Grand Canyon Education, Inc. Reports Fourth Quarter And Full Year 2019 Results

PHOENIX, Feb. 19, 2020 /PRNewswire/ -- Grand Canyon Education, Inc. (NASDAQ: LOPE), ("GCE" or the "Company"), is a publicly traded education services company that currently provides services to 23 university partners. GCE provides a full array of support services in the post-secondary education sector and has developed significant technological solutions, infrastructure and operational processes to provide superior services in these areas on a large scale. GCE today announced financial results for the quarter and the year ended December 31, 2019.

Explanatory Note

Grand Canyon Education, Inc., a Delaware corporation ("GCE" or the "Company) is a publicly traded education services company dedicated to serving colleges and universities. GCE has developed significant technological solutions, infrastructure and operational processes to provide services to these institutions on a large scale. GCE's most significant university partner is Grand Canyon University ("GCU"), a comprehensive regionally accredited university that offers graduate and undergraduate degree programs, emphases and certificates across nine colleges both online and on ground at its campus in Phoenix, Arizona. As of December 31, 2019, GCE provided education services and support to more than 103,100 students enrolled in GCU's programs, emphases and certificates.

In January 2019, GCE began providing education services to numerous university partners across the United States through our wholly owned subsidiary, Orbis Education Services LLC ("Orbis Education"), which we acquired on January 22, 2019 for $361.2 million, net of cash acquired (the "Acquisition"). Orbis Education works in partnership with a growing number of top universities and healthcare networks across the country to develop high-quality, career-ready graduates in four primary academic programs to meet the healthcare industry's demands. Therefore, the results of operations for the three-month and year end periods ended December 31, 2019 include Orbis Education's financial results for the period from January 22, 2019 to December 31, 2019. As a result of the Acquisition, we incurred transaction costs of $4.0 million and amortization of intangible assets acquired of $8.2 million in the year ended December 31, 2019. As of December 31, 2019, Orbis Education provides education services to 22 university partners, in 24 locations, in 20 states throughout the country.

Prior to July 1, 2018, GCE, operated GCU. On July 1, 2018, the Company sold GCU to an independent, Arizona non-profit corporation (the "Transaction"). Accordingly, the results of operations for the period from January 1, 2018 to June 30, 2018, included in our discussion herein of the twelve-month period ended December 31, 2018, reflect the Company's operation of GCU. The results of operations for the period from July 1, 2018 to December 31, 2018, included in our discussion herein of the twelve-month period ended December 31, 2018, and for the year ended December 31, 2019, do not include the operations of GCU but rather reflect the operations of the Company as an education services company.

Non-GAAP Information

The Company is providing certain non-GAAP financial measures in this report, as the Company believes that these measures are helpful in allowing investors to more accurately assess the ongoing nature of the Company's operations as an education services company and measure the Company's performance more consistently across periods. The Company uses the presented non-GAAP financial measures internally to allow management to focus on period-to-period changes in the Company's core business operations. Therefore, the Company believes that this information is meaningful in addition to the information contained in the GAAP presentation of financial information and in addition to our historical presentation of Adjusted EBITDA. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

Specifically, the Company believes the presentation of non-GAAP financial information that excludes amortization of intangible assets, loss on transaction expenses and contributions made in lieu of state income taxes to school sponsoring organizations allows investors to develop a more meaningful understanding of the Company's performance over time in its education services company business.

In order to enhance comparability between periods, we provide, for periods prior to July 1, 2018, net revenue, total costs and expenses and operating income on both an as reported and comparable basis. To calculate the comparable results, we have multiplied "university related revenue" by 60%. The percentage used to make this calculation corresponds to the percentage of GCU's tuition and fee revenue to which the Company is entitled under its services agreement with GCU. The following table sets forth the Company's as reported net revenue, total costs and expenses, and operating income for the respective three-month and year ended periods. The table then adjusts these as reported balances to reflect the loss on transaction, university related expenses, amortization of intangible assets, and contributions made in lieu of state income taxes to school sponsoring organizations and then shows the Company's as adjusted "non-GAAP" net revenue, as adjusted "non-GAAP" total costs and expenses, and as adjusted "non-GAAP" operating income on a comparable basis. This table is intended to increase transparency and to provide comparability of our results of operations between the three-months and year ended December 31, 2019, during all of which we operated as an education services company, and the three-months ended December 31, 2018, during which we operated as an education services company and the year ended December 31, 2018, during which we owned and operated the University for the six months ended June 30, 2018 and operated as an education services company for the six months ended December 31, 2018. These as adjusted "non-GAAP" measures in the tables below do not necessarily represent actual results had the Company operated as an education services company during the full periods presented.


