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 ...

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 March 31, 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 20-335 ...

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 ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 2019 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 20-335 ...

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- ...

[PART I – FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements, reflecting the company's business model transformation and the financial effects of the GCU sale and Orbis acquisition - On July 1, 2018, the company transitioned from a university operator to an educational services company by selling **Grand Canyon University** to GCU[22](index=22&type=chunk) - On January 22, 2019, the company acquired **Orbis Education Services, LLC** for **$361.2 million**, expanding services to 18 additional university partners[23](index=23&type=chunk)[29](index=29&type=chunk) [Consolidated Income Statements](index=4&type=section&id=Consolidated%20Income%20Statements) The consolidated income statements for the six months ended June 30, 2019, reflect the new service-based revenue model, with increased net income driven by interest income and a lower tax rate Consolidated Income Statement Highlights (in thousands) | Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | Change | | :--- | :--- | :--- | :--- | | **Net Revenue** | $372,107 | $512,499 | -27.4% | | *Service Revenue* | *$372,107* | *$0* | N/A | | *University Related Revenue* | *$0* | *$512,499* | N/A | | **Operating Income** | $123,425 | $148,580 | -16.9% | | **Interest Income on Secured Note** | $28,217 | $0 | N/A | | **Net Income** | $124,355 | $119,719 | +3.9% | | **Diluted EPS** | $2.57 | $2.47 | +4.0% | [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) The consolidated balance sheets as of June 30, 2019, show increased total assets due to the Secured Note and Orbis acquisition, alongside a rise in total liabilities Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Total Current Assets** | $108,717 | $309,466 | | **Secured Note Receivable** | $1,069,912 | $900,093 | | **Goodwill** | $160,871 | $2,941 | | **Amortizable Intangible Assets, net** | $206,415 | $0 | | **Total Assets** | **$1,677,522** | **$1,324,017** | | **Total Current Liabilities** | $113,266 | $80,518 | | **Total Liabilities** | **$349,715** | **$110,420** | | **Total Stockholders' Equity** | **$1,327,807** | **$1,213,597** | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the first six months of 2019, operating cash flow increased, while investing activities used significant cash for the Orbis acquisition and GCU capital expenditures Cash Flow Summary - Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $189,335 | $143,662 | | **Net cash used in investing activities** | ($485,762) | ($67,435) | | **Net cash provided by (used in) financing activities** | $180,515 | ($14,728) | | **Net decrease in cash** | ($115,912) | ($26,376) | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, highlighting the operational shift post-GCU transaction and Orbis acquisition, and confirms strong liquidity for future operations - The company's results now reflect its role as a service/technology provider to **19 university partners**, a significant change from its pre-July 2018 operations[132](index=132&type=chunk)[133](index=133&type=chunk) - End-of-period enrollment at partner universities grew **11.4% year-over-year** to **90,906** as of June 30, 2019, driven by GCU and Orbis Education partners[134](index=134&type=chunk) - Management presents an adjusted **Non-GAAP net revenue** metric for comparability, calculating **60%** of prior year's university-related revenue[138](index=138&type=chunk) [Results of Operations](index=41&type=section&id=Results%20of%20Operations) Results of operations for Q2 2019 show comparable service fee revenue growth driven by the Orbis acquisition and GCU enrollments, alongside increased operating expenses Comparison of Q2 2019 vs Q2 2018 (in millions) | Metric | Q2 2019 | Q2 2018 (Comparable) | Change | | :--- | :--- | :--- | :--- | | **Service Revenue** | $174.8 | $142.1 (60% of Univ. Revenue) | +23.0% | | **Technology & Academic Services** | $22.5 | $10.7 | +111.0% | | **Counseling Services & Support** | $54.3 | $50.8 | +6.8% | | **Marketing & Communication** | $35.7 | $30.1 | +18.7% | | **Net Income** | $51.1 | $46.0 | +11.1% | - The **Orbis acquisition** introduced partnership agreements generating higher revenue per student due to increased service fee percentages and partner tuition rates[134](index=134&type=chunk)[139](index=139&type=chunk) - For the six months ended June 30, 2019, income tax expense decreased **17.5%** to **$25.6 million**, with the effective tax rate falling to **17.1%** due to a favorable state tax settlement[168](index=168&type=chunk) [Liquidity and Capital Resources](index=53&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position, supported by a new credit facility for the Orbis acquisition and a significant Secured Note from GCU - A new **$325 million credit facility**, comprising a **$243.8 million term loan** and **$81.3 million revolving credit facility**, partially funded the Orbis acquisition[174](index=174&type=chunk) - A **Secured Note** from GCU with an initial principal of **$870.1 million** bears **6.0% annual