Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-34211 GRAND CANYON EDUCATION, INC. (Exact name of registrant as specified in its charter) Delaware 20 ...

Financial Data and Key Metrics Changes - Non-GAAP diluted income per share for Q2 2020 was $1.3, down from $1.9 in Q2 2019 [32] - Service revenue significantly exceeded expectations in Q2 2020 due to acceleration in GCU's online enrollment [32] - Revenue per student decreased year-over-year due to lower ancillary revenues at GCU, but grew when excluding COVID-19 impacts [35] Business Line Data and Key Metrics Changes - GCU online had 87,959 students as of June 30, 2020, with new students growing in the high-teens and total students up 8.2% year-over-year [7] - GCU traditional campus maintained profitability without raising tuition for 12 years and plans to exceed enrollment goals for the fall semester [12] - Orbis revenues grew 24.2% year-over-year for the three months ended June 30, 2020, with enrollments up 12.2% [22] Market Data and Key Metrics Changes - GCU's cash balance at June 30, 2020, was approximately $308 million, with net assets growing to almost $410 million [17] - Total unrestricted cash and short-term investments at June 30, 2020, were $187.2 million [38] - Ground campus applications for fall 2021 are running 81% ahead of last year's application rate [16] Company Strategy and Development Direction - GCE aims to address rising costs of university education and increasing student debt levels through innovative delivery models [5] - The company plans to open 11 new Orbis locations in the next 12 months, targeting a total of 70 locations in the next seven years [20][23] - GCE is focused on finding comprehensive partnerships with universities to improve online education quality and expand working adult programs [27][28] Management's Comments on Operating Environment and Future Outlook - Management anticipates new enrollment trends will normalize to mid to high single-digit growth in Q3 2020, which is still significant [10] - The pandemic has not negatively impacted GCU's financials due to the structure of the MSA with GCE [17] - Management expressed confidence in the ability to maintain high persistence rates among incoming students, which will support future growth [64] Other Important Information - The company repurchased 111,100 shares at a cost of approximately $8.3 million in Q2 2020, with an increased share repurchase authorization to $300 million [37] - GCU's nursing program has consistently achieved first-time pass rates on the NCLEX exam over 90% [21] - The effective tax rate for Q2 2020 was 24.6%, up from 21.7% in Q2 2019 [36] Q&A Session Summary Question: Can you provide more details on the growth of working adult students online? - Management noted that the percentage of graduate students has increased, with graduate students making up around 50% of the online enrollment [51] Question: What health and safety plans are in place for the fall semester? - Management outlined plans for social distancing, reduced classroom capacity, and outdoor activities to ensure safety [57] Question: Why is online new enrollment growth expected to normalize quickly? - Management explained that the pandemic created a unique demand situation that may not be sustainable as typical enrollment patterns resume [64] Question: How is the guidance accounting for students opting for online classes? - Guidance currently assumes around 3,500 students will take all classes online, with potential for that number to increase [71] Question: What impact does the mix of graduate students have on revenue per student? - Management indicated that revenue per student is similar between graduate and undergraduate students, with graduate students having higher persistence and graduation rates [75]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (Exact name of registrant as specified in its charter) Delaware 20-3356009 (State or other jurisdiction of Incorporation or organization) (I.R.S. Employer Identification No.) 2600 W. Camelback Road Phoenix, Arizona 85017 (Address, including zip code, of principal executive of ices) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ...

Grand Canyon Education, Inc. (NASDAQ:LOPE) Q1 2020 Earnings Conference Call May 7, 2020 4:30 PM ET Company Participants Dan Bachus - Chief Financial Officer Brian Mueller - Chairman and CEO Conference Call Participants Chris Howe - Barrington Research Jeff Meuler - Baird Jeff Silber - BMO Capital Operator Good afternoon, ladies and gentlemen. And welcome to the Grand Canyon Education First Quarter 2020 Earnings Conference Call [Operator Instructions]. As a reminder this conference is being recorded. I would ...

Financial Performance - Service revenue for Q1 2020 was $221,655,000, an increase of 12.3% compared to $197,287,000 in Q1 2019[9] - Operating income rose to $80,796,000 in Q1 2020, up from $72,431,000 in Q1 2019, reflecting an increase of 11.7%[9] - Net income for Q1 2020 was $71,385,000, slightly down from $73,243,000 in Q1 2019, representing a decrease of 2.5%[9] - Basic earnings per share for Q1 2020 was $1.50, compared to $1.54 in Q1 2019, a decline of 2.6%[9] - The company reported a comprehensive income of $71,385,000 for Q1 2020, compared to $73,136,000 in Q1 2019, a decrease of 2.4%[11] - Net income for the three months ended March 31, 2020, was $71,385, a decrease of 2.5% from $73,243 in the same period of 2019[22] - Net cash provided by operating activities increased to $85,719, up 12.9% from $76,337 in the prior year[22] - The anticipated reduction in net revenue due to COVID-19 for Q2 2020 is estimated to range from $9.0 million to $10.0 million, and for Q3 2020, from $4.0 million to $6.0 million[137] - The company expects lower service revenues under both the Master Services Agreement with GCU and Orbis Education's agreements for Q2 and Q3 2020, leading to a direct reduction in operating profit and margins[134] Assets and Liabilities - Total current assets increased to $248,324,000 as of March 31, 2020, up from $208,344,000 at the end of 2019, a growth of 19.2%[14] - Total liabilities rose to $283,594,000 as of March 31, 2020, compared to $246,856,000 at the end of 2019, an increase of 14.9%[14] - Cash and cash equivalents increased to $132,493,000 as of March 31, 2020, from $122,272,000 at the end of 2019, a rise of 8.9%[14] - Total stockholders' equity as of March 31, 2020, was $1,448,008,000, slightly up from $1,443,433,000 at the end of 2019, an increase of 0.3%[14] - Total current liabilities increased to $133,084 thousand as of March 31, 2020, from $95,230 thousand at December 31, 2019, a rise of 39.8%[15] - Total assets increased to $1,731,602 thousand as of March 31, 2020, compared to $1,690,289 thousand at December 31, 2019, reflecting a growth of 2.4%[15] Cash Flow