                             Three Months Ended                      Three Months Ended                            Three Months Ended


                               December 31,        
          
              December 31,                              December 31,



                   2019                       2018                2019                  2018                   2019                                     2018



                 
          
           As Reported         
          
              Adjustment                               As Adjusted[a]



     Service
      revenue            $
         213,247               $
          177,548              
          $                         
            $                                      $
        213,247   $
          177,548


     University
      related
      revenue



     Net revenue         $
         213,247               $
          177,548              
          $                         
            $                                      $
        213,247   $
          177,548





     Total costs
      and
      expenses           $
         131,275                $
          97,399                         $
        (2,179)   [c]                         $
            (365)     [c]   $
        129,096    $
          97,034



     Operating
      income              $
         81,972                $
          80,149                           $
        2,179    [d]                           $
            365      [d]    $
        84,151    $
          80,514





                 
          
           Year Ended          
          
              Year Ended                    
           
      Year Ended


                               December 31,        
          
              December 31,                              December 31,



                   2019                       2018                2019                  2018                   2019                                     2018



                 
          
           As Reported         
          
              Adjustment                               As Adjusted[a]



     Service
      revenue            $
         778,643               $
          333,002              
          $                         
            $                                      $
        778,643   $
          333,002


     University
      related
      revenue                                                512,499                                                                           (205,000)     [b]                          307,499



     Net revenue         $
         778,643               $
          845,501              
          $                                           $
            (205,000)           $
        778,643   $
          640,501





     Total costs
      and
      expenses           $
         513,512               $
          587,352                        $
        (16,192)   [c]                     $
            (195,418)     [c]   $
        497,320   $
          391,934



     Operating
      income             $
         265,131               $
          258,149                          $
        16,192    [d]                       $
            (9,582)     [d]   $
        281,323   $
          248,567



               [a]               As Adjusted
                                  amounts in these
                                  columns, to the
                                  extent of any
                                  adjustments, are
                                  non-GAAP
                                  measures.  We are
                                  providing these
                                  measures solely
                                  to to enhance
                                  investor
                                  understanding of
                                  the underlying
                                  trends in our
                                  education
                                  services company
                                  business and to
                                  provide for
                                  better
                                  comparability
                                  between periods
                                  in which we have
                                  operated as an
                                  education
                                  services company
                                  and historical
                                  periods when we
                                  owned and
                                  operated the
                                  University.  We
                                  have also
                                  excluded
                                  amortization of
                                  intangible
                                  assets, the loss
                                  on transaction,
                                  and contributions
                                  made in lieu of
                                  state income
                                  taxes to school
                                  sponsoring
                                  organizations.
                                  The As Adjusted
                                  amounts, to the
                                  extent of any
                                  adjustment,
                                  should not be
                                  considered as a
                                  substitute for
                                  net revenue,
                                  total costs and
                                  expenses, or
                                  operating income
                                  derived in
                                  accordance with
                                  and reported
                                  under GAAP.


               [b]               Adjustment to
                                  reduce as
                                  reported
                                  university
                                  related revenue
                                  by 40% to reflect
                                  revenue share
                                  percentage of 60%
                                  under the GCU
                                  Services
                                  Agreement.




               [c]               Adjustment to
                                  reduce as
                                  reported total
                                  costs and
                                  expenses by an
                                  amount, for each
                                  period, equal to
                                  the sum of (i)
                                  university
                                  related expenses,
                                  (ii) the loss on
                                  transaction,
                                  (iii) intangible
                                  asset
                                  amortization and
                                  (iv)
                                  contributions
                                  made in lieu of
                                  state income
                                  taxes to school
                                  sponsoring
                                  organizations.




               [d]               Adjustment to
                                  increase
                                  (decrease) as
                                  reported
                                  operating income
                                  by an amount, for
                                  each period,
                                  equal to the
                                  total change from
                                  adjustments [b]
                                  and [c] for the
                                  respective
                                  period.

Non-GAAP Net Income and Non-GAAP Diluted Income Per Share

The Company believes the above table presentation will not be comparable for net income and diluted income per share for the three-month and year ended December 31, 2018, due to many changes in our business that impact income and expenses after operating income. However, the Company believes the presentation of non-GAAP net income and non-GAAP diluted income per share information that excludes amortization of intangible assets and loss on transaction expenses allows investors to develop a more meaningful understanding of the Company's performance over time. Accordingly, for the three-month and year ended December 31, 2019, the table below provides reconciliations of these non-GAAP items to GAAP net income and GAAP diluted income per share, respectively:


                       
       
       Three Months Ended        
       
            Year Ended


                         
       
