Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
LOPE > SEC Filings for LOPE > Form 10-Q on 1-Nov-2012All Recent SEC Filings

Show all filings for GRAND CANYON EDUCATION, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for GRAND CANYON EDUCATION, INC.


1-Nov-2012

Quarterly Report


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

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, contains certain "forward-looking statements," 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 regarding the material adverse effect that regulatory developments or other matters may have on our financial position, results of operations, or liquidity; statements concerning projections, predictions, expectations, estimates, or forecasts as to our business, financial and operational results, and future economic performance; and statements of management's goals and objectives and other similar expressions concerning matters that are not historical facts. Words such as "may," "should," "could," "would," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar expressions, as well as statements in future tense, identify forward-looking statements.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

our failure to comply with the extensive regulatory framework applicable to our industry, including Title IV of the Higher Education Act and the regulations thereunder, state laws and regulatory requirements, and accrediting commission requirements, such as standards applicable to the Higher Learning Commission;

the results of the ongoing program review being conducted by the Department of Education of our compliance with Title IV program requirements, and possible fines or other administrative sanctions resulting therefrom;

the ability of our students to obtain federal Title IV funds, state financial aid, and private financing;

potential damage to our reputation or other adverse effects as a result of negative publicity in the media, in the industry or in connection with governmental reports or investigations or otherwise, affecting us or other companies in the for-profit postsecondary education sector, including, for example, a recent report issued by Sen. Tom Harkin, Chairman of the Health, Education, Labor & Pensions Committee, relating to us and various other proprietary schools;

risks associated with changes in applicable federal and state laws and regulations and accrediting commission standards including pending rulemaking by the Department of Education;

our ability to properly manage risks and challenges associated with potential acquisitions of, or investments in, new businesses, acquisitions of new properties, or the expansion of our campus to new locations;

our ability to hire and train new, and develop and train existing employees and faculty;

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 students and for qualified executives and other personnel;

the competitive environment for marketing our programs;


Table of Contents
failure on our part to keep up with advances in technology that could enhance the online experience for our students;

the extent to which obligations under our loan agreement, including the need to comply with restrictive and financial covenants and to pay principal and interest payments, limits our ability to conduct our operations or seek new business opportunities;

our ability to manage future growth effectively; and

general adverse economic conditions or other developments that affect job prospects in our core disciplines.

Additional factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, 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 Quarterly Report on Form 10-Q or our other reports on Form 10-Q. You should not put undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date the statements are made and we assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.


Table of Contents

Overview

We are a regionally accredited provider of postsecondary education services focused on offering graduate and undergraduate degree programs in our core disciplines of education, healthcare, business, and liberal arts. We offer online programs as well as ground programs at our approximately 115 acre traditional campus in Phoenix, Arizona and onsite at the facilities of employers.

At September 30, 2012, we had approximately 52,300 students, an increase of 17.5% over the approximately 44,500 students we had at September 30, 2011. At September 30, 2012, 85.8% of our students were enrolled in our online programs, and of our online and professional studies students, 42.0% were pursuing master's or doctoral degrees. In addition, revenue per student increased between periods as we increased tuition prices for most of our students in our online and professional studies programs by 0.0% to 5.9%, depending on the program, with an estimated blended rate increase of 2.5% for our 2012-13 academic year, as compared to tuition price increases for students in our online and professional studies programs of 0.0% to 6.5% for our 2011-12 academic year, depending on the program, with an estimated blended rate increase of 3.2% for the prior academic year. Tuition for our traditional ground programs had no increase for our 2012-13 or 2011-12 academic years.

The following is a summary of our student enrollment at September 30, 2012 and 2011 (which included less than 765 students pursuing non-degree certificates in each period) by degree type and by instructional delivery method:

                                                                    September 30,
                                                  2012(1)                                   2011(1)
                                      # of Students         % of Total          # of Students         % of Total
Graduate degrees(2)                           19,439               37.2 %               17,497               39.3 %
Undergraduate degree                          32,814               62.8 %               26,989               60.7 %

Total                                         52,253              100.0 %               44,486              100.0 %



                                               September 30,
                               2012(1)                               2011(1)
                    # of Students       % of Total        # of Students       % of Total
   Online(3)                44,849             85.8 %             39,447             88.7 %
   Ground(3) (4)             7,404             14.2 %              5,039             11.3 %

   Total                    52,253            100.0 %             44,486            100.0 %

(1) Enrollment at September 30, 2012 and 2011 represents individual students who attended a course during the last two months of the calendar quarter.

