Grand Canyon Education, Inc. Reports First Quarter 2012 Results
PHOENIX, May 7, 2012 /PRNewswire/ — Grand Canyon Education, Inc. (NASDAQ: LOPE), a regionally accredited provider of online and campus-based post-secondary education services, today announced financial results for the quarter ended March 31, 2012.
For the three months ended March 31, 2012:
- Net revenue increased 15.2% to $117.1 million for the first quarter of 2012, compared to $101.7 million for the first quarter of 2011.
- At March 31, 2012, our enrollment was approximately 46,300, an increase of 8.9% from our enrollment of approximately 42,500 at March 31, 2011.
- Operating income for the first quarter of 2012 was $24.2 million, an increase of 49.7% as compared to $16.2 million for the same period in 2011. The operating margin for the first quarter of 2012 was 20.7%, compared to 15.9% for the same period in 2011.
- Adjusted EBITDA increased 45.3% to $31.1 million for the first quarter of 2012, compared to $21.4 million for the same period in 2011.
- The tax rate in the first quarter of 2012 was 39.7% compared to 41.1% in the first quarter of 2011. The decrease in the effective tax rate was primarily due to certain non-recurring tax items, which had the effect of decreasing our effective tax rate in the first quarter of 2012 and increasing the effective tax rate in the first quarter of 2011.
- Net income increased 52.6% to $14.5 million for the first quarter of 2012, compared to $9.5 million for the same period in 2011.
- Diluted net income per share was $0.32 for the first quarter of 2012, compared to $0.21 for the same period in 2011.
Balance Sheet and Cash Flow
As of March 31, 2012, the University had unrestricted cash and cash equivalents of $56.7 million compared to $21.2 million at December 31, 2011 and restricted cash and cash equivalents at March 31, 2012 and December 31, 2011 of $51.0 million and $56.7 million, respectively.
The University generated $45.2 million in cash from operating activities for the three months ended March 31, 2012 compared to $23.4 million for the same period in 2011. Cash provided by operating activities in 2012 and 2011 resulted from our net income plus non-cash charges for provision for bad debts, depreciation and amortization, share-based compensation and improvement in our working capital.
Net cash used in investing activities was $11.2 million and $11.9 million for the three months ended March 31, 2012 and 2011, respectively. Capital expenditures were $16.9 million and $14.7 million for the three months ended March 31, 2012 and 2011, respectively. In 2012, capital expenditures primarily consisted of ground campus building projects such as the construction costs for two additional dormitories, an Arts and Science classroom building and our first parking garage to support our increasing traditional student enrollment as well as purchases of computer equipment, other internal use software projects and furniture and equipment. In 2011, capital expenditures primarily consisted of ground campus building projects such as a new dormitory and an events arena to support our increasing traditional ground student enrollment as well as purchases of computer equipment, internal use software projects and furniture and equipment. In 2012 and 2011 expenditures were partially offset by a $5.7 million and $2.8 million, respectively, decrease in restricted cash as a result of timing differences between periods in the receipt of Title IV funds.
Net cash provided by financing activities was $1.5 million for the three months ended March 31, 2012 and net cash used in financing activities was $14.9 million in the three months ended March 31, 2011. During the first three months of 2012 proceeds from the exercise of stock options of $2.3 million were partially offset by principal payments on notes payable and capital lease obligations of $0.8 million. During the first three months of 2011, $14.2 million was used to purchase treasury stock in accordance with the University’s share repurchase program and principal payments on notes payable and capital leases totaled $0.7 million.
