Grand Canyon Education, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes that appear elsewhere in this report. Forward-Looking Statements This Quarterly Report on Form 10-Q, including Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations , contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include, without limitation, statements regarding: proposed new programs; statements as to whether regulatory developments or other matters may or may 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, the negative of these expressions, as well as statements in future tense, identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management. 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 our actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements, include, but are not limited to: ● legal and regulatory actions taken against us related to our services business, or against our university partners that impact their businesses and that directly or indirectly reduce the service revenue we can earn under our master services agreements; ● the occurrence of any event, change or other circumstance that could give rise to the termination of any of the key university partner agreements; ● our ability to properly manage risks and challenges associated with strategic initiatives, including potential acquisitions or divestitures of, or investments in, new businesses, acquisitions of new properties and new university partners, and expansion of services provided to our existing university partners; ● our failure to comply with the extensive regulatory framework applicable to us either directly as a third-party service provider or indirectly through our university partners, including Title IV of the Higher Education Act and the regulations thereunder, state laws and regulatory requirements, and accrediting commission requirements, and the results of related legal and regulatory actions that arise from such failures; ● the harm to our business, results of operations, and financial condition, and harm to our university partners resulting from epidemics, pandemics, or public health crises; ● the harm to our business and our ability to attract and retain students resulting from capacity constraints, system disruptions, or security breaches in our online computer networks and phone systems; ● the ability of our university partners’ students to obtain federal Title IV funds, state financial aid, and private financing; ● potential damage to our reputation or other adverse effects as a result of negative publicity in the media, in the industry or in connection with governmental reports or investigations or otherwise, affecting us or other companies in the education services sector; ● risks associated with changes in applicable federal and state laws and regulations and accrediting commission standards, including pending rulemaking by the United States Department of Education applicable to us directly or indirectly through our university partners; 20 Table of Contents ● competition from other education service companies in our geographic region and market sector, including competition for students, qualified executives and other personnel; ● our expected tax payments and tax rate; ● our ability to hire and train new employees, and develop and train existing employees; ● the pace of growth of our university partners’ enrollment and its effect on the pace of our own growth; ● fluctuations in our revenues due to seasonality; ● our ability, on behalf of our university partners, to convert prospective students to enrolled students and to retain active students to graduation; ● 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 for our university partners; ● risks associated with the competitive environment for marketing the programs of our university partners; ● failure on our part to keep up with advances in technology that could enhance the experience for our university partners’ students; ● our ability to manage future growth effectively; ● the impact of any natural disasters or public health emergencies; and ● general adverse economic conditions or other developments that affect the job prospects of our university partners’ students. Additional factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K (the “2025 Form 10-K”) for the fiscal year ended December 31, 2025, filed with the Securities and Exchange Commission (“SEC”) on February 18, 2026, and as updated in our subsequent reports filed with the SEC, including any updates found in Part II, Item 1A of this Quarterly Report on Form 10-Q or our other reports on Form 10- Q. 