Grand Canyon Education, Inc. 10-Q

Item 1. Financial Statements GRAND CANYON EDUCATION, INC. Consolidated Income Statements (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ ​ September 30, ​ September 30, (In thousands, except per share data) 2020 2019 2020 2019 Service revenue ​ ​ $ 198,384 ​ $ 193,289 ​ $ 605,807 ​ $ 565,396 Costs and expenses: ​ ​ ​ ​ ​ Technology and academic services ​ ​ 30,751 ​ 24,231 ​ 84,179 ​ 65,384 Counseling services and support ​ ​ 58,214 ​ 56,249 ​ 176,029 ​ 163,641 Marketing and communication ​ ​ 42,244 ​ 37,340 ​ 126,042 ​ 109,033 General and administrative ​ ​ 14,031 ​ 13,556 ​ 33,097 ​ 34,169 Amortization of intangible assets ​ ​ ​ 2,105 ​ ​ 2,179 ​ ​ 6,315 ​ ​ 6,044 Loss on transaction ​ ​ — ​ — ​ — ​ 3,966 Total costs and expenses ​ ​ 147,345 ​ 133,555 ​ 425,662 ​ 382,237 Operating income ​ ​ 51,039 ​ 59,734 ​ 180,145 ​ 183,159 Interest income on Secured Note ​ ​ 14,885 ​ 16,208 ​ 44,318 ​ 44,425 Interest expense ​ ​ ( 918 ) ​ ( 2,875 ) ​ ( 3,537 ) ​ ( 8,368 ) Investment interest and other ​ ​ 181 ​ 255 ​ 793 ​ 4,042 Income before income taxes ​ ​ 65,187 ​ 73,322 ​ 221,719 ​ 223,258 Income tax expense ​ ​ 13,141 ​ 15,171 ​ 51,278 ​ 40,752 Net income ​ ​ $ 52,046 ​ $ 58,151 ​ $ 170,441 ​ $ 182,506 Earnings per share: ​ ​ ​ ​ ​ Basic income per share ​ ​ $ 1.11 ​ $ 1.21 ​ $ 3.62 ​ $ 3.82 Diluted income per share ​ ​ $ 1.11 ​ $ 1.20 ​ $ 3.60 ​ $ 3.78 Basic weighted average shares outstanding ​ ​ 46,808 ​ 47,920 ​ 47,051 ​ 47,833 Diluted weighted average shares outstanding ​ ​ 47,095 ​ 48,337 ​ 47,336 ​ 48,317 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 3 Table of Contents GRAND CANYON EDUCATION, INC. Consolidated Statements of Comprehensive Income (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands) ​ 2020 2019 2020 2019 Net income ​ ​ $ 52,046 ​ $ 58,151 ​ $ 170,441 ​ $ 182,506 Other comprehensive income, net of tax: ​ ​ ​ ​ ​ 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 ​ ​ — ​ ( 58 ) ​ — ​ ( 329 ) Comprehensive income ​ ​ $ 52,046 ​ $ 58,093 ​ $ 170,441 ​ $ 182,177 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 4 Table of Contents GRAND CANYON EDUCATION, INC. Consolidated Balance Sheets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, (In thousands, except par value) ​ 2020 ​ 2019 ​ ​ ​ (Unaudited) ​ ​ ​ ASSETS: ​ ​ ​ ​ ​ ​ ​ Current assets ​ ​ ​ ​ Cash and cash equivalents ​ ​ $ 166,950 ​ $ 122,272 Restricted cash and cash equivalents ​ ​ — ​ 300 Investments ​ ​ 12,812 ​ 21,601 Accounts receivable, net ​ ​ 89,212 ​ 48,939 Interest receivable on Secured Note ​ ​ 4,850 ​ 5,011 Income tax receivable ​ ​ 3,980 ​ 2,186 Other current assets ​ ​ 13,953 ​ 8,035 Total current assets ​ ​ 291,757 ​ 208,344 Property and equipment, net ​ ​ 126,679 ​ 119,734 Right-of-use assets ​ ​ ​ 58,943 ​ ​ 27,770 Secured Note receivable, net ​ ​ 964,912 ​ 969,912 Amortizable intangible assets, net ​ ​ ​ 195,742 ​ ​ 202,057 Goodwill ​ ​ 160,766 ​ 160,766 Other assets ​ ​ 1,763 ​ 1,706 Total assets ​ ​ $ 1,800,562 ​ $ 1,690,289 LIABILITIES AND STOCKHOLDERS’ EQUITY: ​ ​ ​ Current liabilities ​ ​ ​ Accounts payable ​ ​ $ 15,337 ​ $ 14,835 Accrued compensation and benefits ​ ​ 33,879 ​ 20,800 Accrued liabilities ​ ​ 23,326 ​ 16,771 Income taxes payable ​ ​ — ​ 6,576 Deferred revenue ​ ​ 10,240 ​ 20 Current portion of lease liability ​ ​ ​ 6,737 ​ ​ 3,084 Current portion of notes payable ​ ​ 33,144 ​ 33,144 Total current liabilities ​ ​ 122,663 ​ 95,230 Deferred income taxes, noncurrent ​ ​ 19,288 ​ 18,320 Other long term liability ​ ​ ​ 6 ​ ​ 13 Lease liability, less current portion ​ ​ ​ 54,706 ​ ​ 25,519 Notes payable, less current portion ​ ​ 82,916 ​ 107,774 Total liabilities ​ ​ 279,579 ​ 246,856 Commitments and contingencies ​ ​ ​ Stockholders’ equity ​ ​ ​ Preferred stock, $ 0.01 par value, 10,000 shares authorized; 0 shares issued and outstanding at September 30, 2020 and December 31, 2019 ​ ​ — ​ — Common stock, $ 0.01 par value, 100,000 shares authorized; 53,231 and 53,054 shares issued and 47,045 and 48,105 shares outstanding at September 30, 2020 and December 31, 2019, respectively ​ ​ 532 ​ 531 Treasury stock, at cost, 6,186 and 4,949 shares of common stock at September 30, 2020 and December 31, 2019, respectively ​ ​ ( 266,649 ) ​ ( 169,365 ) Additional paid-in capital ​ ​ 279,147 ​ 270,923 Retained earnings ​ ​ 1,507,953 ​ 1,341,344 Total stockholders’ equity ​ ​ 1,520,983 ​ 1,443,433 Total liabilities and stockholders’ equity ​ ​ $ 1,800,562 ​ $ 1,690,289 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 5 Table of Contents ​ ​ GRAND CANYON EDUCATION, INC. Consolidated Statement of Stockholders’ Equity (In thousands) (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Treasury Stock ​ Paid-in ​ Comprehensive ​ Retained ​ ​ ​ ​ Shares Par Value Shares Cost Capital Loss Earnings Total Balance at December 31, 2019 ​ 53,054 ​ $ 531 4,949 ​ $ ( 169,365 ) ​ $ 270,923 ​ $ — ​ $ 1,341,344 ​ $ 1,443,433 Cumulative effect from the adoption of accounting pronouncements, net of taxes of $ 1,168 — ​ — — ​ — ​ — ​ — ​ ( 3,832 ) ​ ( 3,832 ) Comprehensive income ​ — ​ — — ​ — ​ — ​ — ​ 170,441 ​ 170,441 Common stock purchased for treasury ​ — ​ — 1,164 ​ ( 92,315 ) ​ — ​ — ​ — ​ ( 92,315 ) Restricted shares forfeited ​ — ​ — 11 ​ — ​ — ​ — ​ — ​ — Share-based compensation ​ 167 ​ 1 62 ​ ( 4,969 ) ​ 8,046 ​ — ​ — ​ 3,078 Exercise of stock options ​ 10 ​ — — ​ — ​ 178 ​ — ​ — ​ 178 Balance at September 30, 2020 ​ 53,231 ​ $ 532 6,186 ​ $ ( 266,649 ) ​ $ 