        December 31,         
       
            December 31,



                                                  2019                        2019



     GAAP
      Net
      income                        $
              76,669         $
              259,175


      Amortization
      of
      intangible
      assets                                     2,179                       8,223


     Loss
      on
      transaction                                                           3,966


     Income
      tax
      effects
      of
      adjustments
      (1)                                       (406)                    (2,239)



     As
      Adjusted,
      Non-
      GAAP
      Net
      income                        $
              78,442         $
              269,125





     GAAP
      Diluted
      income
      per
      share                           $
              1.59            $
              5.37


      Amortization
      of
      intangible
      assets
      (2)                            $
              0.04            $
              0.14


     Loss
      on
      transaction
      (3)          
     $                                          $
              0.07



     As
      Adjusted,
      Non-
      GAAP
      Diluted
      income
      per
      share                           $
              1.63            $
              5.58




              (1)              The income tax
                                  effects of
                                  adjustments are
                                  based on the
                                  effective income tax
                                  rate applicable to
                                  adjusted (non-GAAP)
                                  results.





              (2)              The amortization of
                                  acquired intangible
                                  assets per diluted
                                  share is net of an
                                  income tax benefit
                                  of $0.01 and $0.03
                                  for the three months
                                  and year ended
                                  December 31, 2019,
                                  respectively.





              (3)              Loss on transaction
                                  expenses per diluted
                                  share are net of an
                                  income tax benefit
                                  of $0.02 for the
                                  year ended December
                                  31, 2019,
                                  respectively.

For the three months ended December 31, 2019:

    --  Service revenue was $213.2 million for the fourth quarter of 2019
        compared to $177.5 million for the fourth quarter of 2018. The 20.1%
        increase year over year in comparable service fee revenue was primarily
        due to our Orbis Education acquisition on January 22, 2019 and the
        increase in GCU enrollments between years.
    --  End-of-period enrollment in the programs at our university partners for
        which we provide services increased 9.7% between December 31, 2019 and
        December 31, 2018 to 106,861 from 97,369. This increase is due to both
        partner enrollments in programs serviced by Orbis Education at December
        31, 2019 of 3,750 and to an increase in enrollments at GCU to 103,111,
        an increase of 5.9%. Partner enrollments in programs serviced by Orbis
        Education were 3,017 at December 31, 2018.
    --  Operating income for the three months ended December 31, 2019 was $82.0
        million, an increase of $1.9 million as compared to $80.1 million for
        the same period in 2018. The operating margin for the three months ended
        December 31, 2019 was 38.4%, compared to 45.1% for the same period in
        2018. As adjusted operating income and as adjusted operating margin for
        the three months ended December 31, 2019, were $84.2 million and 39.5%,
        respectively. As adjusted operating income and as adjusted operating
        margin for the three months ended December 31, 2018, were $80.5 million
        and 45.3%, respectively.
    --  The tax rate in the three months ended December 31, 2019 was 18.6%
        compared to 19.5% in the same period in 2018. The slight decrease in the
        effective tax rate resulted from a favorable law change with respect to
        Arizona state taxes, partially offset by a decrease in excess tax
        benefits from $2.6 million in the three months ended December 31, 2018
        to $0.1 million in the three months ended December 31, 2019.
    --  Net income increased 1.5% to $76.7 million for the fourth quarter of
        2019, compared to $75.5 million for the same period in 2018. As adjusted
        net income was $78.4 million for the fourth quarter of 2019.
    --  Diluted net income per share was $1.59 and $1.56 for the fourth quarter
        of 2019 and 2018, respectively. As adjusted diluted net income per share
        was $1.63 for the fourth quarter of 2019.
    --  Adjusted EBITDA increased 6.0% to $92.0 million for the fourth quarter
        of 2019, compared to $86.8 million for the same period in 2018.

For the year ended December 31, 2019:

    --  Net revenue for the year ended December 31, 2019 decreased from $845.5
        million for the year ended December 31, 2018 to $778.6 million for the
        year ended December 31, 2019. Service revenue was $333.0 million and
        University related revenue was $512.5 million for the year ended
        December 31, 2018. As an education services company to GCU, the Company
        receives, as service revenue, 60% of GCU's tuition and fee revenue and
        no longer has University related revenue, thus resulting in the decrease
        from the prior period. On a comparable basis, as adjusted net revenue
        for the year ended December 31, 2018 was $640.5 million. The 21.6%
        increase year over year in comparable service fee revenue was primarily
        due to our Orbis Education acquisition on January 22, 2019 and the
        increase in GCU enrollments between years.
    --  Operating income for the year ended December 31, 2019 was $265.1
        million, an increase of $7.0 million as compared to $258.1 million for
        the same period in 2018. The operating margin for the year ended
        December 31, 2019 was 34.1%, compared to 30.5% for the same period in
        2018. As adjusted operating income and as adjusted operating margin for
        the year ended December 31, 2019, were $281.3 million and 36.1%,
        respectively. As adjusted operating income and as adjusted operating
        margin for the year ended December 31, 2018, were $248.6 million and
        38.8%, respectively.
    --  The tax rate in the year ended December 31, 2019 was 18.4% compared to
        20.2% in the same period in 2018. The decrease in the effective tax rate
        resulted from an agreement with the Arizona Department of Revenue
        regarding previously filed refund claims related to income tax
        obligations for prior calendar years, which resulted in a favorable tax
        impact of $5.9 million recorded as a discrete tax item in the first
        quarter of 2019. In addition, the effective tax rate was favorably
        impacted by a recent law change with respect to Arizona state taxes, and
        an increase in the contributions in lieu of state income taxes to school
        sponsoring organizations from $3.7 million in the year ended December
        31, 2018 to $4.0 million for the same period in 2019. These increases
        were offset by a decrease in excess tax benefits to $7.2 million from
        $10.5 million in the years ended December 31, 2019 and 2018,
        respectively.
    --  Net income increased 13.2% to $259.2 million for the year ended December
        31, 2019, compared to $229.0 million for the same period in 2018. As
        adjusted net income was $269.1 million for the year ended December 31,
        2019.
    --  Diluted net income per share was $5.37 and $4.73 for the year ended
        December 31, 2019 and 2018, respectively. As adjusted diluted net income
        per share was $5.58 for the year ended December 31, 2019.
    --  Adjusted EBITDA increased 13.6% to $311.3 million for the year ended
        December 31, 2019, compared to $274.1 million for the same period in
        2018.

Balance Sheet and Cash Flow

During 2019, we financed our Acquisition of Orbis Education for $361.2 million, net of cash acquired, from an increase in our credit facility of $190.1 million and the use of $171.1 million of operating cash on hand. Our unrestricted cash and cash equivalents and investments were $143.9 million at December 31, 2019. As of December 31, 2019, we had $300,000 of restricted cash and cash equivalents, for pledged collateral for a site lease.

Concurrent with the closing of the Acquisition, we entered into an amended and restated credit agreement dated January 22, 2019 and two related amendments dated January 31, 2019 and February 1, 2019, respectively, that together provided a credit facility of $325.0 million comprised of a term loan facility of $243.8 million and a revolving credit facility of $81.3 million, both with a five-year maturity date. The term facility is subject to quarterly amortization of principal, commencing with the fiscal quarter ended June 30, 2019, in equal installments of 5% of the principal amount of the term facility per quarter. Both the term loan and revolver have monthly interest payments currently at 30-Day LIBOR plus an applicable margin of 2%. The proceeds of the term loan, together with $6.3 million drawn under the revolver and cash on hand, were used to pay the purchase price in the Acquisition. Concurrent with the entry into the amended and restated credit agreement and the completion of the Acquisition, we repaid our existing term loan of $59.9 million and our cash collateral of $61.7 million was released.

The Company entered into a further amendment to the credit facility on October 31, 2019. This amendment increased the revolving commitment by $68.8 million to $150.0 million, while reducing the term loan by the same $68.8 million to $150.6 million. The Company elected to repay the $68.8 million revolver balance on November 1, 2019.

On July 1, 2018, in consideration for the transfer of assets under the Asset Purchase Agreement, we received a secured note from GCU in the initial principal amount of $870.1 million (the "Secured Note"). The Secured Note contains customary commercial credit terms, including affirmative and negative covenants applicable to GCU, and provides that the Secured Note bears interest at an annual rate of 6.0%, has a maturity date of June 30, 2025, and is secured by all of the assets of GCU. The Secured Note provides for GCU to make interest only payments during the term, with all principal and accrued and unpaid interest due at maturity and also provides that we may loan additional amounts to GCU to fund approved capital expenditures during the first three years of the term. Funding provided to GCU for capital expenditures since July 1, 2018, net of repayments of $100.0 million, totals $99.8 million as of December 31, 2019.

GCE announced today that the Company's Board of Directors has increased the authorization under its existing stock repurchase program by $75.0 million to a total of $250.0 million. The Company had less than $43.6 million left under its $175.0 million authorization. The new authorization allows the Company to repurchase from time to time at management's discretion up to an additional $75.0 million of the Company's common stock during the period ending December 31, 2020, unless such period is extended or shortened by the Board of Directors. As of February 14, 2020, the Company had 48,165,704 million shares of common stock outstanding. The plan permits the Company to make purchases in the open market at prevailing market prices or in privately negotiated transactions in compliance with applicable securities laws and other legal requirements. The level of purchase activity is subject to market conditions and other investment opportunities. The plan does not obligate GCE to acquire any particular amount of common stock and may be suspended or discontinued at any time. The repurchase program may be funded using the Company's available cash and revolving credit facility. As of December 31, 2019, the Company had unrestricted cash and cash equivalents and investments of $143.9 million and a revolving credit facility of $150.0 million.

