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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-34211

GRAND CANYON EDUCATION, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

20-3356009

(State or other jurisdiction of
Incorporation or organization)

(I.R.S. Employer
Identification No.)

2600 W. Camelback Road

Phoenix, Arizona 85017

(Address, including zip code, of principal executive offices)

(602) 247-4400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

LOPE

Nasdaq Global Select Market

​ ​​ ​

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large Accelerated Filer     

    

Accelerated Filer                      

Non-accelerated Filer       

Smaller Reporting Company     

Emerging Growth Company     

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

The total number of shares of common stock outstanding as of August 2, 2022, was 31,962,995.

Table of Contents

GRAND CANYON EDUCATION, INC.

FORM 10-Q

INDEX

Page

PART I – FINANCIAL INFORMATION

3

Item 1 Financial Statements

3

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3 Quantitative and Qualitative Disclosures About Market Risk

32

Item 4 Controls and Procedures

32

PART II – OTHER INFORMATION

32

Item 1 Legal Proceedings

32

Item 1A Risk Factors

32

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3 Defaults Upon Senior Securities

33

Item 4 Mine Safety Disclosures

33

Item 5 Other Information

33

Item 6 Exhibits

34

SIGNATURES

35

2

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

GRAND CANYON EDUCATION, INC.

Consolidated Income Statements

(Unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

(In thousands, except per share data)

 

2022

    

2021

    

2022

    

2021

Service revenue

$

199,753

$

201,487

$

443,886

$

438,421

Costs and expenses:

 

  

 

  

 

  

 

  

Technology and academic services

 

38,189

 

33,676

 

74,495

 

65,727

Counseling services and support

 

66,025

 

60,932

 

133,538

 

122,171

Marketing and communication

 

49,735

 

45,445

 

100,586

 

93,176

General and administrative

 

9,854

 

9,081

 

19,747

 

18,663

Amortization of intangible assets

 

2,105

 

2,105

 

4,210

 

4,210

Total costs and expenses

 

165,908

 

151,239

 

332,576

 

303,947

Operating income

 

33,845

 

50,248

 

111,310

 

134,474

Interest income on Secured Note

 

 

14,773

 

 

29,322

Interest expense

 

(5)

 

(763)

 

(5)

 

(1,562)

Investment interest and other

 

344

 

238

 

549

 

359

Income before income taxes

 

34,184

 

64,496

 

111,854

 

162,593

Income tax expense

 

8,622

 

15,035

 

28,214

 

35,020

Net income

$

25,562

$

49,461

$

83,640

$

127,573

Earnings per share:

 

  

 

  

 

  

 

  

Basic income per share

$

0.80

$

1.09

$

2.51

$

2.78

Diluted income per share

$

0.80

$

1.09

$

2.51

$

2.78

Basic weighted average shares outstanding

 

31,800

 

45,490

 

33,295

 

45,810

Diluted weighted average shares outstanding

 

31,877

 

45,582

 

33,381

 

45,964

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

3

Table of Contents

GRAND CANYON EDUCATION, INC.

Consolidated Balance Sheets

June 30, 

    

December 31, 

(In thousands, except par value)

 

2022

2021

(Unaudited)

ASSETS:

Current assets

 

  

Cash and cash equivalents

$

139,401

$

600,941

Investments

 

63,867

 

Accounts receivable, net

 

25,727

 

70,063

Income tax receivable

 

8,967

 

1,275

Other current assets

 

11,890

 

8,766

Total current assets

 

249,852

 

681,045

Property and equipment, net

 

139,632

 

136,120

Right-of-use assets

54,202

57,652

Amortizable intangible assets, net

181,009

185,219

Goodwill

 

160,766

 

160,766

Other assets

 

1,842

 

1,943

Total assets

$

787,303

$

1,222,745

LIABILITIES AND STOCKHOLDERS’ EQUITY:

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

18,139

$

24,306

Accrued compensation and benefits

 

32,911

 

32,714

Accrued liabilities

 

32,977

 

27,593

Income taxes payable

 

32

 

5,895

Deferred revenue

 

11,958

 

10

Current portion of lease liability

 

7,699

 

7,426

Total current liabilities

 

103,716

 

97,944

Deferred income taxes, noncurrent

 

26,571

 

25,962

Other long-term liability

24

37

Lease liability, less current portion

 

50,354

 

53,755

Total liabilities

 

180,665

 

177,698

Commitments and contingencies

 

  

 

  

Stockholders’ equity

 

  

 

  

Preferred stock, $0.01 par value, 10,000 shares authorized; 0 shares issued and outstanding at June 30, 2022 and December 31, 2021

 

 

Common stock, $0.01 par value, 100,000 shares authorized; 53,830 and 53,637 shares issued and 31,963 and 37,722 shares outstanding at June 30, 2022 and December 31, 2021, respectively

 

538

 

536

Treasury stock, at cost, 21,867 and 15,915 shares of common stock at June 30, 2022 and December 31, 2021, respectively

 

(1,635,223)

 

(1,107,211)

Additional paid-in capital

 

303,029

 

296,670

Accumulated other comprehensive loss

 

(398)

 

Retained earnings

 

1,938,692

 

1,855,052

Total stockholders’ equity

 

606,638

 

1,045,047

Total liabilities and stockholders’ equity

$

787,303

$

1,222,745

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

4

Table of Contents

GRAND CANYON EDUCATION, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended

Six Months Ended

 

June 30, 

June 30, 

(In thousands)

2022

    

2021

    

2022

    

2021

Net income

$

25,562

$

49,461

$

83,640

$

127,573

Other comprehensive income, net of tax:

 

  

 

  

 

  

 

  

Unrealized losses on available-for-sale securities, net of taxes of $24 and $22 for the three months ended June 30, 2022 and 2021, respectively, and $123 and $57 for the six months ended June 30, 2022 and 2021, respectively

 

(75)

 

(65)

 

(398)

 

(185)

Comprehensive income

$

25,487

$

49,396

$

83,242

$

127,388

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

5

Table of Contents

GRAND CANYON EDUCATION, INC.

