What changed in this filing

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Item 1. Financial Statements

2020-08-04 compared with 2020-05-07 · 78 added, 74 removed, 538 unchanged (22% of the section changed)

3 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands, except per share data)

23 unchanged sentences

Three Months Ended

Six Months Ended

(In thousands)

Other comprehensive income, net of tax:

Unrealized loss on hedging derivative, net of taxes of $ 35 for the three months ended March 31, 2019

Unrealized losses on hedging derivative, net of taxes of $ 35 for the three months ended June 30, 2019 and $ 70 for the six months ended June 30, 2019

Comprehensive income

33 unchanged sentences

Preferred stock, $ 0.01 par value, 10,000 shares authorized;

0 shares issued and outstanding at March 31, 2020 and December 31, 2019

0 shares issued and outstanding at June 30, 2020 and December 31, 2019

Common stock, $ 0.01 par value, 100,000 shares authorized;

53,221 and 53,054 shares issued and 47,413 and 48,105 shares outstanding at March 31, 2020 and December 31, 2019, respectively

Treasury stock, at cost, 5,808 and 4,949 shares of common stock at March 31, 2020 and December 31, 2019, respectively

53,225 and 53,054 shares issued and 47,306 and 48,105 shares outstanding at June 30, 2020 and December 31, 2019, respectively

Treasury stock, at cost, 5,919 and 4,949 shares of common stock at June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

6 unchanged sentences

(In thousands)

Three Months Ended March 31, 2020

Six Months Ended June 30, 2020

Treasury Stock

7 unchanged sentences

Exercise of stock options

Balance at March 31, 2020

Three Months Ended March 31, 2019

Balance at June 30, 2020

Six Months Ended June 30, 2019

Treasury Stock

6 unchanged sentences

Exercise of stock options

Balance at March 31, 2019

Balance at June 30, 2019

The accompanying notes are an integral part of these consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Cash Flows

Three Months Ended

Six Months Ended

(In thousands)

9 unchanged sentences

Accounts receivable and interest receivable from university partners

Prepaid expenses and other

Right-of-use assets and lease liabilities

8 unchanged sentences

Acquisition, net of cash acquired

Funding to GCU for capital expenditures

Funding to GCU

Purchases of investments

28 unchanged sentences

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 nine colleges both online and on ground at its campus in Phoenix, Arizona.

GCE’s most significant university partner is Grand Canyon University (“GCU”), an Arizona non-profit corporation, a comprehensive regionally accredited university that offers graduate and undergraduate degree programs, emphases and certificates across nine colleges both online and on ground at its campus in Phoenix, Arizona.

In January 2019, GCE began providing education services to numerous university partners across the United States, through our wholly owned subsidiary, Orbis Education, which we acquired, by merger on January 22, 2019 for $ 361,184 , net of cash acquired (the “Acquisition”).

1 unchanged sentence

Orbis Education offers four primary academic programs with site simulation and skill labs located near healthcare providers.

Therefore, the results of operations for the three months ended March 31, 2019 include Orbis Education’s financial results for the period from January 22, 2019 to March 31, 2019.

Therefore, the results of operations for the six months ended June 30, 2019 include Orbis Education’s financial results for the period from January 22, 2019 to June 30, 2019.

See Note 2 to our consolidated financial statements for a full description of the Acquisition.

4 unchanged sentences

The fair value of the assets acquired, less the liabilities assumed exceeded the purchase price by $ 157,825 which was recorded as goodwill.

Transaction costs for the Acquisition for the three months ended March 31, 2019 were $ 4,088 , which are included in the loss on transaction in our consolidated income statement.

Transaction costs for the Acquisition for the six months ended June 30, 2019 were $ 3,966 , which are included in the loss on transaction in our consolidated income statement.

The Acquisition was accounted for in accordance with the acquisition method of accounting.

25 unchanged sentences

Subsequent to the closing of the Acquisition, the Company revised its allocation of the purchase price by $ 9,538 during the year ended December 31, 2019, primarily as the result of the tax effect of a lower tax basis in the acquired assets.

The Company had completed the allocation of the purchase price of the Acquisition as of December 31, 2019.

The Company completed the allocation of the purchase price of the Acquisition as of December 31, 2019.

The Company has consolidated the results of operations for Orbis Education since its Acquisition on January 22, 2019.

16 unchanged sentences

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents at December 31, 2019 represented cash pledged for leased office space, which was released during the three months ended March 31, 2020.

Restricted cash and cash equivalents at December 31, 2019 represented cash pledged for leased office space, which was released during the six months ended June 30, 2020.

