Grand Canyon Education, Inc. 10-K

Item 7A. Quantitative and Qualitative Disclosures about Market Risk Impact of inflation. We believe that inflation has not had a material impact on our results of operations for the years ended December 31, 2020, 2019, or 2018. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition. Market risk . As of December 31, 2020, we have no derivative financial instruments or derivative commodity instruments. We invest cash in excess of current operating requirements in short term certificates of deposit and money market instruments, municipal bond portfolios, or municipal mutual funds at multiple financial institutions. Interest rate risk . We manage interest rate risk by investing excess funds in cash equivalents, BBB or higher rated municipal bonds, municipal mutual funds and commercial paper bearing variable interest rates, which are tied to various market indices or individual bond coupon rates. Our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities before their maturity date that have declined in market value due to changes in interest rates. At December 31, 2020, a 10% increase or decrease in interest rates would not have a material impact on our future earnings, fair values, or cash flows. ​ 58 Table of Contents Item 8. Consolidated Financial Statements and Supplementary Data Page ​ ​ ​ Report of Independent Registered Public Accounting Firm ​ 60 ​ Consolidated Balance Sheets as of December 31, 2020 and 2019 ​ 62 ​ Consolidated Income Statements for the years ended December 31, 2020, 2019 and 2018 ​ 63 ​ Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018 ​ 64 ​ Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018 ​ 65 ​ Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 ​ 66 ​ Notes to Consolidated Financial Statements ​ 67 ​ ​ ​ 59 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Grand Canyon Education, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Grand Canyon Education, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 17, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Evaluation of the sufficiency of audit evidence over service revenue As discussed in Note 4 to the consolidated financial statements, service revenue is recognized from the delivery of support services to institutions in the post-secondary education sector of the United States (University Partners). The transaction price for support services is based on the Company receiving a contracted percentage of the University Partner’s tuition and fee revenue. The tuition and fee information received varies depending 60 Table of Contents on the respective University Partner’s reporting processes and the services provided. The Company recorded $844 million of service revenue for the year ended December 31, 2020. We identified the evaluation of the sufficiency of audit evidence over service revenue as a critical audit matter. This required especially subjective auditor judgment because service revenue recorded by the Company is dependent on the tuition and fee information of the University Partners. This included determining the nature and extent of procedures to be performed and evaluating the evidence obtained over the tuition and fee information. The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over tuition and fee information of the University Partners. We evaluated the design and tested the operating effectiveness of certain internal controls related to service revenue. This included controls related to the accurate recording of amounts dependent on University Partners’ tuition and fee revenue information. For a sample of transactions, we compared the amounts recognized as service revenue for consistency with underlying documentation, including contracts with University Partners and student enrollment documentation. We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed, including the nature of such evidence. /s/ KPMG LLP ​ We have served as the Company’s auditor since 2012. ​ Tempe, Arizona February 17, 2021 ​ ​ ​ 61 Table of Contents Grand Canyon Education, Inc. Consolidated Balance Sheets ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, (In thousands, except par value) ​ 2020 ​ 2019 ​ ​ ​ ​ ​ ​ ASSETS: ​ ​ ​ ​ ​ ​ Current assets ​ ​ ​ Cash and cash equivalents ​ $ 245,769 ​ $ 122,272 Restricted cash and cash equivalents ​ — ​ 300 Investments ​ 10,840 ​ 21,601 Accounts receivable, net ​ 62,189 ​ 48,939 Interest receivable on Secured Note ​ 5,011 ​ 5,011 Income tax receivable ​ 1,294 ​ 2,186 Other current assets ​ 8,639 ​ 8,035 Total current assets ​ 333,742 ​ 208,344 Property and equipment, net ​ 128,657 ​ 119,734 Right-of-use assets ​ ​ 61,020 ​ ​ 27,770 Secured Note receivable, net ​ 964,912 ​ 969,912 Amortizable intangible assets, net ​ ​ 193,638 ​ ​ 202,057 Goodwill ​ 160,766 ​ 160,766 Other assets ​ 1,844 ​ 1,706 Total assets ​ $ 1,844,579 ​ $ 1,690,289 LIABILITIES AND STOCKHOLDERS’ EQUITY: ​ ​ Current liabilities ​ ​ Accounts payable ​ $ 16,583 ​ $ 14,835 Accrued compensation and benefits ​ 34,248 ​ 20,800 Accrued liabilities ​ 21,945 ​ 16,771 Income taxes payable ​ 5,405 ​ 6,576 Deferred revenue ​ — ​ 20 Current portion of lease liability ​ ​ 7,393 ​ ​ 3,084 Current portion of notes payable ​ 33,144 ​ 33,144 Total current liabilities ​ 118,718 ​ 95,230 Deferred income taxes, noncurrent ​ 20,288 ​ 18,320 Other long term liability ​ ​ 3 ​ ​ 13 Lease liability, less current portion ​ ​ 56,611 ​ ​ 25,519 Notes payable, less current portion ​ 74,630 ​ 107,774 Total liabilities ​ 270,250 ​ 246,856 Commitments and contingencies ​ ​ Stockholders’ equity ​ ​ Preferred stock, $ 0.01 par value, 10,000 shares authorized; 0 shares issued and outstanding at December 31, 2020 and December 31, 2019 ​ — ​ — Common stock, $ 0.01 par value, 100,000 shares authorized; 53,277 and 53,054 shares issued and 46,649 and 48,105 shares outstanding at December 31, 2020 and December 31, 2019, respectively ​ 533 ​ 531 Treasury stock, at cost, 6,628 and 4,949 shares of common stock at December 31, 2020 and December 31, 2019, respectively ​ ( 303,379 ) ​ ( 169,365 ) Additional paid-in capital ​ 282,467 ​ 270,923 Retained earnings ​ 1,594,708 ​ 1,341,344 Total stockholders’ equity ​ 1,574,329 ​ 1,443,433 Total liabilities and stockholders’ equity ​ $ 1,844,579 ​ $ 1,690,289 ​ The accompanying notes are an integral part of these consolidated financial statements. 62 Table of Contents Grand Canyon Education, Inc. Consolidated Income Statements ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ (In thousands, except per share data) 2020 2019 2018 Service revenue ​ $ 844,096 ​ $ 778,643 ​ $ 333,002 ​ University related revenue ​ — ​ — ​ 512,499 ​ Service revenue ​ 844,096 ​ 778,643 ​ 845,501 ​ Costs and expenses: ​ ​ ​ ​ Technology and academic services ​ 116,012 ​ 90,512 ​ 43,574 ​ Counseling services and support ​ 234,534 ​ 223,598 ​ 204,690 ​ Marketing and communication ​ 164,334 ​ 142,896 ​ 117,420 ​ General and administrative ​ 43,360 ​ 44,317 ​ 29,968 ​ Amortization of intangible assets ​ ​ 8,419 ​ ​ 8,223 ​ ​ — ​ University related expenses ​ — ​ — ​ 173,330 ​ Loss on transaction ​ — ​ 3,966 ​ 18,370 ​ Total costs and expenses ​ 566,659 ​ 513,512 ​ 587,352 ​ Operating income ​ 277,437 ​ 265,131 ​ 258,149 ​ Interest income on Secured Note ​ 59,190 ​ 59,297 ​ 26,947 ​ Interest expense ​ ( 4,402 ) ​ ( 11,311 ) ​ ( 1,536 ) ​ Investment interest and other ​ 915 ​ 4,385 ​ 3,440 ​ Income before income taxes ​ 333,140 ​ 317,502 ​ 287,000 ​ Income tax expense ​ 75,944 ​ 58,327 ​ 57,989 ​ Net income ​ $ 257,196 ​ $ 259,175 ​ $ 229,011 ​ Earnings per share: ​ ​ ​ ​ Basic income per share ​ $ 5.49 ​ $ 5.42 ​ $ 4.81 ​ Diluted income per share ​ $ 5.45 ​ $ 5.37 ​ $ 4.73 ​ Basic weighted average shares outstanding ​ 46,880 ​ 47,814 ​ 47,608 ​ Diluted weighted average shares outstanding ​ 47,165 ​ 48,266 ​ 48,414 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 63 Table of Contents Grand Canyon Education, Inc. Consolidated Statements of Comprehensive Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (In thousands) 2020 2019 2018 Net income ​ $ 257,196 ​ $ 259,175 ​ $ 229,011 Other comprehensive income, net of tax: ​ ​ ​ Unrealized gains (losses) on hedging derivatives, net of taxes of $ 107 and $ 39 for the years ended December 31, 2019 and 2018, respectively ​ ​ — ​ ​ ( 390 ) ​ ​ 118 Unrealized gains (losses) on available for sale securities, net of taxes of $ 103 for the year ended December 31, 2018 ​ ​ — ​ ​ — ​ ​ 309 Reclassification of expired interest rate corridor to interest expense, net of taxes of $ 257 for the year ended December 31, 2019 ​ ​ — ​ ​ 843 ​ ​ — Comprehensive income ​ $ 257,196 ​ $ 