Consolidated Statement of Stockholders’ Equity

(In thousands)

(Unaudited)

Six Months Ended June 30, 2022

Accumulated

Additional

Other

Common Stock

Treasury Stock

Paid-in

Comprehensive

Retained

  

Shares

  

Par Value

  

Shares

  

Cost

  

Capital

  

Loss

  

Earnings

  

Total

Balance at December 31, 2021

53,637

$

536

15,915

$

(1,107,211)

$

296,670

$

$

1,855,052

$

1,045,047

Comprehensive income

(323)

58,078

57,755

Common stock purchased for treasury

4,575

(394,930)

(394,930)

Restricted shares forfeited

6

Share-based compensation

189

2

52

(4,625)

3,188

(1,435)

Balance at March 31, 2022

53,826

$

538

20,548

$

(1,506,766)

$

299,858

$

(323)

$

1,913,130

$

706,437

Comprehensive income

(75)

25,562

25,487

Common stock purchased for treasury

1,319

(128,457)

(128,457)

Restricted shares forfeited

Share-based compensation

4

3,171

3,171

Balance at June 30, 2022

53,830

$

538

 

21,867

$

(1,635,223)

$

303,029

$

(398)

$

1,938,692

$

606,638

Six Months Ended June 30, 2021

Accumulated

Additional

Other

Common Stock

Treasury Stock

Paid-in

Comprehensive

Retained

  

Shares

  

Par Value

  

Shares

  

Cost

  

Capital

  

Loss

  

Earnings

  

Total

Balance at December 31, 2020

53,277

$

533

 

6,628

$

(303,379)

$

282,467

$

$

1,594,708

$

1,574,329

Comprehensive income

 

 

 

 

 

(120)

 

78,112

 

77,992

Common stock purchased for treasury

 

 

567

 

(56,348)

 

(7,000)

 

 

 

(63,348)

Restricted shares forfeited

 

 

 

 

 

 

 

Share-based compensation

180

 

1

 

56

 

(5,994)

 

3,018

 

 

 

(2,975)

Exercise of stock options

176

2

2,678

2,680

Balance at March 31, 2021

53,633

$

536

7,251

$

(365,721)

$

281,163

$

(120)

$

1,672,820

$

1,588,678

Comprehensive income

(65)

49,461

49,396

Common stock purchased for treasury

982

(95,331)

(3,000)

(98,331)

Restricted shares forfeited

8

Share-based compensation

4

2,940

2,940

Balance at June 30, 2021

53,637

$

536

8,241

$

(461,052)

$

281,103

$

(185)

$

1,722,281

$

1,542,683

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

6

Table of Contents

GRAND CANYON EDUCATION, INC.

Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended

 

June 30, 

(In thousands)

2022

    

2021

Cash flows provided by operating activities:

  

 

  

Net income

$

83,640

$

127,573

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

  

Share-based compensation

 

6,361

 

5,959

Depreciation and amortization

 

11,352

 

10,821

Amortization of intangible assets

4,210

4,210

Deferred income taxes

 

732

 

1,837

Other, including fixed asset impairments

 

631

 

302

Changes in assets and liabilities:

 

  

 

  

Accounts receivable and interest receivable from university partners

 

44,336

 

47,312

Other assets

 

(3,171)

 

(3,975)

Right-of-use assets and lease liabilities

322

237

Accounts payable

 

(6,285)

 

6,653

Accrued liabilities

 

5,568

 

5,027

Income taxes receivable/payable

 

(13,555)

 

(5,387)

Deferred revenue

 

11,948

 

9,760

Net cash provided by operating activities

 

146,089

 

210,329

Cash flows used in investing activities:

 

  

 

  

Capital expenditures

 

(15,136)

 

(15,757)

Additions of amortizable content

 

(114)

 

(271)

Funding to GCU

 

 

(190,000)

Purchases of investments

 

(91,361)

 

(51,223)

Proceeds from sale or maturity of investments

 

26,994

 

17,166

Net cash used in investing activities

 

(79,617)

 

(240,085)

Cash flows used in financing activities:

 

  

 

  

Principal payments on notes payable

 

 

(16,572)

Net borrowings from revolving line of credit

 

 

35,000

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

 

(528,012)

 

(167,673)

Net proceeds from exercise of stock options

 

 

2,680

Net cash used in financing activities

 

(528,012)

 

(146,565)

Net decrease in cash and cash equivalents and restricted cash

 

(461,540)

 

(176,321)

Cash and cash equivalents and restricted cash, beginning of period

 

600,941

 

245,769

Cash and cash equivalents and restricted cash, end of period

$

139,401

$

69,448

Supplemental disclosure of cash flow information

 

  

 

  

Cash paid for interest

$

5

$

1,658

Cash paid for income taxes

$

38,841

$

37,132

Supplemental disclosure of non-cash investing and financing activities

 

  

 

  

Purchases of property and equipment included in accounts payable

$

1,654

$

422

ROU Asset and Liability recognition

$

503

$

1,717

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

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Table of Contents

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

1. Nature of Business

Grand Canyon Education, Inc. (together with its subsidiaries, the “Company” or “GCE”) is a publicly traded education services company dedicated to serving colleges and universities. GCE has developed significant technological solutions, infrastructure and operational processes to provide services to these institutions on a large scale. GCE’s most significant university partner is Grand Canyon University (“GCU”), an Arizona non-profit corporation, a comprehensive regionally accredited university that offers graduate and undergraduate degree programs, emphases and certificates across nine colleges both online, on ground at its campus in Phoenix, Arizona and at three off-campus classroom and laboratory sites.

