What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-05 compared with 2020-11-05 · 164 added, 250 removed, 375 unchanged (52% of the section changed)

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(In thousands, except per share data)

6 unchanged sentences

Amortization of intangible assets

Loss on transaction

Total costs and expenses

12 unchanged sentences

GRAND CANYON EDUCATION, INC.

Consolidated Statements of Comprehensive Income

Three Months Ended

Nine Months Ended

September 30,

(In thousands)

Other comprehensive income, net of tax:

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

Comprehensive income

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

GRAND CANYON EDUCATION, INC.

Consolidated Balance Sheets

September 30,

(In thousands, except par value)

1 unchanged sentence

Cash and cash equivalents

Restricted cash and cash equivalents

Accounts receivable, net

25 unchanged sentences

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

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

0 shares issued and outstanding at March 31, 2021 and December 31, 2020

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

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

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

53,633 and 53,277 shares issued and 46,382 and 46,649 shares outstanding at March 31, 2021 and December 31, 2020, respectively

Treasury stock, at cost, 7,251 and 6,628 shares of common stock at March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

Accumulated other comprehensive loss

Retained earnings

3 unchanged sentences

GRAND CANYON EDUCATION, INC.

Consolidated Statement of Other Comprehensive Income

Three Months Ended

(In thousands)

Other comprehensive income, net of tax:

Unrealized losses on available-for-sale securities, net of taxes of $ 35 for the three months ended March 31, 2021

Comprehensive income

GRAND CANYON EDUCATION, INC.

Consolidated Statement of Stockholders’ Equity

(In thousands)

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Treasury Stock

1 unchanged sentence

Balance at December 31, 2020

Cumulative effect from the adoption of accounting pronouncements, net of taxes of $ 1,168

Comprehensive income

3 unchanged sentences

Exercise of stock options

Balance at September 30, 2020

Nine Months Ended September 30, 2019

Balance at March 31, 2021

Three Months Ended March 31, 2020

Treasury Stock

1 unchanged sentence

Balance at December 31, 2019

Cumulative effect from the adoption of accounting pronouncements, net of taxes of $ 1,168

Comprehensive income

3 unchanged sentences

Exercise of stock options

Balance at September 30, 2019

Balance at March 31, 2020

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

1 unchanged sentence

Consolidated Statements of Cash Flows

Nine Months Ended

September 30,

Three Months Ended

(In thousands)

5 unchanged sentences

Deferred income taxes

Loss on transaction

Other, including fixed asset impairments

10 unchanged sentences

Additions of amortizable content

Acquisition, net of cash acquired

Funding to GCU

Repayment by GCU

Purchases of investments

1 unchanged sentence

Net cash used in investing activities

Cash flows (used in) provided by financing activities:

Cash flows used in financing activities:

Principal payments on notes payable

Debt issuance costs

Proceeds from notes payable

Net borrowings from revolving line of credit

Repurchase of common shares including shares withheld in lieu of income taxes

Net proceeds from exercise of stock options

Net cash (used in) provided by financing activities

Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents and restricted cash

7 unchanged sentences

Allowance for credit losses of $ 5,000 , net of taxes of $ 1,168 from adoption of ASU 2016-13

Lease adoption - recognition of right of use assets and lease liabilities

ROU Asset and Liability recognition

7 unchanged sentences

GCE has developed significant technological solutions, infrastructure and operational processes to provide services to these institutions on a large scale.

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

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

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

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

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

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

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

Orbis Education is an education services company that supports healthcare education programs for university partners across the United States.

Concurrent with the closing of the Acquisition, GCE entered into an amended and restated credit agreement and used $ 191,000 from the amended and restated credit agreement and $ 171,034 of operating cash on hand to complete the purchase.

See Note 10 of our consolidated financial statements for a description of the amended and restated credit agreement.

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

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

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

Under this method the cost of the target is allocated to the identifiable assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition.

The following table provides a tabular depiction of the Company’s

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

allocation of the total purchase price to each of the assets acquired and liabilities assumed based on the Company’s fair value estimates.

Assets acquired

Cash, including $ 300 of pledged collateral

Accounts receivable, net of allowance of $ 0

Property and equipment

Right-of-use assets

Intangible assets

Liabilities assumed

Accounts payable

Accrued and other liabilities

Lease liability

Deferred tax liability

Deferred revenue

Total net asset or liability purchased and assumed

Purchase price

Excess of fair value of net assets acquired over consideration given

The estimated fair values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature.

The majority of property and equipment were also estimated based upon historical costs as they approximated fair value.