and Investments - Cash and cash equivalents at the end of the period increased to $132,493, up from $88,767 at the end of the same period in 2019[22] - The company had unrestricted cash and cash equivalents of $149.5 million and an available line of credit of $150.0 million as of March 31, 2020[158] - The company reported net cash provided by operating activities of $85,719 thousand for Q1 2020, compared to $76,337 thousand in Q1 2019, an increase of 12.4%[22] - As of March 31, 2020, the Company had $17,049 in investments, down from $21,601 as of December 31, 2019, held in municipal and corporate securities[88] Expenses - Technology and academic services expenses increased by $7.7 million or 41.1% to $26.3 million in Q1 2020, representing 11.9% of net revenue, up from 9.4% in Q1 2019[142] - Counseling services and support expenses rose by $7.1 million or 13.4% to $60.2 million in Q1 2020, accounting for 27.2% of net revenue, slightly up from 26.9% in Q1 2019[143] - Marketing and communication expenses increased by $6.7 million or 18.7% to $42.7 million in Q1 2020, representing 19.3% of net revenue, up from 18.2% in Q1 2019[144] - General and administrative expenses decreased by $1.8 million or 16.1% to $9.6 million in Q1 2020, which is 4.3% of net revenue, down from 5.8% in Q1 2019[147] Share Repurchase and Stock Information - The company repurchased common shares totaling $65,706 during the three months ended March 31, 2020, compared to $18,127 in the same period of 2019[22] - The Board of Directors authorized a share repurchase program of up to $250.0 million, with $66.6 million remaining available for repurchase as of March 31, 2020[160][162] - During the three months ended March 31, 2020, the company repurchased 786,503 shares of common stock[162] - The company has authorized a total repurchase of up to $250,000 in common stock, with the expiration date on the repurchase authorization set for December 31, 2020[115] Legal and Regulatory Matters - The company has exposure to various legal matters, but management does not believe that any potential charges would have a material adverse effect on its financial condition[106] - The company is currently evaluating the impact of ASU No. 2019-12 on its consolidated financial statements and related disclosures[83] COVID-19 Impact - The COVID-19 pandemic is expected to adversely affect the company's education service revenues and operating income in the second and third quarters of 2020, with considerable uncertainty regarding the duration of this impact[117]

Grand Canyon Education, Inc. (NASDAQ:LOPE) Q4 2019 Earnings Conference Call February 19, 2020 4:30 PM ET Company Participants Dan Bachus - Chief Financial Officer Brian Mueller - Chief Executive Officer Conference Call Participants Chris Howe - Barrington Research Jeff Silber - BMO Capital Markets Jeff Meuler - Robert W. Baird Operator Ladies and gentlemen, thank you for standing by and welcome to the Q4 2019 Grand Canyon Education Earnings Conference call. At this time, all participants are in a listen-o ...

PART I [Item 1. Business](index=6&type=section&id=Item%201.%20Business) Grand Canyon Education provides comprehensive education services to Grand Canyon University and 22 other university partners, operating in a competitive and highly regulated market - GCE transitioned from owning and operating Grand Canyon University (GCU) to an education services company on July 1, 2018[19](index=19&type=chunk) - Acquired Orbis Education Services LLC in January 2019, expanding services to **22 university partners**, primarily in healthcare programs[18](index=18&type=chunk)[20](index=20&type=chunk) - GCE's revenue model for GCU is **60% of GCU's tuition and fee revenue**; Orbis Education agreements generally yield higher revenue per student due to higher service percentages, tuition rates, and credit loads[20](index=20&type=chunk)[272](index=272&type=chunk) - GCE provides a comprehensive suite of services including technology and academic services, counseling services and support, marketing and communication, and certain back-office services for GCU[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk)[28](index=28&type=chunk)[33](index=33&type=chunk)[35](index=35&type=chunk) - The company is subject to extensive regulation by state post-secondary agencies, accrediting commissions, and the U.S. Department of Education (ED), both directly and indirectly[60](index=60&type=chunk)[64](index=64&type=chunk)[66](index=66&type=chunk) - Key competitive factors in the education services market include reputation, client base quality, marketing effectiveness, technology solutions, service breadth, and program quality[54](index=54&type=chunk)[62](index=62&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from its revenue dependency on GCU, potential interest divergence, and the extensive regulatory environment of the higher education industry - A large percentage of GCE's revenue is attributable to its contractual relationship with GCU, making it **highly dependent on GCU's performance and enrollment**[136](index=136&type=chunk)[137](index=137&type=chunk) - GCU's board of trustees and management have fiduciary duties to GCU, which could lead to **interests diverging from GCE's** over time[140](index=140&type=chunk) - ED's determination to treat GCU as a proprietary institution for Title IV purposes could limit GCU's ability to market itself as non-profit, **potentially harming enrollment** and GCE's financial performance[146](index=146&type=chunk) - The incentive compensation rule and its 'bundled services' exception are critical to GCE's business model; any alteration could **require a business model change**[147](index=147&type=chunk)[148](index=148&type=chunk)[151](index=151&type=chunk) - GCE and its university partners are subject to extensive regulatory requirements, with non-compliance potentially leading to **financial penalties or loss of financial aid funding**[182](index=182&type=chunk) - Risks associated with future acquisitions include integration difficulties, increased debt, dilution of stockholders, and disruption of ongoing business[152](index=152&type=chunk)[154](index=154&type=chunk) - Data security and privacy regulations pose risks due to the collection of sensitive personal information; breaches could **harm reputation and operations**[174](index=174&type=chunk)[177](index=177&type=chunk)[178](index=178&type=chunk) [Item 1B. Unresolved Staff Comments](index=72&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report - No unresolved staff comments[226](index=226&type=chunk) [Item 2. Properties](index=72&type=section&id=Item%202.