2012 Annual Outlook by Quarter TBD
Q2 2012: Net revenue between $113.5 million and $115.5 million; Target Operating Margin between 18% to 18.5%; Diluted EPS between $0.26 and $0.27 using 46.0 million diluted shares; student counts between 41,750 to 42,750
Q3 2012: Net revenue between $120 million and $123 million; Target Operating Margin between 19.5% to 20.0%; Diluted EPS between $0.30 and $0.32 using 46.3 million diluted shares; student counts between 47,500 to 48,500
Q4 2012: Net revenue between $127 million and $130 million; Target Operating Margin between 22.0% to 23.0%; Diluted EPS between $0.36 and $0.39 using 46.5 million diluted shares; student counts between 48,500 to 49,500
Full Year 2012: Net revenue between $478 million and $486 million; Target Operating Margin between 20.0% to 20.5%; Diluted EPS between $1.24 and $1.30 using 46.0 million diluted shares
Forward-Looking Statements
This news release contains “forward-looking statements” which include information relating to future events, future financial performance, strategies expectations, competitive environment, regulation, and availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new programs; expectations that regulatory developments or other matters will not have a material adverse effect on our financial position, results of operations, or liquidity; statements concerning projections, predictions, expectations, estimates, or forecasts as to our business, financial and operational results, and future economic performance; and statements of management’s goals and objectives and other similar expressions concerning matters that are not historical facts. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar expressions, as well as statements in future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to: our failure to comply with the extensive regulatory framework applicable to our industry, including Title IV of the Higher Education Act and the regulations thereunder, state laws and regulatory requirements, and accrediting commission requirements; the results of the ongoing program review being conducted by the Department of Education of our compliance with Title IV program requirements, and possible fines or other administrative sanctions resulting therefrom; the ability of our students to obtain federal Title IV funds, state financial aid, and private financing; risks associated with changes in applicable federal and state laws and regulations and accrediting commission standards, including pending rulemaking by the Department of Education; potential damage to our reputation or other adverse effects as a result of negative publicity in the media, in the industry or in connection with governmental reports or investigations or otherwise, affecting us or other companies in the for-profit postsecondary education sector; our ability to hire and train new, and develop and train existing, faculty and employees; the pace of growth of our enrollment; our ability to convert prospective students to enrolled students and to retain active students; our success in updating and expanding the content of existing programs and developing new programs in a cost-effective manner or on a timely basis; industry competition, including competition for qualified executives and other personnel; risks associated with the competitive environment for marketing our programs; failure on our part to keep up with advances in technology that could enhance the online experience for our students; the extent to which obligations under our loan agreement, including the need to comply with restrictive and financial covenants and to pay principal and interest payments, limits our ability to conduct our operations or seek new business opportunities; our ability to manage future growth effectively; general adverse economic conditions or other developments that affect job prospects in our core disciplines; and other factors discussed in reports on file with the Securities and Exchange Commission.
Forward-looking statements speak only as of the date the statements are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
Conference Call
Grand Canyon Education, Inc. will discuss its first quarter 2012 results and 2012 outlook during a conference call scheduled for today, May 7, 2012 at 4:30 p.m. Eastern time (ET). To participate in the live call, investors should dial 877-815-5362 (domestic and Canada) or 706-679-7806 (international), passcode 69734178 at 4:25 p.m. (ET). The Webcast will be available on the Grand Canyon Education, Inc. Web site at www.gcu.edu.
A replay of the call will be available approximately two hours following the conclusion of the call through May 14, 2012, at 855-859-2056 (domestic) or 404-537-3406 (international), passcode 69734178. It will also be archived at www.gcu.edu in the investor relations section for 60 days.
About Grand Canyon Education, Inc.
Grand Canyon Education, Inc. is a regionally accredited provider of postsecondary education services focused on offering graduate and undergraduate degree programs in its core disciplines of education, business, healthcare and liberal arts. In addition to its online programs, it offers programs at its approximately 115 acre traditional campus in Phoenix, Arizona and onsite at the facilities of employers. Approximately 46,300 students were enrolled as of March 31, 2012. For more information about Grand Canyon Education, Inc., please visit http://www.gcu.edu.
Grand Canyon Education, Inc. is regionally accredited by The Higher Learning Commission of the North Central Association of Colleges and Schools (NCA), http://www.ncahlc.org. Grand Canyon University, 3300 W. Camelback Road, Phoenix, AZ 85017, www.gcu.edu.
GRAND CANYON EDUCATION, INC.
Consolidated Income Statements
(Unaudited)
Three Months Ended
March 31,
---------
2012 2011
---- ----
(In thousands, except per share data)
------------------------------------
Net revenue $117,131 $101,709
Costs and expenses:
Instructional costs and services 50,824 48,875
Selling and promotional, including $447
and $401 to related parties for March 34,559 29,832
31, 2012 and 2011, respectively
General and administrative 7,544 6,832
----- -----
Total costs and expenses 92,927 85,539
------ ------
Operating income 24,204 16,170
Interest expense (207) (107)
Interest income 10 32
--- ---
Income before income taxes 24,007 16,095
Income tax expense 9,538 6,614
----- -----
Net income $14,469 $9,481
======= ======
Earnings per share:
Basic income per share $0.33 $0.21
===== =====
Diluted income per share $0.32 $0.21
===== =====
Basic weighted average shares
outstanding 44,371 45,590
====== ======
Diluted weighted average shares
outstanding 45,151 46,089
====== ======
GRAND CANYON EDUCATION, INC.