279,147 ​ $ — ​ $ 1,507,953 ​ $ 1,520,983 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ Other ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Treasury Stock ​ Paid-in ​ Comprehensive ​ Retained ​ ​ ​ ​ Shares Par Value Shares Cost Capital Loss Earnings Total Balance at December 31, 2018 ​ 52,690 ​ ​ 527 4,489 ​ ​ ( 125,452 ) ​ ​ 256,806 ​ ​ ( 453 ) ​ ​ 1,082,169 ​ ​ 1,213,597 Comprehensive income ​ — ​ — — ​ — ​ — ​ ( 329 ) ​ 182,506 ​ 182,177 Common stock purchased for treasury ​ — ​ — 175 ​ ( 17,293 ) ​ — ​ — ​ — ​ ( 17,293 ) Restricted shares forfeited ​ — ​ — 15 ​ — ​ — ​ — ​ — ​ — Share-based compensation ​ 152 ​ 1 68 ​ ( 8,127 ) ​ 7,739 ​ — ​ — ​ ( 387 ) Exercise of stock options ​ 208 ​ 2 — ​ — ​ 3,734 ​ — ​ — ​ 3,736 Balance at September 30, 2019 ​ 53,050 ​ $ 530 4,747 ​ $ ( 150,872 ) ​ $ 268,279 ​ $ ( 782 ) ​ $ 1,264,675 ​ $ 1,381,830 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 6 Table of Contents ​ GRAND CANYON EDUCATION, INC. Consolidated Statements of Cash Flows (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ ​ September 30, (In thousands) ​ 2020 2019 Cash flows provided by operating activities: ​ ​ ​ Net income ​ ​ $ 170,441 ​ $ 182,506 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ Share-based compensation ​ ​ 8,047 ​ 7,740 Depreciation and amortization ​ ​ 15,839 ​ 13,821 Amortization of intangible assets ​ ​ ​ 6,315 ​ ​ 6,044 Deferred income taxes ​ ​ 2,136 ​ 1,873 Loss on transaction ​ ​ — ​ 3,966 Other, including fixed asset impairments ​ ​ 344 ​ ( 369 ) Changes in assets and liabilities: ​ ​ ​ Accounts receivable and interest receivable from university partners ​ ​ ( 40,112 ) ​ ( 33,853 ) Other assets ​ ​ ( 6,021 ) ​ ( 2,187 ) Right-of-use assets and lease liabilities ​ ​ ​ 1,667 ​ ​ 419 Accounts payable ​ ​ ( 50 ) ​ 1,485 Accrued liabilities ​ ​ 19,627 ​ 10,130 Income taxes receivable/payable ​ ​ ( 8,370 ) ​ ( 5,597 ) Deferred revenue ​ ​ 10,220 ​ 9,156 Net cash provided by operating activities ​ ​ 180,083 ​ 195,134 Cash flows used in investing activities: ​ ​ ​ Capital expenditures ​ ​ ( 22,156 ) ​ ( 15,178 ) Additions of amortizable content ​ ​ ( 238 ) ​ ( 191 ) Acquisition, net of cash acquired ​ ​ ​ — ​ ​ ( 361,184 ) Funding to GCU ​ ​ ( 75,000 ) ​ ( 169,819 ) Repayment by GCU ​ ​ ​ 75,000 ​ ​ 60,000 Purchases of investments ​ ​ — ​ ( 1,695 ) Proceeds from sale or maturity of investments ​ ​ 8,653 ​ 56,957 Net cash used in investing activities ​ ​ ( 13,741 ) ​ ( 431,110 ) Cash flows (used in) provided by financing activities: ​ ​ ​ Principal payments on notes payable ​ ​ ( 24,858 ) ​ ( 71,959 ) Debt issuance costs ​ ​ ​ — ​ ​ ( 2,385 ) Proceeds from notes payable ​ ​ ​ — ​ ​ 243,750 Net borrowings from revolving line of credit ​ ​ — ​ 26,250 Repurchase of common shares including shares withheld in lieu of income taxes ​ ​ ( 97,284 ) ​ ( 25,420 ) Net proceeds from exercise of stock options ​ ​ 178 ​ 3,736 Net cash (used in) provided by financing activities ​ ​ ( 121,964 ) ​ 173,972 Net increase (decrease) in cash and cash equivalents and restricted cash ​ ​ 44,378 ​ ( 62,004 ) Cash and cash equivalents and restricted cash, beginning of period ​ ​ 122,572 ​ 182,013 Cash and cash equivalents and restricted cash, end of period ​ ​ $ 166,950 ​ $ 120,009 Supplemental disclosure of cash flow information ​ ​ ​ Cash paid for interest ​ ​ $ 3,536 ​ $ 7,751 Cash paid for income taxes ​ ​ $ 54,114 ​ $ 45,786 Supplemental disclosure of non-cash investing and financing activities ​ ​ ​ Purchases of property and equipment included in accounts payable ​ ​ $ 1,022 ​ $ 1,796 Allowance for credit losses of $ 5,000 , net of taxes of $ 1,168 from adoption of ASU 2016-13 ​ ​ $ 3,832 ​ $ — Lease adoption - recognition of right of use assets and lease liabilities ​ ​ $ — ​ $ 498 ROU Asset and Liability recognition ​ ​ $ 31,173 ​ $ — ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 7 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) 1. Nature of Business 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”), 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”). 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. ​ 2. Acquisition On January 22, 2019, GCE acquired Orbis Education for $ 361,184 (inclusive of closing date adjustments and net of cash acquired). Orbis Education is an education services company that supports healthcare education programs for university partners across the United States. Concurrent with the closing of the Acquisition, GCE entered into an amended and restated credit agreement and used $ 191,000 from the amended and restated credit agreement and $ 171,034 of operating cash on hand to complete the purchase. See Note 10 of our consolidated financial statements for a description of the amended and restated credit agreement. 