259,628 ​ $ 229,438 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 64 Table of Contents Grand Canyon Education, Inc. Consolidated Statements of Stockholders’ Equity (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 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, 2017 52,277 ​ ​ 523 4,152 ​ ​ ( 100,694 ) ​ ​ 232,670 ​ ​ ( 724 ) ​ ​ 854,176 ​ ​ 985,951 Cumulative effect from the adoption of accounting pronouncements, net of taxes of $ 390 — ​ — — ​ — ​ — ​ — ​ ( 1,174 ) ​ ( 1,174 ) Comprehensive income — ​ — — ​ — ​ — ​ 427 ​ 229,011 ​ 229,438 Adoption impact – ASU 2018-02 — ​ — — ​ — ​ — ​ ( 156 ) ​ 156 ​ — Common stock purchased for treasury — ​ — 91 ​ ( 9,606 ) ​ — ​ — ​ — ​ ( 9,606 ) Restricted shares forfeited — ​ — 95 ​ — ​ — ​ — ​ — ​ — Share-based compensation 163 ​ 2 151 ​ ( 15,152 ) ​ 19,506 ​ — ​ — ​ 4,356 Exercise of stock options 250 ​ 2 — ​ — ​ 4,630 ​ — ​ — ​ 4,632 Balance at December 31, 2018 52,690 ​ ​ 527 4,489 ​ ​ ( 125,452 ) ​ ​ 256,806 ​ ​ ( 453 ) ​ ​ 1,082,169 ​ ​ 1,213,597 Comprehensive income — ​ — — ​ — ​ — ​ 453 ​ 259,175 ​ 259,628 Common stock purchased for treasury — ​ — 376 ​ ( 35,786 ) ​ — ​ — ​ — ​ ( 35,786 ) Restricted shares forfeited — ​ — 16 ​ — ​ — ​ — ​ — ​ — Share-based compensation 152 ​ 2 68 ​ ( 8,127 ) ​ 10,298 ​ — ​ — ​ 2,173 Exercise of stock options 212 ​ 2 — ​ — ​ 3,819 ​ — ​ — ​ 3,821 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 ​ — ​ — — ​ — ​ — ​ — ​ 257,196 ​ 257,196 Common stock purchased for treasury ​ — ​ — 1,602 ​ ( 129,045 ) ​ — ​ — ​ — ​ ( 129,045 ) Restricted shares forfeited ​ — ​ — 15 ​ — ​ — ​ — ​ — ​ — Share-based compensation ​ 167 ​ 1 62 ​ ( 4,969 ) ​ 10,662 ​ — ​ — ​ 5,694 Exercise of stock options ​ 56 ​ 1 — ​ — ​ 882 ​ — ​ — ​ 883 Balance at December 31, 2020 ​ 53,277 ​ $ 533 6,628 ​ $ ( 303,379 ) ​ $ 282,467 ​ $ — ​ $ 1,594,708 ​ $ 1,574,329 The accompanying notes are an integral part of these consolidated financial statements. ​ 65 Table of Contents Grand Canyon Education, Inc. Consolidated Statements of Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (In thousands) 2020 2019 2018 Cash flows provided by operating activities: ​ ​ ​ ​ Net income ​ $ 257,196 ​ $ 259,175 ​ $ 229,011 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ Share-based compensation ​ 10,663 ​ 10,300 ​ 19,508 Provision for bad debts ​ — ​ — ​ 8,669 Depreciation and amortization ​ 21,233 ​ 18,696 ​ 35,673 Amortization of intangible assets ​ ​ 8,419 ​ ​ 8,223 ​ ​ — Deferred income taxes ​ 3,136 ​ 1,670 ​ ( 11,507 ) Loss on transaction ​ — ​ 3,966 ​ 12,605 Other, including fixed asset impairments ​ 571 ​ ( 335 ) ​ 2,101 Changes in assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable and interest receivable from university partners ​ ( 13,250 ) ​ 766 ​ ( 51,480 ) Accounts receivable ​ — ​ — ​ ( 7,784 ) Other assets ​ ( 621 ) ​ 2,136 ​ 1,553 Right-of-use assets and lease liabilities ​ ​ 2,151 ​ ​ 833 ​ ​ — Accounts payable ​ 1,012 ​ ( 3,095 ) ​ ( 14,306 ) Accrued liabilities ​ 18,612 ​ 5,078 ​ ( 15,700 ) Income taxes receivable/payable ​ ( 279 ) ​ ( 1,044 ) ​ ( 8,662 ) Deferred rent ​ ( 20 ) ​ — ​ ( 189 ) Student deposits ​ — ​ ( 25 ) ​ 6,881 Deferred revenue ​ — ​ — ​ ( 7,288 ) Net cash provided by operating activities ​ 308,823 ​ 306,344 ​ 199,085 Cash flows used in investing activities: ​ ​ ​ Capital expenditures ​ ( 29,418 ) ​ ( 22,391 ) ​ ( 94,527 ) Purchases of land and building improvements related to off-site development ​ ​ — ​ ​ — ​ ​ ( 330 ) Additions of amortizable content ​ ( 524 ) ​ ( 260 ) ​ — Acquisition, net of cash acquired ​ ​ — ​ ​ ( 361,184 ) ​ ​ — Disposition ​ — ​ — ​ ( 131,550 ) Funding to GCU at closing in excess of required capital ​ — ​ — ​ ( 7,377 ) Repayment of excess funds by GCU ​ — ​ — ​ 7,377 Funding to GCU ​ ( 75,000 ) ​ ( 169,819 ) ​ ( 29,996 ) Repayment by GCU ​ ​ 75,000 ​ ​ 100,000 ​ ​ — Purchases of investments ​ — ​ ( 9,384 ) ​ ( 46,948 ) Proceeds from sale or maturity of investments ​ 10,591 ​ 57,163 ​ 65,116 Net cash used in investing activities ​ ( 19,351 ) ​ ( 405,875 ) ​ ( 238,235 ) Cash flows (used in) provided by financing activities: ​ ​ ​ Principal payments on notes payable ​ ( 33,144 ) ​ ( 92,433 ) ​ ( 6,719 ) Debt issuance costs ​ ​ — ​ ​ ( 2,385 ) ​ ​ — Proceeds from notes payable ​ ​ — ​ ​ 243,750 ​ ​ — Net borrowings from revolving line of credit ​ — ​ ( 68,750 ) ​ — Repurchase of common shares including shares withheld in lieu of income taxes ​ ( 134,014 ) ​ ( 43,913 ) ​ ( 24,758 ) Net proceeds from exercise of stock options ​ 883 ​ 3,821 ​ 4,632 Net cash (used in) provided by financing activities ​ ( 166,275 ) ​ 40,090 ​ ( 26,845 ) Net increase (decrease) in cash and cash equivalents and restricted cash ​ 123,197 ​ ( 59,441 ) ​ ( 65,995 ) Cash and cash equivalents and restricted cash, beginning of period ​ 122,572 ​ 182,013 ​ 248,008 Cash and cash equivalents and restricted cash, end of period ​ $ 245,769 ​ $ 122,572 ​ $ 182,013 Supplemental disclosure of cash flow information ​ ​ ​ Cash paid for interest ​ $ 4,306 ​ $ 11,516 ​ $ 1,511 Cash paid for income taxes ​ $ 68,381 ​ $ 59,903 ​ $ 78,195 Supplemental disclosure of non-cash investing and financing activities ​ ​ ​ Sale transaction to GCU through Secured Note financing ​ $ — ​ $ — ​ $ 870,097 Purchases of property and equipment included in accounts payable ​ $ 1,206 ​ $ 469 ​ $ 1,121 Allowance for credit losses of $ 5,000 , net of taxes of $ 1,168 from adoption of ASU 2016-13 ​ $ 3,832 ​ $ — ​ $ — Reclassification of capitalized costs - adoption of ASC 606 ​ $ — ​ $ — ​ $ 9,015 Reclassification of deferred revenue – adoption of ASC 606 ​ $ — ​ $ — ​ $ 7,451 Lease adoption - recognition of right of use assets and lease liabilities ​ $ — ​ $ 498 ​ $ — ROU Asset and Liability recognition ​ $ 33,250 ​ $ 14,203 ​ $ — Reclassification of interest rate corridor due to expiration ​ $ — ​ $ 1,100 ​ $ — Reclassification of tax effect within accumulated other comprehensive income ​ $ — ​ $ — ​ $ 156 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 66 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 that operates 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. Prior to July 1, 2018, GCE owned and operated Grand Canyon University (the “University”). On July 1, 2018, the Company sold the University to GCU. As a result of this transaction (the “Transaction”), GCE became an education services company focused on providing a full array of support services to institutions in the post-secondary education sector. GCE provides education services that include technology and academic services, counseling services and support, marketing and communication services, and for its largest university partner several back-office services such as accounting, reporting, tax, human resources, and procurement services. See Note 2 to our consolidated financial statements for a full description of the Transaction. 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 year ended December 31, 2019 include Orbis Education’s financial results for the period from January 22, 2019 to December 31, 2019. The Company financed a portion of the purchase price through a credit facility provided by a consortium of banks led by our existing bank group. See Note 3 to our consolidated financial statement for a full description of the Acquisition. In the healthcare field, GCE, together with Orbis Education, works in partnership with a growing number of top universities and healthcare networks across the country, offering health care related academic programs at off-campus classroom and laboratory sites located near healthcare providers and developing high-quality, career-ready graduates who enter the workforce ready to meet the demands of the healthcare industry. As of December 31, 2020, GCE provides education services to 25 university partners across the Unites States . GCE was formed in Delaware in November 2003 as a limited liability company, under the name Significant Education, LLC, for the purchase of acquiring the assets of the University from a non-profit foundation on February 2, 2004. On August 24, 2005, the Company converted from a limited liability company to a corporation and changed its name to Significant Education, Inc. On May 9, 2008, the Company changed its name to Grand Canyon Education, Inc. The Company’s wholly-owned subsidiaries were historically used to facilitate expansion of the university campus prior to the Transaction. ​ 2. The Transaction Asset Purchase Agreement and Related Agreements 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 67 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) December 31, 2020, the Company had loaned $ 99,815 to GCU for capital expenditures, which is net of repayments made by GCU. 