What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-06 compared with 2024-08-06 · 104 added, 108 removed, 129 unchanged (62% of the section changed)

13 unchanged sentences

Important factors that could cause our actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements, include, but are not limited to:

● legal and regulatory actions taken against our university partners that impact their businesses and that directly or indirectly reduce the service revenue we can earn under our master services agreements;

● legal and regulatory actions taken against us related to our services business, or against our university partners that impact their businesses and that directly or indirectly reduce the service revenue we can earn under our master services agreements;

● the occurrence of any event, change or other circumstance that could give rise to the termination of any of the key university partner agreements;

27 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”), a comprehensive regionally accredited university that offers graduate and undergraduate degree programs, emphases and certificates across ten colleges both online and on ground at its campus in Phoenix, Arizona, and at six off-campus classroom and laboratory sites.

We also provide education services to numerous university partners across the United States.

1 unchanged sentence

In addition, we have provided certain services to a university partner to assist them in expanding their online graduate programs.

As of June 30, 2024, GCE provides education services to 22 university partners across the United States.

As of September 30, 2024, GCE provides education services to 22 university partners across the United States.

We plan to continue to add additional university partners and to introduce additional programs with both our existing partners and with new partners.

4 unchanged sentences

Our critical accounting policies are disclosed in the 2023 Form 10-K for the fiscal year ended December 31, 2023.

During the six months ended June 30, 2024, there were no significant changes in our critical accounting policies.

During the nine months ended September 30, 2024, there were no significant changes in our critical accounting policies.

Results of Operations

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Costs and expenses

3 unchanged sentences

General and administrative

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Service revenue .

Our service revenue for the three months ended June 30, 2024 was $227.5 million, an increase of $16.9 million, or 8.0%, as compared to service revenue of $210.6 million for the three months ended June 30, 2023.

The increase year over year in service revenue was primarily due to an increase in GCU enrollments to 102,676 at June 30, 2024, an increase of 7.0% over enrollments at June 30, 2023, an increase in university partner enrollments at our off-campus classroom and laboratory sites to 4,377 at June 30, 2024, an increase of 12.1% over enrollments at June 30, 2023, which includes 746 and 350 GCU students at June 30, 2024 and 2023, respectively, and an increase in revenue per student year over year.

The increase in revenue per student between years is primarily due to the service revenue impact of the increased room, board and other ancillary revenues at GCU in the second quarter of 2024 as compared to the prior year period .

In addition, s ervice revenue per student for Accelerated Bachelor of Science in Nursing (“ABSN”) students at off-campus classroom and laboratory sites generates a significantly higher revenue per student than we earn under our agreement with GCU, as these agreements generally provide us with a higher revenue share percentage, the partners have higher tuition rates than GCU and the majority of their students take more credits on average per semester.

The increase in revenue per student in the three months ended June 30, 2024 was lessened somewhat by the timing of the Spring semester for the ground traditional campus.

The Spring semester started one day earlier in 2024 than in 2023, which had the effect of shifting $2.1 million in service revenue from the second quarter of 2024 to the first quarter of 2024 in comparison to the prior year.

In addition, contract modifications for some of our university partners in which the revenue share percentage was reduced in exchange for us no longer reimbursing the partner for certain faculty costs and the termination of one university partner contract at the end of the Spring 2024 semester had the effect of reducing revenue per student.

Partner enrollments totaled 106,307 at June 30, 2024 as compared to 99,526 at June 30, 2023.

Our service revenue for the three months ended September 30, 2024 was $238.3 million, an increase of $16.4 million, or 7.4%, as compared to service revenue of $221.9 million for the three months ended September 30, 2023.

The increase year over year in service revenue was primarily due to an increase in GCU enrollments to 123,002 at September 30, 2024, an increase of 4.0% over enrollments at September 30, 2023, an increase in university partner enrollments at our off-campus classroom and laboratory sites to 5,888 at September 30, 2024, an increase of 8.1% over enrollments at September 30, 2023, which includes 913 and 510 GCU students at September 30, 2024 and 2023, respectively, and an increase in revenue per student year over year.

The increase in revenue per student between years is primarily due to s ervice revenue per student for Accelerated Bachelor of Science in Nursing (“ABSN”) students at off-campus classroom and laboratory sites generating a significantly higher revenue per student than we earn under our agreement with GCU, as these agreements generally provide us with a higher revenue share percentage, the partners have higher tuition rates than GCU and the majority of their students take more credits on average per semester.