Adjusted EBITDA
Adjusted EBITDA is defined as net income plus interest expense net of interest income, plus income tax expense, and plus depreciation and amortization (EBITDA), as adjusted for (i) royalty payments incurred pursuant to an agreement with our former owner that has been terminated as of April 15, 2008; (ii) contributions to Arizona school tuition organizations in lieu of state income taxes, which we typically make in the fourth quarter of a fiscal year; (iii) contract termination fees, if any; (iv) lease termination costs, if any; (v) exit costs, if any; (vi) estimated litigation losses; and (vii)share-based compensation. We present Adjusted EBITDA because we consider it to be an important supplemental measure of our operating performance. We also make certain compensation decisions based, in part, on our operating performance, as measured by Adjusted EBITDA, and our loan agreement requires us to comply with covenants that include performance metrics substantially similar to Adjusted EBITDA. All of the adjustments made in our calculation of Adjusted EBITDA are adjustments to items that management does not consider to be reflective of our core operating performance. Management considers our core operating performance to be that which can be affected by our managers in any particular period through their management of the resources that affect our underlying revenue and profit generating operations during that period. Royalty expenses paid to our former owner, contributions made to Arizona school tuition organizations in lieu of the payment of state income taxes, estimated litigation losses, exit costs, share-based compensation, and contract termination fees are not considered reflective of our core performance.
We believe Adjusted EBITDA allows us to compare our current operating results with corresponding historical periods and with the operational performance of other companies in our industry because it does not give effect to potential differences caused by variations in capital structures (affecting relative interest expense, including the impact of write-offs of deferred financing costs when companies refinance their indebtedness), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses), the book amortization of intangibles (affecting relative amortization expense), and other items that we do not consider reflective of underlying operating performance. We also present Adjusted EBITDA because we believe it is frequently used by securities analysts, investors, and other interested parties as a measure of performance.
In evaluating Adjusted EBITDA, investors should be aware that in the future we may incur expenses similar to the adjustments described above. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by expenses that are unusual, non-routine, or non-recurring. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for net income, operating income, or any other performance measure derived in accordance with and reported under GAAP or as an alternative to cash flow from operating activities or as a measure of our liquidity. Some of these limitations are that it does not reflect:
- cash expenditures for capital expenditures or contractual commitments;
- changes in, or cash requirement for, our working capital requirements;
- interest expense, or the cash required to replace assets that are being depreciated or amortized; and
- the impact on our reported results of earnings or charges resulting from the items for which we make adjustments to our EBITDA, as described above and set forth in the table below.
In addition, other companies, including other companies in our industry, may calculate these measures differently than we do, limiting the usefulness of Adjusted EBITDA as a comparative measure. Because of these limitations, Adjusted EBITDA should not be considered as a substitute for net income, operating income, or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or as a measure of our liquidity. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally.
The following table provides a reconciliation of net income to Adjusted EBITDA, which is a non-GAAP measure for the periods indicated:
Three Months
Ended
March 31,
---------
2012 2011
---- ----
(Unaudited, in
thousands)
Net income $14,469 $9,481
Plus: interest expense net of
interest income 197 75
Plus: income tax expense 9,538 6,614
Plus: depreciation and
amortization 4,958 3,752
----- -----
EBITDA 29,162 19,922
------ ------
Plus: royalty to former owner 74 74
Plus: estimated litigation losses 200 -
Plus: share-based compensation 1,694 1,430
----- -----
Adjusted EBITDA $31,130 $21,426
======= =======
GRAND CANYON EDUCATION, INC.
