Grand Canyon Education, Inc. Reports Fourth Quarter 2023 Results
For the three months ended
- Service revenue for the three months ended
December 31, 2023 was$278.3 million , an increase of$19.6 million , or 7.6%, as compared to service revenue of$258.7 million for the three months endedDecember 31, 2022 . The increase year over year in service revenue was primarily due to an increase in GCU enrollments to 117,279 atDecember 31, 2023 , an increase of 8.0% over enrollments atDecember 31, 2022 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 fourth quarter of 2023 as compared to the prior year period. In addition, service revenue per student for Accelerated Bachelor of Science in Nursing 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 endedDecember 31, 2023 was negatively impacted by the timing of the Fall semester for the ground traditional campus. The Fall semester started one day earlier in 2023 than in 2022, which had the effect of shifting$1.2 million in service revenue from the fourth quarter of 2023 to the third quarter of 2023 in comparison to the prior year. - Partner enrollments totaled 121,250 at
December 31, 2023 as compared to 112,955 atDecember 31, 2022 . University partner enrollments at our off-campus classroom and laboratory sites were 4,481, a decrease of 3.3% over enrollments atDecember 31, 2022 , which includes 510 and 320 GCU students atDecember 31, 2023 and 2022, respectively. We opened six new off-campus classroom and laboratory sites in the year endedDecember 31, 2022 and five sites in the year endedDecember 31, 2023 increasing the total number of these sites to 40 atDecember 31, 2023 . Enrollments for GCU ground students were 25,209 atDecember 31, 2023 up from 24,943 atDecember 31, 2022 . GCU online enrollments were 92,070 atDecember 31, 2023 , up from 83,696 atDecember 31, 2022 , an increase of 10.0% between years. - Operating income for the three months ended
December 31, 2023 was$97.8 million , an increase of$7.1 million as compared to$90.7 million for the same period in 2022. The operating margin for each of the three months endedDecember 31, 2023 and 2022 was 35.1%. The fourth quarter operating margin was negatively impacted on a year over year basis by the timing difference between years in the start of the Fall semester for GCU's ground traditional campus. - Income tax expense for the three months ended
December 31, 2023 was$20.1 million , a decrease of$0.9 million , or 4.4%, as compared to income tax expense of$21.0 million for the three months endedDecember 31, 2022 . Our effective tax rate was 19.9% during the fourth quarter of 2023 compared to 22.8% during the fourth quarter of 2022. The decrease in our effective tax rate between periods was primarily driven by other discrete tax items recorded in the respective periods. - Net income increased 13.6% to
$80.7 million for the fourth quarter of 2023, compared to$71.0 million for the same period in 2022. As adjusted net income was$82.5 million and$72.7 million for the fourth quarters of 2023 and 2022, respectively. - Diluted net income per share was
$2.71 and$2.30 for the fourth quarters of 2023 and 2022, respectively. As adjusted diluted net income per share was$2.77 and$2.36 for the fourth quarters of 2023 and 2022, respectively. - Adjusted EBITDA increased 8.5% to
$110.9 million for the fourth quarter of 2023, compared to$102.2 million for the same period in 2022.