The increase in revenue per student in the three months ended September 30, 2024 was also due to the timing of the Fall semester for the ground traditional campus.

The Fall semester started two days earlier in 2024 than in 2023, which had the effect of shifting $2.2 million in service revenue from the fourth quarter of 2024 to the third quarter of 2024 in comparison to the prior year.

Contract modifications for some of our university partners in which the revenue share percentage was reduced in exchange for us no longer reimbursing the partner for certain faculty costs and the termination of one university partner contract at the end of the Spring 2024 semester had the effect of reducing revenue per student.

Partner enrollments totaled 127,977 at September 30, 2024 as compared to 123,165 at September 30, 2023.

Although partner enrollments at our off-campus classroom and laboratory sites returned to year over year growth in 2024, some existing partners continue to experience reduced incoming cohort sizes which has slowed the growth.

1 unchanged sentence

To address this challenge, we have been working with a number of our university partners to adjust their programs to allow students with the required education experience but without a completed bachelor’s degree to enter their programs.

The majority of those partners that have made the adjustment to admit students without a completed bachelor’s degree had new enrollment growth on a year over year basis in the Spring and Summer 2024 semesters.

We opened five sites in the year ended December 31, 2023 and four sites in the six months ended June 30, 2024 increasing the total number of these sites to 43 at June 30, 2024, which has also positively impacted the enrollment growth.

Enrollments for GCU ground students were 7,397 at June 30, 2024 up from 7,327 at June 30, 2023 primarily due to the increase in ABSN students between years.

GCU online enrollments were 95,279 at June 30, 2024, up from

88,645 at June 30, 2023, an increase of 7.5% between years.

GCU enrollment declines between March 31 and June 30 of each year as ground traditional enrollment at GCU at June 30 of each year only includes traditional-aged students taking summer school classes, which is a small percentage of GCU’s traditional-aged student body.

The Spring semester for GCU’s traditional-aged student body ends near the end of April each year.

The majority of those partners that have made the adjustment to admit students without a completed bachelor’s degree had new enrollment growth on a year over year basis in the Summer and Fall 2024 semesters.

We opened five sites in the year ended December 31, 2023, seven sites in the nine months ended September 30, 2024 and closed one site increasing the total number of these sites to 46 at September 30, 2024, which has also positively impacted the enrollment growth.

Enrollments for GCU ground students were 24,657 at September 30, 2024 down from

25,232 at September 30, 2023 due to a small decline in traditional ground students year over year and the continued decline in professional studies students, working adults attending the university’s traditional campus at night, partially offset by an increase in ABSN students between years.

GCU online enrollments were 98,345 at September 30, 2024, up from 92,995 at September 30, 2023, an increase of 5.8% between years.

Technology and academic services .

Our technology and academic services expenses for the three months ended June 30, 2024 were $41.0 million, an increase of $2.0 million, or 5.2%, as compared to technology and academic services expenses of $39.0 million for the three months ended June 30, 2023.

This increase was primarily due to increases in occupancy and depreciation and in other technology and academic costs of $1.5 million and $1.3 million, respectively, partially offset by a decrease in employee compensation and related expenses, including share-based compensation of $0.8 million.

The increased occupancy and depreciation and other technology and academic costs were primarily due to the costs associated with the increased number of off-campus classroom and laboratory sites to support our 22 university partners, and their increased enrollment growth.

The decrease in employee compensation and related expenses is primarily due to decreased faculty reimbursements due to changes in our agreements with certain university partners whereby we no longer reimburse these partners for their faculty costs and the decline in some of our other partners’ enrollments partially offset by increased headcount to support our 22 university partners, and their increased enrollment growth, tenure-based salary adjustments and the increased number of off-campus classroom and laboratory sites year over year.

Our technology and academic services expenses as a percentage of revenue decreased by 0.5% to 18.0% for the three months ended June 30, 2024, from 18.5% for the three months ended June 30, 2023.

Our technology and academic services expenses for the three months ended September 30, 2024 were $42.0 million, an increase of $2.8 million, or 7.1%, as compared to technology and academic services expenses of $39.2 million for the three months ended September 30, 2023.

This increase was primarily due to increases in other technology and academic costs and in occupancy and depreciation of $2.4 million and $1.2 million, respectively, partially offset by a decrease in employee compensation and related expenses, including share-based compensation of $0.8 million.

The increases in other technology and academic costs and in occupancy and depreciation were primarily due to the costs associated with the increased number of off-campus classroom and laboratory sites to support our 22 university partners and their increased enrollment growth.

