Grand Canyon Education(LOPE) - 2021 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements Grand Canyon Education, Inc. reported increased service revenue and net income for Q1 2021, showing growth in total assets and operating cash flow Consolidated Income Statement Highlights (Q1 2021 vs Q1 2020) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Service Revenue | $236,934 thousand | $221,655 thousand | | Operating Income | $84,226 thousand | $80,796 thousand | | Net Income | $78,112 thousand | $71,385 thousand | | Diluted EPS | $1.69 | $1.49 | Consolidated Balance Sheet Highlights | Metric | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $225,829 thousand | $245,769 thousand | | Total Assets | $1,885,027 thousand | $1,844,579 thousand | | Total Liabilities | $296,349 thousand | $270,250 thousand | | Total Stockholders' Equity | $1,588,678 thousand | $1,574,329 thousand | Consolidated Cash Flow Highlights (Q1 2021 vs Q1 2020) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $89,827 thousand | $85,719 thousand | | Net cash used in investing activities | ($34,819) thousand | ($1,878) thousand | | Net cash used in financing activities | ($74,948) thousand | ($73,920) thousand | Notes to Consolidated Financial Statements The notes detail the company's business as an education services provider for 26 university partners, with Grand Canyon University (GCU) being the most significant, and outline key accounting policies, the $964.9 million Secured Note from GCU, and a $500 million share repurchase program - GCE provides education services to 26 university partners as of March 31, 2021, with Grand Canyon University (GCU) being its most significant partner[21][23] - Revenue is generated from service agreements, receiving a percentage of partners' tuition and fee revenue, which is 60% for GCU[29][50] - The company holds a Secured Note from GCU with a carrying value of $964.9 million and a fair value of $1.046 billion as of March 31, 2021, bearing 6.0% annual interest[29][45] - In January 2021, the Board of Directors increased the share repurchase program authorization by $100 million, bringing the aggregate authorization to $500 million, expiring December 31, 2021[99] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 2021 financial results, highlighting service revenue growth, COVID-19's impact on ancillary revenues, increased operating expenses, and strong liquidity - The COVID-19 pandemic reduced GCU's non-tuition revenue (dormitory, ancillary businesses) in 2020 and Q1 2021, estimated to have a further $1.2 million negative impact on revenue and profit in Q2 2021[115][123] - Service revenue increased by $15.2 million (6.9%) year-over-year, driven by a 7.2% increase in total partner enrollments to 115,390, partially offset by lower revenue per student due to COVID-19's impact on GCU's ancillary revenues[126] - The company opened seven new off-campus classroom and laboratory sites in the second half of 2020 and one in Spring 2021, increasing the total to 29 sites from 23 a year prior[126] - The effective tax rate decreased to 20.4% in Q1 2021 from 24.2% in Q1 2020, primarily due to a $4.4 million increase in excess tax benefits from share-based compensation[136][137] Results of Operations In Q1 2021, service revenue grew 6.9% to $236,934 thousand, accompanied by increased operating expenses across key categories, contributing to a 9.4% rise in net income Operating Expenses as a Percentage of Net Revenue | Expense Category | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Technology and academic services | 13.5% | 11.9% | | Counseling services and support | 25.8% | 27.2% | | Marketing and communication | 20.1% | 19.3% | | General and administrative | 4.0% | 4.3% | - Technology and academic services expenses increased by $5.8 million (22.0%) due to higher employee compensation, occupancy costs for new sites, and technology supply costs[127] - Marketing and communication expenses increased by $5.0 million (11.8%) primarily due to a $4.7 million increase in advertising costs to market new university partners and locations[130] Liquidity and Capital Resources As of March 31, 2021, the company maintained strong liquidity with $262,300 thousand in cash and investments and a $150,000 thousand available credit line, primarily using cash for capital expenditures and share repurchases - The company had $262.3 million in unrestricted cash, cash equivalents, and investments at March 31, 2021, with an additional $150.0 million available on its credit facility[141] - Net cash from operating activities was $89.8 million in Q1 2021, up from $85.7 million in Q1 2020[149] - Investing activities used $34.8 million, including $8.9 million for capital expenditures (largely for new sites) and a net $25.8 million for investment purchases[150] - Financing activities used $74.9 million, including $63.3 million for share repurchases (including ASR activity) and $8.3 million in principal payments on notes payable[151] Quantitative and Qualitative Disclosures About Market Risk The company states inflation has not materially impacted operations, managing interest rate risk through investments, with a 10% interest rate change not expected to materially impact earnings or cash flows - The company believes inflation has not had a material impact on its results of operations[155] - The company manages interest rate risk by investing excess funds in cash equivalents and various securities rated BBB or higher, with no derivative financial instruments[156][157] - A hypothetical 10% increase or decrease in interest rates is not expected to have a material impact on the company's future earnings, fair values, or cash flows[157] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, 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 are effective as of March 31, 2021[158] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[159] PART II – OTHER INFORMATION Legal Proceedings The company reports no material legal proceedings - None[160] Risk Factors 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, 2020 - 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, 2020[161] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities, detailing its stock repurchase program increased to $500 million in January 2021, with 567,255 shares repurchased for $56.3 million - In January 2021, the Board of Directors increased the stock repurchase authorization by $100.0 million, for an aggregate authorization of $500.0 million[163] - On March 10, 2021, the company entered into a $35.0 million Accelerated Share Repurchase (ASR) agreement with Morgan Stanley[164] Share Repurchases in Q1 2021 | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Maximum Dollar Value Remaining Under Program | | :--- | :--- | :--- | :--- | | Jan 2021 | 112,121 | $88.05 | $238,400,000 | | Feb 2021 | 73,832 | $101.10 | $230,900,000 | | Mar 2021 | 381,302 | $102.31 | $191,900,000 | | Total | 567,255 | $99.33 | $191,900,000 | Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[167] Mine Safety Disclosures This item is not applicable to the company - None[168] Other Information The company reports no other information - None[169] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents and certifications from the Principal Executive Officer and Principal Financial Officer, along with financial statements in Inline XBRL format - The report includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[171][172] - Financial statements are provided in Inline XBRL format as part of the filing[172]