What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-04 · 93 added, 84 removed, 532 unchanged (25% of the section changed)

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands, except per share data)

23 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

Other comprehensive income, net of tax:

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

Unrealized losses on hedging derivative, net of taxes of $ 19 for the three months ended September 30, 2019 and $ 89 for the nine months ended September 30, 2019

Comprehensive income

2 unchanged sentences

Consolidated Balance Sheets

September 30,

(In thousands, except par value)

29 unchanged sentences

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

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

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

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

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

53,231 and 53,054 shares issued and 47,045 and 48,105 shares outstanding at September 30, 2020 and December 31, 2019, respectively

Treasury stock, at cost, 6,186 and 4,949 shares of common stock at September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

6 unchanged sentences

(In thousands)

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Treasury Stock

7 unchanged sentences

Exercise of stock options

Balance at June 30, 2020

Six Months Ended June 30, 2019

Balance at September 30, 2020

Nine Months Ended September 30, 2019

Treasury Stock

6 unchanged sentences

Exercise of stock options

Balance at June 30, 2019

Balance at September 30, 2019

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

1 unchanged sentence

Consolidated Statements of Cash Flows

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

20 unchanged sentences

Funding to GCU

Repayment by GCU

Purchases of investments

30 unchanged sentences

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”).

Orbis Education works in partnership with a growing number of top universities and healthcare networks across the country to develop high-quality, career-ready graduates who enter the workforce and ease healthcare industry demands.

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

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.

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

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

Together with Orbis Education, GCE works in partnership with a growing number of top universities and healthcare networks across the country to develop high-quality, career-ready graduates who enter the workforce and ease healthcare industry demands primarily by offering healthcare related academic programs at off-campus classroom and laboratory sites located near healthcare providers.

As of September 30, 2020, GCE provides education services to 25 university partners across the United States.

On January 22, 2019, GCE acquired Orbis Education for $ 361,184 (inclusive of closing date adjustments and net of cash acquired).

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

Transaction costs for the Acquisition for the nine months ended September 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.

44 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 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.

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

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

Trading securities are carried at fair value and unrealized holding gains and losses are included in earnings.

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

Arrangements with GCU

3 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 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.

As of September 30, 2020, the Company had loaned $ 99,815 to GCU, net of repayments.

$ 75.0 million was borrowed by GCU in June 2020 and then 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 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.

As of September 30, 2020, $ 1,031 , 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.

4 unchanged sentences

The Company has lease agreements with lease and non-lease components, and the non-lease components are accounted for separately and not included in our ROU assets and lease liabilities.

Leases primarily consist of classroom site locations and office space.

Leases primarily consist of off-campus classroom and laboratory site locations and office space.

Business Combinations

30 unchanged sentences

In December 2019 this cash flow hedge expired.

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 interest rate corridor instrument as of September 30, 2019 was $ 79 , 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 $ 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 adjustment of $ 418 for the nine months ended September 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.

1 unchanged sentence

the Company paid variable interest monthly based on the 30-Day LIBOR rates until that index reached 1.5 %.

If 30-Day LIBOR is equal to 1.5 % through 3.0 %, the Company paid 1.5 %.

If 30-Day LIBOR was equal to 1.5 % through 3.0 %, the Company paid 1.5 %.

If 30-Day LIBOR exceeded 3.0 %, the Company paid actual 30-Day LIBOR less 1.5 % .

8 unchanged sentences

Derivative financial instruments are carried at fair value, determined using Level 2 of the hierarchy of valuation inputs as defined in the FASB Accounting Standards Codification (“Codification”), with the use of inputs other than quoted prices that are observable for the asset or liability.

The fair value of investments, primarily municipal securities, was determined using Level 2 of the hierarchy of valuation inputs, with the use of inputs other than quoted prices that are observable for the assets.

The fair value of investments was determined using Level 2 of the hierarchy of valuation inputs, with the use of inputs other than quoted prices that are observable for the assets.

The unit of account used for valuation is the individual underlying security.

The municipal securities are comprised of city and county bonds related to schools, water and sewer, utilities, transportation, healthcare and housing.

The municipal securities are comprised of city and county bonds related to schools, water and sewer, utilities, transportation, healthcare, housing and corporate securities consisting of bank and financial institution bonds and securities.

Revenue Recognition

15 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 June 30, 2020 given historical collection experience.

There have been no amounts written off and no reserves established as of September 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.

For our partners with unbilled revenue, revenue recognition occurs in advance of billings.

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

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

Grand Canyon Education, Inc.

1 unchanged sentence

(In thousands, except per share data)

balance sheets.

Our unbilled revenue of $ 5,519 as of September 30, 2020 are included in accounts receivable in our consolidated balance sheets.

Deferred revenue represents the excess of amounts received as compared to amounts recognized in revenue on our consolidated statements of income as of the end of the reporting period, and such amounts are reflected as a current liability on our consolidated balance sheets.