Identified intangible assets of $ 210,280 consisted primarily of university partner relationships that were valued at $ 210,000 .

The fair value of university partner relationships was determined using the multiple-period excess earnings method.

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

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

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

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 healthcare-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 March 31, 2021, GCE provides education services to 26 university partners across the United States.

Summary of Significant Accounting Policies

7 unchanged sentences

generally accepted accounting principles for complete financial statements.

Such interim financial information is unaudited but reflects all

Such interim financial information is unaudited but reflects all adjustments that in the opinion of management are necessary for the fair presentation of the interim periods presented.

Interim results are not necessarily indicative of results for a full year.

These consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020 from which the December 31, 2020 balance sheet information was derived.

At March 31, 2021 and December 31, 2020, the Company considers its investments in corporate bonds, commercial paper, municipal securities, asset backed securities, municipal bonds, and collateralized mortgage obligations either as trading securities or available-for-sale 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 inputs other than quoted prices that are observable for the assets.

Available-for-sale securities are carried at fair value, determined using Level 2 of the hierarchy of valuation inputs, with the use of inputs other than quoted prices that are observable for the assets, with unrealized gains and losses, net of tax,

Grand Canyon Education, Inc.

1 unchanged sentence

(In thousands, except per share data)

adjustments that in the opinion of management are necessary for the fair presentation of the interim periods presented.

Interim results are not necessarily indicative of results for a full year.

These consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 from which the December 31, 2019 balance sheet information was derived.

Restricted Cash and Cash Equivalents

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

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

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

reported as a separate component of other comprehensive income.

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.

Arrangements with GCU

3 unchanged sentences

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

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

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

As of March 31, 2021, the Company had loaned $ 99,815 to GCU, net of repayments.

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

Except for identified liabilities assumed by GCU, GCE retained responsibility for all liabilities of the business arising from pre-closing operations.

Internally Developed Technology

Internally Developed Software

The Company capitalizes certain costs related to internal-use software, primarily consisting of direct labor associated with creating the software.

3 unchanged sentences

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.

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Once the software is placed in service, these costs are amortized straight-line 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 sheets.

Capitalized Content Development

6 unchanged sentences

Capitalized content development assets are included in other assets in our consolidated balance sheets.

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

As of September 30, 2020, $ 1,031 , net of amortization, of deferred content assets are included in other assets, long-term in the Company’s consolidated balance sheets and amortization is included in technical and academic services where the costs originated.

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

corresponds with course’s review and major revision cycle.

As of March 31, 2021 and December 31, 2020, $ 1,166 and $ 1,198 , respectively, net of amortization, of deferred content assets are included in other assets, long-term in the Company’s consolidated balance sheets and amortization is included in technical and academic services where the costs originated.

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

12 unchanged sentences

The net assets and result of operations of an acquired entity are included in the Company’s consolidated financial statements from the acquisition date.

Goodwill and Intangible Assets

Goodwill and Amortizable 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

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

our reporting unit at the education services segment, which is the same as the entity as a whole (entity level reporting unit).

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.

6 unchanged sentences

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the assets.

If such intangible assets are not recoverable, a potential impairment loss is recognized to the extent the carrying amounts of the assets exceeds the fair value of the assets.

Derivatives and Hedging

Derivative financial instruments are recorded on the balance sheet as assets or liabilities and re-measured at fair value at each reporting date.

For derivatives designated as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

Derivative financial instruments enable the Company to manage its exposure to interest rate risk.

The Company does not engage in any derivative instrument trading activity.

In 2013, the Company entered into an interest rate corridor to manage its 30-Day LIBOR interest exposure related to its variable rate debt.

In December 2019 this cash flow hedge expired.

The fair value of the interest rate corridor instrument as of September 30, 2019 was $ 79 , which was included in other assets.

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

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

The adjustment of $ 418 for the nine months ended September 30, 2019, for the effective portion of the losses on the derivative was included as a component of other comprehensive income, net of taxes.

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

The corridor instrument’s terms permitted the Company to hedge its interest rate risk at several thresholds;

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

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

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

Therefore, the Company hedged its exposure to future variable rate cash flows through December 20, 2019.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, investments, accounts receivable, accounts payable, accrued compensation and benefits and accrued liabilities expenses approximate their fair value based on the liquidity or the short-term maturities of these instruments.

The carrying value of Secured Note receivable, non-current approximates fair value as the Secured Note resulted from the GCU Transaction and was negotiated at fair market value.

If such intangible assets are not

Grand Canyon Education, Inc.

