Grand Canyon Education, Inc. Reports Third Quarter 2012 Results

       Grand Canyon Education, Inc. Reports Third Quarter 2012 Results

PR Newswire

PHOENIX, Nov. 1, 2012

PHOENIX, Nov.1, 2012 /PRNewswire/ -- Grand Canyon Education, Inc. (NASDAQ:
LOPE), a regionally accredited provider of online and campus-based
postsecondary education services, today announced financial results for the
quarter ended September 30, 2012.

For the three months ended September 30, 2012:

  oNet revenue increased 22.6% to $133.6 million for the third quarter of
    2012, compared to $108.9 million for the third quarter of 2011.
  oAt September 30, 2012, our enrollment was approximately 52,300, an
    increase of 17.5% from our enrollment of approximately 44,500 at September
    30, 2011.
  oOperating income for the third quarter of 2012 was $31.2 million, an
    increase of 51.0% as compared to $20.7 million for the same period in
    2011. The operating margin for the third quarter of 2012 was 23.4%,
    compared to 19.0% for the same period in 2011.
  oAdjusted EBITDA increased 43.0% to $39.3 million for the third quarter of
    2012, compared to $27.5 million for the same period in 2011.
  oThe tax rate in the third quarter of 2012 was 40.5% compared to 37.3% in
    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 the effective tax rate in the third quarter of 2012.
  oNet income increased 43.5% to $18.5 million for the third quarter of 2012,
    compared to $12.9 million for the same period in 2011.
  oDiluted net income per share was $0.41 for the third quarter of 2012,
    compared to $0.29 for the same period in 2011.

For the nine months ended September 30, 2012:

  oNet revenue increased 17.9% to $370.0 million for the nine months ended
    September 30, 2012, compared to $313.7 million for the nine months ended
    September 30, 2011.
  oOperating income for the nine months ended September 30, 2012 was $80.8
    million, an increase of 37.3% as compared to $58.8 million for the same
    period in 2011. The operating margin for the nine months ended September
    30, 2012 was 21.8%, compared to 18.8% for the same period in 2011.
  oAdjusted EBITDA increased 38.3% to $106.0 million for the nine months
    ended September 30, 2012, compared to $76.6 million for the same period in
    2011.
  oThe tax rate for the nine months ended September 30, 2012 was 39.6%
    compared to 39.9% for the same period in 2011.
  oNet income increased 37.8% to $48.5 million for the nine months ended
    September 30, 2012, compared to $35.2 million for the same period in 2011.
  oDiluted net income per share was $1.07 for the nine months ended September
    30, 2012, compared to $0.78 for the same period in 2011.

Balance Sheet and Cash Flow

As of September 30, 2012, the University had unrestricted cash and cash
equivalents of $69.6 million compared to $21.2 million at December 31, 2011
and restricted cash and cash equivalents at September 30, 2012 and December
31, 2011 of $57.4 million and $56.7 million, respectively.

The University generated $124.7 million in cash from operating activities for
the nine months ended September 30, 2012 compared to $65.3 million for the
same period in 2011. Cash provided by operating activities in 2012 and 2011
resulted from our net income plus non-cash charges for provision for bad
debts, depreciation and amortization, share-based compensation and improvement
in our working capital.

Net cash used in investing activities was $74.3million and $56.1 million for
the nine months ended September 30, 2012 and 2011, respectively. Capital
expenditures were $73.6million and $61.5million for the nine months ended
September 30, 2012 and 2011, respectively. In 2012, capital expenditures
primarily consisted of the construction costs associated with two additional
dormitories, an Arts and Science classroom building and a parking garage to
support our increasing traditional student enrollment as well as purchases of
computer equipment, other internal use software projects and furniture and
equipment. In 2011, capital expenditures primarily consisted of ground campus
building projects such as a new dormitory and an events arena to support our
increasing traditional ground student enrollment as well as purchases of
computer equipment, internal use software projects and furniture and
equipment. In 2011 expenditures were partially offset by a $5.4 million
decrease in restricted cash as a result of payment of the qui tam legal matter
in June 2011.

Net cash used in financing activities was $2.0 million and $23.8 million for
the nine months ended September 30, 2012 and 2011, respectively. During the
first nine months of 2012, $4.9 million was used to purchase treasury stock in
accordance with the University's share repurchase program and principal
payments on notes payable and capital lease obligations totaled $1.8 million,
partially offset by $4.3 million of proceeds from the exercise of stock
options. During the first nine months of 2011, $22.4 million was used to
purchase treasury stock in accordance with the University's share repurchase
program and principal payments on notes payable and capital leases totaled
$2.9 million, partially offset by $1.5 million of proceeds from the exercise
of stock options. 

2012 Q4 and Annual Outlook

                Net revenue between $135 million and $136 million; Target
Q4 2012:        Operating Margin between 23.5% to 24.0%; Diluted EPS between
                $0.41 and $0.42 using 45.7 million diluted shares; student
                counts between 51,000 to 51,500
                Net revenue between $505 million and $506 million; Target
Full Year 2012: Operating Margin between 22.3% to 22.4%; Diluted EPS between
                $1.49 and $1.50 using 45.4 million diluted shares

Forward-Looking Statements

This news release contains "forward-looking statements" which include
information relating to future events, future financial performance,
strategies expectations, competitive environment, regulation, and availability
of resources. These forward-looking statements include, without limitation,
statements regarding: projections, predictions, expectations, estimates, and
forecasts as to our business, financial and operational results, and future
economic performance; and statements of management's goals and objectives and
other similar expressions concerning matters that are not historical facts.
Words such as "may," "should," "could," "would," "predicts," "potential,"
"continue," "expects," "anticipates," "future," "intends," "plans,"
"believes," "estimates" and similar expressions, as well as statements in
future tense, identify forward-looking statements.

Forward-looking statements should not be read as a guarantee of future
performance or results, and will not necessarily be accurate indications of
the times at, or by, which such performance or results will be achieved.
Forward-looking statements are based on information available at the time
those statements are made or management's good faith belief as of that time
with respect to future events, and are subject to risks and uncertainties that
could cause actual performance or results to differ materially from those
expressed in or suggested by the forward-looking statements. Important factors
that could cause such differences include, but are not limited to: our failure
to comply with the extensive regulatory framework applicable to our industry,
including Title IV of the Higher Education Act and the regulations thereunder,
state laws and regulatory requirements, and accrediting commission
requirements; the results of the ongoing program review being conducted by
the Department of Education of our compliance with Title IV program
requirements, and possible fines or other administrative sanctions resulting
therefrom; the ability of our students to obtain federal Title IV funds, state
financial aid, and private financing; risks associated with changes in
applicable federal and state laws and regulations and accrediting commission
standards, including pending rulemaking by the Department of Education;
potential damage to our reputation or other adverse effects as a result of
negative publicity in the media, in the industry or in connection with
governmental reports or investigations or otherwise, affecting us or other
companies in the for-profit postsecondary education sector; our ability to
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, faculty and employees; the pace of growth of
our enrollment; our ability to convert prospective students to enrolled
students and to retain active students; our success in updating and expanding
the content of existing programs and developing new programs in a
cost-effective manner or on a timely basis; industry competition, including
competition for qualified executives and other personnel; risks associated
with the competitive environment for marketing our programs; failure on our
part to keep up with advances in technology that could enhance the online
experience for our students; the extent to which obligations under our loan
agreement, including the need to comply with restrictive and financial
covenants and to pay principal and interest payments, limits our ability to
conduct our operations or seek new business opportunities; our ability to
manage future growth effectively; general adverse economic conditions or other
developments that affect job prospects in our core disciplines; and other
factors discussed in reports on file with the Securities and Exchange
Commission.

Forward-looking statements speak only as of the date the statements are made.
You should not put undue reliance on any forward-looking statements. We assume
no obligation to update forward-looking statements to reflect actual results,
changes in assumptions, or changes in other factors affecting forward-looking
information, except to the extent required by applicable securities laws. If
we do update one or more forward-looking statements, no inference should be
drawn that we will make additional updates with respect to those or other
forward-looking statements.

Conference Call

Grand Canyon Education, Inc. will discuss its third quarter 2012 results and
2012 outlook during a conference call scheduled for today, November 1, 2012 at
4:30 p.m. Eastern time (ET). To participate in the live call, investors should
dial 877-815-5362 (domestic and Canada) or 706-679-7806 (international),
passcode 34858616 at 4:25 p.m. (ET). The Webcast will be available on the
Grand Canyon Education, Inc. Web site at www.gcu.edu.

A replay of the call will be available approximately two hours following the
conclusion of the call through October 31, 2013, at 855-859-2056 (domestic) or
404-537-3406 (international), passcode 34858616. It will also be archived at
www.gcu.edu in the investor relations section for 60 days.

About Grand Canyon Education, Inc.

Grand Canyon Education, Inc. is a regionally accredited provider of
postsecondary education services focused on offering graduate and
undergraduate degree programs in its core disciplines of education, business,
healthcare and liberal arts. In addition to its online programs, it offers
programs at its approximately 115 acre traditional campus in Phoenix, Arizona
and onsite at the facilities of employers. Approximately 52,300 students were
enrolled as of September 30, 2012. For more information about Grand Canyon
Education, Inc., please visit http://www.gcu.edu.

Grand Canyon Education, Inc. is regionally accredited by The Higher Learning
Commission of the North Central Association of Colleges and Schools (NCA),
http://www.ncahlc.org. Grand Canyon University, 3300 W. Camelback Road,
Phoenix, AZ 85017, www.gcu.edu.



GRAND CANYON EDUCATION, INC.
Consolidated Income Statements
(Unaudited)
                               Three Months Ended      Nine Months Ended

                               September 30,           September 30,
                               2012        2011        2012        2011
(In thousands, except per
share amounts)
Net revenue                    $ 133,568  $ 108,909  $ 369,959  $ 313,736
Costs and expenses:
Instructional costs and        57,354      48,933      161,584     144,162
services
Selling and promotional,
including $640 and $151 for
the three months ended
September 30, 2012 and 2011,
respectively, and $1,681 and   36,450      31,248      103,764     88,789
$612 for the nine months ended
September 30, 2012 and 2011,
respectively, to related
parties
General and administrative     8,561       7,145       23,806      21,015
Lease termination fee          —           922         —           922
Total costs and expenses       102,365     88,248      289,154     254,888
Operating income               31,203      20,661      80,805      58,848
Interest expense               (154)       (170)       (439)       (306)
Interest income                16          20          52          78
Income before income taxes     31,065      20,511      80,418      58,620
Income tax expense             12,594      7,643       31,880      23,398
Net income                     $  18,471 $  12,868 $  48,538 $  35,222
Net income per common share:
Basic                          $        $        $        $   
                               0.42       0.29       1.09       0.79
Diluted                        $        $        $        $   
                               0.41       0.29       1.07       0.78
Shares used in computing net
income per common share:
Basic                          44,365      44,302      44,395      44,845
Diluted                        45,339      44,787      45,220      45,293

GRAND CANYON EDUCATION, INC.

Adjusted EBITDA

Adjusted EBITDA is defined as net income plus interest expense net of interest
income, plus income tax expense, and plus depreciation and amortization
(EBITDA), as adjusted for (i) royalty payments incurred pursuant to an
agreement with our former owner that has been terminated as of April 15, 2008;
(ii) contributions to Arizona school tuition organizations in lieu of state
income taxes, which we typically make in the fourth quarter of a fiscal year;
(iii) contract termination fees, if any; (iv) lease termination costs, if any;
(v) exit costs, if any; (vi) estimated litigation and regulatory reserves; and
(vii)share-based compensation. We present Adjusted EBITDA because we consider
it to be an important supplemental measure of our operating performance. We
also make certain compensation decisions based, in part, on our operating
performance, as measured by Adjusted EBITDA, and our loan agreement requires
us to comply with covenants that include performance metrics substantially
similar to Adjusted EBITDA. All of the adjustments made in our calculation of
Adjusted EBITDA are adjustments to items that management does not consider to
be reflective of our core operating performance. Management considers our core
operating performance to be that which can be affected by our managers in any
particular period through their management of the resources that affect our
underlying revenue and profit generating operations during that period.
Royalty expenses paid to our former owner, contributions made to Arizona
school tuition organizations in lieu of the payment of state income taxes,
estimated litigation and regulatory reserves, exit costs, share-based
compensation, and contract termination fees are not considered reflective of
our core performance.

We believe Adjusted EBITDA allows us to compare our current operating results
with corresponding historical periods and with the operational performance of
other companies in our industry because it does not give effect to potential
differences caused by variations in capital structures (affecting relative
interest expense, including the impact of write-offs of deferred financing
costs when companies refinance their indebtedness), tax positions (such as the
impact on periods or companies of changes in effective tax rates or net
operating losses), the book amortization of intangibles (affecting relative
amortization expense), and other items that we do not consider reflective of
underlying operating performance. We also present Adjusted EBITDA because we
believe it is frequently used by securities analysts, investors, and other
interested parties as a measure of performance.

In evaluating Adjusted EBITDA, investors should be aware that in the future we
may incur expenses similar to the adjustments described above. Our
presentation of Adjusted EBITDA should not be construed as an inference that
our future results will be unaffected by expenses that are unusual,
non-routine, or non-recurring. Adjusted EBITDA has limitations as an
analytical tool, and you should not consider it in isolation, or as a
substitute for net income, operating income, or any other performance measure
derived in accordance with and reported under GAAP or as an alternative to
cash flow from operating activities or as a measure of our liquidity. Some of
these limitations are that it does not reflect:

  ocash expenditures for capital expenditures or contractual commitments;
  ochanges in, or cash requirement for, our working capital requirements;
  ointerest expense, or the cash required to replace assets that are being
    depreciated or amortized; and
  othe impact on our reported results of earnings or charges resulting from
    the items for which we make adjustments to our EBITDA, as described above
    and set forth in the table below.

In addition, other companies, including other companies in our industry, may
calculate these measures differently than we do, limiting the usefulness of
Adjusted EBITDA as a comparative measure. Because of these limitations,
Adjusted EBITDA should not be considered as a substitute for net income,
operating income, or any other performance measure derived in accordance with
GAAP, or as an alternative to cash flow from operating activities or as a
measure of our liquidity. We compensate for these limitations by relying
primarily on our GAAP results and using Adjusted EBITDA only supplementally.

The following table provides a reconciliation of net income to Adjusted
EBITDA, which is a non-GAAP measure for the periods indicated:



                           Three Months Ended        Nine Months Ended

                           September 30,             September 30,
                           2012         2011         2012         2011
                           (Unaudited, in thousands) (Unaudited, in thousands)
Net income                 $  18,471  $  12,868  $  48,538  $  35,222
Plus: interest expense net 138          150          387          228
of interest income
Plus: income tax expense   12,594       7,643        31,880       23,398
Plus: depreciation and     5,546        4,154        15,562       11,832
amortization
EBITDA                     36,749       24,815       96,367       70,680
Plus: royalty to former    74           74           222          222
owner
Plus: lease termination    —            922          —            922
costs
Plus: estimated litigation 450          —            3,660        —
and regulatory reserves
Plus: share-based          2,032        1,667        5,748        4,797
compensation
Adjusted EBITDA            $  39,305  $  27,478  $ 105,997   $  76,621



GRAND CANYON EDUCATION, INC.
Consolidated Balance Sheets
                                               September 30,   December 31,
(In thousands, except par value)               2012            2011
Current assets                                 (Unaudited)
Cash and cash equivalents                      $    69,644 $    21,189
Restricted cash and cash equivalents           57,027          56,115
Accounts receivable, net of allowance for
doubtful accounts of $9,302 and $11,706 at     8,875           11,815
September 30, 2012 and December 31, 2011,
respectively
Income taxes receivable                        283             11,861
Deferred income taxes                          5,216           3,353
Other current assets                           13,302          11,081
Total current assets                           154,347         115,414
Property and equipment, net                    256,528         189,947
Restricted cash                                375             555
Prepaid royalties                              5,464           5,958
Goodwill                                       2,941           2,941
Other assets                                   3,434           3,032
Total assets                                   $   423,089  $   317,847
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities
Accounts payable                               $    25,197 $    18,523
Accrued compensation and benefits              13,968          12,229
Accrued liabilities                            15,638          8,456
Income taxes payable                           11,282          536
Student deposits                               58,930          57,602
Deferred revenue                               46,679          21,723
Due to related parties                         328             227
Current portion of capital lease obligations   87              470
Current portion of notes payable               1,760           1,739
Total current liabilities                      173,869         121,505
Capital lease obligations, less current        609             674
portion
Other noncurrent liabilities                   7,589           7,140
Deferred income taxes, noncurrent              5,113           5,334
Notes payable, less current portion            18,681          19,901
Total liabilities                              205,861         154,554
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.01 par value, 10,000
shares authorized; 0 shares issued and         —               —
outstanding at September 30, 2012 and December
31, 2011
Common stock, $0.01 par value, 100,000 shares
authorized; 46,864 and 45,955 shares issued
and 44,902 and 44,298 shares outstanding at    469             460
September 30, 2012 and December 31, 2011,
respectively
Treasury stock, at cost, 1,962 and 1,657
shares of common stock at September 30, 2012   (28,819)        (23,894)
and December 31, 2011, respectively
Additional paid-in capital                     95,938          85,720
Accumulated other comprehensive loss           (265)           (360)
Accumulated earnings                           149,905         101,367
Total stockholders' equity                     217,228         163,293
Total liabilities and stockholders' equity     $   423,089  $   317,847