In January 2019, GCE began providing education services to numerous university partners across the United States, through our wholly owned subsidiary, Orbis Education, which we acquired, by merger on January 22, 2019 (the “Acquisition”). Since the Acquisition, GCE, together with Orbis Education, has continued to add additional university partners. In the healthcare field, we work in partnership with a growing number of top universities and healthcare networks across the country, offering healthcare-related academic programs at off-campus classroom and laboratory sites located near healthcare providers and developing high-quality, career-ready graduates who enter the workforce ready to meet the demands of the healthcare industry. In addition, we have provided certain services to a university partner to assist them in expanding their online graduate programs. As of June 30, 2022, GCE provides education services to 27 university partners across the United States.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions have been eliminated in consolidation.

Unaudited Interim Financial Information

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles and pursuant to the rules and regulations of the United States Securities and Exchange Commission and the instructions to Form 10-Q and Article 10, consistent in all material respects with those applied in its financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021. They do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. Such interim financial information is unaudited but reflects all adjustments that in the opinion of management are necessary for the fair presentation of the interim periods presented. Interim results are not necessarily indicative of results for a full year. These consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2021 from which the December 31, 2021 balance sheet information was derived.

Investments

As of June 30, 2022 and 2021, the Company considered its investments in corporate bonds, commercial paper, municipal securities, asset backed securities, municipal bonds, and collateralized mortgage obligations as available-for-sale securities based on the Company’s intent for the respective securities. Available-for-sale securities are carried at fair value, determined using Level 2 of the hierarchy of valuation inputs, with the use of inputs other than quoted prices that are observable for the assets, with unrealized gains and losses, net of tax, reported as a separate component of other comprehensive income. Unrealized losses considered to be other-than-temporary are recognized currently in earnings.

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Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Amortization of premiums, accretion of discounts, interest and dividend income and realized gains and losses are included in interest and other income. As of December 31, 2021, the Company had no investments.

Arrangements with GCU

On July 1, 2018, the Company consummated an Asset Purchase Agreement (the “Asset Purchase Agreement”) with GCU. In conjunction with the Asset Purchase Agreement, we received a secured note from GCU as consideration for the transferred assets in the initial principal amount of $870,097 (the “Secured Note”) which was repaid by GCU in the fourth quarter of 2021. In connection therewith, the Company and GCU entered into a long-term master services agreement (the “Master Services Agreement”) pursuant to which the Company provides identified technology and academic services, counseling services and support, marketing and communication services, and several back-office services to GCU in return for 60% of GCU’s tuition and fee revenue. Except for identified liabilities assumed by GCU, GCE retained responsibility for all liabilities of the business arising from pre-closing operations.

Internally Developed Software

The Company capitalizes certain costs related to internal-use software, primarily consisting of direct labor associated with creating the software. Software development projects generally include three stages: the preliminary project stage (all costs are expensed as incurred), the application development stage (certain costs are capitalized and certain costs are expensed as incurred) and the post-implementation or operation stage (all costs are expensed as incurred). Costs capitalized in the application development stage include costs of design, coding, integration, and testing of the software developed. Capitalization of costs requires judgment in determining when a project has reached the application development stage and the period over which we expect to benefit from the use of that software. Once the software is placed in service, these costs are amortized straight-line over the estimated useful life of the software, which is generally three years. These assets are a component of our property and equipment, net in our consolidated balance sheets.

Capitalized Content Development

The Company capitalizes certain costs to fulfill a contract related to the development and digital creation of content on a course-by-course basis for each university partner, many times in conjunction with faculty and subject matter experts. The Company is responsible for the conversion of instructional materials to an on-line format, including outlines, quizzes, lectures, and articles in accordance with the educational guidelines provided to us by our university partners, prior to the respective course commencing. We also capitalize the creation of learning objects which are digital assets such as online demonstrations, simulations, and case studies used to obtain learning objectives.

Costs that are capitalized include payroll and payroll-related costs for employees who are directly associated and spend time producing content and payments to faculty and subject matter experts involved in the process.  The Company starts capitalizing content costs when it begins to develop or to convert a particular course, resources have been assigned and a timeline has been set. The content asset is placed in service when all work is complete, and the curriculum could be used for instruction. Capitalized content development assets are included in other assets in our consolidated balance sheets. The Company has concluded that the most appropriate method to amortize the deferred content assets is on a straight-line basis over the estimated life of the course, which is generally four years which corresponds with course’s review and major revision cycle. As of June 30, 2022 and December 31, 2021, $1,020 and $1,168, respectively, net of amortization, of deferred content assets are included in other assets, long-term in the Company’s consolidated balance sheets and amortization is included in technical and academic services where the costs originated.

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Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets for impairment, other than goodwill, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Leases

The Company determines if an arrangement is a lease at inception and evaluates the lease agreement to determine whether the lease is a finance or operating lease. Right-of-use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement to determine the present value of lease payments over the lease term. At lease inception, the Company determines the lease term by assuming no exercises of renewal options, due to the Company’s constantly changing geographical needs for its university partners. Leases with an initial term of 12 months or less are not recorded in the consolidated balance sheets and are recognized as lease expense on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, and the non-lease components are accounted for separately and not included in our ROU assets and lease liabilities. Leases primarily consist of off-campus classroom and laboratory site locations and office space.

Business Combinations

The purchase price of an acquisition is allocated to the assets acquired, including tangible and intangible assets, and liabilities assumed, based on their respective fair values at the acquisition date. The excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Transaction costs associated with business combinations are expensed as incurred and are recorded in the loss on transaction in the consolidated financial statements. The determination of the fair value and useful lives of the intangible assets acquired involves certain judgments and estimates. These judgements can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate weighted average cost of capital. The net assets and result of operations of an acquired entity are included in the Company’s consolidated financial statements from the acquisition date.