For the year ended
- Service revenue for the year ended
December 31, 2023 was$960.9 million , an increase of$49.6 million , or 5.4%, as compared to service revenue of$911.3 million for the year endedDecember 31, 2022 . The increase year over year in service revenue was primarily due to an increase in GCU enrollments to 117,279 atDecember 31, 2023 , an increase of 8.0% over enrollments atDecember 31, 2022 . - Operating income for the year ended
December 31, 2023 was$249.3 million , an increase of$11.8 million as compared to$237.5 million for the same period in 2022. The operating margin for the year endedDecember 31, 2023 was 25.9%, compared to 26.1% for the same period in 2022. - Income tax expense for the year ended
December 31, 2023 was$54.7 million , a decrease of$0.7 million , or 1.4%, as compared to income tax expense of$55.4 million for the year endedDecember 31, 2022 . Our effective tax rate was 21.1% during the year endedDecember 31, 2023 compared to 23.1% during the year endedDecember 31, 2022 . The decrease in our effective tax rate between periods is attributable to other discrete tax items recorded in the respective periods and higher excess tax benefits of$0.9 million compared to excess tax benefits of$0.1 million for the year endedDecember 31, 2022 , partially offset by a lower contribution in lieu of state income taxes of$3.5 million in 2023 compared to$5.0 million in 2022. - Net income increased 11.0% to
$205.0 million for the year endedDecember 31, 2023 , compared to$184.7 million for the same period in 2022. As adjusted net income was$212.2 million and$192.1 million for the years endedDecember 31, 2023 and 2022, respectively. - Diluted net income per share was
$6.80 and$5.73 for the years endedDecember 31, 2023 and 2022, respectively. As adjusted diluted net income per share was$7.04 and$5.96 for the years endedDecember 31, 2023 and 2022, respectively. - Adjusted EBITDA increased 3.8% to
$302.3 million for the year endedDecember 31, 2023 , compared to$291.3 million for the same period in 2022.
Liquidity and Capital Resources
Our liquidity position, as measured by cash and cash equivalents and investments increased by
2024 Outlook
Q1 2024:
- Service revenue of between
$271.5 million and$273.0 million ; - Operating margin of between 29.8% and 30.0%;
- Effective tax rate of 23.4%;
- Diluted EPS of between
$2.15 and$2.18 ; and - 29.7 million diluted shares.
The diluted EPS guidance includes non-cash amortization of intangible assets net of taxes of
Q2 2024:
- Service revenue of between
$221.0 million and$224.0 million ; - Operating margin of between 16.1% and 17.0%;
- Effective tax rate of 24.9%;
- Diluted EPS of between
$0.98 and$1.04 ; and - 29.4 million diluted shares.
The diluted EPS guidance includes non-cash amortization of intangible assets net of taxes of
Q3 2024:
- Service revenue of between
$236.5 million and$244.0 million ; - Operating margin of between 20.4% and 22.2%;
- Effective tax rate of 24.9%;
- Diluted EPS of between
$1.30 and$1.46 ; and - 29.1 million diluted shares.
The diluted EPS guidance includes non-cash amortization of intangible assets net of taxes of
Q4 2024:
- Service revenue of between
$287.0 million and$299.0 million ; - Operating margin of between 34.9% and 37.0%;
- Effective tax rate of 22.8%;
- Diluted EPS of between
$2.75 and$3.03 ; and - 28.9 million diluted shares.
The diluted EPS guidance includes non-cash amortization of intangible assets net of taxes of
Full Year 2024:
- Service revenue of between
$1,016.0 million and$1,040.0 million ; - Operating margin of between 26.1% and 27.4%;
- Effective tax rate of 23.7%;
- Diluted EPS between
$7.17 and$7.69 ; and - 29.3 million diluted shares.
The diluted EPS guidance includes non-cash amortization of intangible assets net of taxes of
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; whether regulatory, economic, or business developments or other matters may or may not have a material adverse effect on our financial position, results of operations, or liquidity; projections, predictions, expectations, estimates, and forecasts as to our business, financial and operating results, and future economic performance; and 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, the negative of these 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 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; the occurrence of any event, change or other circumstance that could give rise to the termination of any of the key university partner agreements; our ability to properly manage risks and challenges associated with strategic initiatives, including potential acquisitions or divestitures of, or investments in, new businesses, acquisitions of new properties and new university partners, and expansion of services provided to our existing university partners; our failure to comply with the extensive regulatory framework applicable to us either directly as a third-party service provider or indirectly through our university partners, including Title IV of the Higher Education Act and the regulations thereunder, state laws and regulatory requirements, and accrediting commission requirements; the harm to our business, results of operations, and financial condition, and harm to our university partners resulting from epidemics, pandemics, or public health crises; the ability of our university partners' students to obtain federal Title IV funds, state financial aid, and private financing; 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 education services sector; risks associated with changes in applicable federal and state laws and regulations and accrediting commission standards, including pending rulemaking by the
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
Live Conference Dial-In:
Those interested in participating in the question-and-answer session should follow the conference dial-in instructions below. Participants may register for the call here to receive the dial-in numbers and unique PIN to access the call seamlessly. Please dial in at least ten minutes prior to the start of the call. Journalists are invited to listen only.