GRAND CANYON EDUCATION, INC.
Consolidated Statements of Cash Flows
(Unaudited)
                                                   Nine Months Ended

                                                   September 30,
(In thousands)                                     2012          2011
Cash flows provided by operating activities:
Net income                                         $  48,538   $  35,222
Adjustments to reconcile net income to net cash
provided by operating activities:
Share-based compensation                           5,748         4,797
Excess tax benefits from share-based compensation  (336)         —
Amortization of debt issuance costs                48            42
Provision for bad debts                            13,492        27,903
Depreciation and amortization                      15,784        12,054
Litigation settlement                              —             (5,200)
Lease termination fee                              —             922
Exit costs                                         —             (64)
Deferred income taxes                              (2,152)       10,185
Loss on asset disposal                             202           —
Changes in assets and liabilities:
Restricted cash and cash equivalents               (912)         (199)
Accounts receivable                                (10,552)      (26,253)
Prepaid expenses and other                         (2,671)       (4,577)
Due to/from related parties                        101           (9,882)
Accounts payable                                   (962)         1,757
Accrued liabilities and employee related           9,046         (4,208)
liabilities
Income taxes receivable/payable                    22,464        348
Deferred rent                                      612           3,123
Deferred revenue                                   24,956        19,712
Student deposits                                   1,328         (390)
Net cash provided by operating activities          124,734       65,292
Cash flows used in investing activities:
Capital expenditures                               (73,619)      (61,515)
Purchase of land and building related to future    (818)         —
development
Restricted funds held for derivative collateral    180           5,405
and legal matter
Net cash used in investing activities              (74,257)      (56,110)
Cash flows used in financing activities:
Principal payments on notes payable and capital    (1,772)       (2,856)
lease obligations
Repurchase of common shares                        (4,925)       (22,371)
Debt issuance costs                                —             (70)
Excess tax benefits from share-based compensation  336           —
Net proceeds from exercise of stock options        4,339         1,477
Net cash used in financing activities              (2,022)       (23,820)
Net increase (decrease) in cash and cash           48,455        (14,638)
equivalents
Cash and cash equivalents, beginning of period     21,189        33,637
Cash and cash equivalents, end of period           $  69,644   $  18,999
Supplemental disclosure of cash flow information
Cash paid for interest                             $     446 $     315
Cash paid for income taxes                         $  19,615   $  12,790
Supplemental disclosure of non-cash investing and
financing activities
Purchases of property and equipment included in    $   7,636  $   4,827
accounts payable
Purchases of equipment through capital lease       $      — $     801
obligations
Tax benefit of Spirit warrant intangible           $     199 $     194
Shortfall tax expense from share-based             $     200 $     117
compensation



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                32,814          62.8%       26,989         60.7%
degree
Total                        52,253          100.0%      44,486         100.0%
                            September 30,
                             2012^(1)                    2011^(1)
                              # of          % of Total  # of Students % of
                             Students                                 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%



     Enrollment at September 30, 2012 and 2011 represents individual students
^(1) 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.



SOURCE Grand Canyon Education, Inc.

Website: http://www.gcu.edu
Contact: Investor Relations, Dan Bachus, Chief Financial Officer,
+1-602-639-6648, Dan.bachus@gcu.edu, or Media, Bill Jenkins, +1-602-639-6678,
William.jenkins@gcu.edu, both of Grand Canyon Education, Inc.
 
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