Grand Canyon Education(LOPE) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Grand Canyon Education, Inc. reported strong Q1 2024 financial performance, with increased revenue and net income, and growing assets, primarily from its GCU partnership Consolidated Income Statement Highlights (Q1 2024 vs Q1 2023, in millions) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | | :--- | :--- | :--- | :--- | | Service Revenue | $274.7 | $250.1 | +9.8% | | Operating Income | $84.5 | $74.5 | +13.4% | | Net Income | $68.0 | $59.6 | +14.2% | | Diluted EPS | $2.29 | $1.94 | +18.0% | Consolidated Balance Sheet Highlights (As of March 31, 2024, in millions) | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $196.2 | $146.5 | | Total Assets | $1,035.6 | $930.5 | | Total Liabilities | $276.1 | $212.4 | | Total Stockholders' Equity | $759.4 | $718.0 | Consolidated Cash Flow Highlights (Q1 2024 vs Q1 2023, in millions) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $85.0 | $63.0 | | Net cash used in investing activities | $(5.3) | $(37.1) | | Net cash used in financing activities | $(30.0) | $(41.2) | - The company provides education services to 23 university partners across the United States, with its most significant partner being Grand Canyon University (GCU)[22][23] - Revenue is generated through long-term master services agreements with university partners, where GCE receives a percentage (60% from GCU) of the partner's tuition and fee revenue in exchange for providing technology, academic, counseling, marketing, and back-office services[29][44] - Grand Canyon University (GCU) accounted for 89.7% of total service revenue for the three months ended March 31, 2024, up from 88.5% in the same period in 2023, indicating a high concentration of credit risk[59] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2024 revenue growth to GCU enrollment and revenue per student increases, alongside rising operating expenses, strong liquidity, and share repurchases Results of Operations Q1 2024 service revenue grew 9.8% to $274.7 million from GCU enrollment and revenue per student increases, with rising operating expenses but an improved operating margin Enrollment Statistics (as of March 31) | Enrollment Category | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Partner Enrollments | 120,788 | 112,588 | +7.3% | | GCU Enrollments | 116,952 | 108,597 (derived) | +7.7% | | - GCU Online | 93,987 | 86,065 | +9.2% | | - GCU Ground | 22,965 | 22,568 | +1.8% | | Off-Campus Site Enrollments | 4,486 | 4,313 (derived) | +4.0% | - The increase in revenue per student was positively impacted by higher room, board, and ancillary revenues at GCU, a favorable academic calendar shift adding $2.1 million, and an extra day for the leap year adding $1.5 million[109] - Counseling services and support expenses increased by 13.0% to $82.9 million, primarily due to a $7.2 million increase in employee compensation from higher headcount and a $1.8 million increase in travel costs[113] - Marketing and communication expenses increased by 4.6% to $55.4 million, driven by a $2.1 million rise in advertising costs to market university partners' programs[114] - The effective tax rate increased to 22.9% in Q1 2024 from 22.3% in Q1 2023, primarily due to higher taxable income, despite larger excess tax benefits from share-based compensation[119] Liquidity and Capital Resources Liquidity increased to $290.7 million in Q1 2024 from strong operating cash flow, with significant cash used for share repurchases and planned capital expenditures Cash Flow Summary (Three Months Ended March 31, in millions) | (in millions) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $85.0 | $63.0 | | Net cash used in investing activities | $(5.3) | $(37.1) | | Net cash used in financing activities | $(30.0) | $(41.2) | - Capital expenditures were $9.0 million in Q1 2024, primarily for leasehold improvements and equipment for new off-campus sites. The company anticipates annual capital expenditures of $30.0 to $40.0 million[128] - The company used $22.6 million to repurchase 171,670 shares of its common stock in Q1 2024. As of March 31, 2024, $242.5 million remained available under the share repurchase authorization, which expires March 1, 2025[131][134] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has limited market risk, primarily interest rate risk on its high-credit-quality investment portfolio, with no material impact from a 10% interest rate change - The company invests excess cash in money market instruments, corporate bonds, agency bonds, and commercial paper with a minimum BBB rating to limit credit risk[137] - As of March 31, 2024, a hypothetical 10% increase or decrease in interest rates would not materially impact the company's future earnings, fair values, or cash flows[137] Item 4. Controls and Procedures Management confirmed effective disclosure controls and procedures as of March 31, 2024, with no material changes to internal control over financial reporting in Q1 - The CEO and CFO concluded that the company's disclosure controls and procedures are effective as of March 31, 2024[138] - No material changes to the company's internal control over financial reporting occurred during the first quarter of 2024[139] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company faces ongoing legal proceedings, including a resolved shareholder class action, a pending derivative suit, and an uncertain False Claims Act lawsuit - The securities class action (Shareholder Litigation) has been resolved via a settlement agreement, with the entire settlement amount to be funded by the company's insurance carriers[85] - A shareholder derivative lawsuit related to the class action allegations is pending, with the company filing a motion to dismiss in April 2024[86] - The company is defending a False Claims Act lawsuit alleging improper compensation for enrollment counselors. The outcome is uncertain, and no liability has been accrued as a range of loss cannot be reasonably estimated[87][88] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K were reported - No material changes to the risk factors from the 2023 Form 10-K were reported[142] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2024, the company repurchased 171,670 shares for $22.5 million, with $242.5 million remaining available under its share repurchase authorization Share Repurchases in Q1 2024 | Period | Total Shares Purchased (Program) | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2024 | 38,553 | $126.15 | | Feb 2024 | 57,880 | $131.01 | | Mar 2024 | 75,237 | $133.94 | | Total | 171,670 | $131.20 | - As of March 31, 2024, $242.5 million remained available under the company's share repurchase authorization[145] Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q1 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement in Q1 2024[148] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and Inline XBRL financial statements