The Company considers its investments in municipal bonds, mutual funds, municipal securities, certificates of deposit and commercial paper as trading securities based on the Company’s intent for the respective security.

1 unchanged sentence

See Note 2 of our consolidated financial statements for further discussion on the Acquisition.

Secured Note Receivable

Arrangements with GCU

On July 1, 2018, the Company consummated an Asset Purchase Agreement (the “Asset Purchase Agreement”) with GCU.

2 unchanged sentences

The Secured Note provides for GCU to make interest only payments during the term, with all principal and accrued and unpaid interest due at maturity and also provides that we may loan additional amounts to GCU to fund approved capital expenditures during the first three years of the term.

As of March 31, 2020, the Company had loaned $ 99,815 to GCU for capital expenditures, net of repayments.

As of June 30, 2020, the Company had loaned $ 169,815 to GCU, net of repayments, including $ 75.0 million in June 2020.

The $ 75.0 million that was borrowed in June 2020 was repaid in July 2020.

In connection with the closing of the Asset Purchase Agreement, the Company and GCU entered into a long-term master services agreement pursuant to which the Company provides identified technology and academic services, counseling services and support, marketing and communication services, and several back-office services to GCU in return for 60 % of GCU’s tuition and fee revenue.

20 unchanged sentences

The Company has concluded that the most appropriate method to amortize the deferred content assets is on a straight-line basis over the estimated life of the course, which is generally four years which corresponds with course’s review and major revision cycle.

As of March 31, 2020, $ 1,044 , net of amortization, of deferred content assets are included in other assets, long-term in the Company’s consolidated balance sheets and amortization is included in technical and academic services where the costs originated.

As of June 30, 2020, $ 1,041 , net of amortization, of deferred content assets are included in other assets, long-term in the Company’s consolidated balance sheets and amortization is included in technical and academic services where the costs originated.

The Company determines if an arrangement is a lease at inception and evaluates the lease agreement to determine whether the lease is a finance or operating lease.

9 unchanged sentences

Transaction costs associated with business combinations are expensed as incurred and are recorded in the loss on transaction in the consolidated financial statements.

The determination of the value and useful lives of the intangible assets acquired involves certain judgments and estimates.

The determination of the fair value and useful lives of the intangible assets acquired involves certain judgments and estimates.

These judgements can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital.

25 unchanged sentences

In December 2019 this cash flow hedge expired.

The fair value of the interest rate corridor instrument as of March 31, 2019 was $ 423 , which was included in other assets.

The fair value of the interest rate corridor instrument as of June 30, 2019 was $ 187 , which was included in other assets.

The fair value of the derivative instrument was determined using a hypothetical derivative transaction and Level 2 of the hierarchy of valuation inputs.

This derivative instrument was originally designated as a cash flow hedge of variable rate debt obligations.

The adjustment of $ 142 for the three months ended March 31, 2019, for the effective portion of the losses on the derivative was included as a component of other comprehensive income, net of taxes.

The adjustment of $ 341 for the six months ended June 30, 2019, for the effective portion of the losses on the derivative was included as a component of other comprehensive income, net of taxes.

The interest rate corridor instrument reduced variable interest rate risk starting March 1, 2013 through December 20, 2019.

32 unchanged sentences

The Company utilizes the allowance method to provide for doubtful accounts based on its evaluation of the collectability of the amounts due.

There have been no amounts written off and no reserves established as of March 31, 2020 given historical collection experience.

There have been no amounts written off and no reserves established as of June 30, 2020 given historical collection experience.

The Company will continue to review and revise its allowance methodology based on its collection experience with its partners.

1 unchanged sentence

Billings for some university partners do not occur until after the service period has commenced and final enrollment information is available.

Our unbilled revenue of $ 400 as of March 31, 2020 are included in accounts receivable in our consolidated

Our unbilled revenue of $ 7,275 as of June 30, 2020 are included in accounts receivable in our consolidated

Grand Canyon Education, Inc.

49 unchanged sentences

The Company believes the credit risk related to cash equivalents and investments is limited due to its adherence to an investment policy that requires investments to have a minimum BBB rating, depending on the type of security, by one major rating agency at the time of purchase.

All of the Company’s cash equivalents and investments as of March 31, 2020 and December 31, 2019 consist of investments rated BBB or higher by at least one rating agency.

All of the Company’s cash equivalents and investments as of June 30, 2020 and December 31, 2019 consist of investments rated BBB or higher by at least one rating agency.

Additionally, the Company utilizes more than one financial institution to conduct initial and ongoing credit analysis on its investment portfolio to monitor and lower the potential impact of market risk associated with its cash equivalents and investment portfolio.