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 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. Under this method the cost of the target is allocated to the identifiable assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The following table provides a tabular depiction of the Company’s 8 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) allocation of the total purchase price to each of the assets acquired and liabilities assumed based on the Company’s fair value estimates. ​ ​ ​ ​ ​ Assets acquired ​ ​ Cash, including $ 300 of pledged collateral ​ $ 4,793 Accounts receivable, net of allowance of $ 0 ​ $ 3,236 Property and equipment ​ $ 5,392 Right-of-use assets ​ $ 13,069 Intangible assets ​ $ 210,280 Other assets ​ $ 2,793 Liabilities assumed ​ ​ ​ Accounts payable ​ $ 4,308 Accrued and other liabilities ​ $ 4,451 Lease liability ​ $ 13,069 Deferred tax liability ​ $ 9,538 Deferred revenue ​ $ 45 Total net asset or liability purchased and assumed ​ $ 208,152 ​ ​ ​ ​ Purchase price ​ $ 365,977 ​ ​ ​ ​ Excess of fair value of net assets acquired over consideration given ​ $ 157,825 ​ The estimated fair values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature. The majority of property and equipment were also estimated based upon historical costs as they approximated fair value. Identified intangible assets of $ 210,280 consisted primarily of university partner relationships that were valued at $ 210,000 . The fair value of university partner relationships was determined using the multiple-period excess earnings method. 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 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. ​ 3. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions have been eliminated in consolidation. Unaudited Interim Financial Information The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles and pursuant to the rules and regulations of the United States Securities and Exchange Commission and the instructions to Form 10-Q and Article 10, consistent in all material respects with those applied in its financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019. They do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. Such interim financial information is unaudited but reflects all 9 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) adjustments that in the opinion of management are necessary for the fair presentation of the interim periods presented. Interim results are not necessarily indicative of results for a full year. These consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 from which the December 31, 2019 balance sheet information was derived. 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 nine months ended September 30, 2020. Investments 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. Arrangements with GCU On July 1, 2018, the Company consummated an Asset Purchase Agreement (the “Asset Purchase Agreement”) with GCU. In conjunction with the Asset Purchase Agreement, we received a secured note from GCU as consideration for the transferred assets (the “Transferred Assets”) in the initial principal amount of $ 870,097 (the “Secured Note”). The Secured Note contains customary commercial credit terms, including affirmative and negative covenants applicable to GCU, and provides that the Secured Note bears interest at an annual rate of 6.0 %, has a maturity date of June 30, 2025, and is secured by all of the assets of GCU. 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 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. Except for identified liabilities assumed by GCU, GCE retained responsibility for all liabilities of the business arising from pre-closing operations. Internally Developed Technology The Company capitalizes certain costs related to internal-use software, primarily consisting of direct labor associated with creating the software. Software development projects generally include three stages: the preliminary project stage (all costs are expensed as incurred), the application development stage (certain costs are capitalized and certain costs are expensed as incurred) and the post-implementation or operation stage (all costs are expensed as incurred). Costs capitalized in the application development stage include costs of design, coding, integration, and testing of the software developed. Capitalization of costs requires judgment in determining when a project has reached the application development stage and the period over which we expect to benefit from the use of that software. Once the software is placed in service, these costs are amortized over the estimated useful life of the software, which is generally three years . These assets are a component of our property and equipment, net in our consolidated balance sheet. 10 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) Capitalized Content Development The Company capitalizes certain costs to fulfill a contract related to the development and digital creation of content on a course-by-course basis for each university partner, many times in conjunction with faculty and subject matter experts. The Company is responsible for the conversion of instructional materials to an on-line format, including outlines, quizzes, lectures, and articles in accordance with the educational guidelines provided to us by our university partners, prior to the respective course commencing. We also capitalize the creation of learning objects which are digital assets such as online demonstrations, simulations, and case studies used to obtain learning objectives. Costs that are capitalized include payroll and payroll-related costs for employees who are directly associated and spend time producing content and payments to faculty and subject matter experts involved in the process. The Company starts capitalizing content costs when it begins to develop or to convert a particular course, resources have been assigned and a timeline has been set. The content asset is placed in service when all work is complete and the curriculum could be used for instruction. Capitalized content development assets are included in other assets in our consolidated balance sheets. 