(2) Includes 2,745 and 1,808 students pursuing doctoral degrees at September 30, 2012 and 2011, respectively.

(3) As of September 30, 2012 and 2011, 42.0% and 43.0%, respectively, of our online and professional studies students are pursuing graduate degrees.

(4) Includes both our traditional on-campus ground students, as well as our professional studies students.

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, 2011. During the nine months ended September 30, 2012, there have been no significant changes in our critical accounting policies.

Key Trends, Developments and Challenges

The key trends, developments and challenges facing the University are disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and in its Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2012 and June 30, 2012. During the nine months ended September 30, 2012, there have been no significant changes in these trends. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Key Trends, Developments and Challenges" in our Annual Report on Form 10-K for our fiscal year ended December 31, 2011 and Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Key Trends, Developments and Challenges" in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012, which are incorporated herein by reference.


Table of Contents

Results of Operations

The following table sets forth income statement data as a percentage of net
revenue for each of the periods indicated:



                                       Three Months  Ended           Nine Months  Ended
                                          September 30,                 September 30,
                                        2012           2011          2012           2011
   Net revenue                            100.0 %       100.0 %        100.0 %       100.0 %
   Operating expenses
   Instructional cost and services         42.9          44.9           43.7          46.0
   Selling and promotional                 27.3          28.7           28.0          28.3
   General and administrative               6.4           6.6            6.4           6.7
   Lease termination fee                    0.0           0.8            0.0           0.3

   Total operating expenses                76.6          81.0           78.2          81.2

   Operating income                        23.4          19.0           21.8          18.8
   Interest expense                        (0.1 )        (0.2 )         (0.1 )        (0.1 )
   Interest income                          0.0           0.0            0.0           0.0

   Income before income taxes              23.3          18.8           21.7          18.7
   Income tax expense                       9.4           7.0            8.6           7.5

   Net income                              13.8          11.8           13.1          11.2

Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011

Net revenue. Our net revenue for the quarter ended September 30, 2012 was $133.6 million, an increase of $24.7 million, or 22.6%, as compared to net revenue of $108.9 million for the quarter ended September 30, 2011. This increase was primarily due to an increase in ground and online enrollment and, to a lesser extent, increases in the average tuition per student as a result of improved retention and tuition price increases, partially offset by an increase in institutional scholarships. End-of-period enrollment increased 17.5% between September 30, 2012 and September 30, 2011, as ground enrollment increased 46.9%, and online enrollment increased 13.7% over the prior year. We attribute the significant growth in our ground enrollment between years to our increasing brand recognition and the value proposition that our ground traditional campus affords to traditional-aged students and their parents. After scholarships, our ground traditional students pay an amount for tuition, room, board, and fees that is often half to a third of what it costs to attend a private, traditional university in another state and an amount comparable to what it costs to attend the public universities in the state of Arizona as an in-state student. We are anticipating increased pressure on new and continuing enrollments due primarily to the increasing challenges presented in the economy, the impact of new and proposed regulations, and increased competition.

Instructional costs and services expenses. Our instructional costs and services expenses for the quarter ended September 30, 2012 were $57.4 million, an increase of $8.5 million, or 17.2%, as compared to instructional costs and services expenses of $48.9 million for the quarter ended September 30, 2011. This increase was primarily due to increases in employee compensation, faculty compensation, depreciation and amortization expenses, dues, fees subscriptions and other instructional supplies, and other instructional costs and services expenses of $3.8 million, $2.2 million, $1.4 million, $1.4 million, and $3.7 million, respectively. These increases were partially offset by a $4.0 million decrease in bad debt expense. The increase in employee compensation and faculty compensation is primarily due to an increase in headcount (both staff and faculty) needed to provide student instruction and support services to support the increase in enrollments as well as increases in benefit expenses such as medical costs and education benefits. The increase in depreciation and amortization is the result of our continued growth and expansion of the ground traditional campus in order to accommodate the growth in our traditional ground enrollment. We also incurred an increase in dues, fees, subscriptions and other instructional supplies due to increased licensing fees related to educational resources and increased food costs associated with a higher number of residential students. Our instructional costs and services expenses as a percentage of net revenues decreased by 2.0% to 42.9% for the quarter ended September 30, 2012, as compared to 44.9% for the quarter ended September 30, 2011 primarily due to improvements in bad debt expense, partially offset by increases as a percentage of net revenues in employee compensation and related expenses, depreciation and amortization expenses, dues, fees, subscriptions and other instructional supplies, and other instructional costs and services expenses. Bad debt expense decreased as a percentage of net revenues from 8.8% in the third quarter of 2011 to 4.2% in the third quarter of 2012 as a result of improved collections of receivables due from current students between periods due to operational improvements made during 2011 and a reduction in receivables due from former students, primarily as a result of improved retention.


