Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
or
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-34211
GRAND CANYON EDUCATION, INC.
(Exact name of registrant as specified in its charter)
|
|
|
DELAWARE
(State or other jurisdiction of
Incorporation or organization)
|
|
20-3356009
(I.R.S. Employer
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):
|
|
|
|
|
|
|
Large accelerated filer o
|
|
Accelerated filer o
|
|
Non-accelerated filer þ
|
|
Smaller reporting company o |
|
|
|
|
(Do not check if a smaller reporting company) |
|
|
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 July 30, 2009, was 44,595,794.
GRAND CANYON EDUCATION, INC.
FORM 10-Q
INDEX
2
PART I FINANCIAL INFORMATION
|
|
|
Item 1. |
|
Financial Statements |
GRAND CANYON EDUCATION, INC.
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In thousands, except per share amounts) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
Unaudited |
|
Net revenue |
|
$ |
59,400 |
|
|
$ |
34,566 |
|
|
$ |
118,364 |
|
|
$ |
70,275 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instructional costs and services |
|
|
20,047 |
|
|
|
12,408 |
|
|
|
38,379 |
|
|
|
24,028 |
|
Selling and promotional, including $1,779 and $1,413 for
the three months ended June 30, 2009 and 2008,
respectively, and $3,391 and $2,925 for the six months
ended June 30, 2009 and 2008, respectively, to related
parties |
|
|
20,631 |
|
|
|
14,887 |
|
|
|
40,301 |
|
|
|
27,473 |
|
General and administrative |
|
|
8,688 |
|
|
|
6,419 |
|
|
|
17,521 |
|
|
|
10,960 |
|
Royalty to former owner |
|
|
74 |
|
|
|
466 |
|
|
|
148 |
|
|
|
1,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
49,440 |
|
|
|
34,180 |
|
|
|
96,349 |
|
|
|
63,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
9,960 |
|
|
|
386 |
|
|
|
22,015 |
|
|
|
6,326 |
|
Interest expense |
|
|
(420 |
) |
|
|
(694 |
) |
|
|
(1,087 |
) |
|
|
(1,507 |
) |
Interest income |
|
|
121 |
|
|
|
179 |
|
|
|
229 |
|
|
|
432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
9,661 |
|
|
|
(129 |
) |
|
|
21,157 |
|
|
|
5,251 |
|
Income tax expense (benefit) |
|
|
3,846 |
|
|
|
(49 |
) |
|
|
8,439 |
|
|
|
2,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
5,815 |
|
|
|
(80 |
) |
|
|
12,718 |
|
|
|
3,224 |
|
Preferred dividends |
|
|
|
|
|
|
(268 |
) |
|
|
|
|
|
|
(521 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common stockholders |
|
$ |
5,815 |
|
|
$ |
(348 |
) |
|
$ |
12,718 |
|
|
$ |
2,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.13 |
|
|
$ |
(0.02 |
) |
|
$ |
0.28 |
|
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.13 |
|
|
$ |
(0.02 |
) |
|
$ |
0.28 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
44,846 |
|
|
|
19,142 |
|
|
|
45,159 |
|
|
|
19,089 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
45,051 |
|
|
|
19,142 |
|
|
|
45,437 |
|
|
|
32,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
3
GRAND CANYON EDUCATION, INC.
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(In thousands, except share data) |
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
|
|
|
|
ASSETS: |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
24,742 |
|
|
$ |
35,152 |
|
Restricted cash and cash equivalents |
|
|
6,230 |
|
|
|
2,197 |
|
Accounts receivable, net of allowance for
doubtful accounts of $7,110 and $6,356 at
June 30, 2009 and December 31, 2008,
respectively |
|
|
10,612 |
|
|
|
9,442 |
|
Income taxes receivable |
|
|
1,398 |
|
|
|
1,576 |
|
Deferred income taxes |
|
|
3,087 |
|
|
|
2,603 |
|
Other current assets |
|
|
2,330 |
|
|
|
2,629 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
48,399 |
|
|
|
53,599 |
|
Property and equipment, net |
|
|
58,146 |
|
|
|
41,399 |
|
Restricted cash and investments (of which $0
and $2,928 is restricted at June 30, 2009 and
December 31, 2008, respectively) |
|
|
483 |
|
|
|
3,403 |
|
Prepaid royalties |
|
|
7,677 |
|
|
|
8,043 |
|
Goodwill |
|
|
2,941 |
|
|
|
2,941 |
|
Deferred income taxes |
|
|
8,216 |
|
|
|
7,404 |
|
Other assets |
|
|
644 |
|
|
|
201 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
126,506 |
|
|
$ |
116,990 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
9,753 |
|
|
$ |
5,770 |
|
Accrued liabilities |
|
|
11,178 |
|
|
|
9,674 |
|
Income taxes payable |
|
|
67 |
|
|
|
172 |
|
Deferred revenue and student deposits |
|
|
20,183 |
|
|
|
14,262 |
|
Due to related parties |
|
|
1,666 |
|
|
|
1,197 |
|
Current portion of capital lease obligations |
|
|
801 |
|
|
|
1,125 |
|
Current portion of notes payable |
|
|
2,108 |
|
|
|
357 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
45,756 |
|
|
|
32,557 |
|
Capital lease obligations, less current portion |
|
|
1,212 |
|
|
|
29,384 |
|
Notes payable, less current portion and other |
|
|
25,573 |
|
|
|
1,459 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
72,541 |
|
|
|
63,400 |
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value, 10,000,000
shares authorized; 0 shares issued and
outstanding at June 30, 2009 and December 31,
2008 |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 100,000,000
shares authorized; 44,576,417 and 45,465,160
shares issued and outstanding at June 30, 2009
and December 31, 2008, respectively |
|
|
446 |
|
|
|
455 |
|
Additional paid-in capital |
|
|
52,469 |
|
|
|
64,808 |
|
Accumulated other comprehensive income |
|
|
21 |
|
|
|
16 |
|
Accumulated earnings (deficit) |
|
|
1,029 |
|
|
|
(11,689 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
53,965 |
|
|
|
53,590 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
126,506 |
|
|
$ |
116,990 |
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Other |
|
|
Accumulated |
|
|
|
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Comprehensive |
|
|
Earnings |
|
|
|
|
|
|
Shares |
|
|
Par Value |
|
|
Capital |
|
|
Income |
|
|
(Deficit) |
|
|
Total |
|
Balance at December 31, 2008 |
|
|
45,465,160 |
|
|
$ |
455 |
|
|
$ |
64,808 |
|
|
$ |
16 |
|
|
$ |
(11,689 |
) |
|
$ |
53,590 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,718 |
|
|
|
12,718 |
|
Unrealized losses on
available for-sale
securities, net of taxes of
$3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,723 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
1,577 |
|
|
|
|
|
|
|
|
|
|
|
1,577 |
|
Exercise of stock options |
|
|
20,605 |
|
|
|
|
|
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
247 |
|
Excess tax benefits from
share-based compensation |
|
|
|
|
|
|
|
|
|
|
323 |
|
|
|
|
|
|
|
|
|
|
|
323 |
|
Repurchase and retirement
of shares of the Companys
common stock |
|
|
(909,348 |
) |
|
|
(9 |
) |
|
|
(14,486 |
) |
|
|
|
|
|
|
|
|
|
|
(14,495 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
|
44,576,417 |
|
|
$ |
446 |
|
|
$ |
52,469 |
|
|
$ |
21 |
|
|
$ |
1,029 |
|
|
$ |
53,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
5
GRAND CANYON EDUCATION, INC.
