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Grand Canyon Education, Inc. Reports First Quarter 2009 Results

Grand Canyon Education's First Quarter Net Revenue up 65 Percent; Enrollment up 62 Percent; Operating Income up 103 Percent; Net Income up 109 Percent

PHOENIX, April 27 /PRNewswire-FirstCall/ -- Grand Canyon Education, Inc. (Nasdaq: LOPE), a regionally accredited provider of online and campus-based post-secondary education services, today announced financial results for the three months ended March 31, 2009.

"Year-over-year, the top and bottom line improvement in our results were quite strong," said Brian Mueller, Chief Executive Officer of Grand Canyon Education, Inc. "These results demonstrate the long-term soundness and focus of our business strategies, the differentiated nature of our business model, and our ability to execute. Our continued investment in technology, expansion of our traditional campus facilities, broadening of marketing initiatives and enhancement of our educational programs will remain key strategic drivers for the University."

Grand Canyon Education, Inc. Reports First Quarter 2009 Results

For the three months ended March 31, 2009:

  • Net revenues increased 65.1% to $59.0 million for the first quarter of 2009, compared to $35.7 million for the first quarter of 2008.

  • At March 31, 2009 our enrollment was approximately 28,400, an increase of 62.4% from our enrollment of approximately 17,500 at March 31, 2008.

  • Operating income for the first quarter of 2009 was $12.1 million, an increase of 102.9% as compared to $5.9 million for the same period in 2008. The operating margin for the first quarter 2009 was 20.4%, compared to 16.6% for the same period in 2008.

  • Adjusted EBITDA increased 77.9% to $14.5 million for the first quarter of 2009, compared to $8.2 million for the same period in 2008.

  • The tax rate in the first quarter of 2009 was 40.0% compared to 38.6% in the first quarter of 2008.

  • Net income increased 109.0% to $6.9 million for the first quarter of 2009, compared to $3.3 million for the same period in 2008.

  • Diluted net income per share was $0.15 for the first quarter of 2009, compared to $0.09 for the same period in 2008.

"In addition to meeting our revenue and EPS objectives for the first quarter, we continued to generate strong operating margins through revenue growth, the leveraging of our infrastructure, and our continued focus on improvements on our traditional campus," said Daniel Bachus, the Company's Chief Financial Officer. "These strong operating results also had a significant positive impact on our cash flow, strengthened our balance sheet and will enhance our business going forward, as we continue to improve our returns for shareholders."

Balance Sheet and Cash Flow

As of March 31, 2009, the Company had cash and cash equivalents of $68.3 million compared to $35.2 million as of December 31, 2008 and restricted cash, cash equivalents and investments at March 31, 2009 and December 31, 2008 of $4.4 million and $5.6 million, respectively. The Company generated $36.6 million in cash from operating activities in the first quarter of 2009 compared to $18.5 million in the same period of 2008. Cash used in investing activities is primarily related to the purchase of property, plant, and equipment and leasehold improvements. Capital expenditures were $4.5 million in the first quarter of 2009 compared to $1.6 million for the same period in 2008. Cash used in financing activities for the three months ended March 31, 2009 and 2008 was $0.1 million and $0.6 million, respectively.

Grand Canyon Education, Inc. Reports First Quarter 2009 Results

Second Quarter 2009 Outlook

For the second quarter ending June 30, 2009, enrollment is expected to grow by 63.5% to 27,000 from 16,510 at June 30, 2008, and net revenues by 67.8% to $58 million from $34.6 million as compared to the second quarter of 2008. Diluted earnings per share is expected to be $0.10 per share.

2009 Annual Outlook

For fiscal year 2009 we expect net revenues to be between $254 million and $258 million for the year ended December 31, 2009, and enrollment to be between 34,500 and 35,000 at December 31, 2009. The annual tax rate is anticipated to be approximately 40%. Diluted earnings per share is expected to be between $0.60 and $0.64 per share.