The decrease in employee compensation and related expenses is primarily due to decreased faculty reimbursements due to changes in our agreements with certain university partners whereby we no longer reimburse these partners for their faculty costs, partially offset by increased headcount to support our 22 university partners, and their increased enrollment growth, tenure-based salary adjustments and the increased number of off-campus classroom and laboratory sites year over year.

Our technology and academic services expenses as a percentage of revenue decreased by 0.1% to 17.6% for the three months ended September 30, 2024, from 17.7% for the three months ended September 30, 2023.

This decrease was primarily due to the decreased faculty reimbursements between years.

We anticipate that technology and academic services expenses as a percentage of revenue will continue to increase in the future as we open more off-site classroom and laboratory sites although these increases might be offset by lower faculty reimbursements if more partners choose to adjust their contracts.

We anticipate that technology and academic services expenses as a percentage of revenue will increase in the future as we open more off-site classroom and laboratory sites although these increases might be offset by lower faculty reimbursements if more partners choose to adjust their contracts.

Counseling services and support .

Our counseling services and support expenses for the three months ended June 30, 2024 were $78.1 million, an increase of $5.7 million, or 7.9%, as compared to counseling services and support expenses of $72.4 million for the three months ended June 30, 2023.

This increase was primarily attributable to increases in employee compensation and related expenses including share-based compensation, in occupancy and depreciation costs and in other counseling services and support expenses of $4.4 million, $1.1 million and $0.2 million, respectively.

The increases in employee compensation and related expenses were primarily due to increased headcount to support our university partners and their planned increases in enrollment, tenure-based salary adjustments and the increased number of off-campus classroom and laboratory sites open year over year.

Our counseling services and support expenses for the three months ended September 30, 2024 were $77.2 million, an increase of $3.4 million, or 4.5%, as compared to counseling services and support expenses of $73.8 million for the three months ended September 30, 2023.

This increase was primarily attributable to increases in employee compensation and related expenses including share-based compensation and benefits and in occupancy and depreciation costs of $2.9 million and $0.7 million, respectively, partially offset by a decrease in other counseling services and support expenses of $0.2 million.

The increases in employee compensation and related expenses including benefits were primarily due to increased headcount to support our university partners and their planned increases in enrollment, tenure-based salary adjustments and the increased number of off-campus classroom and laboratory sites open year over year.

The increase in occupancy and depreciation is primarily related to higher depreciation expense associated with our continued enhancements to IT infrastructure and internal-use software development.

The increase in other counseling services and support expenses is primarily the result of increased travel costs in support of servicing our 22 university partners.

Our counseling services and support expenses as a percentage of revenue decreased by 0.1% to 34.3% for the three months ended June 30, 2024, from 34.4% for the three months ended June 30, 2023 primarily due our ability to leverage our counseling services and support expenses across an increasing revenue base.

We anticipate that counseling services and support expense will continue to increase in the future as we continue to invest to meet our partners’ needs.

Our counseling services and support expenses as a percentage of revenue decreased by 0.9% to 32.4% for the three months ended September 30, 2024, from 33.3% for the three months ended September 30, 2023 primarily due our ability to leverage our counseling services and support expenses across an increasing revenue base.

We anticipate that counseling services and support expense will increase in the future as we continue to invest to meet our partners’ needs.

Marketing and communication .

Our marketing and communication expenses for the three months ended June 30, 2024 were $52.9 million, an increase of $2.1 million, or 4.1%, as compared to marketing and communication expenses of $50.8 million for the three months ended June 30, 2023.

This increase was primarily attributable to the increased cost to market our university partners’ programs and to the marketing of new university partners and new locations which resulted in increased advertising of $1.7 million, increased employee compensation, including share-based compensation of $0.2 million, an increase in occupancy and depreciation of $0.1 million and an increase in other marketing and communication expenses of $0.1 million.

Our marketing and communication expenses as a percentage of revenue decreased by 0.8% to 23.3% for the three months ended June 30, 2024, from 24.1% for the three months ended June 30, 2023, primarily due to our ability to leverage our marketing and communication expenses across an increasing revenue base.

Although we will continue to invest heavily in this area, we are hopeful that we will see leverage in marketing and communication costs in 2024.

Our marketing and communication expenses for the three months ended September 30, 2024 were $54.5 million, an increase of $1.4 million, or 2.7%, as compared to marketing and communication expenses of $53.1 million for the three months ended September 30, 2023.