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
|
(Unaudited) |
|
Cash flows provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
12,718 |
|
|
$ |
3,224 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
1,577 |
|
|
|
|
|
Excess tax benefits from share-based compensation |
|
|
(9 |
) |
|
|
|
|
Provision for bad debts |
|
|
6,587 |
|
|
|
4,052 |
|
Depreciation and amortization |
|
|
3,386 |
|
|
|
2,269 |
|
Deferred income taxes |
|
|
(1,296 |
) |
|
|
(186 |
) |
Other |
|
|
(14 |
) |
|
|
(112 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(7,757 |
) |
|
|
(3,868 |
) |
Prepaid expenses and other |
|
|
333 |
|
|
|
(266 |
) |
Due to/from related parties |
|
|
469 |
|
|
|
288 |
|
Accounts payable |
|
|
2,942 |
|
|
|
619 |
|
Accrued liabilities |
|
|
1,729 |
|
|
|
576 |
|
Income taxes receivable/payable |
|
|
396 |
|
|
|
1,405 |
|
Deposit with former owner |
|
|
|
|
|
|
3,000 |
|
Royalty payable to former owner |
|
|
|
|
|
|
(7,428 |
) |
Prepaid royalties to former owner |
|
|
|
|
|
|
(5,920 |
) |
Deferred revenue and student deposits |
|
|
5,921 |
|
|
|
604 |
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
26,982 |
|
|
|
(1,743 |
) |
|
|
|
|
|
|
|
Cash flows used in investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(11,111 |
) |
|
|
(3,504 |
) |
Purchase of campus land and buildings |
|
|
(35,505 |
) |
|
|
|
|
Change in restricted cash and cash equivalents |
|
|
(1,108 |
) |
|
|
2,064 |
|
Purchases of investments |
|
|
|
|
|
|
(2,499 |
) |
Proceeds from sale or maturity of investments |
|
|
|
|
|
|
2,470 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(47,724 |
) |
|
|
(1,469 |
) |
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities: |
|
|
|
|
|
|
|
|
Principal payments on notes payable and capital lease obligations |
|
|
(976 |
) |
|
|
(719 |
) |
Proceeds from debt |
|
|
25,547 |
|
|
|
|
|
Repurchase of common shares |
|
|
(14,495 |
) |
|
|
|
|
Repayment on line of credit |
|
|
|
|
|
|
(6,000 |
) |
Proceeds from related party payable on preferred stock |
|
|
|
|
|
|
5,725 |
|
Repurchase of Institute Warrant |
|
|
|
|
|
|
(6,000 |
) |
Repurchase of Institute Note Payable |
|
|
|
|
|
|
(1,250 |
) |
Amount paid related to initial public offering |
|
|
|
|
|
|
(2,484 |
) |
Excess tax benefits from share-based compensation |
|
|
9 |
|
|
|
|
|
Net proceeds from exercise of stock options |
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
10,332 |
|
|
|
(10,728 |
) |
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(10,410 |
) |
|
|
(13,940 |
) |
Cash and cash equivalents, beginning of period |
|
|
35,152 |
|
|
|
18,930 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
24,742 |
|
|
$ |
4,990 |
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
1,276 |
|
|
$ |
2,382 |
|
Cash paid for income taxes |
|
$ |
9,402 |
|
|
$ |
762 |
|
Supplemental disclosure of non-cash investing and financing activities |
|
|
|
|
|
|
|
|
Purchase of equipment through notes payable and capital lease obligations |
|
$ |
2,116 |
|
|
$ |
760 |
|
Purchases of property and equipment included in accounts payable |
|
$ |
1,041 |
|
|
$ |
479 |
|
Settlement
of capital lease obligation |
|
$ |
30,020 |
|
|
$ |
|
|
Tax benefit of Spirit warrant intangible |
|
$ |
314 |
|
|
$ |
|
|
Value assigned to Blanchard shares |
|
$ |
|
|
|
$ |
2,996 |
|
Assumption of future obligations under gift annuities |
|
$ |
|
|
|
$ |
887 |
|
Accretion of dividends on Series C convertible preferred stock |
|
$ |
|
|
|
$ |
521 |
|
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
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 year ended December 31,
2008.
Revenue Recognition
Net revenues consist primarily of tuition and fees derived from courses taught by the Company
online, at its traditional campus in Phoenix, Arizona, and onsite at facilities of employers, as
well as from related educational resources such as access to online materials. Tuition revenue and
most fees and related educational resources are recognized monthly over the applicable period of
instruction, net of scholarships provided by the Company.