Forward-Looking Statements

This news release contains "forward-looking statements" which include information relating to future events, future financial performance, strategies expectations, competitive environment, regulation, and availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new programs; expectations that regulatory developments or other matters will not have a material adverse effect on our financial position, results of operations, or liquidity; statements concerning projections, predictions, expectations, estimates, or forecasts as to our business, financial and operational results, and future economic performance; and statements of management's goals and objectives and other similar expressions concerning matters that are not historical facts. Words such as "may," "should," "could," "would," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar expressions, as well as statements in future tense, identify forward-looking statements.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to: our failure to comply with the extensive regulatory framework applicable to our industry, including Title IV of the Higher Education Act and the regulations thereunder, state laws and regulatory requirements, and accrediting commission requirements; the results of the ongoing investigation by the Department of Education's Office of Inspector General and the pending qui tam action regarding the manner in which we have compensated our enrollment personnel, and possible remedial actions or other liability resulting therefrom; the ability of our students to obtain federal Title IV funds, state financial aid, and private financing; risks associated with changes in applicable federal and state laws and regulations and accrediting commission standards; our ability to hire and train new, and develop and train existing, enrollment counselors; the pace of growth of our enrollment; our ability to convert prospective students to enrolled students and to retain active students; our success in updating and expanding the content of existing programs and developing new programs in a cost-effective manner or on a timely basis; industry competition, including competition for qualified executives and other personnel; risks associated with the competitive environment for marketing our programs; failure on our part to keep up with advances in technology that could enhance the online experience for our students; our ability to manage future growth effectively; general adverse economic conditions or other developments that affect job prospects in our core disciplines; and other factors discussed in reports on file with the Securities and Exchange Commission.

Forward-looking statements speak only as of the date the statements are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

Grand Canyon Education, Inc. Reports First Quarter 2009 Results

Conference Call

Grand Canyon Education, Inc. will discuss its first quarter 2009 results and 2009 outlook during a conference call scheduled for today, April 27, 2009 at 5:00 p.m. Eastern time (ET). To participate in the live call, investors should dial 877-815-5362 (domestic and Canada) or 706-679-7806 (international), passcode 95934085 at 4:50 p.m. (ET). The Webcast will be available on the Grand Canyon Education, Inc. Web site at

A replay of the call will be available approximately two hours following the conclusion of the call through April 28, 2010, at 800-642-1687 (domestic) or 706-645-9291 (international), passcode 95934085. It will also be archived at in the investor relations section for 60 days.

About Grand Canyon Education, Inc.

Grand Canyon Education, Inc. is a regionally accredited provider of online postsecondary education services focused on offering graduate and undergraduate degree programs in its core disciplines of education, business, and healthcare. In addition to its online programs, it offers programs at its traditional campus in Phoenix, Arizona and onsite at the facilities of employers. Approximately 28,400 students were enrolled as of March 31, 2009. For more information about Grand Canyon Education, Inc., please visit

* Grand Canyon Education, Inc. is regionally accredited by The Higher Learning Commission of the North Central Association of Colleges and Schools (NCA), Grand Canyon University, 3300 W. Camelback Road, Phoenix, AZ 85017,

    Grand Canyon Education, Inc. Reports First Quarter 2009 Results

    Statements of Operations

                                                                 Three Months
                                                                  March 31,
                                                               2008      2009
    (In thousands, except per share data)
     Net revenue                                            $35,709   $58,964
     Costs and expenses:
      Instructional costs and services                       11,620    18,332
      Selling and promotional, including $1,512 and $1,612
       for the three months ended March 31, 2008 and 2009,
       respectively, to related parties                      12,586    19,670
      General and administrative                              4,541     8,833
      Royalty to former owner                                 1,022        74
    Total costs and expenses                                 29,769    46,909
    Operating income                                          5,940    12,055
      Interest expense                                         (813)     (667)
      Interest income                                           252       108
    Income before income taxes                                5,379    11,496
    Income tax expense                                        2,076     4,593
    Net income                                                3,303     6,904
    Preferred dividends                                        (253)        -
    Net income available to common stockholders              $3,050    $6,904
    Earnings per share:
      Basic income per share                                  $0.16     $0.15
      Diluted income per share                                $0.09     $0.15
      Basic weighted average shares outstanding              19,036    45,474
      Diluted weighted average shares outstanding            33,849    45,821

    Grand Canyon Education, Inc. Reports First Quarter 2009 Results


    Adjusted EBITDA

Adjusted EBITDA is defined as net income plus interest expense net of interest income, plus income tax expense, and plus depreciation and amortization (EBITDA), as adjusted for (i) royalty payments incurred pursuant to an agreement with our former owner that has been terminated as of April 15, 2008; (ii) management fees and expenses that are no longer paid; and (iii) share-based compensation. All of the adjustments made in our calculation of Adjusted EBITDA are adjustments to items that management does not consider to be reflective of our core operating performance. Management considers our core operating performance to be that which can be affected by our managers in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period. Although we believe that equity-plan related compensation will be a key element of our employee relations and long-term incentives, we intend to exclude it as an expense when evaluating our core operating performance in any particular period. Accordingly, we have included share-based compensation expenses, along with management fees and expenses, royalty expenses to our former owner, and any other expenses and income that we do not consider reflective of our core operating performance, as an adjustment when calculating Adjusted EBITDA.

Our management uses Adjusted EBITDA:

  • in developing our internal budgets and strategic plan;

  • as a measurement of operating performance;

  • as a factor in evaluating the performance of our management for compensation purposes: and

  • in presentations to the members of our board of directors to enable our board to have the same measurement basis of operating performance as are used by management to compare our current operating results with corresponding prior periods and with the results of other companies in our industry.

Adjusted EBITDA is not a recognized measurement under U.S. generally accepted accounting principles, or GAAP, and when analyzing our operating performance, investors should use Adjusted EBITDA in addition to, and not as an alternative for, net income, operating income, or any other performance measure presented in accordance with GAAP, or as an alternative to cash flow from operating activities or as a measure of our liquidity.

The following table provides a reconciliation of net income to Adjusted EBITDA, which is a non-GAAP measure for the periods indicated:

                                                       Three Months
                                                         March 31,
                                                      2008      2009
    (In thousands)                                      (Unaudited)
    Net income                                      $3,303    $6,904
    Plus: interest expense net of interest income      561       559
    Plus: income tax expense                         2,076     4,593
    Plus: depreciation and amortization              1,090     1,632
      EBITDA                                         7,030    13,688
    Plus: royalty to former owner                    1,022        74
    Plus: management fees and expenses                 115         -
    Plus: share-based compensation                       -       764
    Adjusted EBITDA                                 $8,167   $14,526

    Grand Canyon Education, Inc. Reports First Quarter 2009 Results

    Balance Sheets

                                                     December      March
                                                        31,         31,
     (In thousands, except share data)                 2008        2009
    Current assets
      Cash and cash equivalents                     $35,152      $68,275
      Restricted cash and cash equivalents            2,197        3,946
      Accounts receivable, net of allowance for
       doubtful accounts of $6,356 and $6,068 at
       December 31, 2008 and March 31, 2009,
       respectively                                   9,442       10,509
      Income taxes receivable                         1,576          938
      Deferred income taxes                           2,603        2,175
      Other current assets                            2,629        2,660
    Total current assets                             53,599       88,503
    Property and equipment, net                      41,399       45,922
    Restricted cash and investments (of which
     $2,928 and $0 is restricted at December 31,
     2008 and March 31, 2009, respectively)           3,403          483
    Prepaid royalties                                 8,043        7,860
    Goodwill                                          2,941        2,941
    Deferred income taxes                             7,404       12,018
    Other assets                                        201          166
    Total assets                                   $116,990     $157,893
    Current liabilities
      Accounts payable                               $5,770       $7,547
      Accrued liabilities                             9,674       11,935
      Income taxes payable                              172        4,123
      Deferred revenue and student deposits          14,262       31,995
      Due to related parties                          1,197        2,429
      Current portion of capital lease obligations    1,125        1,746
      Current portion of notes payable                  357          447
    Total current liabilities                        32,557       60,222
    Capital lease obligations, less current
     portion                                         29,384       30,332
    Notes payable, less current portion and other     1,459        1,713
    Total liabilities                                63,400       92,267
    Commitments and contingencies
    Stockholders' equity
    Preferred stock, $0.01 par value, 10,000,000
     shares authorized; 0 shares issued and
     outstanding at December 31, 2008 and March
     31, 2009                                             -            -
    Common stock, $0.01 par value, 100,000,000
     shares authorized; 45,465,160 and 45,485,765
     shares issued and outstanding at December
     31, 2008 and March 31, 2009, respectively          455          455
    Additional paid-in capital                       64,808       69,935
    Accumulated other comprehensive income               16           21
    Accumulated deficit                             (11,689)      (4,785)
    Total stockholders' equity                       53,590       65,626
    Total liabilities and stockholders' equity     $116,990     $157,893

    Grand Canyon Education, Inc. Reports First Quarter 2009 Results

    Statements of Cash Flows

                                                  Three Months Ended
                                                       March 31,
    (In thousands)                                 2008        2009
    Cash flows provided by operating                  (Unaudited)
    Net income                                    $3,303      $6,904
    Adjustments to reconcile net income to
     net cash provided by operating
      Share-based compensation                         -         764
      Excess tax benefits from share-based
       compensation                                    -          (9)
      Provision for bad debts                      1,680       3,295
      Depreciation and amortization                1,090       1,632
      Deferred income taxes                            2         (79)
      Other                                            -         (14)
      Changes in assets and liabilities:
        Accounts receivable                       (2,465)     (4,362)
        Prepaid expenses and other assets           (199)        185
        Due to/from related parties                  809       1,232
        Accounts payable                           1,667       2,435
        Accrued liabilities                          659       2,261
        Income taxes payable                       2,014       4,598
        Royalty payable to former owner            1,022           -
        Deferred revenue and student deposits      8,958      17,733
    Net cash provided by operating activities     18,540      36,575
    Cash flows used in investing activities:
      Capital expenditures                        (1,583)     (4,500)
      Change in restricted cash and cash
       equivalents                                (1,390)      1,187
      Purchases of investments                    (2,399)        (11)
      Proceeds from sale or maturity of
       investments                                 2,342           -
    Net cash used in investing activities         (3,030)     (3,324)
    Cash flows used in financing activities:
      Principal payments on notes payable and
       capital lease obligations                    (321)       (384)
      Repayment on line of credit                 (6,000)          -
      Proceeds from related party payable on
       preferred stock                             5,725           -
      Excess tax benefits from share-based
       compensation                                    -           9
      Net proceeds from exercise of stock
       options                                         -         247
    Net cash used in financing activities           (596)       (128)
    Net increase in cash and cash equivalents     14,914      33,123
    Cash and cash equivalents, beginning of
     period                                       18,930      35,152
    Cash and cash equivalents, end of period     $33,844     $68,275
    Supplemental disclosure of cash flow
      Cash paid for interest                        $687        $673
      Cash paid for income taxes                     $53        $138
    Supplemental disclosure of non-cash
     investing and financing activities
      Purchase of equipment through capital
       lease obligations                            $760      $2,116
      Purchases of property and equipment
       included in accounts payable                 $349        $658
      Tax benefit of Spirit warrant intangible        $-      $4,107
      Accretion of dividends on Series C
       convertible preferred stock                  $253          $-

    Grand Canyon Education, Inc. Reports First Quarter 2009 Results

The following is a summary of our student enrollment at March 31, 2008 and March 31, 2009 (which included less than 150 students pursuing non-degree certificates) by degree type and by instructional delivery method:

                           March 31, 2008                March 31, 2009
                        # of         % of Total       # of         % of Total
                      Students                      Students
    Master's(1)        10,276           58.8%        14,128           49.8%
    Bachelor's          7,210           41.2%        14,265           50.2%
    Total              17,486          100.0%        28,393          100.0%

                           March 31, 2008                March 31, 2009
                        # of         % of Total       # of         % of Total
                      Students                      Students
    Online             15,133           86.5%        25,758           90.7%
    Ground(2)           2,353           13.5%         2,635            9.3%
    Total              17,486          100.0%        28,393          100.0%

    (1) Includes 162 students pursuing doctoral degrees at March 31, 2009.

    (2) Includes our traditional students, as well as our professional
    studies students.

    Subsequent Event

On April 27, 2009, we signed a purchase agreement pursuant to which we agreed to acquire our campus land and buildings and 909,348 shares of our common stock from Spirit Master Funding, LLC and Spirit Management Company, respectively (collectively, "Spirit") for an aggregate purchase price of $50 million. Prior to the acquisition, we had leased the land and buildings from Spirit, accounting for the land as an operating lease and the buildings and improvements as capital lease obligations. To finance this purchase, we also entered into a loan agreement with a financial institution pursuant to which we agreed to borrow $25.7 million, all of which will be used as part of the purchase price. Under the terms of the loan agreement, the Company will make principal payments in equal monthly installments of approximately $143,000 plus accrued interest at 30 day LIBOR plus 3.5% (approximately 4.0% at April 27, 2009).

Investor Relations Contact:
Dan Bachus
Chief Financial Officer
Grand Canyon Education, Inc.

Media Contact:
Bill Jenkins
Grand Canyon Education, Inc.

SOURCE Grand Canyon Education, Inc.

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