Net cash provided by operating activities for the years ended December 31, 2019 and 2018 was $306.3 million and $199.1 million, respectively. Cash provided by operations in 2019 and 2018 resulted from our net income adjusted for non-cash charges for share-based compensation, depreciation and amortization, timing of income tax and employee related payments and changes in other working capital. The significant increase in net cash from operating activities between 2018 and 2019 is primarily due to higher net income and changes in working capital balances.

Net cash used in investing activities was $405.9 million and $238.2 million for the years ended December 31, 2019 and 2018, respectively. Our cash used in investing activities in 2019 was primarily related to the Acquisition, the funding of capital expenditures to GCU, and the liquidation of short-term investments and capital expenditures. We paid $361.2 million, net of cash acquired, to acquire Orbis Education on January 22, 2019. Funding to GCU for capital expenditures during the year ended December 31, 2019 totaled $69.8 million, net of repayments made by GCU of $100.0 million in 2019. Proceeds from investments, net of purchases of short-term investments, was $47.8 million and $18.2 million for the years ended December 31, 2019 and 2018, respectively. Cash used in investing activities for the year ended December 31, 2018 was primarily related to the GCU Transaction, which result in $131.6 million of cash being transferred to GCU at its close on July 1, 2018. Capital expenditures were $22.4 million and $94.5 million for the years ended December 31, 2019 and 2018, respectively. During the year ended December 31, 2019, capital expenditures primarily consisted of leasehold improvements and equipment for new university partner locations, internally developed software, as well as purchases of computer equipment, other internal use software projects and furniture and equipment to support our increasing employee headcount. During the year ended December 31, 2018, capital expenditures primarily consisted of the University's ground campus construction projects incurred prior to June 30, 2018 as well as purchases of computer equipment, other internal use software projects and furniture and equipment to support our increasing employee headcount.

Net cash provided by financing activities was $40.1 million for the year ended December 31, 2019. Net cash used in financing activities was $26.8 million for the year ended December 31, 2018. During 2019, $243.8 million of proceeds was drawn on the term loan, and $26.3 million was drawn and repaid on the revolver in 2019, and the term loan balance of the prior credit agreement of $59.9 million was repaid along with the repayment of $101.3 million of principal and revolver payments on the new credit facility. In addition, $2.4 million of debt issuance costs were incurred on the new credit facility and $8.1 million was used to purchase common shares withheld in lieu of income taxes resulting from the vesting of restricted share awards and $35.8 million was used to purchase treasury stock in accordance with the Company's share repurchase program. Proceeds from the exercise of stock options of $3.8 million were received for the year ended December 31, 2019. During 2018, $15.2 million was used to purchase common shares withheld in lieu of income taxes resulting from the vesting of restricted share awards and $9.6 million was used to purchase treasury stock in accordance with the Company's share repurchase program. Principal payments on notes payable totaled $6.7 million, partially offset by proceeds from the exercise of stock options of $4.6 million.



     
     2020 Outlook




                        Net revenue of $222.5
                          million; As Adjusted
                          Operating Margin 37.0%;
                          Diluted EPS of $1.53
                          using 48.0 million

     
     Q1 2020:          diluted shares


                        Net revenue of $188.5
                          million; As Adjusted
                          Operating Margin 27.3%;
                          Diluted EPS of $1.03
                          using 47.9 million

     
     Q2 2020:          diluted shares


                        Net revenue of $210.0
                          million; As Adjusted
                          Operating Margin 33.3%;
                          Diluted EPS of $1.33
                          using 48.0 million

     
     Q3 2020:          diluted shares


                        Net revenue of $235.0
                          million; As Adjusted
                          Operating Margin 39.1%;
                          Diluted EPS of $1.69
                          using 48.1 million

     
     Q4 2020:          diluted shares


                        Net revenue of $856.0
                          million; As Adjusted
                          Operating Margin 34.5%;
                          Diluted EPS of $5.58
                          using 48.0 million