This increase was primarily attributable to the increased cost to market our university partners’ programs and to the marketing of new university partners and new locations which resulted in increased advertising of $0.9 million, increased employee compensation, including share-based compensation and benefits of $0.3 million, an increase in occupancy and depreciation of $0.1 million and an increase in other marketing and communication expenses of $0.1 million.

Our marketing and communication expenses as a percentage of revenue decreased by 1.0% to 22.9% for the three months ended September 30, 2024, from 23.9% for the three months ended September 30, 2023, primarily due to our ability to leverage our marketing and communication expenses across an increasing revenue base.

We anticipate that marketing and communication expense will increase in the future as we continue to meet our partners’ needs.

General and administrative .

Our general and administrative expenses for the three months ended June 30, 2024 were $10.6 million, a decrease of $0.3 million, or 2.2%, as compared to general and administrative expenses of $10.9 million for the three months ended June 30, 2023.

This decrease was primarily attributable to a decrease in professional fees, primarily lower legal costs, and in other administrative expenses, primarily lower travel and charitable

contributions of $0.8 million and $0.8 million, respectively.

These decreases were partially offset by an increase in employee compensation, including share-based compensation of $1.3 million, which includes $1.1 million in severance costs recorded in the second quarter of 2024 related to an executive that resigned effective June 30, 2024.

Our general and administrative expenses as a percentage of revenue decreased by 0.5% to 4.7% for the three months ended June 30, 2024, from 5.2% for the three months ended June 30, 2023, primarily due to our ability to leverage our general and administrative expenses across an increasing revenue base and the lower professional fees partially offset by the severance costs.

General and administrative expenses as a percentage of revenue could increase in 2024 if legal costs rise in the second half of the year.

Our general and administrative expenses for the three months ended September 30, 2024 were $14.4 million, an increase of $2.2 million, or 18.0%, as compared to general and administrative expenses of $12.2 million for the three months ended September 30, 2023.

This increase was primarily attributable to an increase in professional fees, primarily higher legal costs, an increase in contribution made in lieu of state income taxes and an increase in occupancy and depreciation costs of $1.1 million, $1.0 million and $0.1 million, respectively.

and administrative expenses as a percentage of revenue increased by 0.5% to 6.0% for the three months ended September 30, 2024, from 5.5% for the three months ended September 30, 2023, primarily due to our increase in contributions made in lieu of state income taxes and the higher professional fees partially offset by our ability to leverage our general and administrative expenses across an increasing revenue base.

General and administrative expenses as a percentage of revenue could continue to increase if legal costs continue to rise.

Amortization of intangible assets .

Amortization of intangible assets for the three months ended June 30, 2024 and 2023 were $2.1 million for both periods.

Amortization of intangible assets for the three months ended September 30, 2024 and 2023 were $2.1 million for both periods.

As a result of the acquisition of our wholly owned subsidiary, Orbis Education, certain identifiable intangible assets were created (primarily customer relationships) that will be amortized over their expected lives.

Investment interest and other .

Investment interest and other for the three months ended June 30, 2024 was $4.1 million, as compared to investment interest and other for the three months ended June 30, 2023 of $2.6 million due to higher investment balances and higher returns on those balances.

Investment interest and other for the three months ended September 30, 2024 was $4.2 million, as compared to investment interest and other for the three months ended September 30, 2023 of $2.7 million due to higher investment balances and higher returns on those balances.

Income tax expense .

Income tax expense for the three months ended June 30, 2024 was $12.0 million, an increase of $2.9 million, or 32.0%, as compared to income tax expense of $9.1 million for the three months ended June 30, 2023.

Our effective tax rate was 25.5% during the second quarter of 2024 compared to 23.8% during the second quarter of 2023.

Income tax expense for the three months ended September 30, 2024 was $10.9 million, an increase of $2.4 million, or 27.2%, as compared to income tax expense of $8.5 million for the three months ended September 30, 2023.

Our effective tax rate was 20.8% during the third quarter of 2024 compared to 19.3% during the third quarter of 2023.

The effective tax rate increased year over year due to higher state income taxes.

Our net income for the three months ended June 30, 2024 was $34.9 million, an increase of $5.9 million, or 20.4%, as compared to $29.0 million for the three months ended June 30, 2023, due to the factors discussed above.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Our net income for the three months ended September 30, 2024 was $41.5 million, an increase of $5.8 million, or 16.0%, as compared to $35.7 million for the three months ended September 30, 2023, due to the factors discussed above.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Service revenue .