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. The Company was a party to a credit agreement with Bank of America, N.A. as Administrative Agent, and other lenders, dated December 21, 2012 and amended as of January 15, 2016. Effective July 1, 2018, the Company and the lenders amended the credit agreement (the “Amendment”) to release the assets pledged as collateral in order to enable GCE to sell them to GCU and complete the Transaction. In connection with the Amendment, GCE provided restricted cash collateral in the amount of $ 61,667 as of December 31, 2018, which was released on January 22, 2019 . See Note 10 to our consolidated financial statements for a full description of our credit agreement. Disposed Assets, previously Assets and Liabilities Held for Sale The Company received Board approval to consummate the Transaction on June 28, 2018, and completed the Transaction on July 1, 2018. As a result, the Company determined that it had met the accounting requirements to classify the assets and liabilities to be transferred in the Transaction as assets and liabilities held for sale as of June 30, 2018. The assets and liabilities held for sale were sold as part of the Transaction on July 1, 2018. Accordingly, the following balances were transferred to GCU as of July 1, 2018: ​ ​ ​ ​ ​ Restricted cash and cash equivalents $ 97,443 Accounts receivable, net of allowance for doubtful accounts of $ 6,093 ​ 9,780 Other assets ​ 7,677 Property and equipment, net of accumulated depreciation of $ 166,066 ​ 870,097 Total assets held for sale, current ​ $ 984,997 ​ ​ ​ ​ Accrued and other liabilities ​ $ 5,025 Student deposits ​ 88,010 Deferred revenue ​ 46,325 Note payable ​ 79 Total liabilities held for sale, current ​ $ 139,439 ​ The Company received a Secured Note for the Transferred Assets. The Company also transferred cash equal to $ 34,107 representing a working capital adjustment as part of the closing. Except for identified liabilities assumed by GCU, GCE retained responsibility for all liabilities of the business arising from pre-closing operations. For the year ended December 31, 2018 the Company had a loss of $ 18,370 , included in loss on transaction due to transaction costs of $ 5,765 , which includes both disposition and acquisition related transaction costs, and an asset impairment of $ 3,037 . In addition, the Company transferred to GCU cash of $ 9,568 to fund a deferred compensation plan for GCU employees that were formerly GCE employees (the “Transferred Employees”) and that held unvested restricted stock of GCE that was forfeited upon the Transaction. Included in the university related expenses for the six months ended December 31, 2018 is $ 7,880 of share-based compensation expense resulting from the modification and vesting of previously issued restricted stock grants held by Transferred Employees, employer tax expense of $ 191 related to the share-based compensation modification, net of reversals of employee related liabilities that were not part of the Transferred Assets for the Transaction of $ 1,907 . 68 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) Variable Interest Entity and Related Party Considerations ASC 810-10-15-17 provides scope exceptions to the variable interest entity analysis that include a not-for profit entity carve out. GCU is not a related party to the Company in accordance with ASC Topic 850. The following factors were considered: ● Since GCU is an Arizona non-profit corporation, the Company has no ownership interest or voting rights in GCU. ● GCU is a separate non-profit entity under the control of an independent board of trustees, none of whose members have ever served in a management or corporate board role at the Company. GCU’s board of trustees has adopted bylaws and a related conflict of interest policy that, among other things, (i) prevents any trustee of GCU from attending any meeting, or voting on any matter, as to which such trustee has a conflict of interest, (ii) establishes a special committee of independent trustees to oversee on behalf of GCU all matters related to the Master Services Agreement and GCU’s relationship with the Company, and (iii) prohibits any trustee from having any financial interest in, or role with, the Company. Accordingly, the Company’s relationship with GCU, both pursuant to the Master Services Agreement and operationally, is no longer as owner and operator, but as a third-party service provider to an independent customer. While the Company believes that its relationship with GCU will remain strong, GCU’s board of trustees and management will have fiduciary and other duties that will require them to focus on the best interests of GCU and over time those interests could diverge from those of the Company. ● Mr. Brian E. Mueller has served as the Chief Executive Officer of the Company since 2008 and the Chairman of the Board of the Company since 2017 and has also served as the President of the University since 2012. In connection with the Transaction, the Board of Directors of the Company and the board of trustees of GCU each independently determined that Mr. Mueller should retain those roles. Accordingly, Mr. Mueller remains the Chairman of the Board and Chief Executive Officer of the Company and continues to serve as the President of GCU. As noted above, however, Mr. Mueller is prohibited from serving on the board of trustees of GCU. Aside from Mr. Mueller, no other employee of GCU or GCE has a dual role in both organizations. A structure has been put in place that prevents Mr. Mueller from participating in operational matters involving the Company and GCU, including with respect to the Master Services Agreement. ● The terms of the Master Services Agreement vest in GCU and its board of trustees has full authority over decision making related to the day-to-day operations of GCU, including, without limitation, (i) selecting, hiring and firing its personnel, (ii) selecting and adopting academic programs and courses, (iii) establishing admission standards and admitting students, (iv) overseeing instruction, (v) setting credit and student performance requirements, (vi) determining graduation requirements, and (vii) conferring degrees. Per the terms of the MSA, GCE has no authority over GCU’s day-to-day operations. ● If GCU were to default under the credit agreement, the Company would be able to pursue assets of GCU, which are pledged as collateral for the Secured Note. However, the Company would not become the owner or operator of GCU. ● There is no parent entity and subsidiary relationship between the Company and GCU. ● The Company and GCU both engaged their own outside corporate counsel, outside regulatory counsel, and financial advisors to represent each party’s interest during the Transaction. 69 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) 3. 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 year ended December 31, 2018 were $ 808 and for the year ended December 31, 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 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 has 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. Consolidated net revenue and consolidated net income for the year ended December 31, 2019 include $ 85,869 of service revenue and a loss, net of taxes, of $ 2,588 from Orbis Education, which includes $ 8,223 of amortization of 70 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) intangible assets. The following table reports pro forma information as if the Acquisition of Orbis Education had been completed at the beginning of the earliest period presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended December 31, ​ Year Ended December 31, ​ 2019 2018 2019 2018 Net revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As Reported ​ $ 213,247 ​ $ 177,548 ​ $ 778,643 ​ $ 845,501 Pro forma ​ $ 213,247 ​ $ 195,656 ​ $ 781,893 ​ $ 907,960 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ ​ ​ ​ ​ ​ As Reported ​ $ 76,669 ​ $ 75,531 ​ $ 259,175 ​ $ 229,011 Pro forma ​ $ 76,669 ​ $ 69,551 ​ $ 247,930 ​ $ 200,264 ​ The pro forma information above for the three months ended and the years ended December 31, 2019 and 2018 includes acquisition related costs in both periods, amortization of intangible assets as a result of the Acquisition, additional interest expense on the debt issued to finance the Acquisition, depreciation expense based on the estimated fair value of the assets acquired, and warrant expense and related tax effects. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been consummated on January 1, 2019 and 2018. 4. 