Table of Contents

Selling and promotional expenses. Our selling and promotional expenses for the quarter ended September 30, 2012 were $36.5 million, an increase of $5.3 million, or 16.6%, as compared to selling and promotional expenses of $31.2 million for the quarter ended September 30, 2011. This increase is primarily the result of increases in employee compensation and related expenses and advertising of $3.5 million and $1.2 million, respectively. The increase in employee compensation and related expenses is the result of increasing the number of enrollment counselors between years as well as increases in benefit expenses between years such as medical costs and education benefits. The advertising expense increased due to us entering into a new revenue sharing agreement with MindStreams, L.L.C. in the third quarter of 2011. Our selling and promotional expenses as a percentage of net revenue decreased by 1.4% to 27.3% for the quarter ended September 30, 2012, from 28.7% for the quarter ended September 30, 2011. 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 remain flat or decrease.

General and administrative expenses. Our general and administrative expenses for the quarter ended September 30, 2012 were $8.6 million, an increase of $1.5 million, or 19.8%, as compared to general and administrative expenses of $7.1 million for the quarter ended September 30, 2011. This increase was primarily due to increases in employee compensation and related expenses of $0.9 million primarily due to increased headcount as well as increases in benefit expenses between years such as medical costs and education benefits. Our general and administrative expenses as a percentage of net revenue decreased by 0.2% to 6.4% for the quarter ended September 30, 2012, from 6.6% for the quarter ended September 30, 2011.

Lease termination fee. In July 2011, the University notified a current landlord of its intent to vacate leased space by the fourth quarter of 2011. As a result, the University was required to pay a termination fee to terminate the lease resulting in $0.9 million of expense in the three months ended September 30, 2011. The termination fee was paid on our behalf by our new landlord. This payment was recorded as an expense in the third quarter of 2011 with the offset being to a deferred liability. The deferred rent liability will be amortized into income over the new lease term.

Income tax expense. Income tax expense for the quarter ended September 30, 2012 was $12.6 million, an increase of $5.0 million, or 64.8%, as compared to income tax expense of $7.6 million for the quarter ended September 30, 2011. Our effective tax rate was 40.5% during the third quarter of 2012 compared to 37.3% during the third quarter of 2011. The increase in the effective tax rate was primarily due to certain non-recurring tax items, which had the effect of decreasing our effective tax rate in the third quarter of 2011 and increasing our effective tax rate in the third quarter of 2012.

Net income. Our net income for the quarter ended September 30, 2012 was $18.5 million, an increase of $5.6 million or 43.5%, as compared to $12.9 million for the quarter ended September 30, 2011, due to the factors discussed above.

Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011

Net revenue. Our net revenue for the nine months ended September 30, 2012 was $370.0 million, an increase of $56.3 million, or 17.9%, as compared to net revenue of $313.7 million for the nine months ended September 30, 2011. This increase was primarily due to an increase in ground and online enrollment and, to a lesser extent, increases in the average tuition per student as a result of improved retention and tuition price increases, partially offset by an increase in institutional scholarships. End-of-period enrollment increased 17.5% between September 30, 2012 and September 30, 2011, as ground enrollment increased 46.9%, and online enrollment increased 13.7% over the prior year. We attribute the significant growth in our ground enrollment between years to our increasing brand recognition and the value proposition that our ground traditional campus affords to traditional-aged students and their parents. After scholarships, our ground traditional students pay an amount for tuition, room, board, and fees that is often half to a third of what it costs to attend a private, traditional university in another state and an amount comparable to what it costs to attend the public universities in the state of Arizona as an in-state student. We are anticipating increased pressure on new and continuing enrollments due primarily to the increasing challenges presented in the economy, the impact of new and proposed regulations, and increased competition.