%20Properties) GCE owns a large administrative building in Phoenix and leases numerous skills labs and offices across multiple states to support its university partners - Owns a **325,000 sq ft** administrative building in Phoenix, Arizona, designed for energy efficiency[227](index=227&type=chunk) - Leases **seventeen skills labs** and multiple office locations in California, Colorado, and Indiana, with plans for expansion[228](index=228&type=chunk) [Item 3. Legal Proceedings](index=72&type=section&id=Item%203.%20Legal%20Proceedings) The company is subject to ordinary litigation that is not expected to have a material adverse effect on its financial position - Subject to ordinary and routine litigation; management **does not expect material adverse effects** on financial position, results of operations, or cash flows[229](index=229&type=chunk) [Item 4. Mine Safety Disclosures](index=72&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) There are no mine safety disclosures to report - No mine safety disclosures[230](index=230&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=73&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) GCE's common stock trades on Nasdaq under 'LOPE', with earnings retained for growth and an active share repurchase program in place - Common stock trades on Nasdaq Global Market under symbol **'LOPE'**[233](index=233&type=chunk) - As of December 31, 2019, there were approximately **146 registered holders** of common stock[234](index=234&type=chunk) - The company **does not anticipate paying cash dividends** in the foreseeable future, prioritizing retention of earnings for business development and growth[224](index=224&type=chunk)[235](index=235&type=chunk) - Board authorized repurchase of up to **$175.0 million** in common stock, with **$52.3 million remaining** as of December 31, 2019; in 2019, 376,384 shares were repurchased for $35.8 million[238](index=238&type=chunk)[297](index=297&type=chunk) Share Repurchases (Q4 2019) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Publicly Announced Program | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Program | |:---|:---|:---|:---|:---:| | October 1, 2019 – October 31, 2019 | 77,622 | $99.09 | 77,622 | $63,100,000 | | November 1, 2019 – November 30, 2019 | 92,500 | $86.46 | 92,500 | $55,100,000 | | December 1, 2019 – December 31, 2019 | 31,400 | $89.27 | 31,400 | $52,300,000 | | **Total** | **201,522** | **$91.76** | **201,522** | **$52,300,000** | GCE Stock Performance vs. Benchmarks (2014-2019) | | 12/14 | 12/15 | 12/16 | 12/17 | 12/18 | 12/19 | |:---|:---:|:---:|:---:|:---:|:---:|:---:| | Grand Canyon Education, Inc. | 100.00 | 85.98 | 125.27 | 191.88 | 206.04 | 205.29 | | S&P 500 | 100.00 | 101.38 | 113.51 | 138.29 | 132.23 | 173.86 | | 2019 Peer Group | 100.00 | 66.60 | 71.71 | 91.80 | 101.23 | 92.84 | [Item 6. Selected Consolidated Financial and Other Data](index=75&type=section&id=Item%206.%20Selected%20Consolidated%20Financial%20and%20Other%20Data) This section provides five years of selected financial and operational data, reflecting the company's transition to an education services model Selected Consolidated Income Statement Data (2015-2019, in thousands) | Income Statement Data: | 2019 | 2018 | 2017 | 2016 | 2015 | |:---|:---:|:---:|:---:|:---:|:---:| | Service revenue | $778,643 | $333,002 | $— | $— | $— | | University related revenue | — | 512,499 | 974,134 | 873,344 | 778,200 | | **Net revenue** | **778,643** | **845,501** | **974,134** | **873,344** | **778,200** | | Total costs and expenses | 513,512 | 587,352 | 691,380 | 636,141 | 567,839 | | **Operating income** | **265,131** | **258,149** | **282,754** | **237,203** | **210,361** | | Interest income on Secured Note | 59,297 | 26,947 | — | — | — | | Interest expense | (11,311) | (1,536) | (2,169) | (1,328) | (1,248) | | Investment interest and other | 4,385 | 3,440 | 2,943 | 249 | (106) | | Income before income taxes | 317,502 | 287,000 | 283,528 | 236,124 | 209,007 | | Income tax expense | 58,327 | 57,989 | 80,209 | 87,610 | 77,596 | | **Net income** | **$259,175** | **$229,011** | **$203,319** | **$148,514** | **$131,411** | | Earnings per common share (Basic) | $5.42 | $4.81 | $4.31 | $3.22 | $2.86 | | Earnings per common share (Diluted) | $5.37 | $4.73 | $4.22 | $3.15 | $2.78 | | Period end enrollment | 106,861 | 97,369 | 90,297 | 81,908 | 74,506 | Selected Consolidated Balance Sheet Data (2015-2019, in thousands) | Balance Sheet Data: | 2019 | 2018 | 2017 | 2016 | 2015 | |:---|:---:|:---:|:---:|:---:|:---:| | Cash and cash equivalents, and investments | $143,873 | $120,346 | $242,745 | $108,572 | $106,400 | | Restricted cash, cash equivalents and investments | $300 | $61,667 | $94,534 | $84,931 | $75,384 | | Secured Note receivable | $969,912 | $900,093 | $— | $— | $— | | Total assets | $1,690,289 | $1,324,017 | $1,303,573 | $1,092,493 | $891,982 | | Notes payable (including short-term) | $140,918 | $59,905 | $66,616 | $98,252 | $79,877 | | Total stockholders' equity | $1,443,433 | $1,213,597 | $985,951 | $773,686 | $610,251 | Adjusted EBITDA Reconciliation (2015-2019, in thousands) | | 2019 | 2018 | 2017 | 2016 | 2015 | |:---|:---:|:---:|:---:|:---:|:---:| | Net income | $259,175 | $229,011 | $203,319 | $148,514 | $131,411 | | Plus: interest expense | 11,311 | 1,536 | 2,169 | 1,328 | 1,248 | | Less: interest income on Secured Note | (59,297) | (26,947) | — | — | — | | Less: investment interest and other | (4,385) | (3,440) | (2,943) | (249) | 106 | | Plus: income tax expense | 58,327 | 57,989 | 80,209 | 87,610 | 77,596 | | Plus: amortization of intangible assets | 8,223 | — | — | — | — | | Plus: depreciation and amortization (GCE assets) | 18,696 | 15,571 | 15,612 | 12,510 | 11,479 | | **EBITDA, excluding university related depreciation and amortization** | **292,050** | **273,720** | **298,366** | **249,713** | **221,840** | | Plus: contributions in lieu of state income taxes | 4,003 | 3,718 | 2,025 | 4,000 | 2,750 | | Plus: loss on transaction | 3,966 | 18,370 | 562 | 1,136 | 1,702 | | Plus: university related expenses | — | 173,330 | 324,140 | 294,188 | 253,263 | | Less: 40% of university related revenue | — | (205,000) | (389,654) | (349,338) | (311,280) | | Plus: share-based compensation (GCE employees) | 10,300 | 9,914 | 9,683 | 9,659 | 8,960 | | Plus: estimated litigation and regulatory reserves | 1,023 | — | — | — | — | | **Adjusted EBITDA** | **$311,342** | **$274,052** | **$245,122** | **$209,358** | **$177,235** | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=83&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Financial performance in 2019 was shaped by the Orbis acquisition and the transition to a service model, resulting in higher comparable revenue and operating income - Net revenue for 2019 was **$778.6 million**, a **7.9% decrease** from 2018, primarily due to the transition from university ownership to an education services model[20](index=20&type=chunk)[272](index=272&type=chunk) - Comparable