1 unchanged sentence

(In thousands, except per share data)

value of notes payable approximates fair value as it is based on variable rate index.

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

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

recoverable, a potential impairment loss is recognized to the extent the carrying amounts of the assets exceeds the fair value of the assets.

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

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 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.

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

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.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued compensation and benefits and accrued liabilities expenses approximate their fair value based on the liquidity or the short-term maturities of these instruments.

As of March 31, 2021 and December 31, 2020 the fair value of the Company’s Secured Note was $ 1,045,591 and $ 1,049,458 , respectively.

As of March 31, 2021 and December 31, 2020 the carrying value of Secured Note receivable for both periods was $ 964,912 .

The carrying value of notes payable approximates fair value as it is based on variable rate index.

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, housing and corporate securities consisting of bank and financial institution bonds and securities.

The basis for fair value measurements for each level is described below, with Level 1 having the highest priority.

-Level 1 – inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

-Level 2 – inputs are quoted prices for similar instruments in active markets;

quoted prices for identical or similar instruments in non-active markets;

and model-derived valuations whose inputs are observable or whose significant valuation drivers are observable.

Investments are comprised of corporate bonds, commercial paper, municipal securities, asset backed securities, municipal bonds, and collateralized mortgage obligations.

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Revenue Recognition

Starting July 1, 2018, the Company generates all of its revenue through services agreements with its university partners (“Services Agreements”), pursuant to which the Company provides integrated technology and academic services, marketing and communication services, and back office services to its university partners in return for a percentage of tuition and fee revenue.

The Company 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.

11 unchanged sentences

The Company’s receivables represent unconditional rights to consideration from our Services Agreements with our university partners.

Accounts receivable, net is stated at net realizable value and contains billed and unbilled revenue.

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

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

Accounts receivable, net is stated at amortized cost, net of any allowance for credit losses and contains billed and unbilled revenue.

The Company evaluates the need for an allowance for credit losses using relevant available information about expected credit losses, including information about historical credit losses, past events, current conditions, and other factors which may affect the collectability of receivables.

There have been no amounts written off and no allowance for credit losses established as of March 31, 2021 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

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

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

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 $ 10,132 and $ 294 as of March 31, 2021 and December 31, 2020, 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.

1 unchanged sentence

These payments are recorded as deferred revenue until the services are delivered and revenue is recognized.

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Allowance for Credit Losses

The Company records our accounts receivable and Secured Note receivable at the net amount expected to be collected.

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.

8 unchanged sentences

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.

Bad debt expense is recorded as a technology and academic services expense in the consolidated income statements.

The Company will continue to actively monitor the impact of the COVID-19 pandemic on expected credit losses.

9 unchanged sentences

Marketing and Communication

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

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

promotional and communication services.

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

1 unchanged sentence

Advertising costs are expensed as incurred.

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

General and Administrative

10 unchanged sentences

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

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

All of the Company’s cash equivalents and investments as of March 31, 2021 and December 31, 2020 consist of investments rated BBB or higher by at least one rating agency.

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

The Company is also subject to credit risk for its accounts receivable balance.

The Company is also subject to credit risk for its accounts receivable balance and its Secured Note.

The Company has not experienced any losses on receivables since July 1, 2018, the date the Company transitioned to an educational service provider.

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

Our dependence on our most significant university partner, with 86.5 % and 89.0 % of total service revenue for the nine-month periods ended September 30, 2020 and 2019, respectively, subjects us to the risk that declines in our customer’s operations would result in a sustained reduction in service revenue and interest income on the Secured Note for the Company.

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 most significant university partner, which is also the counterparty to the Secured Note, with 87.4 % and 87.9 % of total service revenue for the three-month periods ended March 31, 2021 and 2020, respectively, subjects us to the risk that declines in our customer’s operations would result in a sustained reduction in service revenue and interest income on the Secured Note for the Company.

Use of Estimates

4 unchanged sentences

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

The Company’s Chief Executive Officer manages

The Company’s 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.

Grand Canyon Education, Inc.

1 unchanged sentence

(In thousands, except per share data)

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

Accounting Pronouncements Adopted in 2021

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.

3 unchanged sentences

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.

Accordingly, the standard was adopted by the Company as of January 1, 2021.

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.

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 March 2020, the FASB issued ASU No.

2 unchanged sentences

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

It provides optional expedients and exceptions for applying generally accepted accounting

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

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

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.

2 unchanged sentences

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.

The Company classifies its investments as trading.