Goodwill and Amortizable Intangible Assets

Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the tangible and intangible assets acquired and liabilities assumed. Goodwill is assessed at least annually for impairment during the fourth quarter, or more frequently if circumstances indicate potential impairment. Goodwill is allocated to our reporting unit at the education services segment, which is the same as the entity as a whole (entity level reporting unit). The Company has concluded there is one operating segment and one reporting unit for goodwill impairment consideration. The Financial Accounting Standards Board has issued guidance that permits an entity to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. The Company reviews goodwill at least annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

Finite-lived intangible assets that are acquired in a business combination are recorded at fair value on their acquisition dates and are amortized using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or on a straight-line basis over the estimated useful life of the intangible asset if the pattern of economic benefit cannot be reliability determined. Finite-lived intangible assets consist of university partner

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Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

relationships and trade names. The Company reviews its finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. There were no indicators that the carrying amount of the finite-lived intangible assets were impaired as of June 30, 2022. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the assets. If such intangible assets are not recoverable, a potential impairment loss is recognized to the extent the carrying amounts of the assets exceeds the fair value of the assets.

Acquisition

On January 22, 2019, GCE acquired Orbis Education for $361,184 (inclusive of closing date adjustments and net of cash acquired). The Acquisition was accounted for in accordance with the acquisition method of accounting. Under this method the cost of the target is allocated to the identifiable assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The estimated fair values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature. The majority of property and equipment were also estimated based upon historical costs as they approximated fair value. Identified intangible assets of $210,280 consisted primarily of university partner relationships that were valued at $210,000. The fair value of university partner relationships was determined using the multiple-period excess earnings method. The fair value of the assets acquired, less the liabilities assumed, exceeded the purchase price by $157,825 which was recorded as goodwill.

Share-Based Compensation

The Company measures and recognizes compensation expense for share-based payment awards made to employees and directors. The fair value of the Company’s restricted stock awards is based on the market price of its common stock on the date of grant. Stock-based compensation expense related to restricted stock grants is expensed over the vesting period using the straight-line method for Company employees and the Company’s board of directors. The Company recognizes forfeitures as they occur.

Fair Value of Financial Instruments

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

The fair value of investments was determined using Level 1 and Level 2 of the hierarchy of valuation inputs, with the use of inputs other than quoted prices that are observable for the assets. The unit of account used for valuation is the individual underlying security. The basis for fair value measurements for each level is described below, with Level 1 having the highest priority.

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

-Level 2 – inputs are quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in non-active markets; and model-derived valuations whose inputs are observable or whose significant valuation drivers are observable.

-Level 3 – unobservable inputs that are not corroborated by market data.

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

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Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Revenue Recognition

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

The Company’s Services Agreements have initial terms ranging from 7-15 years, subject to renewal options, although certain agreements may give the university partners the right to terminate early if certain conditions are met. The Company’s Services Agreements have a single performance obligation, as the promises to provide the identified services are not distinct within the context of these agreements. The single performance obligation is delivered as our partners receive and consume benefits, which occurs ratably over a series of distinct service periods (daily or semester). Service revenue is recognized over time using the output method of measuring progress towards complete satisfaction of the single performance obligation. The output method provides a faithful depiction of the performance toward complete satisfaction of the performance obligation and can be tied to the time elapsed which is consumed evenly over the service period and is a direct measurement of the value provided to our partners. The service fees received from our partners over the term of the agreement are variable in nature in that they are dependent upon the number of students attending the university partner’s program and revenues generated from those students during the service period. Due to the variable nature of the consideration over the life of the service arrangement, the Company considered forming an expectation of the variable consideration to be received over the service life of this one performance obligation. However, since the performance obligation represents a series of distinct services, the Company recognizes the variable consideration that becomes known and billable because these fees relate to the distinct service period in which the fees are earned. The Company meets the criteria in the standard and exercises the practical expedient to not disclose the aggregate amount of the transaction price allocated to the single performance obligation that is unsatisfied as of the end of the reporting period. The Company does not disclose the value of unsatisfied performance obligations because the directly allocable variable consideration is allocated entirely to a wholly unsatisfied promise to transfer a service that forms part of a single performance obligation. The service fees are calculated and settled per the terms of the Services Agreements and result in a settlement duration of less than one year for all partners. There are no refunds or return rights under the Services Agreements.

The Company’s receivables represent unconditional rights to consideration from our Services Agreements with our university partners. Accounts receivable, net is stated at net realizable value and contains billed and unbilled revenue. The Company utilizes the allowance method to provide for doubtful accounts based on its evaluation of the expected credit losses. There have been no amounts written off and no reserves established as of June 30, 2022. The Company will continue to review and revise its allowance methodology based on its collection experience with its partners.

For our partners with unbilled revenue, revenue recognition occurs in advance of billings. Billings for some university partners do not occur until after the service period has commenced and final enrollment information is available. Our unbilled revenue of $7,912 and $3,841 as of June 30, 2022 and December 31, 2021, respectively, are included in accounts receivable in our consolidated balance sheets. Deferred revenue represents the excess of amounts received as compared to amounts recognized in revenue on our consolidated statements of income as of the end of the reporting period, and such amounts are reflected as a current liability on our consolidated balance sheets. We generally receive payments for our services billed within 30 days of invoice. These payments are recorded as deferred revenue until the services are delivered and revenue is recognized.