interest**, with an additional **$199.8 million** loaned for capital expenditures[175](index=175&type=chunk) - The Board authorized a **$175.0 million share repurchase program**, with **$77.8 million** remaining available as of June 30, 2019[177](index=177&type=chunk)[180](index=180&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations on variable rate debt, managed by an interest rate corridor, with no material impact from inflation or hypothetical rate changes - The company uses an **interest rate corridor** to manage **30-Day LIBOR** exposure on variable rate debt, hedging between **1.5%** and **3.0%** on a notional amount of **$56.7 million**[188](index=188&type=chunk) - Management believes inflation has not materially impacted results, and a **10%** change in interest rates would not materially affect future earnings, fair values, or cash flows[187](index=187&type=chunk)[190](index=190&type=chunk) [Controls and Procedures](index=56&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures are **effective** as of June 30, 2019[193](index=193&type=chunk) - No material changes in internal control over financial reporting were identified during the quarter[194](index=194&type=chunk) [PART II – OTHER INFORMATION](index=58&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Legal Proceedings](index=58&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material legal proceedings for the period - None[195](index=195&type=chunk) [Risk Factors](index=58&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes to risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018[196](index=196&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=58&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered sales of equity securities and details share repurchases under its authorized program, with remaining availability Issuer Purchases of Equity Securities (Q2 2019) | Period | Total Shares Purchased | Average Price Paid Per Share | Approx. Value Remaining in Program | | :--- | :--- | :--- | :--- | | April 2019 | 0 | $— | $78,100,000 | | May 2019 | 3,000 | $113.52 | $77,800,000 | | June 2019 | 0 | $— | $77,800,000 | - The Board authorized a **$175.0 million** common stock repurchase program, expiring December 31, 2019[198](index=198&type=chunk) [Defaults Upon Senior Securities](index=59&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities - None[200](index=200&type=chunk) [Mine Safety Disclosures](index=59&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's business - None[201](index=201&type=chunk) [Other Information](index=59&type=section&id=Item%205.%20Other%20Information) The company reports no other information for the period - None[202](index=202&type=chunk) [Exhibits](index=59&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - Exhibits filed include CEO and CFO certifications and XBRL data files[204](index=204&type=chunk) [Signatures](index=61&type=section&id=SIGNATURES) - The report was signed on **August 6, 2019**, by **Daniel E. Bachus**, Chief Financial Officer[209](index=209&type=chunk)

Grand Canyon Education Inc. (NASDAQ:LOPE) Q1 2019 Earnings Conference Call May 7, 2019 4:30 PM ET Company Participants Brian Mueller - Chairman and CEO Daniel Bachus - Chief Financial Officer Conference Call Participants Peter Appert - Piper Jaffray Jeff Silber - BMO Capital Markets Nick Nikitas - Baird Operator Good day, ladies and gentlemen, and welcome to the First Quarter 2019 Grand Canyon Education Earnings Conference Call. At this time, all participants are in a listen-only mode. And later, we will co ...

PART I – FINANCIAL INFORMATION [Financial Statements](index=3&type=section&id=Item%201%20Financial%20Statements) For the three months ended March 31, 2019, the company reported service revenue of $197.3 million and net income of $73.2 million, reflecting a significant business model change from the prior year's university-related revenue of $275.7 million, with total assets increasing to $1.62 billion due to the Orbis Education acquisition [Nature of Business](index=9&type=section&id=1.%20Nature%20of%20Business) Grand Canyon Education (GCE) transitioned from owning a university to an education services company, expanding partnerships through the acquisition of Orbis Education Services - On July 1, 2018, GCE sold Grand Canyon University and transitioned into an educational services company providing support services to post-secondary institutions[20](index=20&type=chunk) - On January 22, 2019, GCE acquired Orbis Education Services for **$361.2 million** (net of cash acquired), expanding its services to 17 additional university partners focused on healthcare education[21](index=21&type=chunk) - Following the Transaction and Acquisition, GCE provides services to 18 university partners and no longer owns or operates an institution of higher education[22](index=22&type=chunk) [The Transaction](index=9&type=section&id=2.%20The%20Transaction) GCE sold Grand Canyon University assets to a non-profit entity, receiving an $870.1 million Secured Note and entering a long-term master services agreement for 60% of GCU's tuition and fee revenue - As consideration for the sale of university assets, GCE received a Secured Note from GCU with an initial principal of **$870.1 million**, a **6.0%** annual interest rate, and a maturity date of June 30, 2025[23](index=23&type=chunk) - GCE entered into a master services agreement to provide comprehensive support services to GCU in exchange for **60%** of GCU's tuition and fee revenue[23](index=23&type=chunk) [Acquisition](index=11&type=section&id=3.