service fee revenue **increased by 21.6%** year-over-year, driven by the Orbis Education acquisition and a **5.9% increase in GCU enrollments**[20](index=20&type=chunk)[272](index=272&type=chunk) - Operating income **increased 2.7% to $265.1 million** in 2019; adjusted operating income **rose 13.2% to $281.3 million**, reflecting leverage of operating expenses[21](index=21&type=chunk) - Interest income on the Secured Note from GCU increased to **$59.3 million** in 2019 from $26.9 million in 2018 due to a full year of interest earnings[281](index=281&type=chunk) - Interest expense increased to **$11.3 million** in 2019 from $1.5 million in 2018 due to a **$190.1 million increase** in the credit facility for the Orbis acquisition[282](index=282&type=chunk) - Net income for 2019 was **$259.2 million**, a **13.2% increase** from $229.0 million in 2018[286](index=286&type=chunk) - Net cash provided by operating activities **increased to $306.3 million** in 2019 from $199.1 million in 2018, driven by higher net income and working capital changes[298](index=298&type=chunk) - Net cash used in investing activities was **$405.9 million** in 2019, primarily for the Orbis Education acquisition (**$361.2 million**) and funding GCU capital expenditures[299](index=299&type=chunk) - Unrestricted cash and cash equivalents and investments totaled **$143.9 million** at December 31, 2019[288](index=288&type=chunk) Key Expense Changes (2019 vs. 2018, in millions) | Expense Category | 2019 (Actual) | 2018 (Actual) | Change ($) | Change (%) | Primary Drivers | |:---|:---:|:---:|:---:|:---:|:---| | Technology and academic services | $90.5 | $43.6 | $46.9 | 107.7% | Orbis Education acquisition (headcount, facilities, equipment), increased GCU service costs | | Counseling services and support | $223.6 | $204.7 | $18.9 | 9.2% | Orbis Education acquisition (headcount), increased GCU enrollment support, increased travel costs | | Marketing and communication | $142.9 | $117.4 | $25.5 | 21.7% | Orbis Education partnership marketing, increased GCU program marketing | | General and administrative | $44.3 | $30.0 | $14.3 | 47.9% | Orbis Education acquisition (headcount, office space), professional fees, increased contributions | | Amortization of intangible assets | $8.2 | $0.0 | $8.2 | N/A | Orbis Education acquisition | | Loss on transaction | $4.0 | $18.4 | $(14.4) | -78.3% | Orbis Education acquisition costs (2019) vs. GCU transaction costs (2018) | [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=99&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company believes inflation has not materially impacted operations and manages interest rate risk on its variable rate debt, with minimal expected impact from rate changes - Inflation has **not had a material impact** on operations for 2017-2019[310](index=310&type=chunk) - Managed 30-day LIBOR interest exposure with an interest rate corridor that **expired in December 2019**[311](index=311&type=chunk)[312](index=312&type=chunk) - A 10% increase or decrease in interest rates would **not have a material impact** on future earnings, fair values, or cash flows as of December 31, 2019[313](index=313&type=chunk) [Item 8. Consolidated Financial Statements and Supplementary Data](index=100&type=section&id=Item%208.%20Consolidated%20Financial%20Statements%20and%20Supplementary%20Data) This section presents GCE's audited consolidated financial statements, which received an unqualified opinion from its independent registered public accounting firm - KPMG LLP issued an **unqualified opinion** on the consolidated financial statements for the three-year period ended December 31, 2019, and on the effectiveness of internal control over financial reporting[317](index=317&type=chunk)[318](index=318&type=chunk)[498](index=498&type=chunk)[499](index=499&type=chunk) - The acquisition of Orbis Education Services, LLC for **$361.2 million** on January 22, 2019, resulted in **$210.3 million in intangible assets** and **$157.8 million in goodwill**[323](index=323&type=chunk)[325](index=325&type=chunk)[360](index=360&type=chunk)[363](index=363&type=chunk) - Service revenue for 2019 included **$85.9 million** and a net loss of **$2.6 million** from Orbis Education since its acquisition date[365](index=365&type=chunk) - The company adopted ASU No. 2016-02, Leases (Topic 842) on January 1, 2019, recognizing right-of-use (ROU) assets and lease liabilities on the balance sheet[319](index=319&type=chunk)[423](index=423&type=chunk) - The Secured Note from GCU had an initial principal of **$870.1 million**, bears **6.0% annual interest**, matures June 30, 2025, and is secured by GCU's assets[353](index=353&type=chunk) [Notes to Consolidated Financial Statements](index=112&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. Nature of Business](index=112&type=section&id=1.%20Nature%20of%20Business) GCE is an education services company providing comprehensive support to GCU and, following the Orbis acquisition, to 22 additional university partners - GCE transitioned to an education services company on July 1, 2018, after selling Grand Canyon University (GCU) to a non-profit entity[349](index=349&type=chunk) - Acquired Orbis Education Services, LLC on January 22, 2019, adding **22 university partners** for healthcare education programs[350](index=350&type=chunk)[351](index=351&type=chunk) - Provides integrated technology and academic services, counseling, marketing, and back-office support to university partners[349](index=349&type=chunk) [2. The Transaction](index=112&type=section&id=2.%20The%20Transaction) On July 1, 2018, GCE sold GCU to a non-profit entity in exchange for a Secured Note and entered into a long-term Master Services Agreement - GCE consummated an Asset Purchase Agreement with GCU on July 1, 2018, selling the university to an independent non-profit entity[353](index=353&type=chunk) - Received a Secured Note from GCU for **$870.1 million**, bearing **6.0% annual interest**, with a maturity date of June 30, 2025[353](index=353&type=chunk) - Entered into a long-term Master Services Agreement with GCU, receiving **60% of GCU's tuition and fee revenue** for comprehensive services[353](index=353&type=chunk) - The transaction resulted in a **$18.4 million loss on transaction** for GCE in 2018, including transaction costs and an asset impairment[357](index=357&type=chunk) [3. Acquisition](index=116&type=section&id=3.