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. 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. Cash and Cash Equivalents The Company invests a portion of its cash in excess of current operating requirements in short term certificates of deposit and money market instruments. The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Restricted Cash and Cash Equivalents Restricted cash and cash equivalents at December 31, 2019 represents cash pledged for leased office space, which cash was released during the year ended December 31, 2020. Investments At December 31, 2020 and 2019, 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 determined using Level 1 and Level 2 of the hierarchy of valuation inputs, with the use of quoted market prices and 71 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) inputs other than quoted prices that are observable for the assets and unrealized holding gains and losses are included in earnings. As of December 31, 2018, the Company transferred its investments from available-for-sale to trading, due to the Company’s decision to liquidate all investments to fund a portion of the purchase price paid in the Acquisition. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of tax, reported as a separate component of other comprehensive income. Comprehensive income and unrealized losses considered to be other-than-temporary are recognized currently in earnings. Amortization of premiums, accretion of discounts, interest and dividend income and realized gains and losses are included in interest and other income. As a result of the transfer to trading, the Company recorded a loss of $ 372 in investment interest and other for the year ended December 31, 2018. Property and Equipment Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method. Normal repairs and maintenance are expensed as incurred. Expenditures that materially extend the useful life of an asset are capitalized. Construction in progress represents items not yet placed in service and are not depreciated. The majority of the Company’s historical capitalized interest was related to the construction of the University’s campus improvements. The Company capitalizes interest using its interest rates on the specific borrowings used to finance the improvements, which approximated 3.7 % in 2018. Interest cost capitalized and incurred in the years ended December 31, 2020, 2019, and 2018 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 Interest incurred ​ $ 4,402 ​ $ 11,311 ​ $ 2,292 Interest capitalized ​ — ​ — ​ 756 Interest expense ​ $ 4,402 ​ $ 11,311 ​ $ 1,536 ​ Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Furniture and fixtures, computer equipment, and vehicles generally have estimated useful lives of ten , four , and five years , respectively. Leasehold improvements are depreciated over the shorter of their lease term or their useful life. Land improvements and buildings are depreciated over lives ranging from 10 to 40 years . 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. 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. 72 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) 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 December 31, 2020 and 2019, $ 1,198 and $ 1,077 , respectively, net of amortization, of deferred content assets are included in other assets in the Company’s consolidated balance sheets and amortization is included in technical and academic services where the costs originated. Long-Lived Assets The Company evaluates the recoverability of its long-lived assets for impairment, other than goodwill, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 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 assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. 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. Other Assets The Company developed its online delivery platform with a third-party and put this platform into full production in 2011. The Company has prepaid perpetual license fees and source code rights for the software developed, and has prepaid maintenance and service fees. Included in current other assets is the amount that will be amortized in the next twelve-month cycle for maintenance and service fees and included in property and equipment is the amount that will be amortized over fifteen years for the perpetual licenses. Prepaid Royalty In connection with its February 2004 acquisition of the assets of the University from a non-profit foundation, the Company recorded a future royalty payment obligation that was included in the Prepaid Royalty in the accompanying consolidated balance sheet, which was being amortized over a 20 year period. This asset was to be expensed over the periods that online education revenues were earned. At the completion of the Transaction on July 1, 2018, the remaining prepaid royalty assets were deemed impaired and $ 3,037 was expensed and included in loss on transaction in the consolidated income statement. ​ 73 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) 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 value and useful lives of the intangible assets acquired involves certain judgments and estimates. These judgments 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 on 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 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 performed its annual goodwill impairment test, by performing a qualitative assessment. Following this assessment, the Company determined that it is more likely than not that its fair value exceeds its carrying amount. Finite-lived intangible assets that are acquired in business combinations 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. Share-Based Compensation The Company measures and recognizes compensation expense for share-based payment awards made to employees and directors. The fair value of the Company’s restricted stock awards is based on the market price of its common stock on the date of grant. Stock-based compensation expense related to restricted stock grants is expensed over the vesting period using the straight-line method for Company employees and the Company’s board of directors. The Company recognizes forfeitures as they occur. Derivatives and Hedging Derivative financial instruments are recorded on the consolidated 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 period 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. 74 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) Although the Company currently does not have any derivative financial instruments, derivative financial instruments have been used in the past to manage its exposure to interest rate risk. The Company does not engage in any derivative instrument trading activity. Fair Value of Financial Instruments The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued compensation and benefits and accrued liabilities approximate their fair value based on the liquidity or the short-term maturities of these instruments. As of December 31, 2020 the carrying value and fair value of the Company’s Secured Note was $ 964,912 and $ 1,049,458 , respectively. Fair value of the Secured Note was estimated based upon average yields of similar debt arrangements in the marketplace. As of December 31, 2019, the Secured Note approximated fair market value since it was recently negotiated in the Transaction at the fair market value. The carrying value of notes payable approximate fair value based on its 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. See Note 12, Derivative Instruments. The fair value of investments was determined using Level 1 and 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 and corporate securities consisting of bank and financial institution bonds and securities. Income Taxes The Company accounts for income taxes payable or refundable for the current year and deferred tax assets and liabilities for future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the temporary differences are expected to be realized. The Company applies a more-likely-than-not threshold for financial statement recognition and measurement of an uncertain tax position taken or expected to be taken in a tax return. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2020 and 2019, the Company has reserved approximately $ 11,318 and $ 6,773 , respectively, for uncertain tax positions, including interest and penalties, which is classified within accrued liabilities on the accompanying consolidated balance sheet. The Company has deferred tax assets, which are subject to periodic recoverability assessments. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. Realization of the deferred tax assets is principally dependent upon achievement of projected future taxable income. Commitments and Contingencies The Company accrues for a contingent obligation 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. 75 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) Revenue Recognition University related revenue – prior to July 1, 2018 On January 1, 2018, the Company adopted “Revenue from Contracts with Customers” using the modified retrospective method applied to all contracts. Prior to the Transaction on July 1, 2018, net revenues consisted primarily of tuition, net of scholarships, and fees derived from courses taught by the University online, on ground, and at facilities it leased or those of employers, as well as from related educational resources that the University provided to its students, such as access to online materials. Tuition revenue was recognized pro-rata over the applicable period of instruction. A contract was entered into with a student and covered a course or semester. Revenue recognition occurred once a student started attending a course. The University also charged online students an upfront learning management fee, which was deferred and recognized over the initial course. The University had no costs that were capitalized to obtain or to fulfill a contract with a customer. Ancillary revenues included housing and fee revenues that were recognized over the period the services were provided and also included revenues from sales and services such as food and beverage, merchandise, hotel, golf and arena events that were recognized as sales occurred or services were performed as these services were transferred at a point in time. For the six months ended June 30, 2018, the Company’s revenue was reduced by approximately $ 101,176 as a result of scholarships that the Company offered to students. Sales tax collected from students is excluded from net revenues. Collected but unremitted sales tax is included as an accrued liability in our consolidated balance sheet. The following table presents our revenues disaggregated by the nature of transfer of services for the six months ended June 30, 2018: ​ ​ ​ ​ Tuition revenues $ 522,430 Ancillary revenues (housing, meals, fees, golf, hotel, arena, other) ​ 91,245 Total revenues ​ 613,675 Scholarships ​ ( 101,176 ) Net Revenues ​ $ 512,499 ​ The Company’s receivables represented unconditional rights to consideration from its contracts with students; accordingly, students were not billed until they started attending a course and the revenue recognition process had commenced. Once a student had been invoiced, payment was due immediately. Included in each invoice to the student were all educational related items including tuition, net of scholarships, housing, educational materials, fees, etc. The Company did not have any contract assets. The Company’s contract liabilities were reported as deferred revenue and student deposits in the consolidated balance sheets. Deferred revenue and student deposits in any period represented the excess of tuition, fees, and other student payments received as compared to amounts recognized as revenue on the consolidated income statement and were reflected as current liabilities in the accompanying consolidated balance sheets. The Company’s education programs had starting and ending dates that differ from its fiscal quarters. Therefore, at the end of each fiscal quarter, a portion of revenue from these programs was not yet earned. The majority of the University’s traditional ground students did not attend courses during the summer months (May through August), which affected our results for our second and third fiscal quarters. The Company had identified a performance obligation associated with the provision of its educational instruction and other educational services, housing services, and other academic related services and used the output measure for recognition as the period of time over which the services were provided to our students. The Company had identified performance obligations related to its hotel, golf course, restaurants, sale of branded promotional items and other ancillary activities and recognized revenue at the point in time goods or services were provided to its customers. The Company maintained an institutional tuition refund policy, which provided for all or a portion of tuition to be refunded if a student withdrew during stated refund periods. Certain states in which students reside impose separate, mandatory refund policies, which overrode the Company’s policy to the extent in conflict. If a student withdrew at a time when only a portion, or none of the tuition was refundable, then in accordance with its revenue recognition policy, the Company 76 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) continued to recognize the tuition that was not refunded pro-rata over the applicable period of instruction. The Company did not record revenue on amounts that may be refunded. However, for students that had taken out financial aid to pay their tuition and for which a return of such money to ED under Title IV was required as a result of his or her withdrawal, the Company reassessed collectability for these students each quarter for the estimated revenue that will be returned and recognized the revenue in future periods when payment was received. The Company had elected the short-term contract exemption with respect to its performance obligations under its contracts with students as all such contracts had original terms of less than one year. Service revenue commenced July 1, 2018 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 December 31, 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 $ 294 and $ 118 as of December 31, 2020 and 2019, respectively, 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 77 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) 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 its 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 partner’s 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 through December 31, 2019, 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 these 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, rent, and occupancy costs attributable to the provision of these 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 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 these services, primarily at the Company’s Phoenix, Arizona and Indianapolis, Indiana locations. Advertising costs are expensed as incurred. 78 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) 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. University related expenses University related expenses represent the costs that were transferred to GCU in the Transaction and that are no longer incurred by the Company. Insurance/Self-Insurance The Company uses a combination of insurance and self-insurance for a number of risks, including claims related to employee health care, workers’ compensation, general liability, and business interruption. Liabilities associated with these risks are estimated based on, among other things, historical claims experience, severity factors, and other actuarial assumptions. The Company’s loss exposure related to self-insurance is limited by stop loss coverage on a per occurrence and aggregate basis. The Company regularly analyzes its reserves for incurred but not reported claims, and for reported but not paid claims related to self-funded insurance programs. While the Company believes reserves are adequate, significant judgment is involved in assessing these reserves such as assessing historical paid claims, average lags between the claims’ incurred date, reported dates and paid dates, and the frequency and severity of claims. There may be differences between actual settlement amounts and recorded reserves and any resulting adjustments are included in expense once a probable amount is known. 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 required 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 December 31, 2020 and 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 and its Secured Note. The Company has not experienced any losses on accounts receivables since July 1, 2018, the date the Company transitioned to an education service company. To manage accounts receivable risk, the Company maintains an allowance for doubtful accounts, if needed. The Company monitors the credit risk exposure of the counterparty of the Secured Note to determine whether an adjustment to allowance for credit loss is necessary. A significant deterioration in the financial viability of our counterparty and corresponding decline in the fair value of the collateralized assets could impact the collectability risk of the Secured Note. Our dependence on our largest university partner, which is also the counterparty to the Secured Note, with 86.8 % and 89.0 % of total service revenue for the years ended December 31, 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 Secured Note for the Company. 