Allowance for Credit Losses

The Company records its accounts receivable and previously had recorded its Secured Note (as defined above) receivable at the net amount expected to be collected. Our accounts receivable are derived through education services

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Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

provided to university partners. Our Secured Note receivable was derived through the sale of university-related assets to our most significant university partner, GCU. The Company maintains an allowance for credit losses resulting from our university partners not making payments. The Company determines the adequacy of the allowance by periodically evaluating each university partners balance, considering their financial condition and credit history, and considering current and forecasted economic conditions. In the first quarter of 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments using a modified retrospective approach. This model requires consideration of a broader range of reasonable and supportable information and requires the Company to estimate expected credit losses including a measure of the expected risk of credit loss even if that risk is remote over the lifetime of the asset. Upon adoption, the Company recorded a reserve of $5,000 on its long-term Secured Note receivable. The cumulative effect for the Company upon adoption of this new standard was $3,832, net of taxes of $1,168. Bad debt expense is recorded as a technology and academic services expense in the consolidated income statements. In the fourth quarter of 2021, the Secured Note receivable was paid off and the credit loss reserve of $5,000 was reversed. The Company will also continue to actively monitor the impact of the COVID-19 pandemic as well as other factors on expected credit losses.

Technology and Academic Services

Technology and academic services consist primarily of costs related to ongoing maintenance of educational infrastructure, including online course delivery and management, student records, assessment, customer relations management and other internal administrative systems. This also includes costs to provide support for content development, faculty training, development and other faculty support, technology support, rent and occupancy costs for university partners’ off-campus classroom and laboratory sites, and assistance with state compliance. This expense category includes salaries, benefits and share-based compensation, information technology costs, amortization of content development costs and other costs associated with these support services. This category also includes an allocation of depreciation, amortization, and occupancy costs attributable to the provision of certain services, primarily at the Company’s Phoenix, Arizona and Indianapolis, Indiana locations.

Counseling Services and Support

Counseling services and support consist primarily of costs including team-based counseling and other support to prospective and current students as well as financial aid processing. This expense category includes salaries, benefits and share-based compensation, and other costs such as dues, fees and subscriptions and travel costs. This category also includes an allocation of depreciation, amortization, lease expense, and occupancy costs attributable to the provision of certain services, primarily at the Company’s Phoenix, Arizona and Indianapolis, Indiana locations.

Marketing and Communication

Marketing and communication includes lead acquisition, digital communication strategies, brand identity advertising, media planning and strategy, video, data science and analysis, marketing to potential students and other promotional and communication services. This expense category includes salaries, benefits and share-based compensation for marketing and communication personnel, brand advertising, marketing leads and other promotional and communication expenses. This category also includes an allocation of depreciation, amortization, lease expense, and occupancy costs attributable to the provision of certain services, primarily at the Company’s Phoenix, Arizona and Indianapolis, Indiana locations. Advertising costs are expensed as incurred.

General and Administrative

General and administrative expenses include salaries, benefits and share-based compensation of employees engaged in corporate management, finance, human resources, compliance, and other corporate functions. This category

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Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

also includes an allocation of depreciation, amortization, lease expense, and occupancy costs attributable to the provision of these services, primarily at the Company’s Phoenix, Arizona and Indianapolis, Indiana locations.

Commitments and Contingencies

The Company accrues for contingent obligations when it is probable that a liability has been incurred and the amount is reasonably estimable. When the Company becomes aware of a claim or potential claim, the likelihood of any loss exposure is assessed. If it is probable that a loss will result and the amount of the loss is estimable, the Company records a liability for the estimated loss. If the loss is not probable or the amount of the potential loss is not estimable, the Company will disclose the claim if the likelihood of a potential loss is reasonably possible and the amount of the potential loss could be material. Estimates that are particularly sensitive to future changes include tax, legal, and other regulatory matters, which are subject to change as events evolve, and as additional information becomes available during the administrative and litigation process. The Company expenses legal fees as incurred.

Concentration of Credit Risk

The Company believes the credit risk related to cash equivalents and investments is limited due to its adherence to an investment policy that requires investments to have a minimum BBB rating, depending on the type of security, by one major rating agency at the time of purchase. All of the Company’s cash equivalents and investments as of June 30, 2022 and December 31, 2021 consist of investments rated BBB or higher by at least one rating agency. Additionally, the Company utilizes at least one financial institution to conduct initial and ongoing credit analysis on its investment portfolio to monitor and lower the potential impact of market risk associated with its cash equivalents and investment portfolio. Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash balances, which are primarily invested in money market funds or on deposit at high credit quality financial institutions in the U.S. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At June 30, 2022 and December 31, 2021, the Company had $138,519 and $600,130, respectively, in excess of the FDIC insured limit. The Company is also subject to credit risk for its accounts receivable balance. Our dependence on our most significant university partner, with 85.1% and 85.7% of total service revenue for the six-month periods ended June 30, 2022 and 2021, respectively, subjects us to the risk that declines in our customer’s operations would result in a sustained reduction in service revenue for the Company.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Segment Information

The Company operates as a single education services company using a core infrastructure that serves the curriculum and educational delivery needs of its university partners. The Company’s Chief Executive Officer manages the Company’s operations as a whole and no expense or operating income information is generated or evaluated on any component level.

Recent Accounting Pronouncements

The Company has determined that no other recent accounting pronouncements apply to its operations or could otherwise have a material impact on its consolidated financial statements.

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Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

3. Investments

As of June 30, 2022, the Company had investments of $63,867, classified as available-for-sale securities. As of December 31, 2021, the Company had no investments.

As of June 30, 2022, the Company had available-for-sale investments comprised of the following:

As of June 30, 2022

    

    

Gross

    

Gross

    

Estimated

Adjusted

Unrealized

Unrealized

Fair

Cost

Gains

(Losses)

Value

Corporate bonds

$

31,967

$

6

$

(410)

$

31,563

Commercial paper

32,421

(117)

32,304

Total investments

$

64,388

$

6

$

(527)

$

63,867

For the six months ended June 30, 2022, the net unrealized losses were $398, net of taxes. Available-for-sale debt securities are carried at fair value on the consolidated balance sheets. The Company estimates the lifetime expected credit losses for all available-for sale debt securities in an unrealized loss position. If our assessment indicates that an expected credit loss exists, we determine the portion of the unrealized loss attributable to credit deterioration and record a reserve for the expected credit loss in the allowance for credit losses in technology and academic services in our consolidated income statements.

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

2022 (Remainder of year)

$

49,667

2023

5,376

2024

6,799

2025

2,025

Total

$

63,867

4. Net Income Per Common Share

Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflects the assumed conversion of all potentially dilutive securities, consisting of restricted stock awards, for which the estimated fair value exceeds the exercise price, less shares which could have been purchased with the related proceeds, unless anti-dilutive. For employee equity awards, repurchased shares are also included for any unearned compensation adjusted for tax. The table below reflects the calculation of the weighted average number of common shares outstanding, on an as if converted basis, used in computing basic and diluted earnings per common share.

Three Months Ended

Six Months Ended

June 30, 

June 30, 

 

2022

    

2021

    

2022

    

2021

Denominator:

 

  

 

  

 

  

 

  

Basic weighted average shares outstanding

 

31,800

 

45,490

 

33,295

 

45,810

Effect of dilutive stock options and restricted stock

 

77

 

92

 

86

 

154

Diluted weighted average shares outstanding

 

31,877

 

45,582

 

33,381

 

45,964

Diluted weighted average shares outstanding excludes the incremental effect of unvested restricted stock in accordance with the treasury stock method. For the three-month periods ended June 30, 2022 and 2021, approximately nil and 1, respectively, and for the six-month periods ended June 30, 2022 and 2021, approximately 103 and 2,

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Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

respectively, of the Company’s restricted stock awards outstanding were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive. These restricted stock awards could be dilutive in the future.

5. Allowance for Credit Losses

Balance at

    

    

    

Balance at

Beginning of

Charged to

Deductions/

End of

Period (1)

Expense

Transfers (2)

Period

Allowance for credit losses

Six months ended June 30, 2022

$

 

 

$

Six months ended June 30, 2021

$

5,000

 

 

$

5,000

(1)Amount represents the cumulative effect of the adoption of ASU No. 2016-13 on the Secured Note.
(2)Deductions represent accounts written off, net of recoveries.

6. Property and Equipment

Property and equipment consist of the following:

 

June 30, 

    

December 31, 

2022

2021

Land

$

5,579

$

5,579

Land improvements

 

2,242

 

2,242

Buildings

 

51,399

 

51,399

Buildings and leasehold improvements

 

17,236

 

17,161

Computer equipment

 

116,380

 

113,680

Furniture, fixtures and equipment

 

18,126

 

17,921

Internally developed software

 

54,465

 

55,083

Construction in progress

 

12,408

 

3,381

 

277,835

 

266,446

Less accumulated depreciation and amortization

 

(138,203)

 

(130,326)

Property and equipment, net

$

139,632

$

136,120

7. Amortizable Intangible Assets

Amortizable intangible assets consist of the following as of:

June 30, 2022

Estimated

Gross

Net

Average Useful

Carrying

Accumulated

Carrying

Life (in years)

Amount

Amortization

Amount

University partner relationships

25

  

$

210,000

  

$

(28,991)

  

$

181,009

Trade names

1

280

(280)

 

Total amortizable intangible assets, net

$

210,280

$

(29,271)

$

181,009

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Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Amortization expense for university partner relationships and trade names for the years ending December 31:

Remainder of 2022

$

4,209

2023

 

8,419

2024

8,419

2025

8,419

2026

8,419

Thereafter

 

143,124

$

181,009

8. Leases

The Company has operating leases for off-campus classroom and laboratory sites, office space, office equipment, and optical fiber communication lines. These leases have remaining lease terms that range from two months to 10 years and three months. At lease inception, we determine the lease term by assuming no exercises of renewal options, due to the Company’s constantly changing geographical needs for its university partners. Leases with an initial term of 12 months or less are not recorded in the consolidated balance sheets and we recognize lease expense for these leases on a straight-line basis over the lease term. The Company had operating lease costs of $4,807 and $4,862 for the six-month periods ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, the Company had $28,619 of non-cancelable operating lease commitments for five off-campus classroom and laboratory sites and an office equipment lease that had not yet commenced. The Company’s weighted-average remaining lease term relating to its operating leases is 7.52 years, with a weighted-average discount rate of 3.04%. As of June 30, 2022, the Company had no financing leases.

Future payment obligations with respect to the Company’s operating leases, which were existing at June 30, 2022, by year and in the aggregate, are as follows:

Year Ending December 31,

    

Amount

Remainder of 2022

$

4,669

2023

9,132

2024

8,640

2025

8,145

2026

8,012

Thereafter

26,294

Total lease payments

$

64,892

Less interest

6,839

Present value of lease liabilities

$

58,053

9. Notes Payable and Other Noncurrent Liabilities

The Company upon its receipt of the paydown of $500,000 on the Secured Note in October 2021 repaid all amounts due under the outstanding term loan and revolving credit facilities, terminated the credit agreement and expensed all remaining capitalized loan cost of $1,028 to interest expense.

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Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

10. Commitments and Contingencies

Legal Matters

From time to time, the Company is a party to various lawsuits, claims, and other legal proceedings that arise in the ordinary course of business, some of which are covered by insurance. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company records a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible, and the amount involved could be material. With respect to the majority of pending litigation matters, the Company’s ultimate legal and financial responsibility, if any, cannot be estimated with certainty and, in most cases, any potential losses related to those matters are not considered probable.

Upon resolution of any pending legal matters, the Company may incur charges in excess of presently established reserves. Management does not believe that any such charges would, individually or in the aggregate, have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

11. Share-Based Compensation

Incentive Plan

The Company makes equity incentive grants pursuant to our 2017 Equity Incentive Plan (the “2017 Plan”) under which a maximum of 3,000 shares may be granted. As of June 30, 2022, 1,221 shares were available for grants under the 2017 Plan.

Restricted Stock

During the six months ended June 30, 2022, the Company granted 189 shares of common stock with a service vesting condition to certain of its executives, officers and employees. The restricted shares have voting rights and vest in five annual installments of 20%, with the first installment vesting in March of the calendar year following the date of grant (the “first vesting date”) and subsequent installments vesting on each of the four anniversaries of the first vesting date. Upon vesting, shares will be withheld in lieu of taxes equivalent to the minimum statutory tax withholding required to be paid when the restricted stock vests. During the six months ended June 30, 2022, the Company withheld 52 shares of common stock in lieu of taxes at a cost of $4,625 on the restricted stock vesting dates. In June 2022, following the annual stockholders meeting, the Company granted 4 shares of common stock to the non-employee members of the Company’s Board of Directors. The restricted shares granted to these directors have voting rights and vest on the earlier of (a) the one year anniversary of the date of grant or (b) immediately prior to the following year’s annual stockholders meeting.

A summary of the activity related to restricted stock granted under the Company’s Incentive Plan since December 31, 2021 is as follows:

    

    

Weighted Average

Total

Grant Date

Shares

Fair Value per Share

Outstanding as of December 31, 2021

 

427

$

86.24

Granted

 

193

$

83.10

Vested

 

(134)

$

85.07

Forfeited, canceled or expired

 

(6)

$

85.57

Outstanding as of June 30, 2022

 

480

$

85.32

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Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Stock Options

During the six months ended June 30, 2022, no options were granted. As of December 31, 2021, all options have been exercised or expired.

Share-based Compensation Expense

The table below outlines share-based compensation expense for the six months ended June 30, 2022 and 2021 related to restricted stock granted:

 

2022

    

2021

Technology and academic services

$

1,200

$

1,158

Counseling services and support

 

3,143

 

2,971

Marketing and communication

 

75

 

51

General and administrative

 

1,943

 

1,779

Share-based compensation expense included in operating expenses

 

6,361

 

5,959

Tax effect of share-based compensation

 

(1,590)

 

(1,490)

Share-based compensation expense, net of tax

$

4,771

$

4,469

12. Treasury Stock

The Board of Directors has authorized under its existing stock repurchase program, an aggregate authorization for share repurchases since the initiation of our program of $1,645,000. The expiration date on the repurchase authorization is December 31, 2022. Repurchases occur at the Company’s discretion. Repurchases may be made in the open market or in privately negotiated transactions, pursuant to the applicable Securities and Exchange Commission rules. The amount and timing of future share repurchases, if any, will be made as market and business conditions warrant.

On March 10, 2021, the Company entered into an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co. LLC (“Morgan Stanley”) to repurchase up to $35,000 of its outstanding shares of common stock as part of the Company’s share repurchase program. Under the ASR agreement, the Company received initial delivery of approximately 276 shares of common stock, representing approximately 80% of the number of shares of common stock initially underlying the ASR agreement based on the closing price of the common stock of $101.49, on March 9, 2021. At inception of the ASR agreement, the Company recognized the initial delivery of shares as treasury stock of $28,000 and recognized the remaining amount underlying the ASR agreement as a reduction of additional paid in capital of $7,000. The total number of shares that the Company repurchased under the ASR program was based on the volume-weighted average price of the common stock during the term of the ASR agreement, less a discount, and subject to potential adjustments pursuant to the terms and conditions of the ASR agreement. The final settlement of the share repurchases under the ASR agreement was completed on May 4, 2021 with additional delivery of 46 shares of common stock. At settlement of the ASR agreement, the Company recognized an increase to additional paid in capital and a decrease in treasury stock of $7,000 related to the remaining delivery of shares. The ASR agreement resulted in total of 322 shares repurchased at an average cost of $108.76.

On May 14, 2021, the Company entered into an ASR agreement with Morgan Stanley to repurchase up to $50,000 of its outstanding shares of common stock as part of the Company’s share repurchase program. Under the ASR agreement, the Company received initial delivery on May 17, 2021 of approximately 418 shares of common stock, representing approximately 80% of the number of shares of common stock initially underlying the ASR agreement based on the closing price of the common stock of $95.63, on May 14, 2021. At inception of the ASR agreement, the Company recognized the initial delivery of shares as treasury stock of $40,000, and recognized the remaining amount

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Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

underlying the ASR agreement as a reduction to additional paid in capital of $10,000. The total number of shares that the Company repurchased under the ASR program was based on the volume-weighted average price of the common stock during the term of the ASR agreement, less a discount, and subject to potential adjustments pursuant to the terms and conditions of the ASR agreement. The final settlement of the shares repurchases under the ASR agreement was completed on August 13, 2021 with additional delivery of 139 shares of common stock. At settlement of the ASR agreement, the Company recognized an increase to additional paid in capital and a decrease in treasury stock of $10,000 related to the remaining delivery of shares. The ASR agreement resulted in a total of 558 shares repurchased at an average cost of $89.68.

During the six months ended June 30, 2022 the Company repurchased 5,894 shares of common stock, at an aggregate cost of $523,387. As of June 30, 2022, there remained $72,046 available under its current share repurchase authorization. Shares repurchased in lieu of taxes are not included in the repurchase plan totals as they were approved in conjunction with the restricted share awards.

13. Related Party Transactions

Related party transactions include transaction between the Company and certain of its affiliates. The following transactions were in the normal course of operations and were measured at the exchange amount, which is the amount of consideration established and agreed to by the parties.

As of and for the six months ended June 30, 2022 and 2021, related party transactions consisted of the following:

Affiliates

GCE Community Fund (“GCECF”) – GCECF was initially formed in 2014. GCECF makes grants for charitable, educational, literary, religious or scientific purposes within the meaning of Section 501(c )(3) of the Internal Revenue Code, including for such purposes as the making of distributions to organizations that qualify as exempt organization under Section 501(c )(3) of the Code. The Company’s CEO and Chairman serves as the president of GCECF. All of the board seats are taken by Company executives. The Company is not the primary beneficiary of GCECF, and accordingly, the Company does not consolidate GCECF’s statement of activities with its financial results. The Company contributed $200 for the six months ended June 30, 2022, of which no amounts were owed as of June 30, 2022.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes that appear elsewhere in this report.

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains certain “forward-looking statements” within the meaning of Section 27A of Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include, without limitation, statements regarding: proposed new programs; statements as to whether regulatory developments or other matters may or may 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, the negative of these expressions, as well as statements in future tense, identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management.

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. Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the continuing, and potential future, adverse effects of the COVID-19 pandemic, and federal, state and/or local regulatory guidelines and private business actions to control it, on the global economy and the financial markets, the higher education industry in which we operate, our university partners, and, ultimately, on our financial condition, operating results and cash flows. The extent to which the COVID-19 pandemic will continue to impact us, and our university partners will depend on future developments, including the scope, severity and duration of the pandemic, and the resulting economic impacts and potential changes in behavior, among others, all of which are highly uncertain and cannot be predicted with confidence. Important factors that could cause our actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements, and which may be further heightened by the COVID-19 pandemic, include, but are not limited to:

the harm to our business, results of operations, and financial condition, and harm to our university partners resulting from epidemics, pandemics, including the COVID-19 outbreak, or public health crises;
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 ability of our university partners’ students to obtain federal Title IV funds, state financial aid, and private financing;

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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 Department of Education applicable to us directly or indirectly through our university partners;
competition from other education service companies in our geographic region and market sector, including competition for students, qualified executives and other personnel;
our expected tax payments and tax rate;
our ability to hire and train new, and develop and train existing, employees;
the pace of growth of our university partners’ enrollment and its effect on the pace of our own growth;
fluctuations in our revenues due to seasonality;
our ability to, on behalf of our university partners, convert prospective students to enrolled students and to retain active students to graduation;
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 for our university partners;
risks associated with the competitive environment for marketing the programs of our university partners;
failure on our part to keep up with advances in technology that could enhance the experience for our university partners’ students;
our ability to manage future growth effectively;
the impact of any natural disasters or public health emergencies; and
general adverse economic conditions or other developments that affect the job prospects of our university partners’ students.

Additional factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K (the “2021 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) for the fiscal year ended December 31, 2021, as updated in our subsequent reports filed with the SEC, including any updates found in Part II, Item 1A of this Quarterly Report on Form 10-Q or our other reports on Form 10-Q. You should not put undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date the statements are made and 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.

Explanatory Note

Grand Canyon Education, Inc. (together with its subsidiaries, the “Company” or “GCE”) is a publicly traded education services company dedicated to serving colleges and universities. GCE has developed significant technological

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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 nine colleges both online and on ground at its campus in Phoenix, Arizona, and at two off-campus classroom and laboratory sites.

In January 2019, GCE began providing education services to numerous university partners across the United States, through our wholly owned subsidiary, Orbis Education, which we acquired on January 22, 2019. Since the acquisition, GCE, together with Orbis Education, has continued to add additional university partners. In the healthcare field, we work in partnership with a growing number of top universities and healthcare networks across the country, offering healthcare-related academic programs at off-campus classroom and laboratory sites located near healthcare providers and developing high-quality, career-ready graduates who enter the workforce ready to meet the demands of the healthcare industry. In addition, we have provided certain services to a university partner to assist them in expanding their online graduate programs. As of June 30, 2022, GCE provides education services to 27 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. We may engage with both new and existing university partners to offer healthcare programs, online only or hybrid programs, or, as is the case for our most significant partner, GCU, both healthcare and other programs. In addition, we have centralized a number of services that historically were provided separately to university partners of Orbis Education. Therefore, we refer to all university partners as “GCE partners” or “our partners”. We do disclose significant information for GCU, such as enrollments, due to its size in comparison to our other university partners.

SIGNIFICANT DEVELOPMENTS

Impact of COVID-19

Since March 2020, the world has been, and continues to be, impacted by the COVID-19 pandemic. This contagious outbreak, which has continued to spread, and the related adverse public health developments that have occurred at various times since March 2020, including orders to shelter-in-place, travel restrictions and mandated non-essential business closures, have adversely affected workforces, organizations, customers, economies and financial markets globally. It has also disrupted the normal operations of many businesses, including ours, and that of our university partners.

 

Pursuant to the Master Services Agreement, GCE provides education services to GCU in return for 60% of GCU’s tuition and fee revenues, which includes fee revenues from room, board, and other ancillary businesses including a student-run golf course. GCU has four types of students: traditional ground university students, who attend class on its campus in Phoenix, Arizona and of which approximately 70% have historically lived on campus in university owned residence halls; professional studies students, who are working adult students who attend class one night a week on the Phoenix campus; online students who attend class fully online; and students who are studying in hybrid programs in which the ground component takes place at off-campus classroom and laboratory sites.

The COVID-19 outbreak, as well as measures taken to contain its spread, has impacted GCU’s students and its business in a number of ways.