Item 1A. Risk Factors
Item 1A. Risk Factors
The following additional risk factors should be read in conjunction with the risk factors previously disclosed in Part 1, Item 1A, “Risk Factors,” of the 2019 Form 10-K, Item 1A. “Risk Factors” of our quarterly report on Form 10-Q for the period ended March 31, 2020 and for the period ended June 30, 2020, and the information contained in this Quarterly Report on Form 10-Q and our other reports and registration statements filed with the SEC. The developments described in these additional risk factors have heightened, or in some cases manifested, certain of the risks disclosed in the “Risk Factors” section of the 2019 Form 10-K, and such risk factors are further qualified by the information relating to COVID-19 that is described in this Quarterly Report on Form 10-Q, including in the additional risk factor below. Except as described herein, there have been no material changes with respect to the risk factors disclosed in the 2019 Form 10-K.
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COVID-19 Risk Factor
The recent global coronavirus outbreak could harm our business, results of operations, and financial condition, and has harmed our most significant university partner.
In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious outbreak, which has continued to spread, and the related adverse public health developments, including orders to shelter-in-place, travel restrictions and mandated non-essential business closures, have adversely affected workforces, organizations, customers, economies and financial markets globally, leading to an economic downturn and increased market volatility. It has also disrupted the normal operations of many businesses, including ours, and those of our university partners.
The Company has a long-term master services agreement pursuant to which the Company provides education services to its most significant university partner, GCU, in return for 60% of GCU’s tuition and fee revenues, which includes fee revenues from room, board, and other ancillary businesses including a student-run golf course and hotel. GCU has three types of students, traditional ground university students attending class on its campus in Phoenix, Arizona and of which approximately 70% live on campus in university owned residence halls, professional studies students who are working adult students that attend class one night a week on the Phoenix campus, and online students that attend class fully online.
This outbreak, as well as measures taken to contain the spread of COVID-19, has impacted GCU’s students and its business in a number of ways, including the closure of dormitories and GCU’s hotel and various ancillary businesses near the end of the Spring 2020 semester. It has limited the number of residential students, doctoral residencies and the various ancillary businesses in the summer and fall months and it has caused the university to move back the start of its Fall 2020 ground traditional student semester including when residential students can move on to campus. A greater than expected number of traditional ground students have chosen to take the Fall semester in an online modality rather than living on campus. These actions have served to reduce GCU’s non-tuition revenue and, consequently, the service revenue we earn under the master services agreement.
The COVID-19 outbreak could cause disruptions to our other university partners as well, including, but not limited to:
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Decreasing the student enrollments at our other university partners as prelicensure nursing and occupational therapy students might delay their education including those that relocate to attend class;
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impacting current and prospective university partners’ desire to launch new locations with us;
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negatively impacting collections of accounts receivable from university partners;
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negatively impacting our ability to facilitate placements for students in clinical graduate programs which could delay their path to graduation; and
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harming our business, results of operations and financial condition.
The outbreak also presents challenges as approximately 90% of our entire workforce is currently, and is expected to continue for the foreseeable future, working remotely and this could cause increased risks in the areas of internal control, cyber security and the use of remote technology, which could result in interruptions or disruptions in normal operational processes. We have eliminated all non-essential travel as a result of the pandemic and as a result are seeing a decrease in travel costs.
The COVID-19 pandemic presents material uncertainty and risk with respect to our financial condition, results of operations, cash flows and performance and it is not possible for us to completely predict the duration or magnitude of
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the adverse results of the outbreak and its effects on us. The COVID-19 pandemic may also have the effect of heightening many of the risk factors identified in the “Risk Factors” section of the 2019 Form 10-K, such as those related to disruption or failures of our learning platform.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.