2 unchanged sentences

To manage accounts receivable risk, the Company maintains an allowance for doubtful accounts, if needed.

Our dependence on our most significant university partner subjects us to the risk that declines in our customer’s operations would result in a sustained reduction in revenues and interest income on the Secured Note for the Company.

Our dependence on our most significant university partner, with 87.0 % and 89.7 % of total service revenue for the six-month periods ended June 30, 2020 and 2019, respectively, subjects us to the risk that declines in our customer’s operations would result in a sustained reduction in service revenue and interest income on the Secured Note for the Company.

Use of Estimates

4 unchanged sentences

The Company operates as a single education services company using a core infrastructure that serves the curriculum and educational delivery needs of its university partners.

The Company’s Chief Executive Officer manages the Company’s operations as a whole and no expense or operating income information is generated or evaluated on any component level.

The Company’s Chief Executive Officer manages

Grand Canyon Education, Inc.

1 unchanged sentence

(In thousands, except per share data)

the Company’s operations as a whole and no expense or operating income information is generated or evaluated on any component level.

Accounting Pronouncements Adopted in 2020

4 unchanged sentences

The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019.

Accordingly, the standard was adopted by us as of January 1, 2020 using a modified retrospective approach.

Accordingly, the standard was adopted by the Company as of January 1, 2020 using a modified retrospective approach.

Upon adoption, the Company recorded a reserve of $ 5,000 on its long-term Secured Note receivable.

26 unchanged sentences

The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effect of) reference rate reform on financial reporting.

It provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022.

The Company plans to elect the optional expedient for its credit facility by prospectively adjusting the effective interest rate if the cessation of the London Interbank Offered Rate (LIBOR) occurs.

The Company does not believe the adoption

It provides optional expedients and exceptions for applying generally accepted accounting

Grand Canyon Education, Inc.

1 unchanged sentence

(In thousands, except per share data)

of the reference rate reform will have a material impact on the Company’s financial condition, results of operations or statements of cash flows.

principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022.

The Company plans to elect the optional expedient for its credit facility by prospectively adjusting the effective interest rate if the cessation of the London Interbank Offered Rate (LIBOR) occurs.

The Company does not believe the adoption of the reference rate reform will have a material impact on the Company’s financial condition, results of operations or statements of cash flows.

The Company has determined that no other recent accounting pronouncements apply to its operations or could otherwise have a material impact on its consolidated financial statements.

At December 31, 2018, the Company transferred its investments from available-for-sale classification to trading, due to the Company’s decision to liquidate all investments to complete the Acquisition in the first quarter of 2019.

Prior to December 31, 2018, the Company considered all investments as available-for-sale.

At March 31, 2020 and December 31, 2019, the Company had $ 17,049 and $ 21,601 , respectively, of investments.

These investments were held in municipal and corporate securities as of March 31, 2020 and December 31, 2019.

The Company classifies its investments as trading.

At June 30, 2020 and December 31, 2019, the Company had $ 14,691 and $ 21,601 , respectively, of investments.

These investments were held in municipal and corporate securities as of June 30, 2020 and December 31, 2019.

Net Income Per Common Share

4 unchanged sentences

Three Months Ended

Six Months Ended

Basic weighted average shares outstanding

2 unchanged sentences

Diluted weighted average shares outstanding excludes the incremental effect of unvested restricted stock and shares that would be issued upon the assumed exercise of stock options in accordance with the treasury stock method.

For the three-month periods ended March 31, 2020 and 2019, approximately 284 and 0 , respectively, of the Company’s stock options and restricted stock awards outstanding were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.

For the three month periods ended June 30, 2020 and 2019, approximately 81 and 0 , respectively, and for the six month periods ended June 30, 2020 and 2019, approximately 182 and 0 , respectively, of the Company’s restricted stock awards outstanding were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.

These options and restricted stock awards could be dilutive in the future.

2 unchanged sentences

Allowance for credit losses

Three months ended March 31, 2020

Three months ended March 31, 2019

(1) Represents the cumulative effect of the adoption of ASU No.

2016-13 on the Secured Note Receivable.

(2) Deductions represent accounts written off, net of recoveries.

Six months ended June 30, 2020

Six months ended June 30, 2019

Grand Canyon Education, Inc.

1 unchanged sentence

(In thousands, except per share data)

(1) Represents the cumulative effect of the adoption of ASU No.

2016-13 on the Secured Note receivable.

(2) Deductions represent accounts written off, net of recoveries.