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. Executive Overview Grand Canyon Education, Inc. (together with its subsidiaries, the “Company” or “GCE”) is a publicly traded education services company dedicated to serving colleges and universities. GCE has developed significant technological solutions, infrastructure and operational processes to provide services to these institutions on a large scale. GCE’s most significant university partner is Grand Canyon University (“GCU”), a comprehensive regionally accredited university that offers graduate and undergraduate degree programs, emphases and certificates across ten colleges both online and on ground at its campus in Phoenix, Arizona, and at 11 off-campus classroom and laboratory sites. We also provide education services to numerous university partners across the United States. In the healthcare field, we wo rk in partnership with a number of top universities and healthcare networks, offering healthcare-related academic programs at off-campus classroom and laboratory sites located near healthcare providers and developing high-quality, career-ready graduates who enter the workforce ready to meet the demands of the healthcare industry. In addition, we have provided certain services to a university partner to assist them in expanding their online graduate programs. As of March 31, 2026, GCE provides education services to 20 university partners across the United States. We plan to continue to add additional university partners and to introduce additional programs with both our existing partners and with new partners. We may engage with both new and existing university partners to offer healthcare programs, online only or hybrid programs, or, as is the case for our most significant partner, GCU, both 21 Table of Contents healthcare and other programs. We do disclose significant information for GCU, such as enrollments, due to its size in comparison to our other university partners. Critical Accounting Policies and Use of Estimates Our critical accounting policies are disclosed in the 2025 Form 10-K for the fiscal year ended December 31, 2025. During the three months ended March 31, 2026, there were no significant changes in our critical accounting policies. Results of Operations The following table sets forth certain income statement data as a percentage of revenue for each of the periods indicated. Amortization of intangible assets has been excluded from the table below: ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ ​ March 31, ​ ​ ​ ​ ​ ​ 2026 ​ ​ ​ 2025 ​ ​ ​ ​ ​ ​ Costs and expenses ​ ​ Technology and academic services 14.6 % 14.4 % Counseling services and support 29.8 30.0 Marketing and communication 20.7 20.9 General and administrative 3.3 3.6 ​ Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025 Service revenue . Our service revenue for the three months ended March 31, 2026 was $308.8 million, an increase of $19.5 million, or 6.7%, as compared to service revenue of $289.3 million for the three months ended March 31, 2025. The increase year over year in service revenue was primarily due to an increase in university partner enrollments of 7.1% to 136,884 at March 31, 2026 as compared to 127,779 at March 31, 2025. GCU enrollments increased to 132,354 at March 31, 2026, an increase of 6.9% over enrollments at March 31, 2025. University partner enrollments at our off-campus classroom and laboratory sites were 5,961, an increase of 18.6% over enrollments at March 31, 2025, which includes 1,431 and 1,021 GCU students at March 31, 2026 and 2025, respectively. Excluding sites that have been closed or are in teach out, total enrollments at our off-campus classroom and laboratory sites increased 20.3% between years. Revenue per student decreased slightly between years primarily due to contract modifications with some of our university partners in which our revenue share percentage was reduced in exchange for us no longer reimbursing these partners for certain faculty costs which had the effect of reducing revenue per student and a slight decline year over year in revenue per student for online students due to the continued mix shift to students that have a slightly lower net tuition rate and a slight decline year over year in ground students which generate a higher revenue per student than online students. These decreases were partially offset by an additional day of revenue for the ground campus due to the start date shifting one day of revenue from the second quarter to the first quarter in 2026 which had a $1.0 million impact and the service revenue per student for accelerated Bachelor of Science in Nursing (“ABSN”) students at off-campus classroom and laboratory sites generating a significantly higher revenue per student than we earn under our agreement with GCU, as these agreements generally provide us with a higher revenue share percentage, the partners have higher tuition rates than GCU and the majority of our partners’ students take more credits on average per semester. We opened five new sites in the year ended December 31, 2025 closed two sites in which we stopped recruiting new students in 2024 and merged two sites that were located in the same market bringing the total number of these sites to 47 at December 31, 2025, which has also positively impacted the enrollment growth. We plan to open one to two additional sites in the second half of 2026 while mutually agreeing with one partner to stop the recruiting of new students and begin teach outs at its three sites during the first quarter of 2026. Enrollments for GCU ground students were 21,948 at March 31, 2026, down slightly from 22,330 at March 31, 2025. The number of ground students has historically declined between the Fall and Spring semesters due to graduations significantly exceeding Spring new enrollments. GCU online enrollments were 110,406 at March 31, 2026, up from 101,443 at March 31, 2025, an increase of 8.8% between years. Technology and