%20Acquisition) GCE acquired Orbis Education for $361.2 million in January 2019, recognizing significant intangible assets and goodwill - Acquired Orbis Education Services, LLC on January 22, 2019, for **$361.2 million** (net of cash acquired), financed by a credit facility and operating cash[360](index=360&type=chunk) - Recorded **$210.3 million in intangible assets** (primarily university partner relationships) and **$157.8 million in goodwill** from the acquisition[360](index=360&type=chunk)[363](index=363&type=chunk) - Transaction costs for the Orbis acquisition were **$4.0 million** in 2019[360](index=360&type=chunk) - Orbis Education contributed **$85.9 million in service revenue** and a net loss of **$2.6 million** to GCE's 2019 consolidated results[365](index=365&type=chunk) [4. Summary of Significant Accounting Policies](index=119&type=section&id=4.%20Summary%20of%20Significant%20Accounting%20Policies) This section details key accounting policies, including revenue recognition, business combinations, goodwill, and the adoption of new standards for leases - Revenue recognition for service agreements is based on a single performance obligation delivered ratably over distinct service periods[265](index=265&type=chunk)[408](index=408&type=chunk) - Acquisitions are accounted for using the purchase method, allocating the purchase price to acquired assets and assumed liabilities at fair value[266](index=266&type=chunk)[385](index=385&type=chunk) - Goodwill is assessed annually for impairment; finite-lived intangible assets are amortized straight-line over their estimated useful lives[387](index=387&type=chunk)[388](index=388&type=chunk) - Adopted ASU No. 2016-02, Leases (Topic 842), on January 1, 2019, recognizing ROU assets and lease liabilities on the balance sheet[319](index=319&type=chunk)[423](index=423&type=chunk) - Recognizes deferred tax assets and liabilities for future tax consequences, with valuation allowances established if realization is not more-likely-than-not[267](index=267&type=chunk)[397](index=397&type=chunk)[398](index=398&type=chunk)[399](index=399&type=chunk) - Capitalizes certain costs for internal-use software development and content creation for university partners, amortizing them over estimated useful lives[377](index=377&type=chunk)[378](index=378&type=chunk)[379](index=379&type=chunk) [5. Investments](index=133&type=section&id=5.%20Investments) GCE held $21.6 million in short-term, highly-rated investments at year-end 2019 after reclassifying and liquidating assets to fund the Orbis acquisition - Investments totaled **$21.6 million** at December 31, 2019, down from $69.0 million in 2018[429](index=429&type=chunk) - Investments were reclassified from available-for-sale to trading in 2018 to fund the Orbis Education acquisition, resulting in a **$372 thousand loss** in 2018[372](index=372&type=chunk)[429](index=429&type=chunk) - All investments are rated **BBB or higher** and have maturities of one year or less as of December 31, 2019[421](index=421&type=chunk)[429](index=429&type=chunk) [6. Valuation and Qualifying Accounts](index=133&type=section&id=6.%20Valuation%20and%20Qualifying%20Accounts) The company had no allowance for doubtful accounts at year-end 2019, reflecting no losses since its transition to a service model - No allowance for doubtful accounts receivable at December 31, 2019, due to no losses on receivables since becoming an education service company[421](index=421&type=chunk)[430](index=430&type=chunk) - In 2018, **$6.1 million** of allowance for doubtful accounts was transferred to GCU as part of the transaction[431](index=431&type=chunk) Allowance for Doubtful Accounts Receivable (2017-2019, in thousands) | | Balance at Beginning of Period | Charged to Expense | Deductions/Transfers | Balance at End of Period | |:---|:---:|:---:|:---:|:---:| | Year ended December 31, 2019 | $— | — | — | $— | | Year ended December 31, 2018 | $5,907 | 8,669 | (14,576) | $— | | Year ended December 31, 2017 | $5,918 | 18,478 | (18,489) | $5,907 | [7. Property and Equipment](index=134&type=section&id=7.%20Property%20and%20Equipment) Net property and equipment increased to $119.7 million in 2019, with depreciation expense of $18.4 million for the year - Depreciation expense for property and equipment was **$18.4 million** for the year ended December 31, 2019[433](index=433&type=chunk) - **No interest was capitalized in 2019**, compared to $756 thousand in 2018, reflecting a significant decline in capital expenditures[283](index=283&type=chunk)[376](index=376&type=chunk) Property and Equipment, Net (in thousands) | | As of December 31, 2019 | As of December 31, 2018 | |:---|:---:|:---:| | Land | $5,579 | $5,579 | | Land improvements | 2,242 | 2,242 | | Buildings | 51,399 | 51,409 | | Buildings and leasehold improvements | 11,691 | 9,581 | | Computer equipment | 95,020 | 85,316 | | Furniture, fixtures and equipment | 10,423 | 4,955 | | Internally developed software | 37,175 | 39,270 | | Construction in progress | 3,238 | 2,376 | | **Total gross property and equipment** | **216,767** | **200,728** | | Less accumulated depreciation and amortization | (97,033) | (89,689) | | **Property and equipment, net** | **$119,734** | **$111,039** | [8. Intangible Assets](index=134&type=section&id=8.%20Intangible%20Assets) Amortizable intangible assets from the Orbis acquisition totaled $202.1 million at year-end 2019, primarily from university partner relationships - Amortization expense for these intangible assets is projected to be **$8.4 million annually** from 2020 to 2024[434](index=434&type=chunk) Amortizable Intangible Assets (December 31, 2019, in thousands) | | Estimated Average Useful Life (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |:---|:---:|:---:|:---:|:---:| | University partner relationships | 25 | $210,000 | $(7,943) | $202,057 | | Trade names | 1 | 280 | (280) | — | | **Total amortizable intangible assets, net** | | **$210,280** | **$(8,223)** | **$202,057** | [9. Leases](index=134&type=section&id=9.%20Leases) GCE has operating leases for facilities and equipment, with lease liabilities of $28.6 million recognized on the balance sheet as of year-end 2019 - Operating lease costs were **$4.1 million** in 2019, compared to $827 thousand in 2018[437](index=437&type=chunk) - As of December 31, 2019, the present value of lease liabilities was **$28.6 million**, with a weighted-average remaining lease term of **8.3 years**[438](index=438&type=chunk)[439](index=439&type=chunk) - Had **$16.1 million** in non-cancelable operating lease commitments not yet commenced as of December 31, 2019[438](index=438&type=chunk) [10. Notes Payable and Other Noncurrent Liabilities](index=136&type=section&id=10.%20Notes%20Payable%20and%20Other%20Noncurrent%20Liabilities) Notes payable increased to $140.9 million in 2019 following an amended credit facility used to finance the Orbis acquisition - Notes payable totaled **$140.9 million** at December 31, 2019, up from $59.9 million in 2018[444](index=444&type=chunk) - Entered into an amended and restated credit agreement in January 2019, providing a **$325.0 million credit facility** to finance the Orbis Education acquisition[440](index=440&type=chunk) - The credit facility was further amended in October 2019, increasing the revolving commitment to **$150.0 million** and reducing the term loan to **$150.6 million**[441](index=441&type=chunk) - GCE was **in compliance with its debt covenants** as of December 31, 2019[443](index=443&type=chunk) [11. Commitments and Contingencies](index=138&type=section&id=11.