Our service revenue for the six months ended June 30, 2024 was $502.1 million, an increase of $41.4 million, or 9.0%, as compared to service revenue of $460.7 million for the six months ended June 30, 2023.

The increase in revenue per student between years is primarily due to the service revenue impact of the increased room, board and other ancillary revenues at GCU in the six months ended June 30, 2024 as compared to the prior year period .

Our service revenue for the nine months ended September 30, 2024 was $740.4 million, an increase of $57.8 million, or 8.5%, as compared to service revenue of $682.6 million for the nine months ended September 30, 2023.

The increase in revenue per student between years is primarily due to the s ervice revenue per student for ABSN students at off-campus classroom and laboratory sites generating a significantly higher revenue per student than we earn under our agreement with GCU, as these agreements generally provide us with a higher revenue share percentage, the partners have higher tuition rates than GCU and the majority of their students take more credits on average per semester.

The increase in revenue per student in the nine months ended September 30, 2024 was also due to the timing of the Fall semester for the ground traditional campus.

The additional day for leap year in 2024 added additional service revenue of $1.5 million as compared to the prior year.

Partner enrollments totaled 106,307 at June 30, 2024 as compared to 99,526 at June 30, 2023.

Partner enrollments totaled 127,977 at September 30, 2024 as compared to 123,165 at September 30, 2023.

1 unchanged sentence

Enrollments for GCU ground students were 7,397 at June 30, 2024 up from 7,327 at June 30, 2023.

GCU online enrollments were 95,279 at June 30, 2024, up from 88,645 at June 30, 2023, an increase of 7.5% between years.

The Spring semester for GCU’s traditional-aged student body ends near the end of April each year.

impacted the enrollment growth.

Enrollments for GCU ground students were 24,657 at September 30, 2024 down from 25,232 at September 30, 2023 due to a small decline in traditional ground students year over year and the continued decline in professional studies students, working adults attending the university’s traditional campus at night, partially offset by an increase in ABSN students between years.

GCU online enrollments were 98,345 at September 30, 2024, up from 92,995 at September 30, 2023, an increase of 5.8% between years.

Technology and academic services .

Our technology and academic services expenses for the six months ended June 30, 2024 were $80.1 million, an increase of $3.6 million, or 4.8%, as compared to technology and academic services expenses of $76.5 million for the six months ended June 30, 2023.

This increase was primarily due to increases in occupancy and depreciation and in other technology and academic costs of $2.8 million and $2.4 million, respectively, partially offset by a decrease in employee compensation and related expenses, including share-based compensation of $1.6 million.

The decrease in employee compensation and related expenses is primarily due to decreased faculty reimbursements due to changes in our agreements with certain university partners whereby we no longer reimburse these partners for their faculty costs and the decline in some of our other partners’ enrollments partially offset by increased headcount to support our 22 university partners and their increased enrollment growth, tenure-based salary adjustments and the increased number of off-campus classroom and laboratory sites year over year.

Our technology and academic services expenses as a percentage of revenue decreased by 0.6% to 16.0% for the six months ended June 30, 2024, from 16.6% for the six months ended June 30, 2023.

Our technology and academic services expenses for the nine months ended September 30, 2024 were $122.1 million, an increase of $6.5 million, or 5.6%, as compared to technology and academic services expenses of $115.6 million for the nine months ended September 30, 2023.

This increase was primarily due to increases in other technology and academic costs and in occupancy and depreciation of $4.9 million and $4.0 million, respectively, partially offset by a decrease in employee compensation and related expenses, including share-based compensation of $2.4 million.

The increases in other technology and academic costs and occupancy and depreciation were primarily due to the costs associated with the increased number of off-campus classroom and laboratory sites to support our 22 university partners and their increased enrollment growth.

The decrease in employee compensation and related expenses is primarily due to decreased faculty reimbursements due to changes in our agreements with certain university partners whereby we no longer reimburse these partners for their faculty costs, partially offset by increased headcount to support our 22 university partners and their increased enrollment growth, tenure-based salary adjustments and the increased number of off-campus classroom and laboratory sites year over year.

Our technology and academic services expenses as a percentage of revenue decreased by 0.4% to 16.5% for the nine months ended September 30, 2024, from 16.9% for the nine months ended September 30, 2023.

This decrease was primarily due to the decreased faculty reimbursements between years.

Counseling services and support .

Our counseling services and support expenses for the six months ended June 30, 2024 were $161.0 million, an increase of $15.3 million, or 10.5%, as compared to counseling services and support expenses of $145.7 million for the six months ended June 30, 2023.