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 the Company’s operations as a whole and no expense or operating income information is generated or evaluated on any component level. 79 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) 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 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 80 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) of the reference rate reform will have a material impact on the Company’s financial condition, results of operations or statements of cash flows. 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. 5. Investments The Company classifies its investments as trading. At December 31, 2020 and 2019, the Company had $ 10,840 and $ 21,601 , respectively, of investments. These investments were held in municipal and corporate securities as of December 31, 2020 and 2019. The cash flows of municipal securities are backed by the issuing municipality’s credit worthiness. All municipal securities and certificate of deposit are due in one year or less as of December 31, 2020. 6. Allowance for Credit Losses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at ​ ​ Balance at ​ ​ Beginning of ​ Charged to ​ Deductions/ ​ End of ​ ​ Period (1) ​ Expense ​ Transfers (2)(3) ​ Period Allowance for credit losses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, 2020 ​ $ 5,000 — — ​ $ 5,000 Year ended December 31, 2019 ​ $ — — — ​ $ — Year ended December 31, 2018 ​ $ 5,907 8,669 ( 14,576 ) ​ $ — (1) Amount in the year ended December 31, 2020 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. (3) $ 6,093 included in the deductions column for the year ended December 31, 2018, represents the allowance that was transferred to GCU with other educational assets and liabilities on July 1, 2018. See Note 2. ​ 7. Property and Equipment ​ Property and equipment consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ ​ 2020 2019 Land ​ $ 5,579 ​ $ 5,579 Land improvements ​ 2,242 ​ 2,242 Buildings ​ 51,399 ​ 51,399 Buildings and leasehold improvements ​ 14,352 ​ 11,691 Computer equipment ​ 100,575 ​ 95,020 Furniture, fixtures and equipment ​ 15,439 ​ 10,423 Internally developed software ​ 46,981 ​ 37,175 Construction in progress ​ 5,043 ​ 3,238 ​ ​ 241,610 ​ 216,767 Less accumulated depreciation and amortization ​ ( 112,953 ) ​ ( 97,033 ) Property and equipment, net ​ $ 128,657 ​ $ 119,734 ​ Depreciation expense associated with property and equipment totaled $ 20,830 and $ 18,393 for the years ended December 31, 2020 and 2019, respectively. Depreciation and amortization expense associated with property and equipment, including assets under capital lease, totaled $ 35,525 for the year ended December 31, 2018. 81 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) 8. Intangible Assets Amortizable intangible assets consist of the following as of: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ Estimated ​ Gross ​ ​ ​ ​ Net ​ Average Useful ​ Carrying ​ Accumulated ​ Carrying ​ Life (in years) ​ Amount ​ Amortization ​ Amount University partner relationships 25 $ 210,000 ​ ( 16,362 ) $ 193,638 Trade names 1 ​ ​ 280 ​ ​ ( 280 ) ​ — Total amortizable intangible assets, net ​ ​ $ 210,280 ​ ​ ( 16,642 ) ​ $ 193,638 ​ Amortization expense for university partner relationships and trade names for the years ending December 31: ​ ​ ​ ​ ​ 2021 ​ $ 8,419 2022 ​ 8,419 2023 ​ ​ 8,419 2024 ​ ​ 8,419 2025 ​ ​ 8,419 Thereafter ​ 151,543 ​ ​ $ 193,638 ​ ​ 9. Leases The Company has operating leases for off-campus classroom and laboratory 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 Company has operating lease costs of $ 7,594 , $ 4,084 and $ 827 for the years ended December 31, 2020, 2019 and 2018, respectively. The consolidated financial statements for years before January 1, 2019 are not presented on the same accounting basis with respect to leases. There was an immaterial amount of future lease obligations as of December 31, 2018. The majority of leases that existed for the year ended December 31, 2018 were assigned to GCU in the Transaction that occurred on July 1, 2018. The Company’s weighted-average remaining lease term relating to its operating leases is 8.5 years, with a weighted-average discount rate of 3.27 % . As of December 31, 2020, the Company had no financing leases. Future payment obligations with respect to the Company’s operating leases, which were existing at December 31, 2020, by year and in the aggregate, are as follows: ​ ​ ​ ​ ​ Year Ending December 31, Amount 2021 ​ $ 9,278 2022 ​ ​ 8,938 2023 ​ ​ 8,436 2024 ​ ​ 7,920 2025 ​ ​ 7,584 Thereafter ​ ​ 31,034 Total lease payments ​ $ 73,190 Less interest ​ ​ 9,186 Present value of lease liabilities ​ $ 64,004 ​ 82 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) ​ 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 has 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 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, benefits and payments under the Secured Note and the Services Agreements. As of December 31, 2020, the Company is in compliance with its debt covenants. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, ​ 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 % ( 2.15 % at December 31, 2020) through January 22, 2024 ​ $ 107,774 ​ $ 140,918 Revolving line of credit; interest at 30-Day LIBOR plus 2.0 % ( 2.15 % at December 31, 2020) ​ ​ — ​ ​ — ​ ​ 107,774 ​ 140,918 Less: Current portion ​ 33,144 ​ 33,144 ​ ​ $ 74,630 ​ $ 107,774 ​ Payments due under the notes payable obligations are as follows as of December 31, 2020: ​ ​ ​ ​ ​ 2021 $ 33,144 2022 ​ ​ 33,144 2023 ​ ​ 33,145 2024 ​ ​ 8,341 2025 ​ ​ — Total ​ $ 107,774 ​ ​ 83 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) 11. Commitments and Contingencies Legal Matters From time to time, the Company is 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 is 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. 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 and Fall semesters. The pandemic could result in further reductions in education service revenue, operating income and margins in the Spring of 2021. 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, and/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. At both December 31, 2020 and 2019, the Company has no reserve for tax matters where its ultimate exposure is considered probable and the potential loss can be reasonably estimated. 12. Derivative Instruments 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, and $ 1,100 was reclassified from accumulated other comprehensive income into interest expense in the consolidated income statement. The fair value of the derivative 84 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) instrument was determined using a hypothetical derivative transaction and Level 2 of the hierarchy of valuation inputs. The adjustments of $ 497 and $ 157 for the years ended December 31, 2019 and 2018, respectively, for the effective portion of the gain/loss on the derivative are 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. 13. Earnings Per 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 Denominator: Basic weighted average shares outstanding 46,880 47,814 47,608 Effect of dilutive stock options and restricted stock 285 452 806 Diluted weighted average shares outstanding 47,165 48,266 48,414 ​ 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 each of the years ended December 31, 2020, 2019 and 2018, approximately 142 , 1 , 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. 14. Equity Transactions Preferred Stock As of December 31, 2020 and 2019, the Company had 10,000 shares of authorized but unissued and undesignated preferred stock. The Company’s charter provides that the board of directors has authority to issue preferred stock, with voting powers, designations, preferences, and special rights, qualifications, limitation, or restrictions as permitted by law as determined by the board of directors, without stockholder approval. The board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. Treasury Stock In July 2020, December 2020 and January 2021, the Board of Directors increased the authorization under our existing stock repurchase program by $ 50,000 , $ 100,000 and $ 100,000 , respectively, reflecting an aggregate authorization for share repurchases since the initiation of our program of $ 500,000 . The expiration date on the repurchase authorization is December 31, 2021 . Repurchases occur at the Company’s discretion. Repurchases may be 85 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) 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 year ended December 31, 2020 the Company repurchased 1,602 shares of common stock at an aggregate cost of $ 129,045 . At December 31, 2020, there remained $ 148,271 available under its current share repurchase authorization (which authorization was increased to $ 248,271 in January 2021). 