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 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. Leases 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. Right-of-use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement to determine the present value of lease payments over the lease term. At lease inception, the Company determines 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 are recognized as lease expense on a straight-line basis over the lease term. 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 off-campus classroom and laboratory site locations and office space. Business Combinations The purchase price of an acquisition is allocated to the assets acquired, including tangible and intangible assets, and liabilities assumed, based on their respective fair values at the acquisition date. The excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. 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 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. The net assets and result of operations of an acquired entity are included in the Company’s consolidated financial statements from the acquisition date. Goodwill and Intangible Assets Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the tangible and intangible assets acquired and liabilities assumed. Goodwill is assessed at least annually for impairment during the fourth quarter, or more frequently if circumstances indicate potential impairment. Goodwill is allocated to 11 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) our reporting unit at the education services segment, which is the same as the entity as a whole (entity level reporting unit). The Company has concluded there is one operating segment and one reporting unit for goodwill impairment consideration. The Financial Accounting Standards Board (“FASB”) has issued guidance that permits an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The Company reviews goodwill at least annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Finite-lived intangible assets that are acquired in a business combination are recorded at fair value on their acquisition dates and are amortized on a straight-line basis over the estimated useful life of the intangible asset. Finite-lived intangible assets consist of university partner relationships and trade names. The Company reviews its finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. There were no indicators that the carrying amount of the finite-lived intangible assets were impaired. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the assets. If such intangible assets are not recoverable, a potential impairment loss is recognized to the extent the carrying amounts of the assets exceeds the fair value of the assets. Derivatives and Hedging Derivative financial instruments are recorded on the balance sheet as assets or liabilities and re-measured at fair value at each reporting date. For derivatives designated as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. Derivative financial instruments enable the Company to manage its exposure to interest rate risk. The Company does not engage in any derivative instrument trading activity. In 2013, the Company entered into an interest rate corridor to manage its 30-Day LIBOR interest exposure related to its variable rate debt. In December 2019 this cash flow hedge expired. 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 $ 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. The corridor instrument’s terms permitted the Company to hedge its interest rate risk at several thresholds; the Company paid variable interest monthly based on the 30-Day LIBOR rates until that index reached 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 % . Therefore, the Company hedged its exposure to future variable rate cash flows through December 20, 2019. Fair Value of Financial Instruments The carrying value of cash and cash equivalents, investments, accounts receivable, accounts payable, accrued compensation and benefits and accrued liabilities expenses approximate their fair value based on the liquidity or the short-term maturities of these instruments. The carrying value of Secured Note receivable, non-current approximates fair value as the Secured Note resulted from the GCU Transaction and was negotiated at fair market value. The carrying 12 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) value of notes payable approximates fair value as it is based on variable rate index. 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 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, housing and corporate securities consisting of bank and financial institution bonds and securities. Revenue Recognition Starting July 1, 2018, the Company generates all of its revenue through services agreements with its university partners (“Services Agreements”), pursuant to which the Company provides integrated technology and academic services, marketing and communication services, and back office services to its university partners in return for a percentage of tuition and fee revenue. The Company’s Services Agreements have initial terms ranging from 7 - 15 years , subject to renewal options, although certain agreements may give the university partners the right to terminate early if certain conditions are met. The Company’s Services Agreements have a single performance obligation, as the promises to provide the identified services are not distinct within the context of these agreements. The single performance