This increase was primarily attributable to increases in employee compensation and related expenses including share-based compensation and benefits, in other counseling services and support expenses and in occupancy and depreciation costs of $11.6 million, $2.0 million and $1.7 million, respectively.

The increases in employee compensation and related expenses were primarily due to increased headcount to support our university partners, and their planned increases in enrollment, tenure-based salary adjustments and the increased number of off-campus classroom and laboratory sites open year over year.

The increase in other counseling services and support expenses is primarily the result of increased travel costs for our 22 university partners.

Our counseling services and support expenses for the nine months ended September 30, 2024 were $238.2 million, an increase of $18.6 million, or 8.5%, as compared to counseling services and support expenses of $219.6 million for the nine months ended September 30, 2023.

This increase was primarily attributable to increases in employee compensation and related expenses including share-based compensation and benefits, in occupancy and depreciation costs and in other counseling services and support expenses of $14.4 million, $2.4 million and $1.8 million, respectively.

The increases in employee compensation including share-based compensation and benefits were primarily due to increased headcount to support our university partners, and their planned increases in enrollment, tenure-based salary adjustments and the increased number of off-campus classroom and laboratory sites open year over year.

The increase in occupancy and depreciation is primarily related to higher depreciation expense associated with our continued enhancements to IT infrastructure and internal-use software development.

Our counseling services and support expenses as a percentage of revenue increased by 0.5% to 32.1% for the six months ended June 30, 2024, from 31.6% for the six months ended June 30, 2023 primarily due to the significant increase year over year in travel expenses and headcount.

We anticipate that counseling services and support expense will continue to increase in the future as we continue to invest to meet our partners’ needs.

The increase in other counseling services and support expenses is primarily the result of increased travel costs for our 22 university partners.

Our counseling services and support expenses as a percentage of revenue stayed flat at 32.2% for the nine months ended September 30, 2024 and 2023.

We anticipate that counseling services and support expense will increase in the future as we continue to invest to meet our partners’ needs.

Marketing and communication .

Our marketing and communication expenses for the six months ended June 30, 2024 were $108.2 million, an increase of $4.5 million, or 4.4%, as compared to marketing and communication expenses of $103.7 million for the six months ended June 30, 2023.

This increase was primarily attributable to the increased cost to market our university partners’ programs and to the marketing of new university partners and new locations which resulted in increased advertising of $3.8 million, increased employee compensation, including share-based compensation and benefits of $0.2 million, an increase in occupancy and depreciation of $0.2 million and an increase in other marketing and communication expenses of $0.3 million.

Our marketing and communication expenses as a percentage of revenue decreased by 0.9% to 21.6% for the six months ended June 30, 2024, from 22.5% for the six months ended June 30, 2023, primarily due to our ability to leverage our marketing and communication expenses across an increasing revenue base.

Although we will continue to invest heavily in this area, we are hopeful that we will see leverage in marketing and communication costs in 2024.

Our marketing and communication expenses for the nine months ended September 30, 2024 were $162.8 million, an increase of $6.0 million, or 3.8%, as compared to marketing and communication expenses of $156.8 million for the nine months ended September 30, 2023.

This increase was primarily attributable to the increased cost to market our university partners’ programs and to the marketing of new university partners and new locations which resulted in increased advertising of $4.8 million, increased employee compensation, including share-based compensation and benefits of $0.6 million, an increase in other marketing and communication expenses of $0.4 million and an increase in occupancy and depreciation costs of $0.2 million.

Our marketing and communication expenses as a percentage of revenue decreased by 1.0% to 22.0% for the nine months ended September 30, 2024, from 23.0% for the nine months ended September 30, 2023, primarily due to our ability to leverage our marketing and communication expenses across an increasing revenue base.

We anticipate that marketing and communication expenses will increase in the future as we continue to invest to meet our partners’ needs.

General and administrative .

Our general and administrative expenses for the six months ended June 30, 2024 were $21.4 million, an increase of $0.7 million, or 3.4%, as compared to general and administrative expenses of $20.7

million for the six months ended June 30, 2023.

This increase was primarily attributable to an increase in employee compensation, including share-based compensation and benefits of $1.6 million, which includes $1.1 million in severance costs recorded for an executive that resigned June 30, 2024.

These increases were partially offset by a decrease in other administrative expenses of $0.9 million primarily due to lower travel and timing on charitable contributions.

Our general and administrative expenses as a percentage of revenue decreased by 0.2% to 4.3% for the six months ended June 30, 2024, as compared to 4.5% for the six months ended June 30, 2023 due to our ability to leverage our general and administrative expenses across an increasing revenue base partially offset by the severance costs.