%20Acquisition) GCE acquired Orbis Education for approximately $361.2 million, resulting in significant intangible assets and goodwill, and contributing $17.5 million in revenue and $0.4 million in net income in Q1 2019 - GCE acquired Orbis Education on January 22, 2019, for **$361.2 million**, financed through a new credit agreement (**$191.0 million**) and operating cash (**$171.0 million**)[27](index=27&type=chunk) Orbis Education Purchase Price Allocation (in thousands) | Item | Amount | | :--- | :--- | | Total net asset or liability purchased and assumed | $217,690 | | Purchase price | $365,977 | | **Goodwill** | **$148,287** | | Intangible assets (primarily university partner relationships) | $210,280 | - From the acquisition date to March 31, 2019, Orbis Education contributed **$17,481 thousand** in revenue and **$380 thousand** in net income to GCE's consolidated results[32](index=32&type=chunk) [Summary of Significant Accounting Policies](index=13&type=section&id=4.%20Summary%20of%20Significant%20Accounting%20Policies) The company's accounting policies reflect its new business model, including recognizing service revenue over time, capitalizing content development costs, and adopting the new lease accounting standard - Service revenue commenced on July 1, 2018, and is generated from long-term (**7-15 years**) agreements with university partners, recognized over time as services are provided in exchange for a percentage of tuition and fee revenue[48](index=48&type=chunk)[49](index=49&type=chunk) - The company capitalizes costs to develop and create digital course content for university partners, amortizing these costs on a straight-line basis over the estimated course life, generally **four years**[53](index=53&type=chunk)[54](index=54&type=chunk) - On January 1, 2019, the company adopted the new lease standard (ASU 2016-02), which resulted in recognizing right-of-use (ROU) assets and lease liabilities on the balance sheet, with the Orbis acquisition adding **$13.1 million** in ROU assets and lease liabilities[68](index=68&type=chunk) [Notes Payable and Other Noncurrent Liabilities](index=26&type=section&id=11.%20Notes%20Payable%20and%20Other%20Noncurrent%20Liabilities) GCE entered into a new $325 million credit facility to finance the Orbis acquisition, resulting in total notes payable of $248.4 million as of March 31, 2019, with the company in compliance with all debt covenants - On January 22, 2019, GCE entered into a new **$325 million** credit facility, including a **$243.75 million** term loan and an **$81.25 million** revolver, to fund the Orbis acquisition and repay existing debt[85](index=85&type=chunk) Notes Payable as of March 31, 2019 (in thousands) | Description | Amount | | :--- | :--- | | Note payable (Term Loan) | $242,166 | | Revolving line of credit | $6,250 | | **Total** | **$248,416** | | Less: Current portion | $48,422 | | **Long-term portion** | **$199,994** | [Share-Based Compensation](index=28&type=section&id=13.%20Share-Based%20Compensation) In Q1 2019, GCE granted 149,000 shares of restricted common stock and recorded $2.6 million in share-based compensation expense under its 2017 Equity Incentive Plan - In Q1 2019, the company granted **149,000 shares** of restricted stock and recorded total share-based compensation expense of **$2.6 million**[93](index=93&type=chunk)[96](index=96&type=chunk) Restricted Stock Activity (Q1 2019) | (In thousands of shares) | Total Shares | | :--- | :--- | | Outstanding as of December 31, 2018 | 460 | | Granted | 149 | | Vested | (171) | | Forfeited, canceled or expired | (11) | | **Outstanding as of March 31, 2019** | **427** | [Treasury Stock](index=29&type=section&id=14.%20Treasury%20Stock) The company repurchased 108,000 shares for $10.0 million in Q1 2019 under its $175 million share repurchase program, with $78.1 million remaining available as of March 31, 2019 - During Q1 2019, the company repurchased **108,000 shares** for **$10.0 million** under its authorized plan[97](index=97&type=chunk) - As of March 31, 2019, **$78.1 million** was available for future repurchases under the current authorization, which expires on December 31, 2019[97](index=97&type=chunk) Consolidated Income Statement Highlights (Q1 2019 vs Q1 2018) | (In thousands, except per share data) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | **Service revenue** | **$197,287** | $— | | University related revenue | $— | $275,681 | | **Net revenue** | **$197,287** | **$275,681** | | Operating income | $72,431 | $90,092 | | **Net income** | **$73,243** | **$73,681** | | Diluted income per share | $1.52 | $1.52 | Consolidated Balance Sheet Highlights | (In thousands) | March 31, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $88,467 | $120,346 | | Secured Note receivable | $929,998 | $900,093 | | Goodwill | $151,228 | $2,941 | | **Total assets** | **$1,619,473** | **$1,324,017** | | Total liabilities | $346,600 | $110,420 | | **Total stockholders' equity** | **$1,272,873** | **$1,213,597** | Consolidated Cash Flow Highlights (Q1 2019 vs Q1 2018) | (In thousands) | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $76,337 | $119,008 | | Net cash used in investing activities | ($340,852) | ($38,525) | | Net cash