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. 15. Income Taxes The Company has deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets are subject to periodic recoverability assessments. Realization of the deferred tax assets, net of deferred tax liabilities is principally dependent upon achievement of projected future taxable income. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more-likely-than-not that the Company will realize the benefits of these deductible differences. The Company has no valuation allowance at December 31, 2020 and 2019. On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. For businesses, the Act reduces the corporate federal tax rate from a maximum of 35 % to a flat 21 % rate. The rate reduction took effect on January 1, 2018. The Company concluded that the Act caused the Company’s deferred tax assets and liabilities to be revalued. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted though income tax expense. The components of income tax expense (benefit) are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 Current: ​ ​ ​ Federal ​ $ 63,932 ​ $ 57,354 ​ $ 60,764 State ​ 8,875 ​ ( 1,344 ) ​ 8,732 ​ ​ 72,807 ​ 56,010 ​ 69,496 Deferred: ​ ​ ​ Federal ​ 2,842 ​ 2,804 ​ ( 10,708 ) State ​ 295 ​ ( 487 ) ​ ( 799 ) ​ ​ 3,137 ​ 2,317 ​ ( 11,507 ) Tax expense recorded as an increase of paid-in capital ​ — ​ — ​ — ​ ​ $ 75,944 ​ $ 58,327 ​ $ 57,989 ​ 86 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) A reconciliation of income tax computed at the U.S. statutory rate to the effective income tax rate is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2020 2019 2018 Statutory U.S. federal income tax rate 21.0 % 21.0 % 21.0 % State income taxes, net of federal tax benefit 2.4 2.4 4.0 ​ State tax credits, net of federal effect ( 1.2 ) ( 1.0 ) ( 1.0 ) ​ Excess tax benefits ( 0.4 ) ( 2.3 ) ( 3.7 ) ​ Nondeductible expenses — 0.1 0.4 ​ Other 1.0 ( 1.8 ) ( 0.5 ) ​ Effective income tax rate 22.8 % 18.4 % 20.2 % ​ Significant components of the Company’s deferred income tax assets and liabilities, included in Deferred income taxes, non-current on the consolidated balance sheets are as follows: ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, As of December 31, ​ 2020 2019 Deferred tax assets: ​ ​ Share-based compensation ​ $ 2,535 ​ $ 2,499 Employee compensation ​ 832 ​ 614 Allowance for credit losses ​ 1,200 ​ — Intangibles ​ 20,633 ​ 23,693 State taxes ​ 2,787 ​ 1,764 Other ​ 964 ​ 432 Deferred tax assets ​ 28,951 ​ 29,002 ​ ​ ​ ​ ​ ​ ​ Deferred tax liability: ​ ​ Property and equipment ​ ( 12,764 ) ​ ( 10,865 ) Goodwill ​ ( 36,295 ) ​ ( 36,295 ) Other ​ ( 180 ) ​ ( 162 ) Deferred tax liability ​ ( 49,239 ) ​ ( 47,322 ) Net deferred tax liability ​ $ ( 20,288 ) ​ $ ( 18,320 ) ​ The net deferred tax liability on the accompanying consolidated balance sheet is comprised of the following: ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, As of December 31, ​ 2020 2019 Deferred income taxes, current ​ $ 4,639 ​ $ 2,215 Deferred income taxes, non-current ​ ( 24,927 ) ​ ( 20,535 ) Net deferred tax liability ​ $ ( 20,288 ) ​ $ ( 18,320 ) ​ The Company recognizes the impact of a tax position in its financial statements if that position is more-likely-than-not to be sustained on audit, based on the technical merits of the position. The Company discloses all unrecognized tax benefits, which includes the reserves recorded for uncertain tax positions on filed tax returns and the unrecognized portion of affirmative claims. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Unrecognized tax benefits as of December 31, 2020 and 2019 were $ 11,318 and $ 6,773 , respectively. 87 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) The reconciliation of the beginning and ending balance of unrecognized tax benefits at December 31, is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 2019 Unrecognized tax benefits, beginning of year ​ $ 6,773 ​ $ 1,960 Tax positions taken during the current year ​ ​ Increases ​ 4,521 ​ 5,671 Decreases ​ — ​ — Tax positions taken during a prior year ​ ​ Increases ​ 962 ​ 96 Decreases ​ — ​ — Decreases for settlements during the period ​ ( 235 ) ​ — Reductions for lapses of applicable statute of limitations ​ ( 703 ) ​ ( 954 ) Unrecognized tax benefits, end of year ​ $ 11,318 ​ $ 6,773 ​ As of December 31, 2020 and 2019, the unrecognized tax benefit recorded of $ 11,318 and $ 6,773 , respectively, if reversed, would impact the effective tax rate. At December 31, 2020 and 2019, the Company had accrued $ 46 and $ 153 , respectively, in interest and $ 0 , in penalties. It is reasonably possible that the amount of the unrecognized tax benefit will change during the next 12 months, however management does not expect the potential change to have a material effect on the results of operations or financial position. The Company’s uncertain tax positions were related to tax years that remained subject to examination by tax authorities. As of December 31, 2020, the earliest tax year still subject to examination for federal and state purposes is 2017 and 2016, respectively. ​ 16. Share-Based Compensation Plans Incentive Plans 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 December 31, 2020, 1,599 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 fiscal years 2020, 2019, and 2018, the Company granted 164 , 149 , and 160 shares of common stock, respectively, with a service vesting condition to certain of its executives, officers, and employees. The restricted shares have voting rights and vest evenly at 20 % over each of the next five years . Upon vesting, shares will be held in lieu of taxes equivalent to the statutory tax withholding required to be paid when the restricted stock vests. During the years ended December 31, 2020, 2019 and 2018, the Company withheld 62 , 68 , and 151 shares of common stock in lieu of taxes at a cost of $ 4,969 , $ 8,127 , and $ 15,152 , on the restricted stock vesting dates, respectively. During 2020, 2019 and 2018, following the annual stockholders meeting, the Company granted 3 , 3 and 3 shares of common stock to the non-employee members of the Company’s Board of Directors. The restricted shares granted to these directors have voting rights and vest on the earlier of (a) the one year anniversary of the date of grant or (b) immediately prior to the following year’s annual stockholders’ meeting. Included in the 2019 amount are shares of common stock granted in August 2019 to two new non-employee members of the Company’s Board of Directors. The restricted shares granted to these directors have voting rights and vest on the one year anniversary of the date of grant. 88 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) In conjunction with the GCU Transaction, the Compensation Committee of the Company’s Board of Directors decided to modify the vesting condition for certain restricted stock awards for approximately 100 Transferred Employees who transferred employment from GCE to GCU, with the acceleration being contingent upon the closing of the Transaction on July 1, 2018. Refer to Note 2 for further discussion on the Transaction. As a result, the incremental share-based compensation expense from the modification on 82 restricted stock awards for the accelerated vesting date was $ 7,880 and is included in the university related expenses in the consolidated income statement. Additionally, the Company transferred cash to GCU totaling $ 9,568 to fund a deferred compensation plan in an amount equal to the value of the 86 shares forfeited by the Transferred Employees at the closing of the Transaction. This amount is included in the loss on transaction in the consolidated income statement. A summary of the activity related to restricted stock granted under the Company’s Incentive Plan is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted Average ​ ​ Total ​ Grant Date ​ ​ Shares ​ Fair Value per Share Outstanding as of December 31, 2017 776 ​ $ 49.16 Granted 163 ​ $ 92.34 Vested ( 384 ) ​ $ 65.57 Forfeited, canceled or expired ( 95 ) ​ $ 71.60 Outstanding as of December 31, 2018 460 ​ $ 63.28 Granted 152 ​ $ 93.62 Vested ( 174 ) ​ $ 56.14 Forfeited, canceled or expired ( 16 ) ​ $ 82.11 Outstanding as of December 31, 2019 422 ​ $ 76.43 Granted 167 ​ $ 84.31 Vested ( 155 ) ​ $ 65.19 Forfeited, canceled or expired ( 15 ) ​ $ 84.64 Outstanding as of December 31, 2020 419 ​ $ 83.43 ​ As of December 31, 2020, there was approximately $ 25,332 of total unrecognized share-based compensation cost related to unvested restricted stock awards. These costs are expected to be recognized over a weighted average period of 2.09 years. Stock Options No options were granted in 2020, 2019 and 2018. Prior to 2012, the Company granted time vested options to purchase shares of common stock with an exercise price equal to the fair market value on the date of grant to employees. 