Derivatives and Hedging
Derivative financial instruments are recorded on the balance sheet as assets or liabilities
and re-measured at fair value at each reporting date. For derivatives designated as cash flow
hedges, the effective portion of the gain or loss on the derivative is reported as a component of
other comprehensive income and reclassified into earnings in the same period or period during which
the hedged transaction affects earnings. Gains and losses on the derivative representing either
hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are
recognized in current earnings.
Derivative financial instruments enable the Company to manage its exposure to interest rate
risk. The Company does not engage in any derivative instrument trading activity. Credit risk
associated with the Companys derivatives is limited to the risk that a derivative counterparty
will not perform in accordance with the terms of the contract. Exposure to counterparty credit
risk is considered low because these agreements have been entered into with major credit-worthy
institutions with strong credit ratings, and they are expected to perform fully under the terms of
the agreements.
On June 30, 2009, the Company entered into two derivative agreements to manage its 30 Day
LIBOR interest exposure related to its variable rate debt, which commenced in April 2009 until
maturity in April 2014. The fair value of the corridor derivative asset as of June 30, 2009 was
$164 and is included in Other assets. The fair value of the forward starting interest rate swap is
$0 as of June 30, 2009. These derivative instruments were
designated and formally documented as cash flow hedges of
variable rate debt obligations.
The corridor instrument hedges variable interest rate risk starting July 1, 2009 through April
30, 2014 with a notional amount of $12,695 as of June 30, 2009. The corridor instrument
permits the Company to hedge its interest rate risk at several thresholds; the Company will pay
variable interest rates based on the 30 Day LIBOR rates monthly until that index reaches 4%. If 30
Day LIBOR is equal to 4% through 6%, the Company will pay 4%. If 30 Day LIBOR exceeds 6%, the
Company will pay actual 30 Day LIBOR less 2%. This reduces the Companys exposure to potentially
increased interest rate risk.
The forward starting interest rate swap commences on May 1, 2010 and continues each month
thereafter until April 30, 2014 and has an initial notional
amount of $11,982. The Company
will receive 30 Day LIBOR and pay 3.245% fixed interest on the amortizing notional amount.
Therefore, the Company has hedged its exposure to future variable rate cash flows in the future
through April 30, 2014.
As of June 30, 2009 no derivative ineffectiveness was identified. Any ineffectiveness in the
Companys derivative instruments designated as hedges would be reported in Interest expense in the
statement of operations.
Fair Value of Financial Instruments
As of June 30, 2009, the carrying value of cash and cash equivalents, accounts receivable,
account payable and accrued expenses approximate their fair value based on the liquidity or the
short-term maturities of these instruments. The carrying value of debt approximates fair value as
it is based on variable rate index. The carrying value of capital lease obligations approximate
fair value based upon market interest rates available to the Company for debt of similar risk and
maturities. The fair value of investments was determined using Statement of Financial Accounting
Standard (SFAS) No. 157, Fair Value Measurements, Level 1 of the hierarchy of valuation inputs,
with the use of observable market prices in the active market. The Companys investment portfolio
is primarily comprised of money market funds with AAA rating at more than one financial
institution. Derivative financial instruments are carried at fair market value, determined using
Level 2 of the hierarchy of valuation inputs, with the use of inputs other than quoted prices that
are observable for the asset or liability.
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 six months ended June 30, 2009 and 2008 was $12,723 and $3,155,
respectively.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles 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.
7
GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
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 operating 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.
Recent Accounting Pronouncements
In April 2009, the Financial Accounting Standards Board (FASB) issued Financial Statement
Position (FSP) No. FAS 107-1 and Accounting Principal Board (APB) No. 28-1, Interim
Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1). This
statement increases the frequency of fair value disclosures from annual only to quarterly. FSP FAS
107-1 and APB 28-1 is effective for interim periods ending after June 15, 2009 and is effective for
the Company with respect to this Form 10-Q. The Companys adoption of FSP FAS 107-1 and APB 28-1
did not have a material impact on its financial condition, results of operations or disclosures.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS No. 165), which
provides guidance for management of reporting entities relating to the accounting for and
disclosures of events that occur after the balance sheet date but before the financial statements
are issued or are available to be issued. SFAS No. 165 requires entities to disclose the date
through which subsequent events were evaluated as well as the rationale for the date selection.
SFAS No. 165 is effective for interim and annual periods ending
after June 15, 2009. Management has evaluated subsequent events
for this interim reporting period through August 3, 2009. Given the
centralization of operations and location of key management personnel, the Company believes this is
a reasonable date through which to evaluate subsequent events. The adoption of SFAS No. 165 did
not have an impact on the Companys financial condition, results of operations or disclosures.
In June 2009, the FASB approved the FASB Accounting Standards Codification (Codification)
as the single authoritative source for United States Generally Accepted Accounting Principles
(U.S. GAAP). The Codification, which was launched on July 1, 2009, does not change current U.S.
GAAP, but is intended to simplify user access by providing all authoritative U. S. GAAP in one
location. All existing accounting standard documents will be superseded and all other accounting
literature not included in the Codification will be considered nonauthoritative. The Codification
is effective for interim and annual periods ending after September 15, 2009. The Codification is
effective for the Company for the interim period ending September 30, 2009 and will not have an
impact on the Companys financial condition or results of operations.
3. Spirit Transaction
On April 28, 2009, the Company acquired the land and buildings that comprise its ground campus
and 909,348 shares of its common stock from Spirit Master Funding, LLC and Spirit Management
Company, respectively (collectively, Spirit) for an
aggregate purchase price of $50,000.
Prior to the acquisition, the Company 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 a portion of the purchase, the Company entered into a loan agreement with a financial
institution pursuant to which it borrowed $25,675. 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 3.82% at June 30, 2009). All remaining unpaid
principal is due on April 30, 2014. The loan agreement contains standard covenants, including
covenants that, among other things, restrict the Companys ability to incur additional debt or make
certain investments, require the Company to maintain compliance with certain applicable regulatory
standards, and require the Company to maintain a certain financial condition. Indebtedness under
the loan agreement is secured by the land and buildings that comprise the Companys ground campus.
As of June 30, 2009, the Company is in compliance with its debt covenants.