Webcast and Replay:
Investors, journalists and the general public may access a live webcast of this event at: Q4 2023 Grand Canyon Education Inc. Earnings Conference Call. A webcast replay will be available approximately two hours following the conclusion of the call at the same link.
About
Consolidated Income Statements (Unaudited) |
||||||||||||
Three Months Ended |
Year Ended |
|||||||||||
|
|
|||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||
(In thousands, except per share data) |
||||||||||||
Service revenue |
$ |
278,284 |
$ |
258,700 |
$ |
960,899 |
$ |
911,306 |
||||
Costs and expenses: |
||||||||||||
Technology and academic services |
39,227 |
38,357 |
154,870 |
150,493 |
||||||||
Counseling services and support |
82,754 |
72,540 |
302,319 |
273,313 |
||||||||
Marketing and communication |
46,003 |
44,853 |
202,800 |
196,090 |
||||||||
General and administrative |
10,397 |
10,168 |
43,235 |
45,491 |
||||||||
Amortization of intangible assets |
2,104 |
2,104 |
8,419 |
8,419 |
||||||||
Total costs and expenses |
180,485 |
168,022 |
711,643 |
673,806 |
||||||||
Operating income |
97,799 |
90,678 |
249,256 |
237,500 |
||||||||
Interest expense |
(6) |
3 |
(33) |
(2) |
||||||||
Investment interest and other |
2,970 |
1,327 |
10,452 |
2,621 |
||||||||
Income before income taxes |
100,763 |
92,008 |
259,675 |
240,119 |
||||||||
Income tax expense |
20,054 |
20,981 |
54,690 |
55,444 |
||||||||
Net income |
$ |
80,709 |
$ |
71,027 |
$ |
204,985 |
$ |
184,675 |
||||
Earnings per share: |
||||||||||||
Basic income per share |
$ |
2.73 |
$ |
2.32 |
$ |
6.83 |
$ |
5.75 |
||||
Diluted income per share |
$ |
2.71 |
$ |
2.30 |
$ |
6.80 |
$ |
5.73 |
||||
Basic weighted average shares outstanding |
29,555 |
30,669 |
29,991 |
32,131 |
||||||||
Diluted weighted average shares outstanding |
29,761 |
30,835 |
30,147 |
32,237 |
Consolidated Balance Sheets |
||||||
As of |
As of |
|||||
(In thousands, except par value) |
2023 |
2022 |
||||
ASSETS: |
(Unaudited) |
|||||
Current assets |
||||||
Cash and cash equivalents |
$ |
146,475 |
$ |
120,409 |
||
Investments |
98,031 |
61,295 |
||||
Accounts receivable, net |
78,811 |
77,413 |
||||
Income taxes receivable |
1,316 |
2,788 |
||||
Other current assets |
12,889 |
11,368 |
||||
Total current assets |
337,522 |
273,273 |
||||
Property and equipment, net |
169,699 |
147,504 |
||||
Right-of-use assets |
92,454 |
72,719 |
||||
Amortizable intangible assets, net |
168,381 |
176,800 |
||||
|
160,766 |
160,766 |
||||
Other assets |
1,641 |
1,687 |
||||
Total assets |
$ |
930,463 |
$ |
832,749 |
||
LIABILITIES AND STOCKHOLDERS' EQUITY: |
||||||
Current liabilities |
||||||
Accounts payable |
$ |
17,676 |
$ |
20,006 |
||
Accrued compensation and benefits |
31,358 |
36,412 |
||||
Accrued liabilities |
26,725 |
22,473 |
||||
Income taxes payable |
10,250 |
12,167 |
||||
Current portion of lease liability |
11,024 |
8,648 |
||||
Total current liabilities |
97,033 |
99,706 |
||||
Deferred income taxes, noncurrent |
26,749 |
26,195 |
||||
Other long-term liabilities |
410 |
436 |
||||
Lease liability, less current portion |
88,257 |
68,793 |
||||
Total liabilities |
212,449 |
195,130 |
||||
Commitments and contingencies |
||||||
Stockholders' equity |
||||||
Preferred stock, |
— |
— |
||||
Common stock, |
540 |
538 |
||||
|
(1,849,693) |
(1,711,423) |