General and administrative expenses as a percentage of revenue could increase in 2024 if legal costs rise in the second half of 2024.

Our general and administrative expenses for the nine months ended September 30, 2024 were $35.7 million, an increase of $2.9 million, or 8.8%, as compared to general and administrative expenses of $32.8 million for the nine months ended September 30, 2023.

This increase was primarily attributable to an increase in employee compensation, including share-based compensation and benefits of $1.5 million, which includes $1.1 million in severance costs recorded for an executive that resigned June 30, 2024, professional fees of $1.0 million, an increase in

contributions in lieu of state income taxes of $1.0 million and increases in occupancy and depreciation costs of $0.2 million.

These increases were partially offset by a decrease in other administrative expenses of $0.8 million primarily due to lower travel costs.

Our general and administrative expenses as a percentage of revenue stayed flat at 4.8% for the nine months ended September 30, 2024 and 2023 due to our ability to leverage our general and administrative expenses across an increasing revenue base partially offset by the severance costs.

General and administrative expenses could increase if legal costs continue to rise.

Amortization of intangible assets .

Amortization of intangible assets for the six months ended June 30, 2024 and 2023 were $4.2 million for both periods.

Amortization of intangible assets for the nine months ended September 30, 2024 and 2023 were $6.3 million for both periods.

Investment interest and other .

Investment interest and other for the six months ended June 30, 2024 was $7.8 million, as compared to investment interest and other for the six months ended June 30, 2023 of $4.7 million due to higher investment balances and higher returns on those balances.

Investment interest and other for the nine months ended September 30, 2024 was $12.0 million, as compared to investment interest and other for the nine months ended September 30, 2023 of $7.5 million due to higher investment balances and higher returns on those balances.

Income tax expense .

Income tax expense for the six months ended June 30, 2024 was $32.1 million, an increase of $6.0 million, or 23.2%, as compared to income tax expense of $26.1 million for the six months ended June 30, 2023.

Our effective tax rate was 23.8% during the six months ended June 30, 2024 compared to 22.8% during the six months ended June 30, 2023.

In the six months ended June 30, 2024, the effective tax rate was favorably impacted by excess tax benefits of $1.5 million as compared to $0.9 million in the six months ended June 30, 2023.

Income tax expense for the nine months ended September 30, 2024 was $43.0 million, an increase of $8.4 million, or 24.2%, as compared to income tax expense of $34.6 million for the nine months ended September 30, 2023.

Our effective tax rate was 23.0% during the nine months ended September 30, 2024 compared to 21.8% during the nine months ended September 30, 2023.

In the nine months ended September 30, 2024, the effective tax rate was favorably impacted by excess tax benefits of $1.5 million as compared to $0.9 million in the nine months ended September 30, 2023.

The effective tax rate increased year over year due to higher state income taxes.

Our net income for the six months ended June 30, 2024 was $102.9 million, an increase of $14.4 million, or 16.2%, as compared to $88.5 million for the six months ended June 30, 2023, due to the factors discussed above.

Our net income for the nine months ended September 30, 2024 was $144.4 million, an increase of $20.1 million, or 17.9%, as compared to $124.3 million for the nine months ended September 30, 2023, due to the factors discussed above.

Our net revenue and operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in our university partners’ enrollment.

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Liquidity and Capital Resources

As of June 30,

As of September 30,

As of December 31,

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Cash, cash equivalents and investments

Our liquidity position, as measured by cash and cash equivalents and investments increased by $97.3 million between December 31, 2023 and June 30, 2024, which was largely attributable to cash flows from operations during the six months ended June 30, 2024 exceeding share repurchases, changes in our investment balances and capital expenditures.

Our liquidity position, as measured by cash and cash equivalents and investments increased by $19.1 million between December 31, 2023 and September 30, 2024, which was largely attributable to cash flows from operations during the nine months ended September 30, 2024 exceeding share repurchases, changes in our investment balances and capital expenditures.

See Note 11 for subsequent event relating to our cash and cash equivalents.

Based on our current level of operations and anticipated growth, we believe that our cash flow from operations and other sources of liquidity, including cash and cash equivalents and investments, will provide adequate funds for ongoing operations, planned capital expenditures, and working capital requirements for at least the next 24 months.