The
Company allocated $14,495 of the purchase price to the repurchase of its common
stock and the remaining $35,505 to the land and buildings. Additionally, the Company removed
the building and improvement assets and related capital lease
obligations of $29,796 and
applied the deferred gain of $1,429 as a reduction to the new building value.
4. 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.
8
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Month Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic common shares outstanding |
|
|
44,846,224 |
|
|
|
19,142,399 |
|
|
|
45,158,536 |
|
|
|
19,089,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,870,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive warrants and contingently issuable common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,625,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive stock options and restricted stock |
|
|
204,395 |
|
|
|
|
|
|
|
278,388 |
|
|
|
38,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted common shares outstanding |
|
|
45,050,619 |
|
|
|
19,142,399 |
|
|
|
45,436,924 |
|
|
|
32,623,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2008, approximately 10,870,178 shares of preferred stock
and 1,382,126 of warrants were excluded from the calculation of diluted earnings per share as their
inclusion would have been anti-dilutive given the net loss.
5. Valuation and Qualifying Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
Beginning of |
|
|
Charged to |
|
|
|
|
|
|
End of |
|
|
|
Year |
|
|
Expense |
|
|
Deductions(1) |
|
|
Period |
|
Allowance for doubtful accounts receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2009 |
|
$ |
6,356 |
|
|
|
6,587 |
|
|
|
(5,833 |
) |
|
$ |
7,110 |
|
Six months ended June 30, 2008 |
|
$ |
12,158 |
|
|
|
4,052 |
|
|
|
(768 |
) |
|
$ |
15,442 |
|
|
|
|
(1) |
|
Deductions represent accounts written off, net of recoveries. |
6. Accrued Liabilities
Accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Accrued compensation and benefits |
|
$ |
7,317 |
|
|
$ |
5,340 |
|
Accrued interest |
|
|
94 |
|
|
|
284 |
|
Deferred rent |
|
|
39 |
|
|
|
34 |
|
Tax reserves, non-income tax related |
|
|
233 |
|
|
|
710 |
|
FIN 48 accrual |
|
|
244 |
|
|
|
299 |
|
Other accrued expenses |
|
|
3,251 |
|
|
|
3,007 |
|
|
|
|
|
|
|
|
|
|
$ |
11,178 |
|
|
$ |
9,674 |
|
|
|
|
|
|
|
|
7. Commitments and Contingencies
Leases
The Company leases certain land, buildings and equipment under non-cancelable operating leases
expiring at various dates through 2015. Future minimum lease payments under operating leases due
each year are as follows at June 30, 2009:
|
|
|
|
|
2009 |
|
$ |
1,590 |
|
2010 |
|
|
3,791 |
|
2011 |
|
|
3,491 |
|
2012 |
|
|
2,996 |
|
2013 |
|
|
2,846 |
|
Thereafter |
|
|
13,055 |
|
|
|
|
|
Total minimum payments |
|
$ |
27,769 |
|
|
|
|
|
Total rent expense and related taxes and operating expenses under operating leases for the six
months ended June 30, 2009 and 2008 were $2,376 and $1,097, 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.
9
GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
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 June 30, 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 has completed production of all requested
documents. 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.
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 June 30, 2009 and December 31, 2008, the Company had
reserved approximately $233 and $710, respectively, for tax matters where its ultimate exposure is
considered probable and the potential loss can be reasonably estimated. During the three months
ended June 30, 2009, a non-income tax related matter related to the Companys classification of its
online faculty as independent contractors was resolved with the Internal Revenue Service (IRS)
and, effective July 1, 2009, all faculty for the Company will be treated as employees. The Company
had reserved $235 related to this matter, which approximated the amount paid.
8. Income Taxes
The Companys uncertain tax positions are related to tax years that remain subject to
examination by tax authorities. As of June 30, 2009, the earliest tax year still subject to
examination for federal and state purposes was 2005. During the second quarter ended June 30, 2008,
the IRS commenced an examination of the Companys 2005 income tax return.
During the three months ended June 30, 2009, the Company revised its approach for the
treatment of excess tax benefits in 2009 generated in connection with the exercise of a warrant to
purchase the Companys common stock. 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 deduction has been and
will continue to be recorded as a credit to additional paid-in
capital as it is realized by the related deduction reducing income
taxes that would otherwise be paid.
9. 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 the Companys 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 has not yet been implemented, a total of
1,049,984 shares of the Companys common stock have been authorized for sale under the ESPP.
The table below reflects the Companys share-based compensation expense recognized in the
three and six months ended June 30, 2009 and 2008 related to stock options granted under the
Incentive Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Instructional costs and services |
|
$ |
90 |
|
|
$ |
|
|
|
$ |
173 |
|
|
$ |
|
|
Selling and promotional |
|
|
43 |
|
|
|
|
|
|
|
78 |
|
|
|
|
|
General and administrative |
|
|
662 |
|
|
|
|
|
|
|
1,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense included in operating expenses |
|
|
795 |
|
|
|
|
|
|
|
1,556 |
|
|
|
|
|
Tax effect of share-based compensation |
|
|
(318 |
) |
|
|
|
|
|
|
(622 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense, net of tax |
|
$ |
477 |
|
|
$ |
|
|
|
$ |
934 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
GRAND CANYON EDUCATION, INC.
Notes to Financial Statements
(In thousands, except share and per share data)
(Unaudited)
10. 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.
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 June 30, 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 the Companys 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 it is possible that regulatory
agencies or third parties could undertake investigations or make claims against the Company, or
that such claims, if made, could 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
|
|
|
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. |
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.
12
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 ground 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 ground 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 June 30, 2009, we had approximately 27,600 students, an increase of 67.3% over the
approximately 16,500 students we had at June 30, 2008. At June 30, 2009, 95.0% of our students were
enrolled in our online programs, and 50.1% were pursuing masters or doctoral degrees. In addition,
we increased tuition prices for students in our online and professional studies programs by 2.3% to
15.5% for our 2009-10 academic year, depending on program, with an estimated blended rate increase
of approximately 5.0%, as compared to tuition price increases of 5.0% to 5.3% for the prior academic year.