academic services . Our technology and academic services expenses for the three months ended March 31, 2026 were $45.0 million, an increase of $3.3 million, or 8.1%, as compared to technology and academic 22 Table of Contents services expenses of $41.7 million for the three months ended March 31, 2025. This increase was primarily due to increases in other technology and academic costs, in employee compensation and related expenses, including share-based compensation and benefit costs and in occupancy and depreciation costs of $1.6 million, $1.2 million and $0.5 million, respectively. The increases in other technology and academic costs and occupancy and depreciation were primarily due to the costs associated with the increased enrollment growth at our off-campus classroom and laboratory sites to support our 20 university partners as well as an increase in technology costs and curriculum cost reimbursements to our university partners. The increase in employee compensation and related expenses is primarily due to increased headcount to support our 20 university partners and their increased enrollment growth, tenure-based salary adjustments and a significant year-over-year increase in benefit costs. Our technology and academic services expenses as a percentage of revenue increased by 0.2% to 14.6% for the three months ended March 31, 2026, from 14.4% for the three months ended March 31, 2025. This increase was primarily due to the increased technology costs and curriculum cost reimbursements, partially offset by our ability to leverage our technology and academic service expenses across an increasing revenue base. We anticipate that technology and academic services expenses will increase in the future as we open more off-site classroom and laboratory sites and the growing technology costs and curriculum cost reimbursements and these costs as a percentage of revenue could increase in the future. Counseling services and support . Our counseling services and support expenses for the three months ended March 31, 2026 were $91.9 million, an increase of $5.1 million, or 5.8%, as compared to counseling services and support expenses of $86.8 million for the three months ended March 31, 2025. This increase was primarily attributable to increases in employee compensation and related expenses including share-based compensation and benefits and in occupancy and depreciation costs of $4.7 million and $0.6 million, respectively, partially offset by a decrease in other counseling services and support expenses of $0.2 million. The increases in employee compensation including share-based compensation and benefits were primarily due to increased headcount to support our university partners, and their planned increases in enrollment, tenure-based salary adjustments and a significant year over year increase in benefit costs. The increase in occupancy and depreciation is primarily related to higher depreciation expense associated with our continued enhancements to technology infrastructure and internal-use software development. The decrease in other counseling services and support expenses is primarily the result of lower travel costs to service our 20 university partners. Our counseling services and support expenses as a percentage of revenue decreased 0.2% to 29.8% for the three months ended March 31, 2026, from 30.0% for the three months ended March 31, 2025 primarily due to our ability to leverage our counseling services and support expenses across an increasing revenue base. We anticipate that counseling services and support expense will increase in the future as we continue to invest to meet our partners’ needs and these costs as a percentage of revenue could increase in the future. Marketing and communication . Our marketing and communication expenses for the three months ended March 31, 2026 were $64.0 million, an increase of $3.7 million, or 6.1%, as compared to marketing and communication expenses of $60.3 million for the three months ended March 31, 2025. This increase was primarily attributable to the increased cost to market our university partners’ programs and to the marketing of new locations which resulted in increased advertising of $3.1 million, increased employee compensation, including share-based compensation and benefits of $0.4 million, increased occupancy and depreciation expense of $0.1 million and increased other communication expenses of $0.1 million. Our marketing and communication expenses as a percentage of revenue decreased by 0.2% to 20.7% for the three months ended March 31, 2026, from 20.9% for the three months ended March 31 2025, primarily due to our ability to leverage our marketing and communication expenses across an increasing revenue base. We anticipate that marketing and communication expenses will increase in the future as we continue to invest to meet our partners’ needs and these costs as a percentage of revenue could increase in the future. General and administrative . Our general and administrative expenses for the three months ended March 31, 2026 were $10.3 million, a decrease of $0.1 million, as compared to general and administrative expenses of $10.4 million for the three months ended March 31, 2025. This decrease was primarily attributable to a decrease in professional fees