%20Commitments%20and%20Contingencies) The company is involved in routine legal proceedings that are not expected to have a material adverse effect on its financial condition - Subject to ordinary and routine litigation; management **does not expect material adverse effects** on financial condition, results of operations, or cash flows[445](index=445&type=chunk)[446](index=446&type=chunk) - Accrues for contingent obligations when probable and reasonably estimable[400](index=400&type=chunk)[445](index=445&type=chunk) - **No reserves** for probable non-income tax related matters as of December 31, 2019 and 2018[447](index=447&type=chunk) [12. Derivative Instruments](index=138&type=section&id=12.%20Derivative%20Instruments) GCE's interest rate corridor hedging instrument expired in December 2019, and the company held no derivative instruments at year-end - An interest rate corridor hedging instrument, used to manage 30-day LIBOR interest exposure, **expired in December 2019**[311](index=311&type=chunk)[448](index=448&type=chunk)[452](index=452&type=chunk) - Upon expiration, **$1.1 million** was reclassified from accumulated other comprehensive income into interest expense[283](index=283&type=chunk)[448](index=448&type=chunk)[451](index=451&type=chunk) - **No derivative financial instruments** as of December 31, 2019[312](index=312&type=chunk) [13. Earnings Per Share](index=140&type=section&id=13.%20Earnings%20Per%20Share) For 2019, basic earnings per share was $5.42 and diluted earnings per share was $5.37 - Diluted weighted average shares outstanding excludes anti-dilutive stock options and restricted stock awards[454](index=454&type=chunk) Earnings Per Share (2017-2019) | Denominator: | 2019 | 2018 | 2017 | |:---|:---:|:---:|:---:| | Basic weighted average shares outstanding | 47,814 | 47,608 | 47,140 | | Effect of dilutive stock options and restricted stock | 452 | 806 | 1,095 | | **Diluted weighted average shares outstanding** | **48,266** | **48,414** | **48,235** | | Basic income per share | $5.42 | $4.81 | $4.73 | | Diluted income per share | $5.37 | $4.73 | $4.22 | [14. Equity Transactions](index=140&type=section&id=14.%20Equity%20Transactions) GCE has an authorized share repurchase program of up to $175.0 million, with $52.3 million remaining at year-end 2019 - 10,000 shares of authorized but unissued and undesignated preferred stock, with terms determined by the board[455](index=455&type=chunk) - Board authorized a share repurchase program of up to **$175.0 million**, expiring December 31, 2020[238](index=238&type=chunk)[457](index=457&type=chunk) - Repurchased **376,000 shares** of common stock for **$35.8 million** in 2019, leaving **$52.3 million** available under the authorization[238](index=238&type=chunk)[457](index=457&type=chunk) [15. Income Taxes](index=141&type=section&id=15.%20Income%20Taxes) The company's effective tax rate decreased to 18.4% in 2019, primarily due to a favorable state tax refund agreement and a law change - Income tax expense for 2019 was **$58.3 million**, with an effective tax rate of **18.4%**, compared to 20.2% in 2018[285](index=285&type=chunk)[462](index=462&type=chunk) - The decrease in effective tax rate was primarily due to a **$5.9 million favorable tax impact** from a state tax refund agreement and a law change in Arizona state taxes[285](index=285&type=chunk) - Unrecognized tax benefits totaled **$6.8 million** at December 31, 2019, including $153 thousand in accrued interest[464](index=464&type=chunk) Components of Income Tax Expense (2017-2019, in thousands) | | 2019 | 2018 | 2017 | |:---|:---:|:---:|:---:| | Current: Federal | $57,354 | $60,764 | $76,966 | | Current: State | (1,344) | 8,732 | 8,589 | | **Total Current** | **56,010** | **69,496** | **85,555** | | Deferred: Federal | 2,804 | (10,708) | (6,189) | | Deferred: State | (487) | (799) | 843 | | **Total Deferred** | **2,317** | **(11,507)** | **(5,346)** | | **Total Income Tax Expense** | **$58,327** | **$57,989** | **$80,209** | Deferred Income Tax Assets and Liabilities (December 31, 2019 & 2018, in thousands) | | As of December 31, 2019 | As of December 31, 2018 | |:---|:---:|:---:| | Deferred tax assets: Share-based compensation | $2,499 | $3,030 | | Deferred tax assets: Employee compensation | 614 | 780 | | Deferred tax assets: Intangibles | 23,693 | — | | Deferred tax assets: State taxes | 1,764 | 879 | | Deferred tax assets: Other | 432 | 386 | | **Total Deferred tax assets** | **29,002** | **5,075** | | Deferred tax liability: Property and equipment | (10,865) | (10,778) | | Deferred tax liability: Goodwill | (36,295) | (762) | | Deferred tax liability: Other | (162) | — | | **Total Deferred tax liability** | **(47,322)** | **(11,540)** | | **Net deferred tax liability** | **$(18,320)** | **$(6,465)** | [16. Share-Based Compensation Plans](index=143&type=section&id=16.%20Share-Based%20Compensation%20Plans) GCE grants restricted stock awards under its 2017 Equity Incentive Plan, with total unrecognized compensation cost of $23.0 million at year-end 2019 - Grants restricted stock awards under the 2017 Equity Incentive Plan, with **1.8 million shares available** for grants as of December 31, 2019[466](index=466&type=chunk) - Total unrecognized share-based compensation cost for unvested restricted stock was **$23.0 million** as of December 31, 2019, to be recognized over a weighted average period of 2.1 years[470](index=470&type=chunk) - No stock options were granted in 2017, 2018, or 2019; as of December 31, 2019, **232,000 stock options were outstanding and exercisable**[471](index=471&type=chunk)[474](index=474&type=chunk) - Made a discretionary matching contribution of **$2.2 million** to its 401(k) Plan for 2019[479](index=479&type=chunk) Restricted Stock Activity (2017-2019, in thousands of shares) | | Total Shares | Weighted Average Grant Date Fair Value per Share | |:---|:---:|:---:| | Outstanding as of December 31, 2017 | 776 | $49.16 | | Granted (2018) | 163 | $92.34 | | Vested (2018) | (384) | $65.57 | | Forfeited, canceled or expired (2018) | (95) | $71.60 | | Outstanding as of December 31, 2018 | 460 | $63.28 | | Granted (2019) | 152 | $93.62 | | Vested (2019) | (174) | $56.14 | | Forfeited, canceled or expired (2019) | (16) | $82.11 | | **Outstanding as of December 31, 2019** | **422** | **$76.43** | Share-Based Compensation Expense by Category (2017-2019, in thousands) | | 2019 | 2018 | 2017 | |:---|:---:|:---:|:---:| | Technology and academic services | $1,721 | $1,585 | $1,555 | | Counseling support and services | 5,297 | 4,926 | 4,700 | | Marketing and communication | 87 | 48 | 26 | | General and administrative | 3,195 | 3,355 | 3,402 | | University related expenses | — | 9,594 | 3,005 | | **Total Share-based compensation expense** | **$10,300** | **$19,508** | **$12,688** | | Tax effect of share-based compensation | (2,575) | (4,877) | (5,075) | | **Share-based compensation expense, net of tax** | **$7,725** | **$14,631** | **$7,613** | [17. Quarterly Results of Operations (Unaudited)](index=148&type=section&id=17.