89 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) These time vested options vest ratably over a period of five years and expire ten years from the date of grant. A summary of the activity 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, 2017 694 ​ $ 17.31 ​ ​ ​ ​ ​ Granted — ​ $ — ​ Exercised ( 250 ) ​ $ 18.47 ​ Forfeited, canceled or expired — ​ $ — ​ Outstanding as of December 31, 2018 444 ​ $ 16.66 ​ ​ ​ ​ ​ Granted — ​ $ — ​ Exercised ( 212 ) ​ $ 18.01 ​ Forfeited, canceled or expired — ​ $ — ​ Outstanding as of December 31, 2019 232 ​ $ 15.42 ​ ​ ​ ​ ​ Granted — ​ $ — ​ Exercised ( 56 ) ​ $ 15.66 ​ Forfeited, canceled or expired — ​ $ — ​ Outstanding as of December 31, 2020 176 ​ $ 15.34 0.19 ​ $ 13,586 Exercisable as of December 31, 2020 176 ​ $ 15.34 0.19 ​ $ 13,586 (1) Aggregate intrinsic value represents the value of the Company’s closing stock price on December 31, 2020 ( $ 93.11 ) in excess of the exercise price multiplied by the number of options outstanding or exercisable. ​ Share-based Compensation Share-based Compensation Expense Assumptions – Restricted Stock Awards The Company measures and recognizes compensation expense for share-based payment awards made to employees and directors. The fair value of the Company’s restricted stock awards is based on the market price of its common stock on the date of grant. Stock-based compensation expense related to restricted stock grants is expensed over the vesting period using the straight-line method for Company employees and the Company’s board of directors. The Company recognizes forfeitures as they occur. The restricted shares have voting rights. 90 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) The table below outlines share-based compensation expense for the fiscal years ended December 31, 2020, 2019 and 2018 related to restricted stock and stock options granted: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 2019 2018 Technology and academic services ​ $ 2,049 ​ $ 1,721 ​ $ 1,585 Counseling services and support ​ 5,364 ​ 5,297 ​ 4,926 Marketing and communication ​ 100 ​ 87 ​ 48 General and administrative ​ 3,150 ​ 3,195 ​ 3,355 University related expenses ​ — ​ — ​ 9,594 Share-based compensation expense included in operating expenses ​ 10,663 ​ 10,300 ​ 19,508 Tax effect of share-based compensation ​ ( 2,666 ) ​ ( 2,575 ) ​ ( 4,877 ) Share-based compensation expense, net of tax ​ $ 7,997 ​ $ 7,725 ​ $ 14,631 ​ 401(k) Plan The Company has established a 401(k) Defined Contribution Benefit Plan (the “Plan”). The Plan provides eligible employees, upon date of hire, with an opportunity to make tax-deferred contributions into a long-term investment and savings program. All employees over the age of 21 are eligible to participate in the plan. The Plan allows eligible employees to contribute to the Plan subject to Internal Revenue Code restrictions and the Plan allows the Company to make discretionary matching contributions. The Company plans to make a matching contribution to the Plan of approximately $ 2,225 for the year ended December 31, 2020. The Company made discretionary matching contributions to the Plan of $ 2,529 and $ 1,625 for the years ended December 31, 2019 and 2018, respectively. 17. Related Party Transactions ​ Related party transactions include transactions between the Company and certain of its affiliates. The following transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the parties. ​ As of and for the years ended December 31, 2020, 2019 and 2018, related party transactions consisted of the following: ​ Affiliates ​ GCE Community Fund (“GCECF”) - GCECF was initially formed in 2014. GCECF makes grants for charitable, educational, literary, religious or scientific purposes within the meaning of Section 501(c ) (3) of the Internal Revenue Code, including for such purposes as the making of distributions to organizations that qualify as exempt organizations under Section 501 (c ) (3) of the Code. The Company’s CEO and Director serves as the president of GCECF. All of the board seats are taken by Company executives. The Company is not the primary beneficiary of GCECF, and accordingly, the Company does not consolidate GCECF’s statement of activities with its financial results. The Company contributed $ 1,100 for the year ended December 31, 2020, of which no amounts were owed at December 31, 2020. ​ 91 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) 18. Quarterly Results of Operations (Unaudited) The following table summarizes the unaudited quarterly results of operations for 2020 and 2019 and should be read in conjunction with other information included in the accompanying consolidated financial statements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ First Quarter Second Quarter Third Quarter Fourth Quarter Service revenue ​ $ 221,655 ​ $ 185,768 ​ $ 198,384 ​ $ 238,289 Costs and expenses: ​ ​ ​ ​ Technology and academic services ​ 26,277 ​ 27,151 ​ 30,751 ​ 31,833 Counseling services and support ​ 60,219 ​ 57,596 ​ 58,214 ​ 58,505 Marketing and communication ​ 42,693 ​ 41,105 ​ 42,244 ​ 38,292 General and administrative ​ 9,565 ​ 9,501 ​ 14,031 ​ 10,263 Amortization of intangible assets ​ ​ 2,105 ​ ​ 2,105 ​ ​ 2,105 ​ ​ 2,104 Loss on transaction ​ — ​ — ​ — ​ — Total costs and expenses ​ 140,859 ​ 137,458 ​ 147,345 ​ 140,997 Operating income ​ 80,796 ​ 48,310 ​ 51,039 ​ 97,292 Interest income on Secured Note ​ 14,710 ​ 14,723 ​ 14,885 ​ 14,872 Interest expense ​ ( 1,546 ) ​ ( 1,073 ) ​ ( 918 ) ​ ( 865 ) Investment interest and other ​ 216 ​ 396 ​ 181 ​ 122 Income before income taxes ​ 94,176 ​ 62,356 ​ 65,187 ​ 111,421 Income tax expense ​ 22,791 ​ 15,346 ​ 13,141 ​ 24,666 Net income ​ $ 71,385 ​ $ 47,010 ​ $ 52,046 ​ $ 86,755 Earnings per share: ​ ​ ​ ​ Basic income per share (1) ​ $ 1.50 ​ $ 1.00 ​ $ 1.11 ​ $ 1.87 Diluted income per share (1) ​ $ 1.49 ​ $ 1.00 ​ $ 1.11 ​ $ 1.86 Basic weighted average shares outstanding ​ 47,455 ​ 46,893 ​ 46,808 ​ 46,369 Diluted weighted average shares outstanding ​ 47,764 ​ 47,151 ​ 47,095 ​ 46,655 (1) The sum of quarterly income per share may not equal annual income per share due to rounding. 92 Table of Contents Grand Canyon Education, Inc. Notes to Consolidated Financial Statements (In thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 ​ First Quarter Second Quarter Third Quarter Fourth Quarter Service revenue ​ $ 197,287 ​ $ 174,820 ​ $ 193,289 ​ $ 213,247 Costs and expenses: ​ ​ ​ ​ Technology and academic services ​ 18,625 ​ 22,528 ​ 24,231 ​ 25,128 Counseling services and support ​ 53,093 ​ 54,299 ​ 56,249 ​ 59,957 Marketing and communication ​ 35,967 ​ 35,726 ​ 37,340 ​ 33,863 General and administrative ​ 11,397 ​ 9,216 ​ 13,556 ​ 10,148 Amortization of intangible assets ​ 1,686 ​ 2,179 ​ 2,179 ​ 2,179 Loss on transaction ​ 4,088 ​ ( 122 ) ​ — ​ — Total costs and expenses ​ 124,856 ​ 123,826 ​ 133,555 ​ 131,275 Operating income ​ 72,431 ​ 50,994 ​ 59,734 ​ 81,972 Interest income on Secured Note ​ 13,735 ​ 14,482 ​ 16,208 ​ 14,872 Interest expense ​ ( 2,586 ) ​ ( 2,907 ) ​ ( 2,875 ) ​ ( 2,943 ) Investment interest and other ​ 1,119 ​ 2,668 ​ 255 ​ 343 Income before income taxes ​ 84,699 ​ 65,237 ​ 73,322 ​ 94,244 Income tax expense ​ 11,456 ​ 14,125 ​ 15,171 ​ 17,575 Net income ​ $ 73,243 ​ $ 51,112 ​ $ 58,151 ​ $ 76,669 Earnings per share: ​ ​ ​ ​ Basic income per share (1) ​ $ 1.54 ​ $ 1.07 ​ $ 1.21 ​ $ 1.61 Diluted income per share (1) ​ $ 1.52 ​ $ 1.06 ​ $ 1.20 ​ $ 1.59 Basic weighted average shares outstanding ​ 47,699 ​ 47,851 ​ 47,920 ​ 47,758 Diluted weighted average shares outstanding ​ 48,274 ​ 48,313 ​ 48,337 ​ 48,112 (1) The sum of quarterly income per share may not equal annual income per share due to rounding. ​ ​ ​ 93 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.