Property and Equipment

10 unchanged sentences

Amortizable intangible assets consist of the following as of:

March 31, 2020

June 30, 2020

Average Useful

5 unchanged sentences

These leases have terms that range from 9 months to 10 years .

At lease inception, we determined the lease term by assuming no exercises of renewal options, due to the Company’s constantly changing geographical needs for its university partners.

At lease inception, we determine the lease term by assuming no exercises of renewal options, due to the Company’s constantly changing geographical needs for its university partners.

Leases with an initial term of 12 months or less are not recorded in the consolidated balance sheets and we recognize lease expense for these leases on a straight-line basis over the lease term.

The Company has operating lease costs of $ 1,441 and $ 865 for the three-month periods ended March 31, 2020 and 2019, respectively.

Grand Canyon Education, Inc.

1 unchanged sentence

(In thousands, except per share data)

As of March 31, 2020, the Company had $ 20,206 of non-cancelable operating lease commitments, primarily for classroom site locations and office space, that has not yet commenced.

Company had operating lease costs of $ 3,055 and $ 1,507 for the six-month periods ended June 30, 2020 and 2019, respectively.

As of June 30, 2020, the Company had $ 17,416 of non-cancelable operating lease commitments for classroom site locations, that had not yet commenced.

These operating leases will commence in 2020 with an average lease term of 9.25 years.

The Company’s weighted-average remaining lease term relating to its operating leases is 8.83 years, with a weighted-average discount rate of 3.72 %.

As of March 31, 2020, the Company had no financing leases.

Future payment obligations with respect to the Company’s operating leases, which were existing at March 31, 2020, by year and in the aggregate, are as follows:

As of June 30, 2020, the Company had no financing leases.

Future payment obligations with respect to the Company’s operating leases, which were existing at June 30, 2020, by year and in the aggregate, are as follows:

Year Ending December 31,

20 unchanged sentences

benefits and payments under the Secured Note and the Master Services Agreement.

As of March 31, 2020, the Company is in compliance with its debt covenants.

As of March 31,

As of June 30, 2020, the Company is in compliance with its debt covenants.

As of June 30,

As of December 31,

1 unchanged sentence

Note payable, quarterly payment of $ 8,368 starting December 31, 2019;

interest at 30-Day LIBOR plus 2.00 % ( 3.60 % at March 31, 2020) through January 22, 2024

interest at 30-Day LIBOR plus 2.00 % ( 2.17 % at June 30, 2020) through January 22, 2024

Revolving line of credit;

interest at 30-Day LIBOR plus 2.0 % ( 3.60 % at March 31, 2020)

interest at 30-Day LIBOR plus 2.0 % ( 2.17 % at June 30, 2020)

Current portion

Payments due under the notes payable obligations are as follows as of March 31, 2020:

Payments due under the notes payable obligations are as follows as of June 30, 2020:

Commitments and Contingencies

22 unchanged sentences

In January 2017, the Board of Directors of the Company approved, and at the Company’s 2017 annual meeting of stockholders held on June 14, 2017, the Company’s stockholders adopted, a 2017 Equity Incentive Plan (the “2017 Plan”) under which a maximum of 3,000 shares may be granted.

As of March 31, 2020, 1,601 shares were available for grants under the 2017 Plan.

As of June 30, 2020, 1,598 shares were available for grants under the 2017 Plan.

All grants of equity incentives made after June 2017 have been made from the 2017 Plan.

Restricted Stock

During the three months ended March 31, 2020, the Company granted 164 shares of common stock with a service vesting condition to certain of its executives, officers and employees.

During the six months ended June 30, 2020, the Company granted 164 shares of common stock with a service vesting condition to certain of its executives, officers and employees.

The restricted shares have voting rights and vest in five annual installments of 20 %, with the first installment vesting in March of the calendar year following the date of grant (the “first vesting date”) and subsequent installments vesting on each of the four anniversaries of the first vesting date.

Upon vesting, shares will be held in lieu of taxes equivalent to the minimum statutory tax withholding required to be paid when the restricted stock vests.

During the three months ended March 31, 2020, the Company withheld 62 shares of common stock in lieu of taxes at a cost of $ 4,969 on the restricted stock vesting dates.

During the six months ended June 30, 2020, the Company withheld 62 shares of common stock in lieu of taxes at a cost of $ 4,969 on the restricted stock vesting dates.

In June 2020, following the annual stockholders meeting, the Company granted 3 shares of common stock to the non-employee members of the Company’s Board of Directors.

The restricted shares granted to these directors have voting rights and vest on the earlier of (a) the one year anniversary of the date of grant or (b) immediately prior to the following year’s annual stockholders’ meeting.