Tuition for our traditional ground programs increased 11.2% for our 2008-09 academic year, as
compared to a tuition price increase of 16.0% for the prior academic year. Tuition for our
traditional ground programs will increase 6.6% for our 2009-10 academic year. The benefits of 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 ground students.
Operating income was $9.9 million for the quarter ended June 30, 2009, an increase of $9.5 million
over the $0.4 million in operating income for the quarter ended June 30, 2008.
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 six months ended June 30, 2009, there have been no
significant changes in our critical accounting policies.
13
The following is a summary of our student enrollment at June 30, 2009 and 2008 (which
included less than 150 students pursuing non-degree certificates in each period) by degree type and
by instructional delivery method:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
# of Students |
|
|
% of Total |
|
|
# of Students |
|
|
% of Total |
|
Masters or doctoral degree(1) |
|
|
13,841 |
|
|
|
50.1 |
% |
|
|
10,051 |
|
|
|
60.9 |
% |
Bachelors degree |
|
|
13,781 |
|
|
|
49.9 |
% |
|
|
6,459 |
|
|
|
39.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
27,622 |
|
|
|
100.0 |
% |
|
|
16,510 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
# of Students |
|
|
% of Total |
|
|
# of Students |
|
|
% of Total |
|
Online |
|
|
26,234 |
|
|
|
95.0 |
% |
|
|
14,847 |
|
|
|
89.9 |
% |
Ground(2) |
|
|
1,388 |
|
|
|
5.0 |
% |
|
|
1,663 |
|
|
|
10.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
27,622 |
|
|
|
100.0 |
% |
|
|
16,510 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 228 students pursuing doctoral degrees at June 30, 2009. |
|
(2) |
|
Includes a small number of our traditional ground students that
are taking courses during the summer, 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 has caused us to incur, and will continue to cause us to incur, increased general and
administrative expenses related to salaries and fees paid to 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.
14
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 our initial public offering in November 2008, the professional services
agreement terminated by its terms. For the three and six months ended June 30, 2008, we incurred
$0.1 million and $0.2 million, respectively, in fees and expenses under this agreement.
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 May
19, 2009, the Company granted 2,491 shares of restricted common stock with a fair value of $14.05
and 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 three and six months ended June 30, 2009 totaling $0.8 million and
$1.6 million, respectively, 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.
Spirit transaction and related borrowings. On April 28, 2009, we acquired the land and
buildings that comprise our ground campus 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 a portion of the purchase, we entered into a loan agreement with a
financial institution pursuant to which we borrowed $25.7 million. Under the terms of the loan
agreement, we will make principal payments in equal monthly installments of approximately $143,000
plus accrued interest at 30 day LIBOR plus 3.5% (approximately 3.82% at June 30, 2009). All
remaining unpaid principal is due on April 30, 2014. We allocated $14.5 million to the repurchase
of our common stock and the remaining $35.5 million to the land and buildings. Additionally, we
removed the building and improvement assets and related capital lease obligations of $30.0 million
and applied the deferred gain of $1.4 million as a reduction to the new building value.
Accordingly, interest expense will be lower starting in May 2009 as the effective interest rate for
the capital lease obligations was approximately 8.7% as compared to variable rate debt at an
effective interest rate of approximately 4.0% starting in May 2009.
Results of Operations
The following table sets forth statements of operations data as a percentage of net
revenue for each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instructional cost and services |
|
|
33.7 |
|
|
|
35.9 |
|
|
|
32.4 |
|
|
|
34.2 |
|
Selling and promotional |
|
|
34.7 |
|
|
|
43.1 |
|
|
|
34.0 |
|
|
|
39.1 |
|
General and administrative |
|
|
14.6 |
|
|
|
18.6 |
|
|
|
14.8 |
|
|
|
15.6 |
|
Royalty to former owner |
|
|
0.1 |
|
|
|
1.3 |
|
|
|
0.1 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
83.2 |
|
|
|
98.9 |
|
|
|
81.4 |
|
|
|
91.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
16.8 |
|
|
|
1.1 |
|
|
|
18.6 |
|
|
|
9.0 |
|
Interest expense |
|
|
(0.7 |
) |
|
|
(2.0 |
) |
|
|
(0.9 |
) |
|
|
(2.1 |
) |
Interest income |
|
|
0.2 |
|
|
|
0.5 |
|
|
|
0.2 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
16.3 |
|
|
|
(0.4 |
) |
|
|
17.9 |
|
|
|
7.5 |
|
Income tax expense (benefit) |
|
|
6.5 |
|
|
|
(0.1 |
) |
|
|
7.1 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
9.8 |
|
|
|
(0.2 |
) |
|
|
10.7 |
|
|
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
Net revenue. Our net revenue for the quarter ended June 30, 2009 was $59.4 million, an
increase of $24.8 million, or 71.8%, as compared to net revenue of $34.6 million for the quarter
ended June 30, 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 67.3% between June 30, 2009 and 2008, 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 primarily due to tuition price increases partially
offset by the continuing decrease in traditional ground students as a percentage of the total
student base.
Instructional cost and services expenses. Our instructional cost and services expenses for the
quarter ended June 30, 2009 were $20.1 million, an increase of $7.7 million, or 61.6%, as compared
to instructional cost and services expenses of $12.4 million for the quarter ended June 30, 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 $3.9 million, $1.9 million, $0.8 million, $0.4
million, $0.1 million, and $0.6 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 2.2% to 33.7% for the quarter ended
June 30, 2009, as compared to 35.9% for the quarter ended June 30, 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 ground 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
June 30, 2009 were $20.6 million, an increase of $5.7 million, or 38.6%, as compared to selling and
promotional expenses of $14.9 million for the quarter ended June 30, 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 $2.2 million, $3.0
million, $0.4 million, and $0.1 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 8.4% to 34.7% for the quarter ended June 30,
2009, from 43.1% for the quarter ended June 30, 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 our efforts to focus on pursuing higher quality leads to
increase enrollment. 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 expect selling and promotional expenses as a percentage of net
revenue to continue to decline in the future.
General and administrative expenses. Our general and administrative expenses for the quarter
ended June 30, 2009 were $8.7 million, an increase of $2.3 million, or 35.4%, as compared to
general and administrative expenses of $6.4 million for the quarter ended June 30, 2008. This
increase was primarily due to increases in employee compensation, bad debt expense, and share-based
compensation, partially offset by decreases in legal, audit and corporate insurance expenses and
other general and administrative expenses of $1.2 million, $0.9 million, $0.7 million, $0.4 million
and $0.1 million, respectively. 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. Bad debt expense increased to $3.3 million for the quarter ended June
30, 2009 from $2.4 million for the quarter ended June 30, 2008 as a result of an increase in net
revenue and the increase in aged receivables between periods. Share based compensation increased
since prior to November 2008 we had never granted equity awards. The decrease in legal, audit, and
corporate insurance is primarily related to lower legal costs in 2009 as a result of the settlement
of the SunGard litigation and the completion of our initial public offering in November 2008,
partially offset by increased insurance and audit costs associated with being a public company. Our
general and administrative expenses as a percentage of net revenue decreased by 4.0% to 14.6% for
the quarter ended June 30, 2009, from 18.6% for the quarter ended June 30, 2008. This decrease was
primarily due to our ability to leverage our fixed infrastructure over an increasing revenue base,
a decrease in bad debt expense as a percentage of revenue from 6.9% in the second quarter of 2008
to 5.5% in the second quarter of 2009 as a result of improved processes and an increase in the
number of finance counselors, partially offset by increased employee compensation and related
expenses as a percentage of net revenue as discussed above, and share-based compensation, which
represented 1.2% of net revenue for the quarter ended June 30, 2009.
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 June 30, 2009 of $0.1
million, a decrease of $0.4 million, or 84.1%, as compared to royalty expenses incurred of $0.5
million for the quarter ended June 30, 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 June 30, 2009 from 1.3% for the quarter ended June 30, 2008.
16
Interest expense. Our interest expense for the quarter ended June 30, 2009 was $0.4 million, a
decrease of $0.3 million from $0.7 million for the quarter ended June 30, 2008, as the average
level of borrowings and related interest rates were significantly lowered as a result of the
repurchase of the campus land and building and the conversion from a capital lease obligation at an
effective interest rate of approximately 8.7% to a variable rate debt which was approximately 4.0%
in May and June of 2009.
Interest income. Our interest income for the quarter ended June 30, 2009 was $0.1 million,
with no change from $0.1 million for the quarter ended June 30, 2008, as a result of decreased
short-term interest rates in 2009 offset by increased cash balances in 2009.
Income tax expense (benefit). Income tax expense for the quarter ended June 30, 2009 was $3.8
million, an increase of $3.9 million from a benefit of $0.1 million for the quarter ended June 30,
2008. This increase was primarily attributable to increased income before income taxes. Our
effective tax rate was 39.8% during the second quarter of 2009 compared to 38.6% during the second
quarter of 2008. This slight increase is the result of income before taxes growing in excess of
our permanent tax deductions.
Net income (loss). Our net income for the quarter ended June 30, 2009 was $5.8 million, an
increase of $5.9 million, as compared to net loss of $0.1 million for the quarter ended June 30,
2008, due to the factors discussed above.
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
Net revenue. Our net revenue for the six months ended June 30, 2009 was $118.4 million, an
increase of $48.1 million, or 68.4%, as compared to net revenue of $70.3 million for the six months
ended June 30, 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 67.3% between June 30, 2009 and 2008, 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 primarily due to tuition price increases partially
offset by the continuing decrease in traditional ground students as a percentage of the total
student base.
Instructional cost and services expenses. Our instructional cost and services expenses for the
six months ended June 30, 2009 were $38.4 million, an increase of $14.4 million, or 59.7%, as
compared to instructional cost and services expenses of $24.0 million for the six months ended June
30, 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 $6.8 million, $3.5 million, $1.5
million, $0.7 million, $0.2 million, and $1.7 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 1.8% to 32.4% for the six months
ended June 30, 2009, as compared to 34.2% for the six months ended June 30, 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 ground 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 six months
ended June 30, 2009 were $40.3 million, an increase of $12.8 million, or 46.7%, as compared to
selling and promotional expenses of $27.5 million for the six months ended June 30, 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 $5.4
million, $5.4 million, $0.8 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 5.1% to 34.0% for the six months
ended June 30, 2009, from 39.1% for the six months ended June 30, 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 six
months ended June 30, 2009 were $17.5 million, an increase of $6.5 million, or 59.9%, as compared
to general and administrative expenses of $11.0 million for the six months ended June 30, 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 $2.5 million, $2.4 million, $1.3 million, $0.2 million and $0.1 million,
respectively. Bad debt expense increased to $6.6 million for the six months ended June 30, 2009
from $4.1 million for the six months ended June 30, 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 since prior to
November 2008 we had never granted equity awards had. 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 decreased by 0.8% to 14.8%
for the six months ended June 30, 2009, from 15.6% for the six months ended June 30, 2008,
primarily due to our ability to leverage our fixed infrastructure over an increasing revenue base,
a decrease in our bad debt expense as a percentage of net revenue between periods from 5.8% of net
revenue during the six months ended June 30, 2008 to 5.6% of net revenue during the six months
ended June 30, 2009, partially offset by 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 for the six months ended June 30, 2009.
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 six months ended June 30, 2009 of
$0.2 million, a decrease of $1.3 million, or 90.1%, as compared to royalty expenses incurred of
$1.5 million for the six months ended June 30, 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 six months ended June 30, 2009 from 2.1% for the six months ended June 30, 2008.
17
Interest expense. Our interest expense for the six months ended June 30, 2009 was $1.1
million, a decrease of $0.4 million from $1.5 million for the quarter ended June 30, 2008, as the
average level of borrowings and related interest rates changed as a result of the repurchase of the
campus land and buildings in late April 2009 from an effective borrowing rates of approximately
8.7% to variable rate debt at effective interest of approximately 4.0% starting in May 2009.
Interest income. Our interest income for the six months ended June 30, 2009 was $0.2 million,
a decrease of $0.2 million from $0.4 million for the six months ended June 30, 2008, as a result of
decreased short-term interest rates in 2009 partially offset by higher cash balances in 2009 as a
result of the owner settlement in 2008.