obligation is delivered as our partners receive and consume benefits, which occurs ratably over a series of distinct service periods (daily or semester). Service revenue is recognized over time using the output method of measuring progress towards complete satisfaction of the single performance obligation. The output method provides a faithful depiction of the performance toward complete satisfaction of the performance obligation and can be tied to the time elapsed which is consumed evenly over the service period and is a direct measurement of the value provided to our partners. The service fees received from our partners over the term of the agreement are variable in nature in that they are dependent upon the number of students attending the university partner’s program and revenues generated from those students during the service period. Due to the variable nature of the consideration over the life of the service arrangement, the Company considered forming an expectation of the variable consideration to be received over the service life of this one performance obligation. However, since the performance obligation represents a series of distinct services, the Company recognizes the variable consideration that becomes known and billable because these fees relate to the distinct service period in which the fees are earned. The Company meets the criteria in the standard and exercises the practical expedient to not disclose the aggregate amount of the transaction price allocated to the single performance obligation that is unsatisfied as of the end of the reporting period. The Company does not disclose the value of unsatisfied performance obligations because the directly allocable variable consideration is allocated entirely to a wholly unsatisfied promise to transfer a service that forms part of a single performance obligation. The service fees are calculated and settled per the terms of the Services Agreements and result in a settlement duration of less than one year for all partners. There are no refunds or return rights under the Services Agreements. The Company’s receivables represent unconditional rights to consideration from our Services Agreements with our university partners. Accounts receivable, net is stated at net realizable value and contains billed and unbilled revenue. 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 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 13 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) available. 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. We generally receive payments for our services billed within 30 days of invoice. These payments are recorded as deferred revenue until the services are delivered and revenue is recognized. Allowance for Credit Losses The Company records our accounts receivable and Secured Note receivable at the net amount expected to be collected. Our accounts receivable are derived through education services provided to university partners. Our Secured Note receivable was derived through the sale of university related assets to our most significant university partner, GCU. The Company maintains an allowance for credit losses resulting from our university partners not making payments. The Company determines the adequacy of the allowance by periodically evaluating each university partners balance, considering their financial condition and credit history, and considering current and forecasted economic conditions. Since our transition to an education services company on July 1, 2018, and continued growth to 25 university partners, the Company has no credit losses with any of our university partners. In the first quarter of 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments using a modified retrospective approach. This model requires consideration of a broader range of reasonable and supportable information and requires the Company to estimate expected credit losses including a measure of the expected risk of credit loss even if that risk is remote over the lifetime of the asset. Upon adoption, the Company recorded a reserve of $ 5,000 on its long-term Secured Note receivable. The cumulative effect for the Company upon adoption of this new standard was $ 3,832 , net of taxes of $ 1,168 . Bad debt expense is recorded as a technology and academic services expense in the consolidated income statement. The Company will continue to actively monitor the impact of the COVID-19 pandemic on expected credit losses. Technology and Academic Services Technology and academic services consist primarily of costs related to ongoing maintenance of educational infrastructure, including online course delivery and management, student records, assessment, customer relations management and other internal administrative systems. This also includes costs to provide support for content development, faculty training, development and other faculty support, technology support, rent and occupancy costs for university partners’ off-campus locations, and assistance with state compliance. This expense category includes salaries, benefits and share-based compensation, information technology costs, amortization of content development costs and other costs associated with these support services. This category also includes an allocation of depreciation, amortization, and occupancy costs attributable to the provision of certain services, primarily at the Company’s Phoenix, Arizona and Indianapolis, Indiana locations. Counseling Services and Support Counseling services and support consist primarily of costs including team-based counseling and other support to prospective and current students as well as financial aid processing. This expense category includes salaries, benefits and share-based compensation, and other costs such as dues, fees and subscriptions and travel costs. 