     
     Full Year 2020:   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: the Transaction; proposed new programs; statements as to whether regulatory developments or other matters may or may not have a material adverse effect on our financial position, results of operations, or liquidity; statements concerning 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: the occurrence of any event, change or other circumstance that could give rise to the termination of any of our key university partner agreements; our ability to properly manage risks and challenges associated with strategic initiatives, including potential acquisitions or divestitures of, or investments in, new businesses, acquisitions of new properties and new university partners, and expansion of services provided to our existing university partners; our failure to comply with the extensive regulatory framework applicable to us either directly as a third party education services provider or indirectly through our university partners, including Title IV of the Higher Education Act and the regulations thereunder, state laws and regulatory requirements, and accrediting commission requirements; competition from other education services companies in our geographic region and market sector, including competition for students, qualified executives and other personnel; the pace of growth of our university partners' enrollment and its effect on the pace of our own growth; our ability to, on behalf of our university partners, convert prospective students to enrolled students and to retain active students to graduation; 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 for our university partners; and other factors discussed in reports on file with the Securities and Exchange Commission, including as set forth in Part I, Item 1A of our Annual Report on Form 10-K for period ended December 31, 2019.

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 fourth quarter and full year 2019 results and 2020 outlook during a conference call scheduled for today, February 19, 2020 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 8045274 at 4:25 p.m. (ET). The Webcast will be available on the Grand Canyon Education, Inc. Web site at www.gce.com.

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 8045274. It will also be archived at www.gce.com in the investor relations section for 60 days.

About Grand Canyon Education, Inc.

Grand Canyon Education (GCE), incorporated in 2008, is a publicly traded education services company that currently provides services to 23 university partners. GCE is uniquely positioned in the education services industry in that its leadership has 30 years of proven expertise in providing a full array of support services in the post-secondary education sector and has developed significant technological solutions, infrastructure and operational processes to provide superior services in these areas on a large scale. GCE provides services that support students, faculty and staff of partner institutions such as marketing, strategic enrollment management, counseling services, financial services, technology, technical support, compliance, human resources, classroom operations, content development, faculty recruitment and training, among others. For more information about Grand Canyon Education, Inc. visit the Company's website at www.gce.com.

Grand Canyon Education, Inc., 2600 W. Camelback Road, Phoenix, AZ 85017, www.gce.com.

Investor Relations Contact:
Dan Bachus
Chief Financial Officer
Grand Canyon Education, Inc.
602-639-6648
Dan.bachus@gce.com


                                                                        
         
          GRAND CANYON EDUCATION, INC.


                                                                       
         
          Consolidated Income Statements


                                                                           
        
                (Unaudited)




                                                     Three Months Ended                                           Year Ended


                                                        December 31,                                              December 31,



                                                                   2019                       2018                                 2019 2018



                     (In thousands, except per share
                      data)

    ---


       Service revenue                                                   $
        213,247                                $
          177,548       $
           778,643 $
           333,002


        University related revenue                                                                                                                                  512,499



                     Net revenue                                                213,247                                        177,548                778,643          845,501



                     Costs and expenses:


        Technology and academic services                                         25,128                                         11,098                 90,512           43,574


        Counseling services and support                                          59,957                                         51,989                223,598          204,690


        Marketing and communication                                              33,863                                         27,252                142,896          117,420


        General and administrative                                               10,148                                          6,695                 44,317           29,968


        Amortization of intangible assets                                         2,179                                                                8,223


        University related expenses                                                                                             (405)                               173,330



       Loss on transaction                                                                                                       770                  3,966           18,370



                     Total costs and expenses                                   131,275                                         97,399                513,512          587,352



                     Operating income                                            81,972                                         80,149                265,131          258,149


        Interest income on Secured Note                                          14,872                                         13,699                 59,297           26,947



       Interest expense                                                        (2,943)                                         (575)              (11,311)         (1,536)


        Investment interest and other                                               343                                            521                  4,385            3,440



                     Income before income taxes                                  94,244                                         93,794                317,502          287,000



       Income tax expense                                                       17,575                                         18,263                 58,327           57,989



                     Net income                                            $
        76,669                                 $
          75,531       $
           259,175 $
           229,011



                     Earnings per share:


                     Basic income per share                                  $
        1.61                                   $
          1.58          $
           5.42    $
           4.81



                     Diluted income per share                                $
        1.59                                   $
          1.56          $
           5.37    $
           4.73



                     Basic weighted average shares
                      outstanding                                                47,758                                         47,708                 47,814           47,608



                     Diluted weighted average shares
                      outstanding                                                48,112                                         48,422                 48,266           48,414

GRAND CANYON EDUCATION, INC.