Income tax expense. Income tax expense for the six months ended June 30, 2009 was $8.4
million, an increase of $6.4 million from $2.0 million for the quarter ended June 30, 2008. This
increase was primarily attributable to increased income before income taxes. Our effective tax
rate was 39.9% during the six months ended June 30, 2009 compared to 38.6% during the six months
ended June 30, 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 six months ended June 30, 2009 was $12.7 million, an
increase of $9.5 million, or 295%, as compared to net income of $3.2 million for the six months
ended June 30, 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 ground 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 ground student 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 six months
ended June 30, 2009 and 2008 primarily through cash provided by operating activities, and loan
proceeds of $25.7 million received in the second quarter of 2009 used solely for the purchase of
the land and buildings comprising our ground campus. Our unrestricted cash, cash equivalents, and
marketable securities were $25.2 million and $35.6 million at June 30, 2009 and December 31, 2008,
respectively. Our restricted cash, cash equivalents and investments at June 30, 2009 and December
31, 2008 were $6.2 million and $5.2 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 six months ended June
30, 2009 was $27.0 million as compared to $1.7 million used in operating activities for the six
months ended June 30, 2008. Cash provided by operations in the six months ended June 30, 2009
resulted from our net income plus non cash charges for bad debts, depreciation and amortization and
share-based compensation. The cash used in operation in the six months ended June 30, 2008 was
primarily due to the $19.5 million payment made in April 2008 in connection with the settlement
with the former owners.
Investing Activities. Net cash used in investing activities was $47.7 million and $1.5 million
for the six months ended June 30, 2009 and 2008, respectively. Cash used in investing activities is
primarily related to the acquisition of our campus land and buildings from Spirit , for an
allocated purchase amount of $35.5 million. Other capital expenditures were $11.1 million and
$3.5 million for the six months ended June 30, 2009 and 2008, respectively. Capital expenditures
primarily consist of computer equipment, leasehold improvements, and office furniture and fixtures
to support our increasing employee headcounts and increased internal use software development.
Financing Activities. Net cash provided by financing activities was $10.3 million for the six
months ended June 30, 2009 and net cash used in financing
activities was $10.7 million for the six months
ended June 30, 2008. During the first six months of 2008, principal payments on notes payable,
capital lease obligations, settlement with the prior owners and our line of credit were offset by
proceeds from preferred stock issuances. During the first six months of 2009, the proceeds from
the loan agreement were partially offset by the repurchase of our shares from Spirit.
18
Contractual Obligations
The following table sets forth, as of June 30, 2009, the aggregate amounts of our significant
contractual obligations and commitments with definitive payment terms due in each of the periods
presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
Total |
|
|
1 Year |
|
|
2-3 Years |
|
|
4-5 Years |
|
|
5 Years |
|
Long term debt and notes payable(1) |
|
$ |
27.4 |
|
|
$ |
1.1 |
|
|
$ |
6.1 |
|
|
$ |
3.6 |
|
|
$ |
16.6 |
|
Capital lease obligations(1) |
|
|
2.0 |
|
|
|
0.4 |
|
|
|
1.6 |
|
|
|
0.0 |
|
|
|
0.0 |
|
Purchase obligations(2) |
|
|
8.9 |
|
|
|
4.9 |
|
|
|
3.3 |
|
|
|
0.4 |
|
|
|
0.3 |
|
Operating lease obligations |
|
|
27.8 |
|
|
|
1.6 |
|
|
|
10.3 |
|
|
|
15.7 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
66.1 |
|
|
$ |
8.0 |
|
|
$ |
21.3 |
|
|
$ |
19.7 |
|
|
$ |
17.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The material changes since December 31, 2008 are a result of the
acquisition of the land and buildings comprising our ground campus in
April 2009. In connection with this acquisition, we reduced our
capital lease obligations for the buildings that we had previously
leased and increased our debt obligations pursuant to the loan
agreement with a financial institution that we entered into for the
sole purpose of financing the acquisition of the campus land and
buildings. |
|
(2) |
|
The purchase obligation amounts include expected spending by period
under contracts that were in effect at June 30, 2009. Less than one
year represents spend from July 1, 2009 through December 31, 2009. |
The foregoing obligations exclude potential royalty payments to Blanchard Education, LLC under
our license agreement, the amounts of which are contingent on tuition revenue from certain of our
business programs.
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.
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 not reflect:
|
|
|
cash expenditures for capital expenditures or contractual commitments; |
|
|
|
|
changes in, or cash requirements for, our working capital requirements; |
|
|
|
|
interest expense, or the cash 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 former owner, including amortization of royalties prepaid in connection
with our settlement, (ii) management fees and expenses that were payable until completion
of our initial 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.
19
The following table presents data relating to Adjusted EBITDA, which is a non-GAAP measure,
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(Unaudited, in thousands) |
|
Net income (loss) |
|
$ |
5,815 |
|
|
$ |
(80 |
) |
|
$ |
12,718 |
|
|
$ |
3,224 |
|
Plus: interest expense net of interest income |
|
|
299 |
|
|
|
515 |
|
|
|
858 |
|
|
|
1,075 |
|
Plus: income tax expense (benefit) |
|
|
3,846 |
|
|
|
(49 |
) |
|
|
8,439 |
|
|
|
2,027 |
|
Plus: depreciation and amortization |
|
|
1,680 |
|
|
|
1,179 |
|
|
|
3,238 |
|
|
|
2,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
|
11,640 |
|
|
|
1,565 |
|
|
|
25,253 |
|
|
|
8,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: royalty to former owner (a) |
|
|
74 |
|
|
|
466 |
|
|
|
148 |
|
|
|
1,488 |
|
Plus: management fees and expenses (b) |
|
|
|
|
|
|
96 |
|
|
|
|
|
|
|
211 |
|
Plus: share-based compensation (c) |
|
|
813 |
|
|
|
|
|
|
|
1,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
12,527 |
|
|
$ |
2,127 |
|
|
$ |
26,978 |
|
|
$ |
10,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects the royalty fee arrangement with our former owner 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 included a prepayment of future royalties that will be
amortized in 2009 and future periods. |
|
(b) |
|
Reflects management fees and expenses of $0.1 million and $0.2 million
for the three and six months periods ended June 30, 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 six
months of 2009 related to share-based compensation for stock options
granted to employees and directors in connection with our initial
public offering and additional equity awards granted in subsequent
periods. |
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 six months ended June 30, 2009 or 2008. There can be no assurance that future
inflation will not have an adverse impact on our operating results and financial condition.
