cash provided by operating
activities 169,010 156,742
------- -------
Cash flows used in investing
activities:
Capital expenditures (169,706) (141,217)
Purchases of investments (35,547) (101,185)
Proceeds from sale or maturity of
investments 52,315 82,479
------ ------
Net cash used in investing
activities (152,938) (159,923)
-------- --------
Cash flows (used in) provided by
financing activities:
Principal payments on notes
payable and capital lease
obligations (5,117) (5,021)
Repurchase of common shares
including shares withheld in
lieu of income taxes (4,230) (5,338)
Excess tax benefits from share-
based compensation 3,343 7,232
Net proceeds from exercise of
stock options 2,871 6,966
----- -----
Net cash (used in) provided by
financing activities (3,133) 3,839
------ -----
Net increase in cash and cash
equivalents 12,939 658
Cash and cash equivalents,
beginning of period 65,238 55,824
------ ------
Cash and cash equivalents, end of
period $78,177 $56,482
======= =======
Supplemental disclosure of cash
flow information
Cash paid for interest $849 $1,327
Cash paid for income taxes $54,408 $29,223
Cash received for income tax
refunds $2 $364
Supplemental disclosure of non-
cash investing and financing
activities
Purchases of property and
equipment included in accounts
payable $23,212 $11,650
Purchases of equipment through
capital lease and note payable
obligations $1,257 $ -
Tax benefit of Spirit warrant
intangible $190 $195
Shortfall tax expense from share-
based compensation $18 $14
The following is a summary of our student enrollment at September 30, 2015 and 2014 by degree type and by instructional delivery method:
2015(1) 2014(1)
------ ------
# of Students % of Total # of Students % of Total
------------- ---------- ------------- ----------
Graduate
degrees(2) 29,302 39.0% 26,007 38.2%
Undergraduate
degree 45,771 61.0% 42,115 61.8%
------ ---- ------ ----
Total 75,073 100.0% 68,122 100.0%
====== ===== ====== =====
2015(1) 2014(1)
------ ------
# of Students % of Total # of Students % of Total
------------- ---------- ------------- ----------
Online(3) 59,600 79.4% 55,218 81.1%
Ground(4) 15,473 20.6% 12,904 18.9%
------ ---- ------ ----
Total 75,073 100.0% 68,122 100.0%
====== ===== ====== =====
(1) Enrollment at September 30, 2015
and 2014 represents individual
students who attended a course
during the last two months of
the calendar quarter. Included
in enrollment at September 30,
2015 and 2014 are students
pursuing non-degree
certificates of 716 and 621,
respectively.
(2) Includes 6,259 and 5,336 students
pursuing doctoral degrees at
September 30, 2015 and 2014,
respectively.
(3) As of September 30, 2015 and
2014, 47.5% and 45.2%,
respectively, of our working
adult students (online and
professional studies students)
were pursuing graduate degrees.
(4) Includes both our traditional on-
campus ground students and our
professional studies students.
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SOURCE Grand Canyon Education, Inc.