provided by (used in) financing activities | $171,269 | ($12,829) | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the Q1 2019 results to the successful transition to an education services provider and the acquisition of Orbis Education, driving service revenue growth and increased operating expenses to support expanded partnerships, while maintaining strong liquidity - The company transitioned from operating a university to a service provider model on July 1, 2018, and acquired Orbis Education on January 22, 2019, making direct year-over-year comparisons of reported revenue and expenses difficult[107](index=107&type=chunk)[108](index=108&type=chunk) - End-of-period enrollment across all university partners grew **11.3% year-over-year** to **101,679**, including a **7.6% increase at GCU** and the addition of **3,384 students** from Orbis-serviced programs[109](index=109&type=chunk) - On a comparable basis, service revenue grew **19.3% YoY**, driven by the Orbis acquisition and a **7.6% increase in GCU enrollments**, with Orbis partner agreements generating higher revenue per student[114](index=114&type=chunk) - The effective tax rate for Q1 2019 was **13.5%**, down from **18.8% in Q1 2018**, primarily due to a one-time favorable state tax settlement of **$5.9 million**[127](index=127&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) In Q1 2019, service revenue was $197.3 million, with comparable growth of 19.3%, while operating expenses, particularly technology, academic, and marketing, increased significantly due to the Orbis acquisition, and interest expense rose due to new debt Operating Expense Changes (Q1 2019 vs Q1 2018) | Expense Category | Q1 2019 (in millions) | Q1 2018 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Technology and academic services | $19.0 | $10.7 | +78.0% | | Counseling services and support | $53.1 | $50.7 | +4.6% | | Marketing and communication | $35.5 | $28.5 | +24.3% | | General and administrative | $11.5 | $7.4 | +54.9% | - Interest income of **$13.7 million** was generated from the Secured Note received from GCU[124](index=124&type=chunk) - Interest expense increased by **$2.3 million** to **$2.6 million**, primarily due to a **$190.1 million increase** in outstanding debt to finance the Orbis acquisition[125](index=125&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $102.7 million in unrestricted cash, having financed the Orbis acquisition through a combination of operating cash and a new $325 million credit facility, and expects to fund future capital expenditures from operations - Financed the **$361.2 million Orbis acquisition** with **$190.1 million** from an increased credit facility and **$171.1 million** of operating cash on hand[131](index=131&type=chunk) - Entered into an amended credit agreement for a **$325.0 million facility**, comprising a **$243.8 million term loan** and an **$81.3 million revolving credit facility**[132](index=132&type=chunk) Contractual Obligations (as of March 31, 2019, in millions) | Obligation | Total | Less than 1 Year | 2-3 Years | 4-5 Years | More than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Long term notes payable | $248.4 | $48.4 | $96.8 | $103.2 | $0.0 | | Lease liabilities | $13.3 | $1.5 | $4.4 | $3.7 | $3.7 | | Purchase obligations | $11.0 | $7.3 | $3.5 | $0.2 | $0.0 | | **Total** | **$272.7** | **$57.2** | **$104.7** | **$107.1** | **$3.7** | [Quantitative and Qualitative Disclosures About Market Risk](index=32&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, which is managed using an interest rate corridor instrument, and inflation is not considered to have a material impact - The company manages interest rate risk on its variable-rate debt using an interest rate corridor instrument with a notional amount of **$58.3 million**[145](index=145&type=chunk) - The interest rate corridor hedges risk by setting the company's rate at **1.5%** when the 30-Day LIBOR is between **1.5% and 3.0%**, and if LIBOR exceeds **3.0%**, the company pays the actual rate less **1.5%**[145](index=145&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%204%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[149](index=149&type=chunk) - No material changes to the internal control over financial reporting occurred during the first quarter of 2019[150](index=150&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=33&type=section&id=Item%201%20Legal%20Proceedings) The company reported no legal proceedings during the period - None[151](index=151&type=chunk) [Risk Factors](index=33&type=section&id=Item%201A%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018[152](index=152&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 107,527 shares for approximately $10.0 million in Q1 2019 under its $175.0 million share repurchase program, with $78.1 million remaining available Share Repurchases in Q1 2019 | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Purchased as Part of Program | Maximum Dollar Value Remaining | | :--- | :--- | :--- | :--- | :--- | | Jan 2019 | 82,500 | $93.03 | 82,500 | $80,400,000 | | Feb 2019 | 25,027 | $92.90 | 25,027 | $78,100,000 | | Mar 2019 | — | $— | — | $78,100,000 | | **Total** | **107,527** | **$93.00** | **107,527** | **$78,100,000** | - As of March 31, 2019, **$78.1 million** remains available under the share repurchase authorization, which expires December 31, 2019[154](index=154&type=chunk)