Consolidated Balance Sheets
ASSETS: March 31, December 31,
(In thousands, except par value) 2012 2011
------------------------------- ---- ----
Current assets (Unaudited)
Cash and cash equivalents $56,700 $21,189
Restricted cash and cash equivalents 50,454 56,115
Accounts receivable, net of allowance for doubtful accounts of $8,844
and 7,843 11,815
$11,706 at March 31, 2012 and December 31, 2011, respectively
Income taxes receivable 936 11,861
Deferred income taxes 2,376 3,353
Other current assets 11,990 11,081
------ ------
Total current assets 130,299 115,414
Property and equipment, net 207,169 189,947
Restricted cash 555 555
Prepaid royalties 5,793 5,958
Goodwill 2,941 2,941
Other assets 3,212 3,032
----- -----
Total assets $349,969 $317,847
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities
Accounts payable $24,660 $18,523
Accrued compensation and benefits 9,372 12,229
Accrued liabilities 8,515 8,456
Income taxes payable 6,091 536
Student deposits 51,903 57,602
Deferred revenue 33,479 21,723
Due to related parties 279 227
Current portion of capital lease obligations 96 470
Current portion of notes payable 1,739 1,739
----- -----
Total current liabilities 136,134 121,505
Capital lease obligations, less current portion 652 674
Other noncurrent liabilities 7,719 7,140
Deferred income taxes, noncurrent 4,126 5,334
Notes payable, less current portion 19,468 19,901
------ ------
Total liabilities 168,099 154,554
------- -------
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par value, 10,000 shares authorized; 0 shares
issued and outstanding at - -
March 31, 2012 and December 31, 2011
Common stock, $0.01 par value, 100,000 shares authorized; 46,147 and
45,955 shares issued and 461 460
44,490 and 44,298 shares outstanding at March 31, 2012 and December 31, 2011,
respectively
Treasury stock, at cost, 1,657 shares of common stock at March 31, 2012
and December 31, 2011 (23,894) (23,894)
Additional paid-in capital 89,800 85,720
Accumulated other comprehensive loss (333) (360)
Accumulated earnings 115,836 101,367
------- -------
Total stockholders' equity 181,870 163,293
------- -------
Total liabilities and stockholders' equity $349,969 $317,847
------------------------------------------ -------- --------
GRAND CANYON EDUCATION, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
---------
(In thousands) 2012 2011
------------- ---- ----
Cash flows provided by operating activities:
Net income $14,469 $9,481
Adjustments to reconcile net income to net cash provided by
operating activities:
Share-based compensation 1,694 1,430
Excess tax benefits from share-based
compensation (65) -
Amortization of debt issuance costs 15 15
Provision for bad debts 4,122 10,034
Depreciation and amortization 5,032 3,826
Loss on asset disposal 182 -
Exit costs - (24)
Deferred income taxes (247) (224)
Changes in assets and liabilities:
Accounts receivable (150) (6,023)
Prepaid expenses and other (1,104) (119)
Due to/from related parties 52 (8,388)
Accounts payable 742 5,748
Accrued liabilities and employee related
liabilities (2,798) (513)
Income taxes receivable/payable 16,556 6,665
Deferred rent 622 67
Deferred revenue 11,756 4,184
Student deposits (5,699) (2,746)
------ ------
Net cash provided by operating activities 45,179 23,413
------ ------
Cash flows used in investing activities:
Capital expenditures (16,876) (14,668)
Change in restricted cash and cash
equivalents 5,661 2,753
----- -----
Net cash used in investing activities (11,215) (11,915)
------- -------
Cash flows provided by (used in) financing activities:
Principal payments on notes payable and
capital lease obligations (829) (694)
Repurchase of common shares - (14,211)
Excess tax benefits from share-based
compensation 65 -
Net proceeds from exercise of stock
options 2,311 13
----- ---
Net cash provided by (used in) financing
activities 1,547 (14,892)
----- -------
Net increase (decrease) in cash and cash
equivalents 35,511 (3,394)
Cash and cash equivalents, beginning of
period 21,189 33,637
------ ------
Cash and cash equivalents, end of period $56,700 $30,243
======= =======
Supplemental disclosure of cash flow information
Cash paid for interest $253 $107
Cash paid for income taxes $1,061 $219
Supplemental disclosure of non-cash investing and financing
activities
Purchases of property and equipment
included in accounts payable $5,395 $5,631
Tax benefit of Spirit warrant intangible $59 $70
Shortfall tax expense from share-based
compensation $17 $ -
The following is a summary of our student enrollment at March 31, 2012 and 2011 (which included less than 700 students pursuing non-degree certificates in each period) by degree type and by instructional delivery method:
2012(1) 2011(1)
------ ------
# of Students % of Total # of Students % of Total
------------- ---------- ------------- ----------
Graduate degrees(2) 18,054 39.0% 18,438 43.4%
Undergraduate degree 28,224 61.0% 24,067 56.6%
------ ---- ------ ----
Total 46,278 100.0% 42,505 100.0%
====== ===== ====== =====
2012(1) 2011(1)
------ ------
# of Students % of Total # of Students % of Total
------------- ---------- ------------- ----------
Online(3) 41,229 89.1% 38,655 90.9%
Ground(4) 5,049 10.9% 3,850 9.1%
----- ---- ----- ---
Total 46,278 100.0% 42,505 100.0%
====== ===== ====== =====
Enrollment at March 31, 2012 and
2011 represents individual
students who attended a course
during the last two months of
the calendar quarter.
(1)
(2) Includes 2,221 and 1,301
students pursuing doctoral
degrees at March 31, 2012 and
2011, respectively.
As of March 31, 2012 and 2011,
42.5% and 46.3%, respectively,
of our online and professional
studies students were pursuing
(3) graduate degrees.
(4) Includes both our traditional
on-campus ground students, as
well as our professional
studies students.
SOURCE Grand Canyon Education, Inc.