Table of Contents

Instructional costs and services expenses. Our instructional costs and services expenses for the nine months ended September 30, 2012 were $161.6 million, an increase of $17.4 million, or 12.1%, as compared to instructional costs and services expenses of $144.2 million for the nine months ended September 30, 2011. This increase was primarily due to increases in employee compensation, faculty compensation, dues, fees, subscriptions and other instructional supplies, depreciation and amortization, program review reserve, arena expense and other instructional compensation and related expenses, of $10.0 million, $4.9 million, $4.5 million, $3.6 million, $3.5 million, $1.4 million, and $3.9 million, respectively. These increases were partially offset by a $14.4 million decrease in bad debt expense. The increase in employee compensation and faculty compensation is primarily due to an increase in headcount (both staff and faculty) needed to provide student instruction and support services to support the increase in enrollments as well as increases in benefit expenses such as medical costs and education benefits. Additionally, in 2011 a reversal of $0.7 million was recorded in employee compensation for amounts accrued in previous periods that were to be paid to non-enrollment employees for students they previously recruited and for which bonuses were to be paid when those students completed 24 credit hours. As a result of our compensation rules that became effective on July 1, 2011, these amounts could no longer be paid. The increase in depreciation and amortization is the result of our continued growth and expansion of the ground traditional campus in order to accommodate the growth in our traditional ground enrollment. The reserve for our program review primarily represents the estimated amounts that will be returned related to certain Pell grants. We also incurred an increase in dues, fees, subscriptions and other instructional supplies due to increased licensing fees related to educational resources and increased food costs associated with a higher number of residential students. Our instructional costs and services expenses as a percentage of net revenues decreased by 2.3% to 43.7% for the nine months ended September 30, 2012, as compared to 46.0% for the nine months ended September 30, 2011 primarily due to improvements in bad debt expense, partially offset by increases as a percentage of net revenues in employee compensation and related expenses, program review reserve, dues, fees, subscriptions and other instructional supplies, depreciation and amortization expense and arena expenses. Bad debt expense decreased as a percentage of net revenues from 8.9% in the nine months ended September 30, 2011 to 3.6% in the nine months ended September 30, 2012 as a result of improved collections of receivables due from current students between periods due to operational improvements made during 2011 and a reduction in receivables due from former students, primarily due to improved retention.

Selling and promotional expenses. Our selling and promotional expenses for the nine months ended September 30, 2012 were $103.8 million, an increase of $15.0 million, or 16.9%, as compared to selling and promotional expenses of $88.8 million for the nine months ended September 30, 2011. This increase is primarily the result of increases in employee compensation and advertising of $9.8 million and $5.2 million, respectively. Employee compensation and related expenses increased as a result of increasing the number of enrollment counselors between years as well as increases in benefit expenses between years such as medical costs and education benefits. Additionally, during the second quarter of 2011, the University reversed $1.5 million of amounts accrued in previous periods that were to be paid to enrollment employees for student they previously recruited and for which bonuses were to be paid when those students completed 24 credit hours. Due to the compensation rule changes effective July 1, 2011, these amounts could no longer be paid. The advertising expense increased due to us entering into a new revenue sharing agreement with MindStreams, L.L.C. in the third quarter of 2011. Our selling and promotional expenses as a percentage of net revenue decreased by 0.3% to 28.0% for the nine months ended September 30, 2012, from 28.3% for the nine months ended September 30, 2011. 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 remain flat or decrease.

General and administrative expenses. Our general and administrative expenses for the nine months ended September 30, 2012 were $23.8 million, an increase of $2.8 million, or 13.3%, as compared to general and administrative expenses of $21.0 million for the nine months ended September 30, 2011. This increase was primarily due to increases in employee compensation and related expenses of $2.0 million primarily due to increased headcount as well as increases in benefit expenses between years such as medical costs and education benefits. Our general and administrative expenses as a percentage of net revenue decreased by 0.3% to 6.4% for the nine months ended September 30, 2012, from 6.7% for the nine months ended September 30, 2011.

Lease termination fee. In July 2011, the University notified a current landlord of its intent to vacate leased space by the fourth quarter of 2011. As a result, the University was required to pay a termination fee to terminate the lease resulting in $0.9 million of expense in the three months ended September 30, 2011. The termination fee was paid on our behalf by our new landlord. This payment was recorded as an expense in the third quarter of 2011 with the offset being to a deferred liability. The deferred rent liability will be amortized into income over the new lease term.

Income tax expense. Income tax expense for the nine months ended September 30, 2012 was $31.9 million, an increase of $8.5 million, or 36.3%, as compared to income tax expense of $23.4 million for the nine months ended September 30, 2011. Our effective tax rate was 39.6% during the nine months ended September 30, 2012 compared to 39.9% during the nine months ended September 30, 2011. The effective tax rate in both years was reduced by certain non-recurring tax items, which had the effect of decreasing our effective tax rate in the nine months ended September 30, 2012 and 2011.

Net income. Our net income for the nine months ended September 30, 2012 was $48.5 million, an increase of $13.3 million, or 37.8% as compared to $35.2 million for the nine months ended September 30, 2011, due to the factors discussed above.

. . .

  Add LOPE to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for LOPE - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.