and in occupancy and depreciation expenses of $0.3 million and $0.1 million, respectively. These decreases were partially offset by increases in employee compensation, including share-based compensation and benefit costs and in other administrative expenses of $0.2 million and $0.1 million, respectively. The decrease in professional fees was primarily due to lower legal costs between years. Our general and administrative expenses as a percentage of revenue decreased by 0.3% to 3.3% for the three months ended March 31, 2026, from 3.6% for the three months ended March 31, 2025, primarily due to our ability to leverage our general and administrative expenses across an increasing revenue base. We anticipate that general and administrative expenses will increase in the future and these costs as a percentage of revenue could increase in the future. 23 Table of Contents Amortization of intangible assets . Amortization of intangible assets for the three months ended March 31, 2026 and 2025 were $2.1 million for both periods. As a result of the Orbis Education acquisition in 2019, certain identifiable intangible assets were created (primarily customer relationships) that will be amortized over their expected lives. Investment interest and other . Investment interest and other for the three months ended March 31, 2026 was $3.0 million, a decrease of $0.4 million, as compared to $3.4 million for the three months ended March 31, 2025 due to slightly lower returns and lower investment balances. Income tax expense . Income tax expense for the three months ended March 31, 2026 was $23.1 million, an increase of $3.3 million, or 16.9%, as compared to income tax expense of $19.8 million for the three months ended March 31, 2025. The increase in income tax expense is due to the increase in income before taxes and a higher effective tax rate. Our effective tax rate was 23.5% during the three months ended March 31, 2026 compared to 21.6% during the three months ended March 31, 2025. The effective tax rate increased year over year due to changes in state income taxes and a decrease in excess tax benefits of $1.4 million as compared to $2.7 million in the three months ended March 31, 2026 and 2025, respectively. The inclusion of excess tax benefits and deficiencies as a component of our income tax expense increases the volatility within our provision for income taxes as the amount of excess tax benefits or deficiencies from share-based compensation awards are dependent on our stock price at the date the restricted stock awards vest. Our restricted stock awards vest in March each year so any benefit or expense will primarily impact the first quarter each year. Net income . Our net income for the three months ended March 31, 2026 was $75.3 million, an increase of $3.7 million, or 5.2% as compared to $71.6 million for the three months ended March 31, 2025, due to the factors discussed above. Seasonality Our net revenue and operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in our university partners’ enrollment. Our partners’ enrollment varies as a result of new enrollments, graduations, and student attrition. Revenues in the Summer months (May through August) are lower primarily due to the majority of GCU’s traditional ground university students not attending courses during the Summer months, which affects our results for our second and third fiscal quarters. Since a significant amount of our costs are fixed, the lower revenue resulting from the decreased Summer enrollment has historically contributed to lower operating margins during those periods. Partially offsetting this Summer effect has been the sequential quarterly increase in enrollments that has occurred as a result of the traditional Fall school start. This increase in enrollments also has occurred in the first quarter, corresponding to calendar year matriculation. Thus, we experience higher net revenue in the fourth quarter due to its overlap with the semester encompassing the traditional Fall school start and in the first quarter due to its overlap with the first semester of the calendar year. A portion of our expenses do not vary proportionately with these fluctuations in service revenue, resulting in higher operating income in the first and fourth quarters relative to other quarters. We expect quarterly fluctuation in operating results to continue as a result of these seasonal patterns. Liquidity and Capital Resources ​ ​ ​ ​ ​ ​ ​ ​ ​ As of March 31, ​ As of December 31, (In thousands) ​ 2026 ​ 2025 Cash, cash equivalents and investments ​ $ 251,700 ​ $ 300,079 Overview Our liquidity position, as measured by cash and cash equivalents and investments decreased by $48.4 million between December 31, 2025 and March 31, 2026, which was largely attributable to cash expended for share repurchases and capital expenditures exceeding our cash provided by operations during the three months ended March 31, 2026. Based on our current level of operations and anticipated growth, we believe that our cash flow from operations and other sources of liquidity, including cash and cash equivalents and investments, will provide adequate funds for ongoing operations, planned capital expenditures, and working capital requirements for at least the next 12 months. ​ ​ 24 Table of