||||
Additional paid-in capital |
322,512 |
309,310 |
||||
Accumulated other comprehensive loss |
(57) |
(533) |
||||
Retained earnings |
2,244,712 |
2,039,727 |
||||
Total stockholders' equity |
718,014 |
637,619 |
||||
Total liabilities and stockholders' equity |
$ |
930,463 |
$ |
832,749 |
Consolidated Statements of Cash Flows (Unaudited) |
||||||
Year Ended |
||||||
|
||||||
(In thousands) |
2023 |
2022 |
||||
Cash flows provided by operating activities: |
||||||
Net income |
$ |
204,985 |
$ |
184,675 |
||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||
Share-based compensation |
13,204 |
12,642 |
||||
Depreciation and amortization |
23,554 |
22,758 |
||||
Amortization of intangible assets |
8,419 |
8,419 |
||||
Deferred income taxes |
402 |
401 |
||||
Other, including fixed asset disposals |
(442) |
853 |
||||
Changes in assets and liabilities: |
||||||
Accounts receivable from university partners |
(1,398) |
(7,350) |
||||
Other assets |
(1,639) |
(2,604) |
||||
Right-of-use assets and lease liabilities |
2,105 |
1,193 |
||||
Accounts payable |
(3,109) |
(3,894) |
||||
Accrued liabilities |
(1,974) |
(1,023) |
||||
Income taxes receivable/payable |
(445) |
4,759 |
||||
Deferred revenue |
— |
(10) |
||||
Net cash provided by operating activities |
243,662 |
220,819 |
||||
Cash flows used in investing activities: |
||||||
Capital expenditures |
(44,537) |
(35,232) |
||||
Additions of amortizable content |
(897) |
(397) |
||||
Purchases of investments |
(98,853) |
(171,549) |
||||
Proceeds from sale or maturity of investments |
63,815 |
110,039 |
||||
Net cash used in investing activities |
(80,472) |
(97,139) |
||||
Cash flows used in financing activities: |
||||||
Repurchase of common shares and shares withheld in lieu of income taxes |
(137,124) |
(604,212) |
||||
Net cash used in financing activities |
(137,124) |
(604,212) |
||||
Net increase (decrease) in cash and cash equivalents and restricted cash |
26,066 |
(480,532) |
||||
Cash and cash equivalents and restricted cash, beginning of period |
120,409 |
600,941 |
||||
Cash and cash equivalents and restricted cash, end of period |
$ |
146,475 |
$ |
120,409 |
||
Supplemental disclosure of cash flow information |
||||||
Cash paid for interest |
$ |
33 |
$ |
2 |
||
Cash paid for income taxes |
$ |
59,026 |
$ |
48,573 |
||
Supplemental disclosure of non-cash investing and financing activities |
||||||
Purchases of property and equipment included in accounts payable |
$ |
1,909 |
$ |
1,131 |
||
ROU Asset and Liability recognition |
$ |
19,735 |
$ |
15,067 |
||
Excise tax on treasury stock repurchases |
$ |
1,146 |
$ |
— |
Adjusted EBITDA (Non-GAAP Financial Measure)
Adjusted EBITDA is defined as net income plus interest expense, less interest income and other gain (loss) recognized on investments, plus income tax expense, and plus depreciation and amortization (EBITDA), as adjusted for (i) contributions to private
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 in that, among other things it does not reflect:
- cash expenditures for capital expenditures or contractual commitments;
- changes in, or cash requirements 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 and reported under 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 only use Adjusted EBITDA as a supplemental performance measure.