Adjusted EBITDA (Non-GAAP Financial Measure)

Adjusted EBITDA is defined as net income plus interest expense, less interest income and other gain (loss) recognized on investments, plus income tax expense, and plus depreciation and amortization (EBITDA), as adjusted for (i) contributions to private Arizona school tuition organizations in lieu of the payment of state income taxes; (ii) loss on transaction; (iii) university related expenses; (iv) share-based compensation, (v) the revenue share rate on the master services agreement, and (vi) unusual charges or gains, such as litigation and regulatory reserves, impairment charges and asset write-offs, and exit or lease termination costs. We have reclassified depreciation and amortization related to university assets and share-based compensation for former GCE employees who are employed by the university to University related expenses to provide comparability between periods. 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                            Year Ended


                                   December 31,                           December 31,



                          2019                   2018                 2019                  2018



                                   (Unaudited, in thousands)


     Net income                $
       76,669                   $
        75,531                        $
        259,175 $
          229,011


     Plus: interest
      expense                        2,943                            575                               11,311           1,536


     Less: interest
      income on Secured
      Note                        (14,872)                      (13,699)                            (59,297)       (26,947)


     Less: investment
      interest and other             (343)                         (521)                             (4,385)        (3,440)


     Plus: income tax
      expense                       17,575                         18,263                               58,327          57,989


     Plus: amortization
      of intangible
      assets                         2,179                                                              8,223


     Plus: depreciation
      and amortization               4,876                          3,890                               18,696          15,571



     EBITDA, excluding
      depreciation and
      amortization
      included in
      university related
      expenses                      89,027                         84,039                              292,050         273,720



     Plus: contributions
      in lieu of state
      income taxes                                                                                     4,003           3,718


     Plus: loss on
      transaction                                                    770                                3,966          18,370


     Plus: university
      related expenses                                             (405)                                            173,330


     Less: 40% of
      university related
      revenue                                                                                                     (205,000)


     Plus: estimated
      litigation reserves              429                                                              1,023


     Plus: share-based
      compensation                   2,560                          2,444                               10,300           9,914



     Adjusted EBITDA           $
       92,016                   $
        86,848                        $
        311,342 $
          274,052


                                                           
      
      GRAND CANYON EDUCATION, INC.


                                                            
      
      Consolidated Balance Sheets




                                                                 As of December 31,



                     (In thousands, except par value)                          2019                          2018

    ---



            
              
                ASSETS:



       
                Current assets



       Cash and cash equivalents                                                              $
        122,272        $
         120,346


        Restricted cash and cash equivalents                                                             300                61,667



       Investments                                                                                   21,601                69,002



       Accounts receivable, net                                                                      48,939                46,830


        Interest receivable on Secured Note                                                            5,011                 4,650



       Income tax receivable                                                                          2,186                     8



       Other current assets                                                                           8,035                 6,963



                     Total current assets                                                            208,344               309,466



       Property and equipment, net                                                                  119,734               111,039



       Right-of-use assets                                                                           27,770



       Secured Note receivable                                                                      969,912               900,093


        Amortizable intangible assets, net                                                           202,057



       Goodwill                                                                                     160,766                 2,941



       Other assets                                                                                   1,706                   478




       
                Total assets                                                            $
        1,690,289      $
         1,324,017



                     LIABILITIES AND STOCKHOLDERS' EQUITY:


                     Current liabilities



       Accounts payable                                                                        $
        14,835         $
         14,274


        Accrued compensation and benefits                                                             20,800                15,427



       Accrued liabilities                                                                           16,771                 8,907



       Income taxes payable                                                                           6,576                 5,442



       Deferred revenue                                                                                  20


        Current portion of lease liability                                                             3,084


        Current portion of notes payable                                                              33,144                36,468



                     Total current liabilities                                                        95,230                80,518


        Deferred income taxes, noncurrent                                                             18,320                 6,465



       Other long term liability                                                                         13


        Lease liability, less current portion                                                         25,519


        Notes payable, less current portion                                                          107,774                23,437



                     Total liabilities                                                               246,856               110,420




       Commitments and contingencies


                     Stockholders' equity


        Preferred stock, $0.01 par value, 10,000
         shares authorized; 0 shares issued and
         outstanding at December 31, 2019 and
         December 31, 2018


        Common stock, $0.01 par value, 100,000
         shares authorized; 53,054 and 52,690
         shares issued and 48,105 and 48,201
         shares outstanding at December 31, 2019
         and December 31, 2018, respectively                                                             531                   527


        Treasury stock, at cost, 4,949 and 4,489
         shares of common stock at December 31,
         2019 and December 31, 2018,
         respectively                                                                              (169,365)            (125,452)



       Additional paid-in capital                                                                   270,923               256,806


        Accumulated other comprehensive loss                                                                                (453)



       Retained earnings                                                                          1,341,344             1,082,169



                     Total stockholders' equity                                                    1,443,433             1,213,597



                     Total liabilities and stockholders'
                      equity                                                                 $
        1,690,289      $
         1,324,017


                                                             
            
         GRAND CANYON EDUCATION, INC.