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. 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 14 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) 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. Advertising costs are expensed as incurred. General and Administrative General and administrative expenses include salaries, benefits and share-based compensation of employees engaged in corporate management, finance, human resources, compliance, and other corporate functions. This category also includes an allocation of depreciation, amortization, lease expense, and occupancy costs attributable to the provision of these services, primarily at the Company’s Phoenix, Arizona and Indianapolis, Indiana locations. Commitments and Contingencies The Company accrues for contingent obligations when it is probable that a liability has been incurred and the amount is reasonably estimable. When the Company becomes aware of a claim or potential claim, the likelihood of any loss exposure is assessed. If it is probable that a loss will result and the amount of the loss is estimable, the Company records a liability for the estimated loss. If the loss is not probable or the amount of the potential loss is not estimable, the Company will disclose the claim if the likelihood of a potential loss is reasonably possible and the amount of the potential loss could be material. Estimates that are particularly sensitive to future changes include tax, legal, and other regulatory matters, which are subject to change as events evolve, and as additional information becomes available during the administrative and litigation process. The Company expenses legal fees as incurred. Concentration of Credit Risk 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 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. The Company is also subject to credit risk for its accounts receivable balance. The Company has not experienced any losses on receivables since July 1, 2018, the date the Company transitioned to an educational service provider. To manage accounts receivable risk, the Company maintains an allowance for doubtful accounts, if needed. 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 The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Segment Information 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 15 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (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 In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments . Under this guidance, the Company is required to utilize an “expected credit loss model” on certain financial instruments, including receivables and the Secured note receivable. This model requires consideration of a broader range of reasonable and supportable information and requires the Company to estimate expected credit losses including a measure of the expected risk of credit loss even if that risk is remote over the lifetime of the asset. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. 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. The cumulative effect for the Company upon adoption of this new standard was $ 3,832 , net of tax. The adoption of this guidance did not have a material impact on the Company’s financial condition, results of operations or statements of cash flows. The Company will continue to actively monitor the impact of the COVID-19 pandemic on expected credit losses. In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments . The amendments in the ASU improve the Codification by eliminating inconsistencies and providing clarifications. Under this guidance, the Company made an election not to measure an allowance for credit losses on its accrued interest receivable amounts earned on the Secured Note receivable. The Company will write off any uncollectible accrued interest in a timely manner. The adoption of this guidance did not have a material impact on the Company’s financial condition, results of operations or statements of cash flows. In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350); Simplifying the Test for Goodwill Impairment , which eliminated step two from the goodwill impairment test and requires an entity to recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value, up to the amount of goodwill allocated to that reporting unit. The amendments in this standard are effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Accordingly, the standard was adopted by us as of January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s financial condition, results of operations or statements of cash flows. Recent Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes . This ASU is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods, with early adoption permitted. An entity that elects early adoption must adopt all the amendments in the same period. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company is currently evaluating the impact of the new standard on our consolidated financial statements and related disclosures. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . 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 16 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) 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. 4. Investments The Company classifies its investments as trading. 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. 5. Net Income Per Common Share Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflects the assumed conversion of all potentially dilutive securities, consisting of stock options and restricted stock awards, for which the estimated fair value exceeds the exercise price, less shares which could have been purchased with the related proceeds, unless anti-dilutive. For employee equity awards, repurchased shares are also included for any unearned compensation adjusted for tax. The table below reflects the calculation of the weighted average number of common shares outstanding, on an as if converted basis, used in computing basic and diluted earnings per common share. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ September 30, ​ September 30, ​ 2020 2019 2020 2019 Denominator: Basic weighted average shares outstanding 46,808 47,920 47,051 47,833 Effect of dilutive stock options and restricted stock 287 417 285 484 Diluted weighted average shares outstanding 47,095 48,337 47,336 48,317 ​ 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 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. 6. Allowance for Credit Losses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at ​ ​ Balance at ​ ​ Beginning of ​ Charged to ​ Deductions/ ​ End of ​ ​ Period (1) ​ Expense ​ Transfers (2) ​ Period Allowance for credit losses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine months ended September 30, 2020 ​ $ 5,000 — — ​ $ 5,000 Nine months ended September 30, 2019 ​ $ — — — ​ $ — ​ ​ ​ 17 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (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. ​ ​ 7. Property and Equipment Property and equipment consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ ​ 2020 ​ 2019 Land ​ $ 5,579 ​ $ 5,579 Land improvements ​ 2,242 ​ 2,242 Buildings ​ 51,399 ​ 51,399 Buildings and leasehold improvements ​ 13,571 ​ 11,691 Computer equipment ​ 100,740 ​ 95,020 Furniture, fixtures and equipment ​ 14,299 ​ 10,423 Internally developed software ​ 44,899 ​ 37,175 Construction in progress ​ 4,054 ​ 3,238 ​ ​ 236,783 ​ 216,767 Less accumulated depreciation and amortization ​ ( 110,104 ) ​ ( 97,033 ) Property and equipment, net ​ $ 126,679 ​ $ 119,734 ​ ​ 8. Intangible Assets Amortizable intangible assets consist of the following as of: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2020 ​ Estimated ​ Gross ​ ​ ​ ​ Net ​ Average Useful ​ Carrying ​ Accumulated ​ Carrying ​ Life (in years) ​ Amount ​ Amortization ​ Amount University partner relationships 25 $ 210,000 ​ ( 14,258 ) $ 195,742 Trade names 1 ​ ​ 280 ​ ​ ( 280 ) ​ — Total amortizable intangible assets, net ​ ​ $ 210,280 ​ ​ ( 14,538 ) ​ $ 195,742 ​ Amortization expense for university partner relationships and trade names for the years ending December 31: ​ ​ ​ ​ Remainder of 2020 ​ $ 2,105 2021 ​ 8,419 2022 ​ ​ 8,419 2023 ​ ​ 8,419 2024 ​ ​ 8,419 Thereafter ​ 159,961 ​ ​ $ 195,742 ​ ​ 9. Leases 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 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. 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 18 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) 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 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, Amount 2020 ​ $ 1,951 2021 ​ ​ 8,819 2022 ​ ​ 8,443 2023 ​ ​ 7,930 2024 ​ ​ 7,402 Thereafter ​ ​ 36,199 Total lease payments ​ $ 70,744 Less interest ​ ​ 9,301 Present value of lease liabilities ​ $ 61,443 ​ ​ 10. Notes Payable and Other Noncurrent Liabilities We entered into an amended and restated credit agreement dated January 22, 2019 and two related amendments dated January 31, 2019 and dated February 1, 2019, respectively, that together provide a credit facility of $ 325,000 comprised of a term loan facility of $ 243,750 and a revolving credit facility of $ 81,250 , both with a five-year maturity date. The term facility is subject to quarterly amortization of principal, commencing with the fiscal quarter ended June 30, 2019, in equal installments of 5 % of the principal amount of the term facility per quarter. Both the term loan and revolver have monthly interest payments currently at 30 Day LIBOR plus an applicable margin of 2 % . The proceeds of the term loan, together with $ 6,250 drawn under the revolver and operating cash on hand were used to complete the Acquisition. Concurrent with the amendment of the credit agreement and Acquisition, we repaid our existing term loan of $ 59,850 and our cash collateral of $ 61,667 was released. The Company concluded that the amended and restated credit agreement is considered a loan modification. Accordingly, the Company allocated the costs paid to the bank consortium based on the borrowing dollars and recorded an asset of $ 596 and a contra liability of $ 1,639 , which are related to our revolver and term loan, respectively, that is being amortized to interest expense over the five-year maturity date. Additionally, the Company expensed $ 150 of third-party costs in the first quarter of 2019 related to this loan modification. The Company entered into a further amendment for the credit facility on October 31, 2019. This amendment increased the revolving commitment by $ 68,750 to $ 150,000 , while reducing the term loan by the same $ 68,750 to $ 150,625 . The Company concluded that this amendment is considered a loan modification. The amended and restated credit agreement contains standard covenants that, among other things, restrict the Company’s ability to incur additional debt or make certain investments, and require the Company to achieve certain financial ratios and maintain certain financial conditions. The Company’s obligations under the credit facility are secured by its assets, including all rights, 19 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) benefits and payments under the Secured Note and the Master Services Agreement. As of September 30, 2020, the Company is in compliance with its debt covenants. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of September 30, ​ As of December 31, ​ 2020 2019 Notes Payable ​ ​ Note payable, quarterly payment of $ 8,368 starting December 31, 2019; interest at 30-Day LIBOR plus 2.00 % ( 2.16 % at September 30, 2020) through January 22, 2024 ​ $ 116,060 ​ $ 140,918 Revolving line of credit; interest at 30-Day LIBOR plus 2.0 % ( 2.16 % at September 30, 2020) ​ ​ — ​ ​ — ​ ​ 116,060 ​ 140,918 Less: Current portion ​ 33,144 ​ 33,144 ​ ​ $ 82,916 ​ $ 107,774 ​ Payments due under the notes payable obligations are as follows as of September 30, 2020: ​ ​ ​ ​ 2020 $ 8,286 2021 ​ ​ 33,144 2022 ​ ​ 33,144 2023 ​ ​ 33,145 2024 ​ ​ 8,341 Total ​ $ 116,060 ​ ​ 11. Commitments and Contingencies Legal Matters From time to time, the Company is a party to various lawsuits, claims, and other legal proceedings that arise in the ordinary course of business, some of which are covered by insurance. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company records a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. With respect to the majority of pending litigation matters, the Company’s ultimate legal and financial responsibility, if any, cannot be estimated with certainty and, in most cases, any potential losses related to those matters are not considered probable. Upon resolution of any pending legal matters, the Company may incur charges in excess of presently established reserves. 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. ​ ​ ​ 20 Table of Contents 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 ​ During the first quarter of 2019, the Company reached an agreement with the Arizona Department of Revenue regarding previously filed refund claims related to income tax obligations for calendar year 2008 through calendar year 2013. As a result of the agreement, the Company received a refund of $ 7,500 , inclusive of both tax and interest. Net of the federal tax benefit, the refund has a favorable tax impact of $ 5,925 . The Company recorded the impact of this discrete tax item in its first quarter 2019 financials. Tax Reserves, Non-Income Tax Related From time to time the Company has exposure to various non-income tax related matters that arise in the ordinary course of business. The Company reserve is not material for tax matters where its ultimate exposure is considered probable and the potential loss can be reasonably estimated. ​ ​ 12. Share-Based Compensation Incentive Plan Prior to June 2017, the Company made grants of restricted stock and stock options under its 2008 Equity Incentive Plan (the “2008 Plan”). 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 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 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 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 21 Table of Contents 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. A summary of the activity related to restricted stock granted under the Company’s Incentive Plan since December 31, 2019 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted Average ​ ​ Total ​ Grant Date ​ ​ Shares ​ Fair Value per Share Outstanding as of December 31, 2019 422 ​ $ 76.43 Granted 167 ​ $ 84.31 Vested ( 155 ) ​ $ 65.19 Forfeited, canceled or expired ( 11 ) ​ $ 85.77 Outstanding as of September 30, 2020 423 ​ $ 83.42 ​ Stock Options 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Summary of Stock Options Outstanding ​ ​ Weighted Weighted ​ ​ ​ ​ ​ ​ Average ​ Average ​ ​ ​ ​ ​ ​ ​ Exercise ​ Remaining ​ Aggregate ​ ​ Total ​ Price per ​ Contractual ​ Intrinsic ​ ​ Shares ​ Share ​ Term (Years) ​ Value ($) (1) Outstanding as of December 31, 2019 232 ​ $ 15.42 ​ ​ ​ ​ ​ Granted — ​ $ — ​ Exercised ( 10 ) ​ $ 17.07 ​ Forfeited, canceled or expired — ​ $ — ​ Outstanding as of September 30, 2020 222 ​ $ 15.34 0.44 ​ $ 14,249 Exercisable as of September 30, 2020 222 ​ $ 15.34 0.44 ​ $ 14,249 (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 nine months ended September 30, 2020 and 2019 related to restricted stock and stock options granted: ​ ​ ​ ​ ​ ​ ​ ​ 2020 2019 Technology and academic services ​ $ 1,539 ​ $ 1,289 Counseling services and support ​ 4,073 ​ 3,977 Marketing and communication ​ 75 ​ 64 General and administrative ​ 2,360 ​ 2,410 Share-based compensation expense included in operating expenses ​ 8,047 ​ 7,740 Tax effect of share-based compensation ​ ( 2,012 ) ​ ( 1,935 ) Share-based compensation expense, net of tax ​ $ 6,035 ​ $ 5,805 ​ ​ 22 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) ​ 13. Treasury Stock 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. The amount and timing of future share repurchases, if any, will be made as market and business conditions warrant. 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. ​ ​ ​ ​ 23 Table of Contents