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 |
Year Ended |
|||||||||||
|
|
|||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||
(Unaudited, in thousands) |
(Unaudited, in thousands) |
|||||||||||
Net income |
$ |
80,709 |
$ |
71,027 |
$ |
204,985 |
$ |
184,675 |
||||
Plus: interest expense |
6 |
(3) |
33 |
2 |
||||||||
Less: investment interest and other |
(2,970) |
(1,327) |
(10,452) |
(2,621) |
||||||||
Plus: income tax expense |
20,054 |
20,981 |
54,690 |
55,444 |
||||||||
Plus: amortization of intangible assets |
2,104 |
2,104 |
8,419 |
8,419 |
||||||||
Plus: depreciation and amortization |
6,560 |
5,735 |
23,554 |
22,758 |
||||||||
EBITDA |
106,463 |
98,517 |
281,229 |
268,677 |
||||||||
Plus: contributions in lieu of state income taxes |
— |
— |
3,500 |
5,000 |
||||||||
Plus: loss on fixed asset disposal |
166 |
94 |
741 |
1,249 |
||||||||
Plus: litigation and regulatory reserves |
1,057 |
452 |
3,628 |
3,768 |
||||||||
Plus: share-based compensation |
3,246 |
3,158 |
13,204 |
12,642 |
||||||||
Adjusted EBITDA |
$ |
110,932 |
$ |
102,221 |
$ |
302,302 |
$ |
291,336 |
Non-GAAP Net Income and Non-GAAP Diluted Income Per Share
The Company believes the presentation of non-GAAP net income and non-GAAP diluted income per share information that excludes amortization of intangible assets and loss on disposal of fixed assets allows investors to develop a more meaningful understanding of the Company's performance over time. Accordingly, for the three-months and years ended
Three Months Ended |
Year Ended |
|||||||||||
|
|
|||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||
(Unaudited, in thousands except per share data) |
||||||||||||
GAAP Net income |
$ |
80,709 |
$ |
71,027 |
$ |
204,985 |
$ |
184,675 |
||||
Amortization of intangible assets |
2,104 |
2,104 |
8,419 |
8,419 |
||||||||
Loss on disposal of fixed assets |
166 |
94 |
741 |
1,249 |
||||||||
Income tax effects of adjustments(1) |
(452) |
(501) |
(1,929) |
(2,232) |
||||||||
As Adjusted, Non-GAAP Net income |
$ |
82,527 |
$ |
72,724 |
$ |
212,216 |
$ |
192,111 |
||||
GAAP Diluted income per share |
$ |
2.71 |
$ |
2.30 |
$ |
6.80 |
$ |
5.73 |
||||
Amortization of intangible assets (2) |
0.06 |
0.06 |
0.22 |
0.20 |
||||||||
Loss on disposal of fixed assets (3) |
0.00 |
0.00 |
0.02 |
0.03 |
||||||||
As Adjusted, Non-GAAP Diluted income per share |
$ |
2.77 |
$ |
2.36 |
$ |
7.04 |
$ |
5.96 |
(1) |
The income tax effects of adjustments are based on the effective income tax rate applicable to adjusted (non-GAAP) results. |
|||||||||
(2) |
The amortization of acquired intangible assets per diluted share is net of an income tax benefit of |
|||||||||
(3) |
The loss on disposal of fixed assets per diluted share is net of an income tax benefit of |
Investor Relations Contact:
Chief Financial Officer
602-639-6648
[email protected]
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