%20Quarterly%20Results%20of%20Operations%20(Unaudited)) This section provides unaudited quarterly results, illustrating the seasonal fluctuations in revenue and operating income driven by academic calendars - Net revenue and operating results normally fluctuate due to seasonal variations in university partners' enrollment, with **lower revenues in summer months** and higher revenues in Q1 and Q4[287](index=287&type=chunk) Unaudited Quarterly Results of Operations (2019, in thousands) | | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |:---|:---:|:---:|:---:|:---:| | Service revenue | $197,287 | $174,820 | $193,289 | $213,247 | | Net revenue | 197,287 | 174,820 | 193,289 | 213,247 | | Total costs and expenses | 124,856 | 123,826 | 133,555 | 131,275 | | Operating income | 72,431 | 50,994 | 59,734 | 81,972 | | Net income | $73,243 | $51,112 | $58,151 | $76,669 | | Basic income per share | $1.54 | $1.07 | $1.21 | $1.61 | | Diluted income per share | $1.52 | $1.06 | $1.20 | $1.59 | Unaudited Quarterly Results of Operations (2018, in thousands) | | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |:---|:---:|:---:|:---:|:---:| | Service revenue | $— | $— | $155,454 | $177,548 | | University related revenue | 275,681 | 236,818 | — | — | | Net revenue | 275,681 | 236,818 | 155,454 | 177,548 | | Total costs and expenses | 185,589 | 178,330 | 126,034 | 97,399 | | Operating income | 90,092 | 58,488 | 29,420 | 80,149 | | Net income | $73,681 | $46,038 | $33,761 | $75,531 | | Basic income per share | $1.55 | $0.97 | $0.71 | $1.58 | | Diluted income per share | $1.52 | $0.95 | $0.70 | $1.56 | PART III [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=150&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There were no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[488](index=488&type=chunk) [Item 9A. Controls and Procedures](index=150&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2019 - Management concluded that disclosure controls and procedures were **effective** as of December 31, 2019[490](index=490&type=chunk) - Management assessed and believes the company's internal control over financial reporting was **effective** as of December 31, 2019, based on the COSO framework[496](index=496&type=chunk) - KPMG LLP issued an **unqualified opinion** on the effectiveness of GCE's internal control over financial reporting as of December 31, 2019[497](index=497&type=chunk)[498](index=498&type=chunk) - **No material changes** in internal control over financial reporting occurred during the quarter ended December 31, 2019[507](index=507&type=chunk) [Item 9B. Other Information](index=155&type=section&id=Item%209B.%20Other%20Information) The company permits Rule 10b5-1 trading plans for its directors, officers, and employees and will disclose their establishment or termination in future reports - Company policy permits directors, officers, and employees to enter into **Rule 10b5-1 trading plans**[508](index=508&type=chunk) - Will disclose the establishment or termination of trading plans by executive officers and directors in future quarterly and annual reports[509](index=509&type=chunk) [Item 10. Directors, Executive Officers and Corporate Governance](index=155&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2020 proxy statement - Information on Directors, Executive Officers, and Corporate Governance is **incorporated by reference** from the 2020 proxy statement[511](index=511&type=chunk) - Code of Business Conduct and Ethics and committee charters are available on the company's website[512](index=512&type=chunk)[513](index=513&type=chunk) [Item 11. Executive Compensation](index=155&type=section&id=Item%2011.%20Executive%20Compensation) Information relating to executive compensation is incorporated by reference from the company's 2020 proxy statement - Executive compensation information is **incorporated by reference** from the 2020 proxy statement[514](index=514&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=155&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership is incorporated by reference from the company's 2020 proxy statement - Security ownership information is **incorporated by reference** from the 2020 proxy statement[515](index=515&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=157&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information concerning related party transactions and director independence is incorporated by reference from the 2020 proxy statement - Information on related transactions and director independence is **incorporated by reference** from the 2020 proxy statement[516](index=516&type=chunk) [Item 14. Principal Accounting Fees and Services](index=157&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's 2020 proxy statement - Principal accounting fees and services information is **incorporated by reference** from the 2020 proxy statement[517](index=517&type=chunk) PART IV [Item 15. Exhibits and Consolidated Financial Statement Schedules](index=157&type=section&id=Item%2015.%20Exhibits%20and%20Consolidated%20Financial%20Statement%20Schedules) This section lists the consolidated financial statements and exhibits filed as part of the Annual Report - Includes consolidated financial statements: Balance Sheets, Income Statements, Statements of Comprehensive Income, Statements of Stockholders' Equity, and Statements of Cash Flows[519](index=519&type=chunk) - Provides an Exhibit Index listing various documents such as the Asset Purchase Agreement, Plan of Merger, Equity Incentive Plans, Employment Agreements, and Credit Agreements[519](index=519&type=chunk)[520](index=520&type=chunk)[521](index=521&type=chunk)[524](index=524&type=chunk)

Grand Canyon Education Inc. (NASDAQ:LOPE) Q3 2019 Earnings Conference Call November 6, 2019 4:30 PM ET CompanyParticipants Brian Mueller - Chief Executive Officer, President and Director Dan Bachus - Chief Financial Officer Conference Call Participants Jeff Meuler - Baird Jeff Silber - BMO Capital Markets Operator Ladies and gentlemen, thank you for standing by. And welcome to the Q3 2019 Grand Canyon Education Earnings Conference Call. At this time, all participants are in a listen-only mode. After the spe ...

PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201%20Financial%20Statements) Unaudited consolidated financial statements for Q3 2019 and 2018 are presented, reflecting the company's business model transformation and Orbis acquisition - On July 1, 2018, the company transformed its business model by selling Grand Canyon University to a non-profit entity, GCU. GCE now operates as an education services company, providing a suite of support services to university partners[23](index=23&type=chunk) - On January 22, 2019, GCE acquired Orbis Education Services for **$361.2 million**, expanding its services to support healthcare education programs for 21 additional university partners[24](index=24&type=chunk)[32](index=32&type=chunk) Consolidated Income Statement Highlights (Unaudited, In thousands) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | **Service Revenue** | **$193,289** | **$155,454** | **$565,396** | **$155,454** | | University Related Revenue | — | — | — | $512,499 | | **Operating Income** | **$59,734** | **$29,420** | **$183,159** | **$178,000** | | **Net Income** | **$58,151** | **$33,761** | **$182,506** | **$153,480** | | Diluted EPS | $1.20 | $0.70 | $3.78 | $3.17 | Consolidated Balance Sheet Highlights (Unaudited, In thousands) | Metric | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $119,709 | $120,346 | | Secured Note receivable | $1,009,912 | $900,093 | | Goodwill | $160,871 | $2,941 | | **Total Assets** | **$1,760,672** | **$1,324,017** | | Notes payable, less current portion | $211,060 | $23,437 | | **Total Liabilities** | **$378,842** | **$110,420** | | **Total Stockholders' Equity** | **$1,381,830** | **$1,213,597** | Consolidated Cash Flow Highlights (Unaudited, In thousands) | Metric | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $195,134 | $96,536 | | Net cash used in investing activities | ($431,110) | ($215,729) | | Net cash provided by (used in) financing activities | $173,972 | ($22,269) | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%202%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, emphasizing the 2018 business model change, 2019 Orbis acquisition, and strong liquidity - End-of-period enrollment in programs at university partners increased **10.2%** to **108,821** as of September 30, 2019, from 98,715 a year prior. This was driven by a **6.2%** increase in GCU enrollments and the addition of 3,975 students from Orbis Education partners[136](index=136&type=chunk) Q3 2019 vs. Q3 2018 Performance | Metric | Q3 2019 | Q3 2018 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Service Revenue | $193.3M | $155.5M | +$37.8M | +24.3% | | Operating Income | $59.7M | $29.4M | +$30.3M | +103.1% | | Net Income | $58.2M | $33.8M | +$24.4M | +72.3% | - The increase in revenue was primarily due to the Orbis Education acquisition and a **6.2%** increase in GCU enrollments. Orbis partnership agreements generally generate higher revenue per student[141](index=141&type=chunk) - The company believes its cash flow from operations, along with cash reserves and its revolving line of credit, will provide adequate liquidity for ongoing operations and planned expenditures for at least the next 24 months[184](index=184&type=chunk) [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Detailed Q3 2019 and 2018 financial performance, driven by Orbis acquisition and GCU enrollment growth, with rising operating expenses Q3 2019 vs Q3 2018 Operating Expense Breakdown (in millions) | Expense Category | Q3 2019 | Q3 2018 | Change % | | :--- | :--- | :--- | :--- | | Technology and academic services | $24.2 | $11.1 | +118.3% | | Counseling services and support | $56.3 | $51.1 | +10.0% | | Marketing and communication | $37.3 | $31.5 | +18.4% | | General and administrative | $13.6 | $10.1 | +34.3% | - Technology and academic services expenses increased significantly as a percentage of revenue (from 7.1% to 12.5% in Q3) primarily because the Orbis Education partnership agreements require a higher level of service, including physical classroom facilities[142](index=142&type=chunk)[144](index=144&type=chunk) - For the nine-month period, comparable service fee revenue increased **22.1%** year-over-year, driven by the Orbis acquisition and growth at GCU[158](index=158&type=chunk)[159](index=159&type=chunk) [Liquidity and Capital Resources](index=56&type=section&id=Liquidity%20and%20Capital%20Resources) The company financed the Orbis acquisition through debt and operating cash, maintaining strong liquidity with increased cash from operations - The company financed the Orbis acquisition with a combination of debt from an amended credit facility ($190.1 million) and operating cash on hand ($171.1 million)[178](index=178&type=chunk) Cash Flow Summary (Nine Months Ended Sep 30, in millions) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Operating Cash Flow | $195.1 | $96.5 | | Investing Cash Flow | ($431.1) | ($215.7) | | Financing Cash Flow | $174.0 | ($22.3) | Contractual Obligations (as of Sep 30, 2019, in millions) | Obligation | Total | Less than 1 Year | 2-3 Years | 4-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Long term notes payable | $256.4 | $20.5 | $66.3 | $66.3 | $103.3 | | Lease liabilities | $28.1 | $0.5 | $6.0 | $6.5 | $15.1 | | **Total** | **$287.9** | **$22.0** | **$74.2** | **$73.3** | **$118.4** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=60&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk on variable-rate debt, managed via an interest rate corridor instrument - The company manages interest rate risk on its variable-rate debt using an interest rate corridor instrument with a notional amount of **$55.0 million**, which matures in December 2019[197](index=197&type=chunk) - The interest rate corridor instrument hedges 30-Day LIBOR exposure. If LIBOR is between **1.5%** and **3.0%**, the company pays a fixed **1.5%**. If LIBOR exceeds **3.0%**, the company pays the actual rate less **1.5%**[199](index=199&type=chunk) [Item 4. Controls and Procedures](index=62&type=section&id=Item%204%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures are effective as of September 30, 2019[201](index=201&type=chunk) - No material changes to internal control over financial reporting were identified during the quarter[202](index=202&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=62&type=section&id=Item%201%20Legal%20Proceedings) The company reports no material legal proceedings during the period - The company reported 'None' for this item, indicating no material legal proceedings[203](index=203&type=chunk) [Item 1A. Risk Factors](index=62&type=section&id=Item%201A%20Risk%20Factors) No material changes to risk factors previously disclosed in the 2018 Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the company's 2018 Annual Report on Form 10-K[204](index=204&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=63&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered equity sales; company repurchased **64,335 shares** for **$7.0 million** in Q3 2019, with **$70.8 million** remaining for repurchases - The company has a Board authorization to repurchase up to **$175.0 million** of its common stock, with an expiration date of December 31, 2020[206](index=206&type=chunk) Share Repurchases in Q3 2019 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2019 | 10,000 | $116.25 | | August 2019 | — | $ — | | September 2019 | 54,335 | $106.56 | | **Total Q3** | **64,335** | **$108.07** | - As of September 30, 2019, **$70.8 million** remained available for future repurchases under the current program[206](index=206&type=chunk) [Item 3. Defaults Upon Senior Securities](index=63&type=section&id=Item%203%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities - The company reported 'None' for this item[208](index=208&type=chunk) [Item 4. Mine Safety Disclosures](index=63&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item is not applicable to the company's business - The company reported 'None' for this item[209](index=209&type=chunk) [Item 5. Other Information](index=63&type=section&id=Item%205%20Other%20Information) The company reports no other information required to be disclosed under this item - The company reported 'None' for this item[210](index=210&type=chunk) [Item 6. Exhibits](index=65&type=section&id=Item%206%20Exhibits) This section lists exhibits filed with the 10-Q report, including credit agreement amendments and SOX certifications - Exhibits filed with the report include an amendment to the credit agreement, CEO/CFO certifications (SOX 302 & 906), and financial data in Inline XBRL format[211](index=211&type=chunk)

Grand Canyon Education, Inc. (NASDAQ:LOPE) Q2 2019 Earnings Conference Call August 6, 2019 4:30 PM ET Company Participants Dan Bachus - Chief Financial Officer Brian Mueller - Chairman and Chief Executive Officer Conference Call Participants Jeff Silber - BMO Capital Markets Jeff Meuler - Baird Operator Good day, ladies and gentlemen, and welcome to the Second Quarter Grand Canyon Education Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question- ...