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

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

At March 31, 2021 and December 31, 2020, the Company had investments of $ 8,015 and $ 10,840 , respectively, classified as trading.

The trading investments are held in municipal and corporate securities as of March 31, 2021 and December 31, 2020 and are due in one year or less as of March 31, 2021.

The cash flows of municipal securities are backed by the issuing municipality’s credit-worthiness.

At March 31, 2021, the Company had available-for-sale investments of $ 28,428 , comprised of the following:

As of March 31, 2021

Corporate bonds

Commercial paper

Municipal securities

Asset backed securities

Total investments

For the three months ended March 31, 2021, the net unrealized gains or (losses) were $ 120 , net of taxes.

Available-for-sale debt securities are carried at fair value on the consolidated balance sheets.

The Company estimates

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

the lifetime expected credit losses for all available-for sale debt securities in an unrealized loss position.

If our assessment indicates that an expected credit loss exists, we determine the portion of the unrealized loss attributable to credit deterioration and record a reserve for the expected credit loss in the allowance for credit losses in technology and academic services in our consolidated income statements.

As of March 31, 2021, there were no credit losses for our available-for-sale debt securities.

Available-for-sale securities maturing as of December 31:

2021 (Remainder of year)

Net Income Per Common Share

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Basic weighted average shares outstanding

2 unchanged sentences

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

For the three month periods ended September 30, 2020 and 2019, approximately 79 and 0 , respectively, and for the nine month periods ended September 30, 2020 and 2019, approximately 148 and 0 , respectively, of the Company’s restricted stock awards outstanding were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.

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

For the three month periods ended March 31, 2021 and 2020, approximately 1 and 284 , 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 restricted stock awards could be dilutive in the future.

Allowance for Credit Losses

1 unchanged sentence

Allowance for credit losses

Nine months ended September 30, 2020

Nine months ended September 30, 2019

Three months ended March 31, 2021

Three months ended March 31, 2020

Grand Canyon Education, Inc.

1 unchanged sentence

(In thousands, except per share data)

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

2016-13 on the Secured Note receivable.

(1) Amount represents the cumulative effect of the adoption of ASU No.

2016-13 on the Secured Note.

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

1 unchanged sentence

Property and equipment consist of the following:

September 30,

Land improvements

6 unchanged sentences

Property and equipment, net

Intangible Assets

Amortizable Intangible Assets

Amortizable intangible assets consist of the following as of:

September 30, 2020

March 31, 2021

Average Useful

5 unchanged sentences

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

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

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

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

3 unchanged sentences

(In thousands, except per share data)

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

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

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

Company had operating lease costs of $ 2,435 and $ 1,441 for the three-month periods ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, the Company had no non-cancelable operating lease commitments that had not yet commenced.

The Company’s weighted-average remaining lease term relating to its operating leases is 8.36 years, with a weighted-average discount rate of 3.21 %.

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

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

As of March 31, 2021, the Company had no financing leases.

Future payment obligations with respect to the Company’s operating leases, which were existing at March 31, 2021, by year and in the aggregate, are as follows:

Year Ending December 31,

Remainder of 2021

Total lease payments

3 unchanged sentences

We entered into an amended and restated credit agreement dated January 22, 2019 and two related amendments dated January 31, 2019 and dated February 1, 2019, respectively, that together provide a credit facility of $ 325,000 comprised of a term loan facility of $ 243,750 and a revolving credit facility of $ 81,250 , both with a five-year maturity date.

The term facility is subject to quarterly amortization of principal, commencing with the fiscal quarter ended June 30, 2019, in equal installments of 5 % of the principal amount of the term facility per quarter.

Both the term loan and revolver have monthly interest payments currently at 30 Day LIBOR plus an applicable margin of 2 % .

The proceeds of the term loan, together with $ 6,250 drawn under the revolver and operating cash on hand were used to complete the Acquisition.

Concurrent with the amendment of the credit agreement and Acquisition, we repaid our existing term loan of $ 59,850 and our cash collateral of $ 61,667 was released.

The Company concluded that the amended and restated credit agreement is considered a loan modification.

Accordingly, the Company allocated the costs paid to the bank consortium based on the borrowing dollars and recorded an asset of $ 596 and a contra liability of $ 1,639 , which are related to our revolver and term loan, respectively, that is being amortized to interest expense over the five-year maturity date.

Additionally, the Company expensed $ 150 of third-party costs in the first quarter of 2019 related to this loan modification.

The Company entered into a further amendment for the credit facility on October 31, 2019.