Market risk. On June 30, 2009, we entered into two derivative agreements to manage our 30 Day
LIBOR interest exposure from the variable rate debt we incurred in connection with the repurchase
from Spirit of shares of our common stock and the land and buildings that comprise our campus,
which debt matures in April 2014. The corridor instrument, which hedges variable interest rate
risk starting July 1, 2009 through April 30, 2014 with a notional amount of $12.7 million as of
June 30, 2009, permits us to hedge our interest rate risk at several thresholds. Under this
arrangement, in addition to the credit spread we will pay variable interest rates based on the 30
Day LIBOR rates monthly until that index reaches 4%. If 30 Day LIBOR is equal to 4% through 6%, we
will pay 4%. If 30 Day LIBOR exceeds 6%, we will pay actual 30 Day LIBOR less 2%. The forward
interest rate risk starts on May 1, 2010, continues each month thereafter until April 30, 2014, and
has a notional amount of $12.0 million. Under this arrangement, we will receive 30 Day LIBOR and
pay 3.245% fixed on the amortizing notional amount plus the credit spread.
Except with respect to the foregoing, 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 June 30, 2009, a 10% increase or
decrease in interest rates would not have a material impact on our future earnings, fair values, or
cash flows. For information regarding our variable rate debt, see Market risk above.
|
|
|
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 our 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 our disclosure controls and procedures are effective, as of June 30, 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 were no changes 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 have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
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 June 30, 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 have completed production of
all requested documents. 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.
21
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.
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 as updated in our Quarterly Report of Form 10-Q for the quarter ended March
31, 2009.
|
|
|
As a result of the Company re-classifying its online faculty from independent
contractors to employees, the risk factor containing the caption [a] reclassification of
our online faculty by federal or state authorities from independent contractor to employee
status could materially increase our costs is hereby removed. |
|
|
|
|
As a result of the expiration of the lock-up that was entered into by our
pre-initial public offering stockholders, the risk factor containing the caption [a]
substantial potion of our outstanding common stock will soon be released from restrictions
on resale and may be sold in the public market in the near future is hereby removed. |
|
|
|
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
On April 28, 2009, we acquired the land and buildings that comprise the ground campus of the
University and 909,348 shares of our common stock from Spirit Master Funding, LLC and Spirit
Management Company, respectively, for an aggregate purchase price of $50 million. We allocated
$35.5 million of the $50 million purchase price to the land and buildings and $14.5 million to the
repurchase of common stock, resulting in a deemed repurchase price for the shares of common stock
of approximately $15.94 per share.
|
|
|
Item 3. |
|
Defaults Upon Senior Securities |
None.
|
|
|
Item 4. |
|
Submission of Matters to a Vote of Security Holders |
Our 2009 Annual Meeting of Stockholders was held on May 19, 2009. Stockholders holding
28,130,193 shares, or 61.84% of the outstanding shares, were present in person or by proxy at the
annual meeting. At the annual meeting, the stockholders (i) elected Brent D. Richardson, Brian E.
Mueller, Christopher C. Richardson, Chad N. Heath, D. Mark Dorman, David J. Johnson, and Jack A.
Henry to serve as directors until the next annual meeting of stockholders or the directors earlier
resignation or removal and (ii) ratified the appointment of Ernst & Young LLP as the Companys
independent registered public accounting firm for the 2009 fiscal year. The tabulation with
respect to these matters follows:
Election of Directors
|
|
|
|
|
|
|
|
|
|
|
For |
|
|
Withhold / Against |
|
Brent D. Richardson |
|
|
27,519,046 |
|
|
|
611,147 |
|
Brian E. Mueller |
|
|
27,593,323 |
|
|
|
536,870 |
|
Christopher C. Richardson |
|
|
27,519,546 |
|
|
|
610,647 |
|
Chad N. Heath |
|
|
27,472,521 |
|
|
|
657,672 |
|
D. Mark Dorman |
|
|
27,207,740 |
|
|
|
922,453 |
|
David J. Johnson |
|
|
27,953,060 |
|
|
|
177,133 |
|
Jack A. Henry |
|
|
28,013,060 |
|
|
|
117,133 |
|
Ratification of Auditor
|
|
|
|
|
For |
|
Against |
|
Abstain |
28,125,885
|
|
4,198
|
|
110 |
22
|
|
|
Item 5. |
|
Other Information |
None.
(a) Exhibits
|
|
|
|
|
|
|
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. |
|
|
|
|
|
|
|
|
10.1 |
|
|
Purchase and Sale Agreement, dated April 27,
2009, by and among Grand Canyon Education, Inc.,
Spirit Master Funding, LLC, and Spirit Management
Company,
|
|
Filed herewith. |
|
|
|
|
|
|
|
|
10.2 |
|
|
Loan Agreement, dated April 27, 2009, by and
between Grand Canyon Education, Inc. and Bank of
America, N.A.
|
|
Filed herewith. |
|
|
|
|
|
|
|
|
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. |
23
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.
|
|
|
|
|
|
GRAND CANYON EDUCATION, INC.
|
|
Date: August 3, 2009 |
By: |
/s/ Daniel E. Bachus
|
|
|
|
Daniel E. Bachus |
|
|
|
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer) |
|
24
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. |
|
|
|
|
|
|
|
|
10.1 |
|
|
Purchase and Sale Agreement, dated April 27,
2009, by and among Grand Canyon Education, Inc.,
Spirit Master Funding, LLC, and Spirit Management
Company,
|
|
Filed herewith. |
|
|
|
|
|
|
|
|
10.2 |
|
|
Loan Agreement, dated April 27, 2009, by and
between Grand Canyon Education, Inc. and Bank of
America, N.A.
|
|
Filed herewith. |
|
|
|
|
|
|
|
|
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. |
25