A summary of the activity related to restricted stock granted under the Company’s Incentive Plan since December 31, 2019 is as follows:

3 unchanged sentences

Forfeited, canceled or expired

Outstanding as of March 31, 2020

Outstanding as of June 30, 2020

Grand Canyon Education, Inc.

2 unchanged sentences

Stock Options

During the three months ended March 31, 2020, no options were granted.

During the six months ended June 30, 2020, no options were granted.

A summary of the activity since December 31, 2019 related to stock options granted under the Company’s Incentive Plan is as follows:

3 unchanged sentences

Forfeited, canceled or expired

Outstanding as of March 31, 2020

Exercisable as of March 31, 2020

(1) Aggregate intrinsic value represents the value of the Company’s closing stock price on March 31, 2020 ( $ 76.29 ) in excess of the exercise price multiplied by the number of shares underlying options outstanding or exercisable, as applicable.

Outstanding as of June 30, 2020

Exercisable as of June 30, 2020

(1) Aggregate intrinsic value represents the value of the Company’s closing stock price on June 30, 2020 ( $ 90.53 ) in excess of the exercise price multiplied by the number of shares underlying options outstanding or exercisable, as applicable.

Share-based Compensation Expense

The table below outlines share-based compensation expense for the three months ended March 31, 2020 and 2019 related to restricted stock and stock options granted:

The table below outlines share-based compensation expense for the six months ended June 30, 2020 and 2019 related to restricted stock and stock options granted:

Technology and academic services

6 unchanged sentences

Treasury Stock

The Board of Directors has authorized the Company to repurchase up to $ 250,000 in aggregate of common stock, from time to time, depending on market conditions and other considerations.

In July 2020, the Board of Directors increased the authorization under its existing stock repurchase program by $ 50,000 to a total of $ 300,000 in aggregate of common stock it can repurchase, from time to time, depending on market conditions and other considerations.

The expiration date on the repurchase authorization is December 31, 2021.

Repurchases occur at the Company’s discretion.

Repurchases may be made in the open market.

or in privately negotiated transactions, pursuant to the applicable Securities and Exchange Commission rules.

Repurchases may be made in the open market or in privately negotiated transactions, pursuant to the applicable Securities and Exchange Commission rules.

The amount and timing of future share repurchases, if any, will be made as market and business conditions warrant.

During the three months ended March 31, 2020 the Company repurchased 787 shares of common stock at an aggregate cost of $ 60,737 .

At March 31, 2020, there remained $ 66,580 available under its current share repurchase authorization.

During the six months ended June 30, 2020 the Company repurchased 898 shares of common stock at an aggregate cost of $ 69,048 .

At June 30, 2020, there remained $ 58,268 available under its current share repurchase authorization, prior to the increase made in July.

Shares repurchased in lieu of taxes are not included in the repurchase plan totals as they were approved in conjunction with the restricted share awards.

Subsequent to March 31, 2020, the Company repurchased 100 shares of common stock at an aggregate cost of $ 7,297 .

Grand Canyon Education, Inc.

3 unchanged sentences

In March 2020, the World Health Organization declared COVID-19 a global pandemic.

These recent developments are expected to result in lower education service revenues and lower operating income and margins in the second and third quarters of 2020.

While the disruption is currently expected to be temporary, there is considerable uncertainty around the duration.

If our most significant university partner is not able to allow its students to return to campus in the Fall of 2020, this will have a material impact on our service revenues, operating income and margins.

This contagious outbreak and the related adverse public health developments, including orders to shelter-in-place, travel restrictions and mandated non-essential business closures, have adversely affected our business, primarily through reduced ancillary revenue at our most significant university partner, GCU and as a result of certain of Orbis Education’s partner institution’s students deferring the start of their program from the Summer semester to the Fall semester.

There is a risk that not all of the students interested in starting their program in the Fall will be able to given potential constraints on the availability of clinical rotations.

These recent developments are expected to result in lower education service revenue and lower operating income and margins in the third and fourth quarters of 2020.

At this time there remains considerable uncertainty around the duration of the COVID-19 pandemic.

If some of our university partners are not able to allow their students to return to their campus locations in the Fall of 2020, this will have a further impact on our service revenue, operating income and margins.

These factors, or material changes in the fair value of the collateral underlying our Secured Note receivable and accounts receivable could also materially impact the allowance for expected credit losses on our Secured Note receivable and our accounts receivable.

However, the related financial impact and duration cannot be reasonably estimated at this time.

However, the related financial impact and duration of the COVID-19 pandemic cannot be reasonably estimated at this time.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements