10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
or
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o |
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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)
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DELAWARE
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20-3356009 |
(State or other jurisdiction of
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(I.R.S. Employer |
Incorporation or organization)
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Identification No.) |
3300 W. Camelback Road
Phoenix, Arizona 85017
(Address, including zip code, of principal executive offices)
(602) 639-7500
(Registrants telephone number, including area code)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
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 and post such files).
Yes o No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
The total number of shares of common stock outstanding as of April 23, 2009, was 45,485,765.
GRAND CANYON EDUCATION, INC.
FORM 10-Q
INDEX
2
PART I FINANCIAL INFORMATION
Item 1.
Financial Statements
GRAND CANYON EDUCATION, INC.
Statements of Operations
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Three Months Ended |
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March 31, |
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(In thousands, except per share data) |
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2008 |
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2009 |
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(Unaudited) |
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Net revenue |
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$ |
35,709 |
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$ |
58,964 |
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Costs and expenses: |
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Instructional costs and services |
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11,620 |
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18,332 |
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Selling and promotional, including $1,512 and
$1,612 for the three months ended March 31,
2008 and 2009, respectively, to related
parties |
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12,586 |
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19,670 |
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General and administrative |
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4,541 |
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8,833 |
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Royalty to former owner |
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1,022 |
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74 |
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Total costs and expenses |
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29,769 |
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46,909 |
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Operating income |
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5,940 |
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12,055 |
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Interest expense |
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(813 |
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(667 |
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Interest income |
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252 |
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108 |
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Income before income taxes |
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5,379 |
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11,496 |
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Income tax expense |
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2,076 |
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4,593 |
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Net income |
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3,303 |
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6,904 |
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Preferred dividends |
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(253 |
) |
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Net income available to common stockholders |
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$ |
3,050 |
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$ |
6,904 |
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Earnings per share: |
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Basic income per share |
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$ |
0.16 |
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$ |
0.15 |
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Diluted income per share |
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$ |
0.09 |
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$ |
0.15 |
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Basic weighted average shares outstanding |
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19,036 |
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45,474 |
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Diluted weighted average shares outstanding |
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33,849 |
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45,821 |
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The accompanying notes are an integral part of these financial statements.
3
GRAND CANYON EDUCATION, INC.
Balance Sheets
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December 31, |
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March 31, |
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(In thousands, except share data) |
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2008 |
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2009 |
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(Unaudited) |
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ASSETS:
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Current assets |
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Cash and cash equivalents |
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$ |
35,152 |
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$ |
68,275 |
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Restricted cash and cash equivalents |
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2,197 |
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3,946 |
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Accounts receivable, net of allowance for
doubtful accounts of $6,356 and $6,068 at
December 31, 2008 and March 31, 2009,
respectively |
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9,442 |
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10,509 |
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Income taxes receivable |
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1,576 |
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938 |
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Deferred income taxes |
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2,603 |
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2,175 |
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Other current assets |
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2,629 |
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2,660 |
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Total current assets |
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53,599 |
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88,503 |
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Property and equipment, net |
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41,399 |
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45,922 |
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Restricted cash and investments (of which
$2,928 and $0 is restricted at December 31,
2008 and March 31, 2009, respectively) |
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3,403 |
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483 |
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Prepaid royalties |
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8,043 |
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7,860 |
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Goodwill |
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2,941 |
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2,941 |
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Deferred income taxes |
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7,404 |
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12,018 |
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Other assets |
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201 |
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166 |
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Total assets |
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$ |
116,990 |
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$ |
157,893 |
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LIABILITIES AND STOCKHOLDERS EQUITY:
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Current liabilities |
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Accounts payable |
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$ |
5,770 |
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$ |
7,547 |
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Accrued liabilities |
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9,674 |
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11,935 |
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Income taxes payable |
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172 |
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4,123 |
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Deferred revenue and student deposits |
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14,262 |
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31,995 |
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Due to related parties |
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1,197 |
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2,429 |
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Current portion of capital lease obligations |
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1,125 |
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1,746 |
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Current portion of notes payable |
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357 |
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447 |
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Total current liabilities |
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32,557 |
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60,222 |
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Capital lease obligations, less current portion |
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29,384 |
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30,332 |
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Notes payable, less current portion and other |
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1,459 |
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1,713 |
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Total liabilities |
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63,400 |
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92,267 |
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Commitments and contingencies |
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Stockholders equity |
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Preferred stock, $0.01 par value, 10,000,000
shares authorized; 0 shares issued and
outstanding at December 31, 2008 and March 31,
2009 |
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Common stock, $0.01 par value, 100,000,000
shares authorized; 45,465,160 and 45,485,765
shares issued and outstanding at December 31,
2008 and March 31, 2009, respectively |
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455 |
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455 |
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Additional paid-in capital |
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64,808 |
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69,935 |
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Accumulated other comprehensive income |
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16 |
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21 |
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Accumulated deficit |
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(11,689 |
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(4,785 |
) |
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Total stockholders equity |
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53,590 |
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65,626 |
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Total
liabilities and stockholders equity |
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$ |
116,990 |
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$ |
157,893 |
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The accompanying notes are an integral part of these financial statements.
4
GRAND CANYON EDUCATION, INC.
Statement of Stockholders Equity
(In thousands, except share data)
(Unaudited)
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Comprehensive |
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Accumulated |
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Shares |
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Par Value |
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Capital |
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Income |
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Deficit |
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Total |
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Balance at December 31, 2008 |
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45,465,160 |
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$ |
455 |
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$ |
64,808 |
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$ |
16 |
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$ |
(11,689 |
) |
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$ |
53,590 |
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Net income |
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6,904 |
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6,904 |
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Unrealized losses on available for-sale securities, net of taxes of $3 |
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5 |
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5 |
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Comprehensive income |
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6,909 |
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Share-based compensation |
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764 |
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764 |
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Exercise of stock options |
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20,605 |
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247 |
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247 |
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Excess tax benefit from share-based compensation |
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9 |
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9 |
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Tax benefit on Spirit warrant intangible |
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4,107 |
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4,107 |
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Balance at March 31, 2009 |
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45,485,765 |
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$ |
455 |
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$ |
69,935 |
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$ |
21 |
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$ |
(4,785 |
) |
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$ |
65,626 |
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The accompanying notes are an integral part of these financial statements.
5
GRAND CANYON EDUCATION, INC.
Statements of Cash Flows
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Three Months Ended |
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March 31, |
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($ in thousands) |
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2008 |
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2009 |
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(Unaudited) |
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Cash flows provided by operating activities: |
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Net income |
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$ |
3,303 |
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$ |
6,904 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Share-based compensation |
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764 |
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Excess tax benefits from share-based compensation |
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(9 |
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Provision for bad debts |
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1,680 |
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3,295 |
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Depreciation and amortization |
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1,090 |
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1,632 |
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Deferred income taxes |
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2 |
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(79 |
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Other |
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(14 |
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Changes in assets and liabilities: |
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Accounts receivable |
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(2,465 |
) |
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(4,362 |
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Prepaid expenses and other assets |
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(199 |
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185 |
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Due to/from related parties |
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809 |
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1,232 |
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Accounts payable |
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1,667 |
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2,435 |
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Accrued liabilities |
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659 |
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2,261 |
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Income taxes payable |
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2,014 |
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4,598 |
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Royalty payable to former owner |
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1,022 |
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Deferred revenue and student deposits |
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8,958 |
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17,733 |
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Net cash provided by operating activities |
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18,540 |
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36,575 |
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Cash flows used in investing activities: |
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Capital expenditures |
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(1,583 |
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(4,500 |
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Change in restricted cash and cash equivalents |
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(1,390 |
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1,187 |
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Purchases of investments |
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(2,399 |
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(11 |
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Proceeds from sale or maturity of investments |
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2,342 |
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Net cash used in investing activities |
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(3,030 |
) |
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(3,324 |
) |
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Cash flows used in financing activities: |
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Principal payments on notes payable and capital lease obligations |
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(321 |
) |
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(384 |
) |
Repayment on line of credit |
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(6,000 |
) |
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Proceeds from related party payable on preferred stock |
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5,725 |
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Net proceeds from exercise of stock options |
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247 |
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Excess tax benefits from share-based compensation |
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9 |
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Net cash used in financing activities |
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(596 |
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(128 |
) |
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Net increase in cash and cash equivalents |
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14,914 |
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33,123 |
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Cash and cash equivalents, beginning of period |
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18,930 |
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35,152 |
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Cash and cash equivalents, end of period |
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$ |
33,844 |
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$ |
68,275 |
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Supplemental disclosure of cash flow information |
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Cash paid for interest |
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$ |
687 |
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$ |
673 |
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Cash paid for income taxes |
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$ |
53 |
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$ |
138 |
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Supplemental disclosure of non-cash investing and financing activities |
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Purchase of equipment through capital lease obligations |
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$ |
760 |
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$ |
2,116 |
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Purchases of property and equipment included in accounts payable |
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$ |
349 |
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$ |
658 |
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Tax benefit of Spirit warrant intangible |
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$ |
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$ |
4,107 |
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Accretion of dividends on Series C convertible preferred stock |
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$ |
253 |
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$ |
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|
The accompanying notes are an integral part of these financial statements.
6
GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
1. Nature of Business
Grand Canyon Education, Inc. (the Company) is a regionally accredited provider of online
postsecondary education services focused on offering graduate and undergraduate degree programs in
its core disciplines of education, business, and healthcare. In addition to online programs, the
Company offers courses at its campus in Phoenix, Arizona and onsite at the facilities of employers.
The Company is accredited by The Higher Learning Commission of the North Central Association of
Colleges and Schools.
2. Summary of Significant Accounting Policies
Unaudited Interim Financial Information
The accompanying unaudited interim financial statements of the Company have been prepared in
accordance with U.S. generally accepted accounting principles, 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, 2008. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United States 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. This
Quarterly Report on Form 10-Q should be read in conjunction with the Companys financial statements
and footnotes included in its Annual Report on Form 10-K for the fiscal year ended December 31,
2008.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts in the financial statements and accompanying notes. Actual results could differ
from those estimates.
Segment Information
The Company operates as a single educational delivery operation using a core infrastructure
that serves the curriculum and educational delivery needs of both its ground and online students
regardless of geography. The Companys chief decision maker manages the Companys operations as a
whole and no expense or operating income information is generated or evaluated on any component
level.
Reclassifications
Certain reclassification of prior year amounts have been made to the prior year balances to
conform to the current period.
Comprehensive income
Total comprehensive income includes net income and other comprehensive income (loss), which
consists solely of unrealized gains and losses on available-for-sale investments. Total
comprehensive income for the three months ended March 31, 2009 and 2008 was
$6,909 and $3,308, respectively.
3. Earnings Per 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 stock options, preferred stock and common stock warrants 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.
7
GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
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.
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Three Months Ended |
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|
March 31, |
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2008 |
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2009 |
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Denominator: |
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Basic common shares outstanding |
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19,036,050 |
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45,474,318 |
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Effect of dilutive preferred stock |
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10,870,178 |
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|
|
|
Effect of dilutive warrants |
|
|
3,943,187 |
|
|
|
|
|
|
Effect of dilutive stock options and restricted stock |
|
|
|
|
|
|
347,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted common shares outstanding |
|
|
33,849,415 |
|
|
|
45,821,318 |
|
|
|
|
|
|
|
|
4. Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
Beginning of |
|
|
Charged to |
|
|
|
|
|
|
End of |
|
|
|
Year |
|
|
Expense |
|
|
Deductions(1) |
|
|
Period |
|
Allowance for doubtful accounts receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2008 |
|
$ |
12,158 |
|
|
|
1,680 |
|
|
|
(424 |
) |
|
$ |
13,414 |
|
Three months ended March 31, 2009 |
|
$ |
6,356 |
|
|
|
3,295 |
|
|
|
(3,583 |
) |
|
$ |
6,068 |
|
|
|
|
(1) |
|
Deductions represent accounts written off, net of recoveries. |
5. Accrued Liabilities
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
March 31, |
|
|
|
2008 |
|
|
2009 |
|
Accrued compensation and benefits |
|
$ |
5,340 |
|
|
$ |
7,955 |
|
Accrued interest |
|
|
284 |
|
|
|
290 |
|
Deferred rent |
|
|
34 |
|
|
|
39 |
|
Tax reserves, non-income tax related |
|
|
710 |
|
|
|
810 |
|
FIN 48 accrual |
|
|
299 |
|
|
|
238 |
|
Other accrued expenses |
|
|
3,007 |
|
|
|
2,603 |
|
|
|
|
|
|
|
|
|
|
$ |
9,674 |
|
|
$ |
11,935 |
|
|
|
|
|
|
|
|
6. Commitments and Contingencies
Leases
The Company leases certain land, buildings and equipment under non-cancelable operating leases
expiring at various dates through 2023. Future minimum lease payments under operating leases due
each year are as follows at March 31, 2009:
|
|
|
|
|
2009 |
|
$ |
2,753 |
|
2010 |
|
|
4,487 |
|
2011 |
|
|
4,187 |
|
2012 |
|
|
3,688 |
|
2013 |
|
|
3,538 |
|
Thereafter |
|
|
20,319 |
|
|
|
|
|
Total minimum payments |
|
$ |
38,972 |
|
|
|
|
|
8
GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
Total rent expense and related taxes and operating expenses under operating leases for the
three months ended March 31, 2008 and 2009 was $553, and $1,135, respectively.
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 is material.
With respect to the majority of pending litigation matters, the Companys 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.
We were previously a party to a dispute with SunGard Higher Education Managed Services Inc.
(SunGard). On October 22, 2008, an arbitration panel issued a final award pursuant to which the
Company and SunGard were awarded damages, with a net award to SunGard in the amount of
approximately $250 plus interest. The arbitration panel also held that each party would be
responsible for its own attorneys fees and that the parties would equally share the arbitration
costs. On January 14, 2009, we entered into a settlement agreement with SunGard regarding payment
of the arbitration award and effecting a mutual release between the parties regarding all claims
that were brought, or could have been brought, in the litigation and related arbitration, and all
administrative matters relating to this dispute have been resolved. Therefore, as of March 31,
2009 there are no reserves for litigation related to this matter.
On August 14, 2008, the Office of Inspector General of the United States Department of
Education (OIG) served an administrative subpoena on the Company requiring it to provide certain
records and information related to performance reviews and salary adjustments for all of its
enrollment counselors and managers from January 1, 2004 to the present. The Company is cooperating
with the OIG to facilitate its investigation and is now in the discovery phase of this
investigation. The Company cannot presently predict the ultimate outcome of the investigation or
any liability or other sanctions that may result.
On September 11, 2008, the Company was served with a qui tam lawsuit that had been filed
against the Company in August 2007 in the United States District Court for the District of Arizona
by a then-current employee on behalf of the federal government. All proceedings in the lawsuit had
been under seal until September 5, 2008, when the court unsealed the first amended complaint, which
was filed on August 11, 2008. The qui tam lawsuit alleges, among other things, that the Company
violated the False Claims Act by knowingly making false statements, and submitting false records or
statements, from at least 2001 to the present, to get false or fraudulent claims paid or approved,
and asserts that the Company improperly compensated certain of its enrollment counselors in
violation of the Title IV law governing compensation of such employees, and as a result, improperly
received Title IV program funds. The complaint specifically alleges that some of the Companys
compensation practices with respect to its enrollment personnel, including providing non-cash
awards, have violated the Title IV law governing compensation. While the Company believes that the
compensation policies and practices at issue in the complaint have not been based on success in
enrolling students in violation of applicable law, the Department of Educations regulations and
interpretations of the incentive compensation law do not establish clear criteria for compliance in
all circumstances, and some of these practices, including the provision of non-cash awards, are not
within the scope of any explicit safe harbor provided in the compensation regulations. The
complaint seeks treble the amount of unspecified damages sustained by the federal government in
connection with the Companys receipt of Title IV funding, a civil penalty for each violation of
the False Claims Act, attorneys fees, costs, and interest. A number of similar lawsuits have been
filed in recent years against for-profit educational institutions that receive Title IV funds.
While the Companys motion to dismiss the qui tam lawsuit has been denied, the Company is currently
conducting discovery and plans to vigorously contest the lawsuit. Based on information available
to date, management does not believe that the outcome of this proceeding would have a material
adverse effect on the Companys financial condition, results of operations or cash flows. However,
the outcome of this proceeding is uncertain and the Company cannot presently predict the ultimate
outcome of this case or any liability or other sanctions that may result. If it were determined
that any of the Companys compensation practices violated the incentive compensation law, the
Company could be subject to substantial monetary liabilities, fines, and other sanctions or could
suffer monetary damages.
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 Companys financial
condition, results of operations or cash flows.
9
GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
Tax Reserves, Non-Income Tax Related
From time to time the Company has exposure to various non-income tax related matters that
arise in the ordinary course of business. At March 31, 2009 and December 31, 2008, the Company has
reserved approximately $810 and $710, respectively, for tax matters where its ultimate exposure is
considered probable and the potential loss can be reasonably estimated.
7. Income Taxes
The Companys uncertain tax positions are related to tax years that remain subject to
examination by tax authorities. As of March 31, 2009, the earliest tax year still subject to
examination for federal and state purposes is 2005. During the second quarter ended June 30, 2008,
the Internal Revenue Service (IRS) commenced an examination of the Companys 2005 income tax
return.
During the three months ended March 31, 2009, the Company determined that it was entitled to a
deferred tax benefit in the amount of $4,107 related to the fair value of the exercised warrant by
Spirit Management Company. This exercise generated a leasehold intangible for income tax purposes
that will be amortized over the life of the original term of the lease agreement. Given that the
tax benefit related to an equity transaction, the benefit of this long-term deferred tax asset has
been recorded as a credit to additional paid-in capital.
8. Share-Based Compensation
On September 27, 2008 the Companys shareholders approved the adoption of the 2008 Equity
Incentive Plan (Incentive Plan) and the 2008 Employee Stock Purchase (ESPP). A total of
4,199,937 shares of our common stock were originally authorized for issuance under the Incentive
Plan. On January 1, 2009 and in accordance with the terms of the Incentive Plan, the number of
shares authorized for issuance under the Incentive Plan automatically increased by 2.5% of the
number of shares of common stock issued and outstanding on December 31, 2008, or 1,136,629 shares,
raising the total number of shares of common stock authorized for issuance under the Incentive Plan
to 5,336,566 shares. Although the ESPP is not in use, a total of 1,049,984 shares of our common
stock have been authorized for sale under the ESPP.
The table below reflects our share-based compensation expense recognized in the three months
ended March 31, 2008 and 2009 related to stock options granted under the Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2009 |
|
Instructional costs and services |
|
$ |
|
|
|
$ |
83 |
|
Selling and promotional |
|
|
|
|
|
|
35 |
|
General and administrative |
|
|
|
|
|
|
643 |
|
Stock-based
compensation expense included in operating expenses |
|
|
|
|
|
|
761 |
|
Tax effect of share-based compensation |
|
|
|
|
|
|
(304 |
) |
Share-based compensation expense, net of tax |
|
$ |
|
|
|
$ |
457 |
|
Stock Grant
On March 3, 2009, the Company granted 1,307 shares of restricted common stock with a fair
value of $15.30 per share to each of David J. Johnson and Jack A. Henry, each of whom was appointed
to the Companys board of directors in November 2008. The fair value of this grant is reflected as
share-based compensation expense in the first quarter of 2009 in the amount of $3 in general and
administrative expense. The restricted shares have voting rights and vest on March 3, 2010.
9. Regulatory
The Company is subject to extensive regulation by federal and state governmental agencies and
accrediting bodies. In particular, the Higher Education Act of 1965, as amended (the Higher
Education Act), and the regulations promulgated thereunder by the Department of Education subject
the Company to significant regulatory scrutiny on the basis of numerous standards that schools must
satisfy in order to participate in the various federal student financial assistance programs under
Title IV of the Higher Education Act.
10
GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
To participate in the Title IV programs, an institution must be authorized to offer its
programs of instruction by the relevant agency of the state in which it is located, accredited by
an accrediting agency recognized by the Department of Education and certified as eligible by the
Department of Education. The Department of Education will certify an institution to participate in
the Title IV programs only after the institution has demonstrated compliance with the Higher
Education Act and the Department of Educations extensive regulations regarding institutional
eligibility. An institution must also demonstrate its compliance to the Department of Education on
an ongoing basis. The Company submitted its application for recertification in March 2008 in
anticipation of the expiration of its provisional certification on June 30, 2008. The Department of
Education did not make a decision on the Companys recertification application by June 30, 2008,
and therefore the Companys participation in the Title IV programs has been automatically extended
on a month-to-month basis until the Department of Education makes its decision. As of December 31,
2008 and March 31, 2009, management believes the Company is in compliance with the applicable
regulations in all material respects.
The Higher Education Act requires accrediting agencies to review many aspects of an
institutions operations in order to ensure that the training offered is of sufficiently high
quality to achieve satisfactory outcomes, and that the institution is complying with accrediting
standards. Failure to demonstrate compliance with accrediting standards may result in the
imposition of probation or Show Cause orders, or the requirements of periodic reports, and
ultimately the loss of accreditation if deficiencies are not remediated.
Political and budgetary concerns significantly affect the Title IV programs. Congress must
reauthorize the student financial assistance programs of the Higher Education Act on a periodic
basis. On July 31, 2008, Congress passed the Higher Education Opportunity Act (the 2008 Act),
which reauthorized and made numerous changes to the Higher Education Act and its programs.
President Bush signed the 2008 Act on August 14, 2008. The Higher Education Act, as reauthorized
and amended by the 2008 Act, continues the access of the Company and its students to Title IV
funds. In addition, changes made by the 2008 Act will affect how the Company complies with the
requirement that it receive a certain proportion of its revenue from other than the Title IV
programs. Other recent changes made by Congress expanded the access of the Company and its students
to Title IV funds by increasing loan limits for first and second year students and lifting
restrictions on online education programs and students.
A significant component of Congress initiative to reduce abuse in the Title IV programs has
been the imposition of limitations on institutions whose former students default on the repayment
of their federally guaranteed or funded student loans above specific rates (cohort default rate).
Although the Company is not obligated to repay any of its students or former students defaults on
payments of their federally guaranteed student loans, if such default rates equal or exceed 25% for
three consecutive years, the institution may lose its eligibility to participate in, and its
students will be denied access to, the federally guaranteed and funded student loan programs and
the Federal Pell Grant program. An institution whose cohort default rate for any federal fiscal
year exceeds 40% may have its eligibility to participate in all of the Title IV programs limited,
suspended or terminated by the Department of Education. The 2008 Act included significant revisions
to the requirements concerning institutions cohort default rates, including revisions to the
formula for calculating an institutions annual cohort default rate, and increases to the threshold
for ending an institutions participation in the relevant Title IV programs from 25% to 30%.
All institutions participating in the Title IV programs must satisfy specific standards of
financial responsibility. The Department of Education evaluates institutions for compliance with
these standards each year, based on the institutions annual audited financial statements, and also
following a change in ownership, as defined by the Department of Education.
The Higher Learning Commission considered our initial public offering to be a change in
control under its policies. While we obtained the Higher Learning Commissions approval to
consummate the offering, as a result of its determination that the public offering constituted a
change in control, the Higher Learning Commission informed us that it would conduct a site visit to
confirm the appropriateness of the approval and to evaluate whether we continue to meet the Higher
Learning Commissions eligibility criteria. The Higher Learning Commission conducted its site visit
in March 2009 and determined, among other things, that the initial public offering was conducted in
a manner that did not disrupt the ongoing operations of the University and that no further action
would be required as a result of the change in control.
Because the Company operates in a highly regulated industry, it, like other industry
participants, may be subject from time to time to investigations, claims of non-compliance, or
lawsuits by governmental agencies or third parties, which allege statutory violations, regulatory
infractions, or common law causes of action. While there can be no assurance that regulatory
agencies or third parties will not undertake investigations or make claims against the Company, or
that such claims, if made, will not have a material adverse effect on the Companys business,
results of operations or financial condition, management believes it has materially complied with
all regulatory requirements.
11
GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
10. Subsequent Events
On April
27, 2009, we signed a purchase agreement pursuant to which we agreed
to acquire our campus land and
buildings and 909,348 shares of our common stock from Spirit Master Funding, LLC and Spirit
Management Company, respectively (collectively, Spirit) for an aggregate purchase price of $50
million. Prior to the acquisition, we had leased the land and buildings from Spirit accounting for
the land as an operating lease and the buildings and improvements as capital lease obligations. To
finance this purchase, we also entered into a loan agreement with a financial institution pursuant
to which we agreed to borrow $25.7 million, all of which will be
used to fund a portion of the purchase price. Under the
terms of the loan agreement, the Company will make principal payments in equal monthly installments
of $143 plus accrued interest at 30 day LIBOR plus 3.5% (approximately 4.0% at April 27, 2009).
All remaining unpaid principal is due on March 31, 2014. The transaction and funding are
expected to close promptly and, in any event, by no later than April
30, 2009.
12
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our historical results of operations and our liquidity and capital
resources 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, Managements Discussion and Analysis of
Financial Condition and Results of Operations, contains certain forward-looking statements, which
include information relating to future events, future financial performance, strategies,
expectations, competitive environment, regulation, and availability of resources. These
forward-looking statements include, without limitation, statements regarding: proposed new
programs; expectations that regulatory developments or other matters will not have a material
adverse effect on our financial position, results of operations, or liquidity; statements
concerning projections, predictions, expectations, estimates, or forecasts as to our business,
financial and operational results, and future economic performance; and statements of managements
goals and objectives and other similar expressions concerning matters that are not historical
facts. Words such as may, should, could, would, predicts, potential, continue,
expects, anticipates, future, intends, plans, believes, estimates and similar
expressions, as well as statements in future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results,
and will not necessarily be accurate indications of the times at, or by, which such performance or
results will be achieved. Forward-looking statements are based on information available at the time
those statements are made or managements good faith belief as of that time with respect to future
events, and are subject to risks and uncertainties that could cause actual performance or results
to differ materially from those expressed in or suggested by the forward-looking statements.
Important factors that could cause such differences include, but are not limited to:
|
|
|
our failure to comply with the extensive regulatory framework applicable to our
industry, including Title IV of the Higher Education Act and the regulations thereunder,
state laws and regulatory requirements, and accrediting commission requirements; |
|
|
|
the results of the ongoing investigation by the Department of Educations Office of
Inspector General and the pending qui tam action regarding the manner in which we have
compensated our enrollment personnel, and possible remedial actions or other liability
resulting therefrom; |
|
|
|
the ability of our students to obtain federal Title IV funds, state financial aid,
and private financing; |
|
|
|
risks associated with changes in applicable federal and state laws and regulations
and accrediting commission standards; |
|
|
|
our ability to hire and train new, and develop and train existing, enrollment
counselors; |
|
|
|
|
the pace of growth of our enrollment; |
|
|
|
our ability to convert prospective students to enrolled students and to retain
active students; |
|
|
|
our success in updating and expanding the content of existing programs and
developing new programs in a cost-effective manner or on a timely basis; |
|
|
|
industry competition, including competition for qualified executives and other
personnel; |
|
|
|
|
risks associated with the competitive environment for marketing our programs; |
|
|
|
failure on our part to keep up with advances in technology that could enhance the
online experience for our students; |
|
|
|
|
our ability to manage future growth effectively; |
|
|
|
general adverse economic conditions or other developments that affect job prospects
in our core disciplines; and |
|
|
|
other factors discussed under the headings Risk Factors and Managements
Discussion and Analysis of Financial Condition and Results of Operations. |
13
Forward-looking statements speak only as of the date the statements are made. 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 Risk Factors in Part I, Item 1A of our Annual
Report on Form 10-K for the fiscal year ended December 31, 2008, as updated in our subsequent
reports filed with the Securities and Exchange Commission (SEC), including any updates found in
Part II, Item 1A of this or other reports on Form 10-Q. 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.
Overview
We are a regionally accredited provider of online postsecondary education services focused on
offering graduate and undergraduate degree programs in our core disciplines of education, business,
and healthcare. In addition to our online programs, we offer programs at our traditional
campus in Phoenix, Arizona and onsite at the facilities of employers. In February 2004, several of
our current stockholders acquired the assets of the school and converted its operations to a
for-profit institution. Since then, we have enhanced our senior management team, expanded our
online platform, increased our program offerings, and initiated a marketing and branding effort to
further differentiate us in the markets in which we operate. We have also made investments to
enhance our traditional campus and student and technology support services. We believe the changes we
have instituted, combined with our management expertise, provide a platform that will support
continued enrollment and revenue growth.
At
March 31, 2009, we had approximately 28,400 students, an increase of 62.4% over 17,500
students at March 31, 2008. At March 31, 2009, 90.7% of students were enrolled in our online
programs, with 49.8% pursuing masters or doctoral degrees. In addition, we increased tuition for
students in our online and professional studies programs by 5.0% to 5.3% for our 2008-09 academic
year, as compared to 2.6% to 4.2% for the prior academic year. Tuition for our traditional programs increased 11.2% for our 2008-09 academic year, as compared to 16.0% for the prior academic
year. The enrollment and tuition price increases were partially offset by the continuing mix shift
towards online programs, which have a lower tuition price per credit hour and with respect to which
our online students take fewer credit hours per semester than our traditional students.
Operating income was $12.1 million for the quarter ended March 31, 2009 an increase of 102.9% over
the $5.9 million in operating income for the quarter ended March 31, 2008.
14
Critical Accounting Policies and Use of Estimates
Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2008. During the three months ended March 31, 2009, there have been
no significant changes in our critical accounting policies.
The following is a summary of our student enrollment at March 31, 2008 and 2009 (which
included less than 150 students pursuing non-degree certificates in each period) by degree type and
by instructional delivery method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2008 |
|
|
2009 |
|
|
|
# of Students |
|
|
% of Total |
|
|
# of Students |
|
|
% of Total |
|
Masters degree(1) |
|
|
10,276 |
|
|
|
58.8 |
% |
|
|
14,128 |
|
|
|
49.8 |
% |
Bachelors degree |
|
|
7,210 |
|
|
|
41.2 |
% |
|
|
14,265 |
|
|
|
50.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
17,486 |
|
|
|
100.0 |
% |
|
|
28,393 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2008 |
|
|
2009 |
|
|
|
# of Students |
|
|
% of Total |
|
|
# of Students |
|
|
% of Total |
|
Online |
|
|
15,133 |
|
|
|
86.5 |
% |
|
|
25,758 |
|
|
|
90.7 |
% |
Ground(2) |
|
|
2,353 |
|
|
|
13.5 |
% |
|
|
2,635 |
|
|
|
9.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
17,486 |
|
|
|
100.0 |
% |
|
|
28,393 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 162 students pursuing doctoral degrees at March 31, 2009. |
|
(2) |
|
Includes our traditional students, as well as our professional students. |
Factors
Affecting Comparability
We have set forth below selected factors that we believe have had, or can be expected to have,
a significant effect on the comparability of recent or future results of operations:
Public company expenses. In November 2008, we completed an initial public offering of shares
of our common stock and our shares are listed for trading on the Nasdaq Global Market. As a result,
we will now need to comply with laws, regulations, and requirements that we did not need to comply
with as a private company, including certain provisions of the Sarbanes-Oxley Act of 2002, related
SEC regulations, and the requirements of Nasdaq. Compliance with the requirements of being a public
company will require us to increase our general and administrative expenses in order to pay our
employees, legal counsel, and accountants to assist us in, among other things, external reporting,
instituting and monitoring a more comprehensive compliance and board governance function,
establishing and maintaining internal control over financial reporting in accordance with Section
404 of the Sarbanes-Oxley Act of 2002, and preparing and distributing periodic public reports in
compliance with our obligations under the federal securities laws. In addition, being a public
company has made it more expensive for us to obtain director and officer liability insurance. We
estimate that incremental annual public company costs will be between $3.0 million and $4.0 million
in fiscal 2009, which will primarily be reflected in general and administrative costs.
Settlement with former owner. To resolve a dispute with our former owner arising from our
acquisition of Grand Canyon University and subsequent lease of our campus, we entered into a
standstill agreement in September 2007 pursuant to which we agreed with the former owner to stay
all pending legal proceedings through April 15, 2008. In accordance with the terms of the
standstill agreement, we made an initial non-refundable $3.0 million payment to the former owner in
October 2007 and made an additional $19.5 million payment to the former owner in April 2008, with
these amounts serving as consideration for, among other things, final resolution of the dispute and
related matters. A portion of the settlement payments has been treated as a prepaid royalty asset
that will be amortized over 20 years at approximately $0.3 million per year, which differs from the
historical royalty expense.
Management fees and expenses. In connection with an August 2005 investment in us led by
Endeavour Capital Fund IV, L.P. and affiliates (collectively, the Endeavour Entities), we entered
into a professional services agreement with the Endeavour Entities general partner. Concurrent
with the completion of the public offering, the professional services agreement terminated by its
terms. For the quarter ended March 31, 2008, we incurred $0.1 million in fees and expenses under
this agreement.
15
Share-based and other executive compensation. Prior to becoming a public company, we had not
granted or issued any stock-based compensation. Accordingly, we had not recognized any stock-based
compensation expense in prior periods. On November 19, 2008, in connection with our initial public
offering, we made substantial awards to our directors, officers, and employees. In addition, on
March 3, 2009, the Company granted 1,307 shares of restricted common stock with a fair value of
$15.30 per share to each of David J. Johnson and Jack A. Henry, each of whom was appointed to the
Companys board of directors in November 2008. As a result, we incurred share-based compensation
expenses in the first quarter of 2009 totaling $0.8 million and will continue to incur expense in
future periods as compared to no share-based compensation in the quarters ending prior to September
30, 2008.
General and administrative expenses and tax expense. In July 2008, we hired a new Chief
Executive Officer, Chief Financial Officer, and Executive Vice President, and have since hired
other financial, accounting, and administrative personnel. Accordingly, compensation expenses, as
reflected in our general and administrative expenses, are higher beginning in the third quarter of
2008.
License agreement. In June 2004, we entered into a license agreement with Blanchard Education,
LLC (Blanchard) relating to our use of the Ken Blanchard name for our College of Business. The
license agreement remains in effect (unless terminated earlier) until February 6, 2016. Under the
terms of that agreement, we agreed to pay Blanchard royalties and to issue to Blanchard up to
909,348 shares of common stock, with the actual number of shares to be issued to be contingent upon
our achievement of stated enrollment levels in the College of Business programs during the term of
the agreement. On May 9, 2008, the terms of the agreement were amended, pursuant to which Blanchard
was issued a total of 365,200 shares of common stock in full settlement of all shares owed and
contingently owed under this agreement. Thus, all remaining performance conditions based on
enrollment thresholds were terminated. The shares issued were valued at the date the shares were
earned and have been treated as a prepaid royalty asset that will be amortized over the remaining
term of the license agreement. We will recognize approximately $0.4 million per year in
amortization expense related to the issuance of the common stock through February 2016.
Results of Operations
The following table sets forth statements of operations data as a percentage of net revenue
for each of the periods indicated:
|
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|
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|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2008 |
|
|
2009 |
|
Net revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
Operating expenses |
|
|
|
|
|
|
|
|
Instructional cost and services |
|
|
32.5 |
|
|
|
31.1 |
|
Selling and promotional |
|
|
35.2 |
|
|
|
33.4 |
|
General and administrative |
|
|
12.7 |
|
|
|
15.0 |
|
Royalty to former owner |
|
|
2.9 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
83.4 |
|
|
|
79.6 |
|
|
|
|
|
|
|
|
Operating income |
|
|
16.6 |
|
|
|
20.4 |
|
Interest expense |
|
|
(2.3 |
) |
|
|
(1.1 |
) |
Interest income |
|
|
0.7 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
15.1 |
|
|
|
19.5 |
|
Income tax expense |
|
|
5.8 |
|
|
|
7.8 |
|
|
|
|
|
|
|
|
Net income |
|
|
9.2 |
|
|
|
11.7 |
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
Net revenue. Our net revenue for the quarter ended March 31, 2009 was $59.0 million, an
increase of $23.3 million, or 65.1%, as compared to net revenue of $35.7 million for the quarter
ended March 31, 2008. This increase was primarily due to increased online enrollment and, to a
lesser extent, increases in the average tuition per student caused by tuition price increases and
an increase in the average credits per student, partially offset by an increase in institutional
scholarships. End-of-period enrollment increased 62.4% between March 31, 2008 and 2009, as we were
able to continue our growth and increase our recruitment, marketing, and enrollment operations. The
year-over-year increase in net revenue exceeded the year-over-year increase in enrollment due to an
increase in the average revenue per student partially offset by the continuing decrease in
traditional students as a percentage of the total student base.
16
Instructional cost and services expenses. Our instructional cost and services expenses for the
quarter ended March 31, 2009 were $18.3 million, an increase of $6.7 million, or 57.8%, as compared
to instructional cost and services expenses of $11.6 million for the quarter ended March 31, 2008.
This increase was primarily due to increases in instructional compensation and related expenses,
faculty compensation, occupancy, depreciation and amortization, share-based compensation, and other
miscellaneous instructional costs and services of $3.0 million, $1.6 million, $0.7 million, $0.4
million, $0.1 million, and $0.9 million, respectively. These increases are primarily attributable
to the increased headcount (both staff and faculty) needed to provide student instruction and
support services, including increased occupancy and equipment costs for the increased headcount, as
a result of the increase in enrollments. Our instructional cost and services expenses as a
percentage of net revenue decreased by 1.4% to 31.1% for the quarter ended March 31, 2009, as
compared to 32.5% for the quarter ended March 31, 2008. This decrease was a result of the continued
shift of our student population to online programs and our ability to leverage the relatively fixed
cost structure of our campus-based facilities and traditional faculty across an increasing revenue base,
as well as increased class size, partially offset by an increase in employee compensation and
related expenses as a percentage of revenue as we have increased the student to support personnel
ratios to further improve the customer service to our students.
Selling and promotional expenses. Our selling and promotional expenses for the quarter ended
March 31, 2009 were $19.7 million, an increase of $7.1 million, or 56.3%, as compared to selling
and promotional expenses of $12.6 million for the quarter ended March 31, 2008. This increase was
primarily due to increases in selling and promotional employee compensation and related expenses,
advertising, occupancy, and other selling and promotional related costs of $3.2 million, $2.3
million, $0.4 million, and $1.2 million, respectively. These increases were driven by a substantial
expansion in our marketing efforts following the removal of our growth restrictions by the
Department of Education, which resulted in an increase in recruitment, marketing, and enrollment
staffing, and expenses related to our revenue sharing arrangement. Our selling and promotional
expenses as a percentage of net revenue decreased by 1.8% to 33.4% for the quarter ended March 31,
2009, from 35.2% for the quarter ended March 31, 2008. This decrease occurred as a result of an
increase in the productivity of our enrollment counselors that were hired during the third and
fourth quarters of 2008, coupled with a focus on higher quality leads to enhance our efforts to
enroll prospective students. In this regard, we incur immediate expenses in connection with hiring
new enrollment counselors while these individuals undergo training, and typically do not achieve
full productivity or generate enrollments from these enrollment counselors until four to six months
after their dates of hire. We plan to continue to add additional enrollment counselors in the
future, although the number of additional hires as a percentage of the total headcount is expected
to decrease, and we therefore plan to continue to reduce selling and promotional expenses as a
percentage of net revenue in the future.
General and administrative expenses. Our general and administrative expenses for the quarter
ended March 31, 2009 were $8.8 million, an increase of $4.2 million, or 94.5%, as compared to
general and administrative expenses of $4.6 million for the quarter ended March 31, 2008. This
increase was primarily due to increases in bad debt expense; employee compensation; share-based
compensation; legal, audit and corporate insurance expenses; and other general and administrative
expenses of $1.6 million, $1.3 million, $0.6 million, $0.6 million and $0.1 million, respectively.
Bad debt expense increased to $3.3 million for the quarter ended March 31, 2009 from $1.7 million
for the quarter ended March 31, 2008 as a result of an increase in net revenue and the increase in
aged receivables between periods. Employee compensation increased primarily as a result of the
additions in July 2008 to our executive management team and the hiring of other personnel needed to
operate as a public company. Share based compensation increased as prior to November 2008 no equity
awards had been granted. The increase in legal, audit, and corporate insurance is primarily related
to insurance and audit costs associated with being a public company. Our general and administrative
expenses as a percentage of net revenue increased by 2.3% to 15.0% for the quarter ended March 31,
2009, from 12.7% for the quarter ended March 31, 2008, primarily due to an increase in our bad debt
expense as a percentage of net revenue between periods from 4.7% of net revenue during the first
quarter of 2008 to 5.6% of net revenue during the first quarter of 2009, increased employee
compensation and related expenses as a percentage of net revenue as discussed above, and
share-based compensation, which represented 1.1% of net revenue in 2009, partially offset by our
ability to leverage our fixed infrastructure over higher net revenue.
Royalty to former owner. In connection with our royalty fee arrangement with the former owner
related to online revenue, we incurred royalty expenses for the quarter ended March 31, 2009 of
$0.1 million, a decrease of $0.9 million, or 92.8%, as compared to royalty expenses incurred of
$1.0 million for the quarter ended March 31, 2008 as a result of the elimination of the obligation
to pay royalties to the former owner effective April 15, 2008. As discussed above, the only related
expense in future periods will be the approximately $0.3 million in annual amortization of the
prepaid royalty asset that was established as a result of payments made to eliminate this future
obligation. Our royalty expense as a percentage of net revenue decreased to 0.1% for the quarter
ended March 31, 2009 from 2.9% for the quarter ended March 31, 2008.
Interest expense. Our interest expense for the quarter ended March 31, 2009 was $0.7 million,
a decrease of $0.1 million from $0.8 million for the quarter ended March 31, 2008, as the average
level of borrowings and related interest rates remained fairly consistent between periods.
17
Interest income. Our interest income for the quarter ended March 31, 2009 was $0.1 million, a
decrease of $0.2 million from $0.3 million for the quarter ended March 31, 2008, as a result of
decreased short-term interest rates in 2009.
Income tax expense. Income tax expense for the quarter ended March 31, 2009 was $4.6 million,
an increase of $2.5 million from $2.1 million for the quarter ended March 31, 2008. This increase
was primarily attributable to increased income before income taxes. Our effective tax rate was
40.0% during the first quarter of 2009 compared to 38.6% during the first quarter of 2008. This
slight increase is the result of income before taxes growing in excess of our permanent tax
deductions.
Net income. Our net income for the quarter ended March 31, 2009 was $6.9 million, an increase
of $3.6 million, or 109.0%, as compared to net income of $3.3 million for the quarter ended March
31, 2008, due to the factors discussed above.
Seasonality
Our net revenue and operating results normally fluctuate as a result of seasonal variations in
our business, principally due to changes in enrollment. Student population varies as a result of
new enrollments, graduations, and student attrition. A portion of our traditional students
do not attend courses during the summer months (June through August), which affects our results for
our second and third fiscal quarters. Since a significant amount of our campus costs are fixed, the
lower revenue resulting from the decreased enrollment has historically contributed to operating
losses during those periods. As we increase the relative proportion of our online students, we
expect this summer effect to lessen. Partially offsetting this summer effect in the third quarter
has been the sequential quarterly increase in enrollments that has occurred as a result of the
traditional fall school start. This increase in enrollments also has occurred in the first quarter,
corresponding to calendar year matriculation. In addition, we typically experience higher net
revenue in the fourth quarter due to its overlap with the semester encompassing the traditional
fall school start and in the first quarter due to its overlap with the first semester of the
calendar year. A portion of our expenses do not vary proportionately with fluctuation in net
revenue, resulting in higher operating income in the first and fourth quarters relative to other
quarters. We expect quarterly fluctuation in operating results to continue as a result of these
seasonal patterns.
Liquidity and Capital Resources
Liquidity. We financed our operating activities and capital expenditures during the quarter
ended March 31, 2008, and 2009 primarily through cash provided by operating activities. Our
unrestricted cash, cash equivalents, and marketable securities were $33.8 million, $68.3 million,
and $35.2 million at March 31, 2008 and 2009 and December 31, 2008, respectively. Our restricted
cash, cash equivalents and investments at March 31, 2008 and 2009 and December 31, 2008 were $9.0
million, $4.4 million and $5.6 million, respectively.
A significant portion of our net revenue is derived from tuition financed by the Title IV
programs. Federal regulations dictate the timing of disbursements under the Title IV programs.
Students must apply for new loans and grants each academic year, which starts July 1 for Title IV
purposes. Loan funds are generally provided by lenders in multiple disbursements for each academic
year. The disbursements are usually received by the start of the second week of the semester. These
factors, together with the timing of our students beginning their programs, affect our operating
cash flow. We believe we have a favorable working capital profile as these Title IV funds and a
significant portion of other tuition and fees are typically received by the start of the second
week of a semester and the revenue is recognized and the related expenses are incurred over the
duration of the semester, which reduces the impact of the growth in our accounts receivables
associated with our enrollment growth.
Based on our current level of operations and anticipated growth, we believe that our cash flow
from operations and other sources of liquidity, including cash, and cash equivalents, will provide
adequate funds for ongoing operations, planned capital expenditures, and working capital
requirements for at least the next 24 months.
Cash Flows
Operating Activities. Net cash provided by operating activities for the quarter ended March
31, 2009 was $36.6 million as compared to $18.5 million for the quarter ended March 31, 2008
primarily due to increased enrollment.
Investing Activities. Net cash used in investing activities was $3.0 million and $3.3 million
for the quarters ended March 31, 2008, and 2009, respectively. Our cash used in investing
activities is primarily related to the purchase of property, and equipment, leasehold improvements,
and changes in restricted cash and cash equivalents. Capital expenditures were $1.6 million and
$4.5 million for the quarters ended March 31, 2008, and 2009, respectively. Capital expenditures
primarily consist of computer equipment, leasehold improvements, and office furniture and fixtures
to support our increasing employee headcounts.
18
Financing Activities. Net cash used in financing activities was $0.6 million and $0.1 million
for the quarters ended March 31, 2008 and 2009, respectively. During the first quarter of 2008
principal payments on notes payable, capital lease obligations and our line of credit were offset
by proceeds from preferred stock issuances. During the first quarter of 2009, principal payments
on notes payable and capital lease obligations were offset by cash received from exercise of stock
options.
Contractual Obligations
There have been no material changes in our contractual obligations and other commercial
commitments other than in the ordinary course of business since the end of fiscal year 2008.
Information regarding our contractual obligations and commercial commitments is provided in our
Annual Report on Form 10-K for the year ended December 31, 2008.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have had or are reasonably likely to
have a material current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital
resources.
Non-GAAP Discussion
In addition to our GAAP results, we use Adjusted EBITDA as a supplemental measure of our
operating performance and as part of our compensation determinations. Adjusted EBITDA is not
required by or presented in accordance with GAAP and should not be considered as an alternative to
net income, operating income, or any other performance measure derived in accordance with GAAP, or
as an alternative to cash flow from operating activities or as a measure of our liquidity.
We define Adjusted EBITDA as net income (loss) plus interest expense net of interest income,
plus income tax expense (benefit), and plus depreciation and amortization (EBITDA), as adjusted for
(i) royalty payments incurred pursuant to an agreement with our former owner that has been
terminated as of April 15, 2008, (ii) management fees and expenses that are no longer paid, and
(iii) share-based compensation.
We present Adjusted EBITDA because we consider it to be an important supplemental measure of
our operating performance. We also make certain compensation decisions based, in part, on our
operating performance, as measured by Adjusted EBITDA. All of the adjustments made in our
calculation of Adjusted EBITDA are adjustments to items that management does not consider to be
reflective of our core operating performance. Management considers our core operating performance
to be that which can be affected by our managers in any particular period through their management
of the resources that affect our underlying revenue and profit generating operations during that
period. Management fees and expenses, royalty expenses paid to our former owner and share-based
compensation are not considered reflective of our core performance. We believe Adjusted EBITDA
allows us to compare our current operating results with corresponding historical periods and with
the operational performance of other companies in our industry because it does not give effect to
potential differences caused by variations in capital structures (affecting relative interest
expense, including the impact of write-offs of deferred financing costs when companies refinance
their indebtedness), tax positions (such as the impact on periods or companies of changes in
effective tax rates or net operating losses), the book amortization of intangibles (affecting
relative amortization expense), and other items that we do not consider reflective of underlying
operating performance. We also present Adjusted EBITDA because we believe it is frequently used by
securities analysts, investors, and other interested parties as a measure of performance.
19
In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses
similar to the adjustments described above. Our presentation of Adjusted EBITDA should not be
construed as an inference that our future results will be unaffected by expenses that are unusual,
non-routine, or non-recurring. Adjusted EBITDA has limitations as an analytical tool, and you
should not consider it in isolation, or as a substitute for analysis of our results as reported
under GAAP. Some of these limitations are that it does reflect:
|
|
|
cash expenditures for capital expenditures or contractual commitments; |
|
|
|
changes in, or cash requirements for, our working capital requirements; |
|
|
|
interest expense, or the cash requirements necessary to service interest or
principal payments on our indebtedness; |
|
|
|
the cost or cash required to replace assets that are being depreciated or
amortized; and |
|
|
|
the impact on our reported results of earnings or charges resulting from (i)
royalties to our prior owner, including amortization of royalties prepaid in connection
with our settlement, (ii) management fees and expenses that were payable until completion
of our public offering, and (iii) share-based compensation. |
In addition, other companies, including other companies in our industry, may calculate these
measures differently than we do, limiting the usefulness of Adjusted EBITDA as a comparative
measure. Because of these limitations, Adjusted EBITDA should not be considered as a substitute for
net income, operating income, or any other performance measure derived in accordance with GAAP, or
as an alternative to cash flow from operating activities or as a measure of our liquidity. We
compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA
only supplementally.