25 unchanged sentences

Marketing and Communication

Marketing and communication includes lead acquisition, digital communication strategies, brand identity advertising, media planning and strategy, video, data science and analysis, marketing to potential students and other promotional and communication services.

This expense category includes salaries, benefits and share-based

Grand Canyon Education, Inc.

1 unchanged sentence

(In thousands, except per share data)

compensation for marketing and communication personnel, brand advertising, marketing leads and other promotional and communication expenses.

promotional and communication services.

This expense category includes salaries, benefits and share-based compensation for marketing and communication personnel, brand advertising, marketing leads and other promotional and communication expenses.

This category also includes an allocation of depreciation, amortization, lease expense, and occupancy costs attributable to the provision of certain services, primarily at the Company’s Phoenix, Arizona and Indianapolis, Indiana locations.

12 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 June 30, 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 September 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, 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.

Our dependence on our most significant university partner, with 86.5 % and 89.0 % of total service revenue for the nine-month periods ended September 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

54 unchanged sentences

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.

At September 30, 2020 and December 31, 2019, the Company had $ 12,812 and $ 21,601 , respectively, of investments.

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

Net Income Per Common Share

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

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 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.

For the three month periods ended September 30, 2020 and 2019, approximately 79 and 0 , respectively, and for the nine month periods ended September 30, 2020 and 2019, approximately 148 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

Six months ended June 30, 2020

Six months ended June 30, 2019

Nine months ended September 30, 2020

Nine months ended September 30, 2019

Grand Canyon Education, Inc.

6 unchanged sentences

Property and equipment consist of the following:

September 30,

Land improvements

8 unchanged sentences

Amortizable intangible assets consist of the following as of:

June 30, 2020

September 30, 2020

Average Useful

3 unchanged sentences

Amortization expense for university partner relationships and trade names for the years ending December 31:

Remainder of 2020

The Company has operating leases for classroom site locations, office space, office equipment, and optical fiber communication lines.

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

These leases have terms that range from 1.5 years to 11 years .

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.

3 unchanged sentences

(In thousands, except per share data)

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.

Company had operating lease costs of $ 5,244 and $ 2,681 for the nine-month periods ended September 30, 2020 and 2019, respectively.

As of September 30, 2020, the Company had a non-cancelable operating lease commitment in the amount of $ 1,396 for an off-site classroom and laboratory site, that had not yet commenced.

This operating lease will commence in 2021 with a lease term of 6 years .

The Company’s weighted-average remaining lease term relating to its operating leases is 8.74 years, with a weighted-average discount rate of 3.30 %.

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:

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

Future payment obligations with respect to the Company’s operating leases, which were existing at September 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 June 30, 2020, the Company is in compliance with its debt covenants.

As of June 30,

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

As of September 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 % ( 2.17 % at June 30, 2020) through January 22, 2024

interest at 30-Day LIBOR plus 2.00 % ( 2.16 % at September 30, 2020) through January 22, 2024

Revolving line of credit;

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

interest at 30-Day LIBOR plus 2.0 % ( 2.16 % at September 30, 2020)

Current portion

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

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

Commitments and Contingencies

7 unchanged sentences

Management does not believe that any such charges would, individually or in the aggregate, have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

COVID-19 Considerations

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

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 room and board and other ancillary revenue at our most significant partner, GCU and as a result of certain other partner institutions’ students deferring the start of their program in the Summer semester.

The pandemic could result in further reductions in education service revenue, operating income and margins in the fourth quarter 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 Spring of 2021 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 of the COVID-19 pandemic cannot be reasonably estimated at this time.

Tax, Income Tax Related

3 unchanged sentences

The Company recorded the impact of this discrete tax item in its first quarter 2019 financials.

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Tax Reserves, Non-Income Tax Related

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

As of September 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 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.

During the nine months ended September 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 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.

During the nine months ended September 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

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

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.

4 unchanged sentences

Forfeited, canceled or expired

Outstanding as of June 30, 2020

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Outstanding as of September 30, 2020

Stock Options

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

During the nine months ended September 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 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.

Outstanding as of September 30, 2020

Exercisable as of September 30, 2020

(1) Aggregate intrinsic value represents the value of the Company’s closing stock price on September 30, 2020 ( $ 79.94 ) 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 six months ended June 30, 2020 and 2019 related to restricted stock and stock options granted:

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

Technology and academic services

5 unchanged sentences

Share-based compensation expense, net of tax

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Treasury Stock

4 unchanged sentences

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

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.

During the nine months ended September 30, 2020 the Company repurchased 1,164 shares of common stock at an aggregate cost of $ 92,315 .

At September 30, 2020, there remained $ 85,001 available under its current share repurchase authorization.

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.

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Subsequent Event

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

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 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