Contents Cash Flows from Operating Activities ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, (In thousands) ​ 2026 ​ 2025 Net cash provided by operating activities ​ $ 88,208 ​ $ 67,631 The increase in cash generated from operating activities between the three months ended March 31, 2025 and the three months ended March 31, 2026 was primarily due to increased income and changes in working capital balances. Accounts payable increased by $4.0 million between December 31, 2025 and March 31, 2026 compared to the decrease of $2.0 million between December 31, 2024 and March 31, 2025, an increase year over year in cash provided by operating activities of $6.0 million due to timing of vendor payments. Income tax receivable/payable amounts increased by $19.6 million between December 31, 2025 and March 31, 2026 compared to the increase of $16.0 million between December 31, 2024 and March 31, 2025, a $3.6 million increase year over year in cash provided by operating activities due to the increased taxable income. Accounts receivable increased $29.0 million between December 31, 2025 and March 31, 2026 compared to the increase of $32.7 million between December 31, 2024 and March 31, 2025, a $3.7 million increase year over year in cash provided by operating activities due to the timing of collections. Other assets increased $1.8 million between December 31, 2025 and March 31, 2026 compared to the increase of $4.4 million between December 31, 2024 and March 31, 2025, a $2.6 million increase year over year in cash provided by operating activities due to timing of payments. We define working capital as the assets and liabilities, other than cash, generated through the Company’s primary operating activities. Changes in these balances are included in the changes in assets and liabilities presented in the consolidated statement of cash flows. Cash Flows from Investing Activities ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, (In thousands) ​ 2026 ​ 2025 Net cash provided by (used in) investing activities ​ $ 24,081 ​ $ (169,888) Investing activities provided $24.1 million of cash in the three months ended March 31, 2026 compared to consuming $169.9 million of cash in the three months ended March 31, 2025. Cash used in investing activities includes investment activity and the change between years in net investing activities is primarily due to investment activity. In the three months ended March 31, 2026, the proceeds from the sale of investments, net of purchases of available-for-sale securities were $32.1 million. In the three months ended March 31, 2025, the purchase of available-for-sale securities, net of proceeds from the sale of investments were $159.9 million. In the first three months of 2026 and 2025 cash used in investing activities also included capital expenditures totaling $8.1 million and $8.9 million, respectively. Capital expenditures for both periods primarily consisted of leasehold improvements and equipment for new off-campus classroom and laboratory sites, as well as purchases of computer equipment, internal use software projects and furniture and equipment to support our increasing employee headcount. The Company incurs upfront expenses and capital expenditures prior to an off-campus classroom and laboratory site being opened. The Company intends to continue to spend approximately $30.0 million to $35.0 million per year for capital expenditures. Cash Flows from Financing Activities ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, (In thousands) ​ 2026 ​ 2025 Net cash used in financing activities ​ $ (127,906) ​ $ (77,857) Financing activities consumed $127.9 million of cash in the three months ended March 31, 2026 compared to $77.9 million in the three months ended March 31, 2025. During the three months ended March 31, 2026 and 2025, $120.4 million and $68.4 million, respectively was used to purchase treasury stock in accordance with GCE’s share repurchase program. In 2026 and 2025, $7.5 million and $9.5 million, respectively, of cash was utilized to purchase common shares withheld in lieu of income taxes resulting from the vesting of restricted share awards. The Company intends to continue using a significant portion of its cash flows from operations to repurchase its shares. 25 Table of Contents Share Repurchase Program The Board of Directors has authorized share repurchases of up to $2,545.0 million since the initiation of the Company’s stock repurchase program. The expiration date on the current repurchase authorization by our Board of Directors is March 1, 2027. Repurchases occur at the Company’s discretion and the Company may modify, suspend or discontinue the repurchase authorization at any time. Under our share repurchase authorization, we may purchase shares in the open market or in privately negotiated transactions, pursuant to the applicable SEC rules. The amount and timing of future share repurchases, if any, will be made as market and business conditions warrant. We repurchased 724,408 shares of common stock in the three months ended March 31, 2026. At March 31, 2026, there remains $224.0 million available under our share repurchase authorization . Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have had or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.