7 unchanged sentences

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

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

As of September 30,

As of March 31, 2021, the Company is in compliance with its debt covenants.

As of March 31,

As of December 31,

1 unchanged sentence

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

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

interest at 30-Day LIBOR plus 2.00 % ( 2.12 % at March 31, 2021) through January 22, 2024

Revolving line of credit;

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

interest at 30-Day LIBOR plus 2.0 % ( 2.12 % at March 31, 2021)

Current portion

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

Payments due under the notes payable obligations are as follows as of December 31:

Remainder of 2021

Commitments and Contingencies

7 unchanged sentences

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

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

COVID-19 Considerations

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

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

The pandemic could result in further reductions in education service revenue, operating income and margins in the fourth quarter of 2020.

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

If some of our university partners are not able to allow their students to return to their campus locations in the Spring of 2021 this will have a further impact on our service revenue, operating income and margins.

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

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

Tax, Income Tax Related

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

1 unchanged sentence

The Company reserve is not material for tax matters where its ultimate exposure is considered probable and the potential loss can be reasonably estimated.

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Share-Based Compensation

Incentive Plan

Prior to June 2017, the Company made grants of restricted stock and stock options under its 2008 Equity Incentive Plan (the “2008 Plan”).

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

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

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

The Company makes equity incentive grants pursuant to our 2017 Equity Incentive Plan (the “2017 Plan”) under which a maximum of 3,000 shares may be granted.

As of March 31, 2021, 1,418 shares were available for grants under the 2017 Plan.

Restricted Stock

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

During the three months ended March 31, 2021, the Company granted 180 shares of common stock with a service vesting condition to certain of its executives, officers and employees.

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

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

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

In June 2020, following the annual stockholders meeting, the Company granted 3 shares of common stock to the non-employee

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

members of the Company’s Board of Directors.

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

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

During the three months ended March 31, 2021, the Company withheld 56 shares of common stock in lieu of taxes at a cost of $ 5,994 on the restricted stock vesting dates.

A summary of the activity related to restricted stock granted under the Company’s Incentive Plan since December 31, 2020 is as follows:

3 unchanged sentences

Forfeited, canceled or expired

Outstanding as of September 30, 2020

Outstanding as of March 31, 2021

Stock Options

During the nine months ended September 30, 2020, no options were granted.

During the three months ended March 31, 2021, no options were granted.

A summary of the activity since December 31, 2020 related to stock options granted under the Company’s Incentive Plan is as follows:

Summary of Stock Options Outstanding

Value ($) (1)

Outstanding as of December 31, 2020

Forfeited, canceled or expired

Outstanding as of September 30, 2020

Exercisable as of September 30, 2020

(1) Aggregate intrinsic value represents the value of the Company’s closing stock price on September 30, 2020 ( $ 79.94 ) in excess of the exercise price multiplied by the number of shares underlying options outstanding or exercisable, as applicable.

Outstanding as of March 31, 2021

Exercisable as of March 31, 2021

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Share-based Compensation Expense

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

The table below outlines share-based compensation expense for the three months ended March 31, 2021 and 2020 related to restricted stock granted:

Technology and academic services

5 unchanged sentences

Share-based compensation expense, net of tax

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Treasury Stock

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

In January 2021, the Board of Directors increased the authorization under its existing stock repurchase program by $ 100,000 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.

2 unchanged sentences

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

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

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

On March 10, 2021, the Company entered into an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co.

LLC (“Morgan Stanley”) to repurchase up to $ 35,000 of its outstanding shares of common stock as part of the Company’s share repurchase program.

Under the ASR agreement, the Company received initial delivery of approximately 276 shares of common stock, representing approximately 80 % of the number of shares of common stock initially underlying the ASR agreement based on the closing price of the common stock of $ 101.49 , on March 9, 2021.

The total number of shares that the Company will repurchase under the ASR program will be based on the volume-weighted average price of the common stock during the term of the ASR agreement, less a discount, and subject to potential adjustments pursuant to the terms and conditions of the ASR agreement.

The final settlement of the share repurchases under the ASR agreement was completed on May 4, 2021 with additional delivery of 46 shares of common stock.

The ASR agreement resulted in a total of 322 shares repurchased at an average cost of $ 108.76 .

During the three months ended March 31, 2021 the Company repurchased 567 shares of common stock, which includes shares received under the ASR on March 10, 2021, at an aggregate cost of $ 56,348 .

At March 31, 2021, there remained $ 191,924 available under its current share repurchase authorization.

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

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

What changed 10-Q

Item 1. Financial Statements