                                                         
            
         Consolidated Statements of Cash Flows


                                                                    
       
                (Unaudited)




                                                                                     Year Ended


                                                                                    December 31,




       
                (In thousands)                                                         2019                           2018

    ---



                     Cash flows provided by operating activities:



       Net income                                                                                        $
           259,175           $
           229,011


        Adjustments to reconcile net income to net
         cash provided by operating activities:



       Share-based compensation                                                                                    10,300                     19,508



       Provision for bad debts                                                                                                                8,669



       Depreciation and amortization                                                                               18,696                     35,673



       Amortization of intangible assets                                                                            8,223



       Deferred income taxes                                                                                        1,670                   (11,507)


        Loss on transaction, net of costs and asset
         impairment                                                                                                  3,966                     12,605


        Other, including fixed asset impairments                                                                     (335)                     2,101


        Changes in assets and liabilities:


        Accounts receivable and interest receivable
         from university partners                                                                                      766                   (51,480)



       Accounts receivable                                                                                                                  (7,784)



       Prepaid expenses and other                                                                                   2,136                      1,553


        Right-of-use assets and lease liabilities                                                                      833



       Accounts payable                                                                                           (3,095)                  (14,306)



       Accrued liabilities                                                                                          5,078                   (15,700)



       Income taxes receivable/payable                                                                            (1,044)                   (8,662)



       Deferred rent                                                                                                                          (189)



       Deferred revenue                                                                                              (25)                     6,881



       Student deposits                                                                                                                     (7,288)



                     Net cash provided by operating activities                                                     306,344                    199,085



                     Cash flows used in investing activities:



       Capital expenditures                                                                                      (22,391)                  (94,527)


        Purchases of land and building improvements
         related to off-site development                                                                                                       (330)



       Additions of amortizable content                                                                             (260)



       Acquisition, net of cash acquired                                                                        (361,184)



       Disposition                                                                                                                        (131,550)


        Funding to GCU at closing in excess of
         required capital                                                                                                                    (7,377)



       Repayment of excess funds by GCU                                                                                                       7,377


        Funding to GCU for capital expenditures                                                                  (169,819)                  (29,996)


        Repayment by GCU for capital expenditures                                                                  100,000



       Purchases of investments                                                                                   (9,384)                  (46,948)


        Proceeds from sale or maturity of
         investments                                                                                                57,163                     65,116



                     Net cash used in investing activities                                                       (405,875)                 (238,235)



                     Cash flows provided by (used in) financing
                      activities:


        Principal payments on notes payable                                                                       (92,433)                   (6,719)



       Debt issuance costs                                                                                        (2,385)



       Proceeds from notes payable                                                                                243,750


        Net borrowings from revolving line of credit                                                              (68,750)


        Repurchase of common shares including shares
         withheld in lieu of income taxes                                                                         (43,913)                  (24,758)


        Net proceeds from exercise of stock options                                                                  3,821                      4,632



                     Net cash provided by (used in) financing
                      activities                                                                                    40,090                   (26,845)



                     Net decrease in cash and cash equivalents
                      and restricted cash                                                                         (59,441)                  (65,995)


                     Cash and cash equivalents and restricted
                      cash, beginning of period                                                                    182,013                    248,008



                     Cash and cash equivalents and restricted
                      cash, end of period                                                                 $
           122,572           $
           182,013



                     Supplemental disclosure of cash flow
                      information



       Cash paid for interest                                                                             $
           11,516             $
           1,511



       Cash paid for income taxes                                                                         $
           59,903            $
           78,195


                     Supplemental disclosure of non-cash
                      investing and financing activities


        Sale transaction to GCU through Secured Note
         financing                                                                  
              $                                    $
           870,097


        Purchases of property and equipment included
         in accounts payable                                                                                  $
           469             $
           1,121


        Reclassification of capitalized costs -
         adoption of ASC 606                                                        
              $                                      $
           9,015


        Reclassification of deferred revenue -
         adoption of ASC 606                                                        
              $                                      $
           7,451


        Lease adoption - gross up of right-of-use
         assets and lease liabilities                                                                         $
           498      
     $



       ROU Asset and Liability gross up                                                                   $
           14,203      
     $


        Reclassification of interest rate corridor
         due to expiration                                                                                  $
           1,100      
     $


        Reclassification of tax effect within
         accumulated other comprehensive income                                     
              $                                        $
           156

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SOURCE Grand Canyon Education, Inc.