Cash Flows from Operating Activities

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

Net cash provided by operating activities

The increase in cash generated from operating activities between the six months ended June 30, 2023 and the six months ended June 30, 2024 was primarily due to increased income and changes in working capital balances, primarily accrued liabilities, income taxes receivable/payable and accounts receivable.

Accrued liabilities increased between December 31, 2023 and June 30, 2024 by $8.8 million more than it did between December 31, 2022 and June 30, 2023 due to the timing of payroll disbursements.

Income taxes receivable/payable increased between December 31, 2023 and June 30, 2024 by $4.0 million more than it did between December 31, 2022 and June 30, 2023 due to timing of income tax payments.

These increases were partially offset by accounts receivable decreasing by $3.4 million more than it did between December 31, 2022 and June 30, 2023 due primarily to timing of the collections of our other university partners.

The increase in cash generated from operating activities between the nine months ended September 30, 2023 and the nine months ended September 30, 2024 was primarily due to increased income and changes in working capital balances, primarily accounts payable and accounts receivable.

Accrued payable increased between December 31, 2023 and September 30, 2024 by $6.8 million more than it did between December 31, 2022 and September 30, 2023 due to the timing of check runs.

These increases were partially offset by accounts receivable from GCU increasing by $10.5 million more than it did between December 31, 2022 and September 30, 2023 due primarily to timing of the collections of our other university partners.

We define working capital as the assets and liabilities, other than cash, generated through the Company’s primary operating activities.

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Cash Flows from Investing Activities

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

Net cash used in investing activities

Investing activities consumed $20.0 million of cash in the six months ended June 30, 2024 compared to $48.1 million in the six months ended June 30, 2023.

In the first six months of 2024 and 2023 cash used in investing activities included capital expenditures totaling $17.9 million and $17.6 million, respectively.

Net cash provided by (used in) investing activities

Investing activities provided $71.3 million of cash in the nine months ended September 30, 2024 compared to consuming $70.5 million in the nine months ended September 30, 2023.

Cash provided by or used in investing activities includes net investment activity.

In the nine months ended September 30, 2024, proceeds from the sale of investments, net of purchases of available-for-sale securities were $99.0 million.

In the nine months ended September 30, 2023, the purchase of available-for-sale securities, net of proceeds from the sale of investments were $35.5 million.

In the first nine months of 2024 and 2023 cash used in investing activities also included capital expenditures totaling $27.5 million and $34.2 million, respectively.

Capital expenditures for both periods primarily consisted of leasehold improvements and equipment for new off-campus classroom and laboratory sites, as well as purchases of computer equipment, internal use software projects and furniture and equipment to support our increasing employee headcount.

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The Company intends to continue to spend approximately $30.0 million to $40.0 million per year for capital expenditures.

Cash used in investing activities also includes net investment activity.

In the six months ended June 30, 2024 and 2023, the purchase of available-for-sale securities, net of proceeds from the sale of investments were $1.9 million and $30.0 million, respectively.

Cash Flows from Financing Activities

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

Net cash used in financing activities

Financing activities consumed $68.7 million of cash in the six months ended June 30, 2024 compared to $86.6 million in the six months ended June 30, 2023.

During the six months ended June 30, 2024 and 2023, $61.3 million and $80.3 million, respectively was used to purchase treasury stock in accordance with GCE’s share repurchase program.

Financing activities consumed $108.3 million of cash in the nine months ended September 30, 2024 compared to $120.3 million in the nine months ended September 30, 2023.

During the nine months ended September 30, 2024 and 2023, $100.5 million and $114.0 million, respectively was used to purchase treasury stock in accordance with GCE’s share repurchase program.

In 2024 and 2023, $7.8 million and $6.3 million, respectively, of cash was utilized to purchase common shares withheld in lieu of income taxes resulting from the vesting of restricted share awards.

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The Board of Directors has authorized share repurchases of up to $2,045,000 since the initiation of the Company’s stock repurchase program.

The expiration date on the current repurchase authorization by our Board of

Directors is March 1, 2025.

The expiration date on the current repurchase authorization by our Board of Directors is March 1, 2025.

Repurchases occur at the Company’s discretion and the Company may modify, suspend or discontinue the repurchase authorization at any time.

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

We repurchased 452,684 shares of common stock in the six months ended June 30, 2024.

At June 30, 2024, there remains $203.8 million available under our share repurchase authorization .

We repurchased 725,181 shares of common stock in the nine months ended September 30, 2024.

At September 30, 2024, there remains $164.5 million available under our share repurchase authorization .

Off-Balance Sheet Arrangements

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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 2. Management’s Discussion and Analysis