The following table presents data relating to Adjusted EBITDA, which is a non-GAAP measure,
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(In thousands) |
|
2008 |
|
|
2009 |
|
|
|
(Unaudited) |
|
Net income |
|
$ |
3,303 |
|
|
$ |
6,904 |
|
Plus: interest expense net of interest income |
|
|
561 |
|
|
|
559 |
|
Plus: income tax expense (benefit) |
|
|
2,076 |
|
|
|
4,593 |
|
Plus: depreciation and amortization |
|
|
1,090 |
|
|
|
1,632 |
|
|
|
|
|
|
|
|
EBITDA |
|
|
7,030 |
|
|
|
13,688 |
|
|
|
|
|
|
|
|
Plus: royalty to former owner(a) |
|
|
1,022 |
|
|
|
74 |
|
Plus: management fees and expenses(b) |
|
|
115 |
|
|
|
|
|
Plus: share-based compensation(c) |
|
|
|
|
|
|
764 |
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
8,167 |
|
|
$ |
14,526 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects the royalty fee arrangement with the former owner of Grand
Canyon University in which we agreed to pay a stated percentage of
cash revenue generated by our online programs. As a result of the
settlement of a dispute with the former owner, we are no longer
obligated to pay this royalty, although the settlement includes a
prepayment of future royalties that will be amortized in 2009 and
future periods. |
|
(b) |
|
Reflects management fees and expenses of $0.1 million for the quarter
ended March 31, 2008 to the general partner of the Endeavour Entities.
The agreement relating to this arrangement has been terminated. |
|
(c) |
|
Reflects share based compensation expense recorded in the first
quarter of 2009, related to share-based compensation for stock options
granted to employees and directors in connection with our initial
public offering. |
20
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Impact of inflation. We believe that inflation has not had a material impact on our results of
operations for the three months ended March 31, 2008, or 2009. There can be no assurance that
future inflation will not have an adverse impact on our operating results and financial condition.
Market risk. We have no derivative financial instruments or derivative commodity instruments.
We invest cash in excess of current operating requirements in short term certificates of deposit
and money market instruments in multiple financial institutions.
Interest rate risk. We manage interest rate risk by investing excess funds in cash equivalents
and AAA-rated marketable securities bearing variable interest rates, which are tied to various
market indices. Our future investment income may fall short of expectations due to changes in
interest rates or we may suffer losses in principal if we are forced to sell securities that have
declined in market value due to changes in interest rates. At March 31, 2009, a 10% increase or
decrease in interest rates would not have a material impact on our future earnings, fair values, or
cash flows. All of our notes payable and capital lease obligations are fixed rate instruments and
are not subject to fluctuations in interest rates.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our
management, including the chief executive officer and the chief financial officer, of the
effectiveness of the design and operation of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange
Act). Based upon that evaluation, our chief executive officer and chief financial officer
concluded that the companys disclosure controls and procedures are effective, as of March 31,
2009, in ensuring that material information relating to us required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by an issuer in reports it files or submits under the Exchange Act is
accumulated and communicated to management, including its principal executive officer or officers
and principal financial officer or officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting.
There was no change in our internal control over financial reporting identified in connection
with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred
during the period covered by this report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
21
PART II OTHER INFORMATION
Item 1. Legal Proceedings
We were previously a party to a dispute with SunGard Higher Education Managed Services Inc.
(SunGard). On October 22, 2008, an arbitration panel issued a final award pursuant to which the
Company and SunGard were awarded damages, with a net award to SunGard in the amount of
approximately $250,000 plus interest. The arbitration panel also held that each party would be
responsible for its own attorneys fees and that the parties would equally share the arbitration
costs. On January 14, 2009, we entered into a settlement agreement with SunGard regarding payment
of the arbitration award and effecting a mutual release between the parties regarding all claims
that were brought, or could have been brought, in the litigation and related arbitration, and all
administrative matters relating to this dispute have been resolved. Therefore, as of March 31,
2009 there are no reserves for litigation related to this matter.
On August 14, 2008, the OIG served an administrative subpoena on Grand Canyon University
requiring us to provide certain records and information related to performance reviews and salary
adjustments for all of our enrollment counselors and managers from January 1, 2004 to the present.
We are cooperating with the OIG to facilitate its investigation and are nearing completion of our
rolling responsive document production, which commenced in September 2008. We cannot presently
predict the ultimate outcome of the investigation or any liability or other sanctions that may
result.
On September 11, 2008, we were served with a qui tam lawsuit that had been filed against us in
August 2007 in the United States District Court for the District of Arizona by a then-current
employee on behalf of the federal government. All proceedings in the lawsuit had been under seal
until September 5, 2008, when the court unsealed the first amended complaint, which was filed on
August 11, 2008. The qui tam lawsuit alleges, among other things, that we violated the False Claims
Act by knowingly making false statements, and submitting false records or statements, from at least
2001 to the present, to get false or fraudulent claims paid or approved, and asserts that we
improperly compensated certain of our enrollment counselors in violation of the Title IV law
governing compensation of such employees, and as a result, improperly received Title IV program
funds. The complaint specifically alleges that some of our compensation practices with respect to
our enrollment personnel, including providing non-cash awards, have violated the Title IV law
governing compensation. While we believe that the compensation policies and practices at issue in
the complaint have not been based on success in enrolling students in violation of applicable law,
the Department of Educations regulations and interpretations of the incentive compensation law do
not establish clear criteria for compliance in all circumstances, and some of these practices,
including the provision of non-cash awards, are not within the scope of any explicit safe harbor
provided in the compensation regulations. The complaint seeks treble the amount of unspecified
damages sustained by the federal government in connection with our receipt of Title IV funding, a
civil penalty for each violation of the False Claims Act, attorneys fees, costs, and interest.
While our motion to dismiss the qui tam lawsuit has been denied, we are currently conducting
discovery and plan to vigorously contest the lawsuit.
If it were determined that any of our compensation practices violated the incentive
compensation law, we could experience an adverse outcome in the qui tam litigation and be subject
to substantial monetary liabilities, fines, and other sanctions, any of which could have a material
adverse effect on our business, prospects, financial condition and results of operations and could
adversely affect our stock price. We cannot presently predict the ultimate outcome of this
litigation or any liability or other sanctions that may result. It is possible that, during the
course of the litigation, other information may be discovered that would adversely affect the
outcome of the litigation.
From time to time, we are subject to ordinary and routine litigation incidental to our
business. While the outcomes of these matters are uncertain, management does not expect that the
ultimate costs to resolve these matters will have a material adverse effect on our financial
position, results of operations or cash flows.
Item 1A. Risk Factors
Other than with respect to the risk factors below, there have been no material changes to the
risk factors disclosed in the Risk Factors section of our Annual Report on Form 10-K for the year
ended December 31, 2008.
22
We would lose our ability to participate in the Title IV programs if we fail to maintain our
institutional accreditation, and our student enrollments could decline if we fail to maintain any
of our accreditations or approvals.
An institution must be accredited by an accrediting commission recognized by the Department of
Education in order to participate in the Title IV programs. We have institutional accreditation by
the Higher Learning Commission, which is an accrediting commission recognized by the Department of
Education. To remain accredited, we must continuously meet accreditation standards relating to,
among other things, performance, governance, institutional integrity, educational quality, faculty,
administrative capability, resources, and financial stability. We were reaccredited by the Higher
Learning Commission in 2007 for the maximum term of 10 years. While the Higher Learning Commission
concluded that we were in compliance with its accreditation standards, it did note certain
deficiencies to be addressed by us. In February 2009, we filed a monitoring report with the Higher
Learning Commission addressing our progress in resolving these deficiencies. In March 2009, we
received confirmation from the Higher Learning Commission our monitoring report was accepted and no
further reports are required. If we fail to satisfy any of the Higher Learning Commissions
standards, we could lose our accreditation by the Higher Learning Commission, which would cause us
to lose our eligibility to participate in the Title IV programs and could cause a significant
decline in our total student enrollments and have a material adverse effect on us. In addition,
many of our individual educational programs are also accredited by specialized accrediting
commissions or approved by specialized state agencies. If we fail to satisfy the standards of any
of those specialized accrediting commissions or state agencies, we could lose the specialized
accreditation or approval for the affected programs, which could result in materially reduced
student enrollments in those programs and have a material adverse effect on us.
If any of the education regulatory agencies that regulate us do not approve or delay their approval
of any transaction involving us that constitutes a change in control, our ability to operate or
participate in the Title IV programs may be impaired.
If we experience a change in control under the standards of the Department of Education, the
Arizona State Board for Private Postsecondary Education, the Higher Learning Commission, or any
other applicable state education agency or accrediting commission, we must notify or seek the
approval of each such agency. These agencies do not have uniform criteria for what constitutes a
change in control. Transactions or events that typically constitute a change in control include
significant acquisitions or dispositions of the voting stock of an institution or its parent
company, and significant changes in the composition of the board of directors of an institution or
its parent company. Some of these transactions or events may be beyond our control. Our failure to
obtain, or a delay in receiving, approval of any change in control from the Department of
Education, the Arizona State Board for Private Postsecondary Education, or the Higher Learning
Commission could impair our ability to operate or participate in the Title IV programs, which could
have a material adverse effect on our business and financial condition. Our failure to obtain, or a
delay in receiving, approval of any change in control from any other state in which we are
currently licensed or authorized, or from any of our specialized accrediting commissions, could
require us to suspend our activities in that state or suspend offering the applicable programs
until we receive the required approval, or could otherwise impair our operations. The potential
adverse effects of a change in control could influence future decisions by us and our stockholders
regarding the sale, purchase, transfer, issuance, or redemption of our stock, which could
discourage bids for your shares of our stock and could have an adverse effect on the market price
of your shares.
In connection with our initial public offering, which we completed in November 2008, we
submitted a description of the offering to the Department of Education, including a description of
a voting agreement that certain of our stockholders entered into upon completion of the public
offering. Based on this description, the Department of Education concluded that the offering did
not result in a change in control under the Department of Educations regulations.
The Higher Learning Commission considered our initial public offering to be a change in
control under its policies. While we obtained the Higher Learning Commissions approval to
consummate the offering, as a result of its determination that the public offering constituted a
change in control, the Higher Learning Commission informed us that it would conduct a site visit to
confirm the appropriateness of the approval and to evaluate whether we continue to meet the Higher
Learning Commissions eligibility criteria. The Higher Learning Commission conducted its site visit
in March 2009 and determined, among other things, that the initial public offering was conducted in
a manner that did not disrupt the ongoing operations of the University and that no further action
would be required as a result of the change in control.
In addition, we notified the Arizona State Board for Private Postsecondary Education of our
initial public offering and, based on our communications with that agency, we do not believe that
our initial public offering constituted a change in control under Arizona law. We also notified
other accrediting commissions and state agencies, as we believed necessary, of our initial public
offering and the reasons why we believed the offering did not constitute a change in control under
their respective standards, or to determine what was required if any such commission or agency did
consider the offering to constitute a change in control. None of the other accrediting commissions
and state agencies that we notified of our initial public offering has advised us that it concluded
that the offering constituted a change in control under its policies or that it required us to take
any further action.
23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibits
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|
|
|
|
|
|
Number |
|
Description |
|
Method of Filing |
|
3.1 |
|
|
Amended and Restated Certificate of Incorporation.
|
|
Incorporated by reference to Exhibit 3.1 to Amendment No. 6 to the Companys Registration
Statement on Form S-1 filed with the SEC on November 12,
2008. |
|
|
|
|
|
|
|
|
3.2 |
|
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Amended and Restated Bylaws.
|
|
Incorporated by
reference to
Exhibit 3.2 to
Amendment No. 6 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on November 12,
2008. |
|
|
|
|
|
|
|
|
4.1 |
|
|
Specimen of Stock Certificate.
|
|
Incorporated by
reference to
Exhibit 4.1 to
Amendment No. 2 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008. |
|
|
|
|
|
|
|
|
4.2 |
|
|
Amended and Restated Investor Rights Agreement, dated September 17, 2008, by and among Grand Canyon Education, Inc. and the other parties named
therein.
|
|
Incorporated by
reference to
Exhibit 4.2 to
Amendment No. 2 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008. |
|
|
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Filed herewith. |
|
|
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|
|
|
31.2 |
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Filed herewith. |
|
|
|
|
|
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|
32.1 |
|
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
Filed herewith. |
|
|
|
|
|
|
|
|
32.2 |
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
Filed herewith. |
|
|
|
|
|
This certification is being furnished solely to accompany this report pursuant to 18 U.S.C.
Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act, and is
not to be incorporated by reference into any filings of the Company, whether made before or
after the date hereof, regardless of any general incorporation language in such filing. |
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
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|
GRAND CANYON EDUCATION, INC.
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|
Date: April 27, 2009 |
By: |
/s/ Daniel E. Bachus
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|
Daniel E. Bachus |
|
|
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Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer) |
|
25
EXHIBIT
INDEX
|
|
|
|
|
|
|
Number |
|
Description |
|
Method of Filing |
|
3.1 |
|
|
Amended and Restated Certificate of Incorporation.
|
|
Incorporated by
reference to
Exhibit 3.1 to
Amendment No. 6 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on November 12,
2008. |
|
|
|
|
|
|
|
|
3.2 |
|
|
Amended and Restated Bylaws.
|
|
Incorporated by
reference to
Exhibit 3.2 to
Amendment No. 6 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on November 12,
2008. |
|
|
|
|
|
|
|
|
4.1 |
|
|
Specimen of Stock Certificate.
|
|
Incorporated by
reference to
Exhibit 4.1 to
Amendment No. 2 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008. |
|
|
|
|
|
|
|
|
4.2 |
|
|
Amended and Restated Investor Rights Agreement, dated September 17, 2008, by and among Grand Canyon Education, Inc. and the other parties named
therein.
|
|
Incorporated by
reference to
Exhibit 4.2 to
Amendment No. 2 to
the Companys
Registration
Statement on Form
S-1 filed with the
SEC on September
29, 2008. |
|
|
|
|
|
|
|
|
31.1 |
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Filed herewith. |
|
|
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
Filed herewith. |
|
|
|
|
|
|
|
|
32.1 |
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
Filed herewith. |
|
|
|
|
|
|
|
|
32.2 |
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
Filed herewith. |
|
|
|
|
|
This certification is being furnished solely to accompany this report pursuant to 18 U.S.C.
Section 1350, and is not being filed for purposes of Section 18 of the Exchange Act, and is
not to be incorporated by reference into any filings of the Company, whether made before or
after the date hereof, regardless of any general incorporation language in such filing. |
26
Exhibit 31.1
Exhibit 31.1
CERTIFICATIONS
I, Brian E. Mueller, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ending March 31, 2009 of
Grand Canyon Education, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
|
|
|
|
|
Date: April 27, 2009 |
/s/ Brian E. Mueller
|
|
|
Brian E. Mueller |
|
|
Chief Executive Officer
(Principal Executive Officer) |
|
Exhibit 31.2
Exhibit 31.2
CERTIFICATIONS
I, Daniel E. Bachus, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarter ending March 31, 2009 of
Grand Canyon Education, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
|
|
|
|
|
Date: April 27, 2009 |
/s/ Daniel E. Bachus
|
|
|
Daniel E. Bachus |
|
|
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer) |
|
Exhibit 32.1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
In connection with the Quarterly Report on Form 10-Q of Grand Canyon Education, Inc. (the
Company) for the quarter ended March 31, 2009 as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Brian E. Mueller, Chief Executive Officer, of the
Company, certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002,18 U.S.C. § 1350, that to my
knowledge:
(1) |
|
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78m); and |
|
(2) |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
Date: April 27, 2009
|
|
|
/s/ Brian E. Mueller |
|
|
|
|
|
Chief Executive Officer (Principal Executive Officer) |
|
|
Exhibit 32.2
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
In connection with the Quarterly Report on Form 10Q of Grand Canyon Education, Inc. (the
Company) for the quarter ended March 31, 2009 as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Daniel E. Bachus, Chief Financial Officer, of the
Company, certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002,18 U.S.C. § 1350, that to my
knowledge:
(1) |
|
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78m); and |
|
(2) |
|
The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company. |
Date: April 27, 2009
|
|
|
/s/ Daniel E. Bachus |
|
|
|
|
|
Chief Financial Officer (Principal Financial and Principal Accounting Officer) |
|
|