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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Grand Canyon Education, Inc.    LOPE

GRAND CANYON EDUCATION, INC.

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GRAND CANYON EDUCATION : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

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02/20/2020 | 06:03am EDT
The following discussion and analysis of our financial condition and results of
operations for the years ended December 31, 2019 and 2018 should be read in
conjunction with our consolidated financial statements and related notes that
appear in Item 8, Consolidated Financial Statements and Supplementary Data. In
addition to historical information, the following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this Annual Report on
Form 10-K, particularly in Special Note Regarding Forward-Looking Statements and
in Item 1A, Risk Factors.

Executive Overview

GCE is a publicly traded education services company dedicated to serving
colleges and universities. GCE has developed significant technological
solutions, infrastructure and operational processes to provide services to these
institutions on a large scale. GCE's primary university partner is GCU, a
comprehensive regionally accredited university that offers graduate and
undergraduate degree programs, emphases and certificates across nine colleges
both online and on ground at its campus in Phoenix, Arizona.

In January 2019, GCE began providing education services to numerous university
partners across the United States, through our wholly owned subsidiary, Orbis
Education, which we acquired on January 22, 2019. See Note 3 - Acquisition to
consolidated financial statements for a full description of the Acquisition.
Orbis Education works in partnership with a growing number of top universities
and healthcare networks across the country to develop high-quality, career-ready
graduates who enter the workforce and ease healthcare industry demands. Orbis
Education offers four primary academic programs with site simulation and skill
labs located near healthcare providers. Therefore, the results of operations for
the year ended December 31, 2019 include Orbis Education's financial results for
the period from January 22, 2019 to December 31, 2019.

Prior to July 1, 2018, GCE operated GCU. On July 1, 2018, the Company sold GCU
to an independent, nonprofit entity (the "Transaction"). See Note 2- The
Transaction to our consolidated financial statements for a full description of
the Transaction. Accordingly, the results of operations discussed herein for the
twelve-month period ended December 31, 2018 reflect the Company's operations
prior to July 1, 2018 which were made up exclusively of the operations of GCU.
For the period from July 1, 2018 to December 31, 2018 and for the year ended
December 31, 2019, results of operations do not include the operations of GCU
but rather reflect the operations of the Company as an education services
company.

Critical Accounting Policies and Estimates


The discussion of our financial condition and results of operations is based
upon our consolidated financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles, or GAAP. During
the preparation of these consolidated financial statements, we are required to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, costs and expenses, and related disclosures. On an
ongoing basis, we evaluate our estimates and assumptions, including those
discussed below. We base our estimates on historical experience and on various
other assumptions that we believe are reasonable under the circumstances. The
results of our analysis form the basis for making assumptions about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions, and the impact of such differences may be material to
our consolidated financial statements.

We believe that the following critical accounting policies involve our more significant judgments and estimates used in the preparation of our consolidated financial statements:


Revenue recognition. Starting July 1, 2018, the Company generates all of its
revenue through services agreements with its university partners ("Services
Agreements"), pursuant to which the Company provides integrated technology and
academic services, marketing and communication services, and as applicable,
certain back office services to its university partners in return for a
percentage of tuition and fee revenue.

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

Business Combinations, Intangible Assets, and Goodwill. We apply the purchase
accounting standards for "Business Combinations," to acquisitions. The purchase
price of an acquisition is allocated to individual tangible and identifiable
intangible assets acquired and liabilities assumed based on their estimated fair
values on the acquisition date. Any excess purchase price over the assigned
values of net assets acquired is recorded as goodwill. On January 22, 2019, the
Company acquired, by merger, all of the outstanding equity interests of Orbis
Education Services, LLC for $361.2 million, net of cash acquired. As a result of
this acquisition, the Company recorded $210.3 million of intangible assets,
primarily customer relationships, and $157.8 million of goodwill. Refer to Note
3 - Acquisition within the footnotes to the consolidated financial statements
for additional information. The acquired goodwill was allocated to the entity
level reporting unit. The determination of the fair value and useful lives of
the intangible assets acquired involves certain judgements and estimates. These
judgments can include, but are not limited to, the cash flows that an asset is
expected to generate in the future and the appropriate weighted average cost of
capital.

Income taxes. We recognize the amount of taxes payable or refundable for the
current year and deferred tax assets and liabilities for future tax consequences
of events that have been recognized in our consolidated financial statements or
tax returns. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which the temporary differences are expected to
be realized. Our deferred tax assets are subject to periodic recoverability
assessments. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount that more likely than not will be realized.
Realization of the deferred tax assets is principally dependent upon achievement
of projected future taxable income offset by deferred tax liabilities. We
evaluate the realizability of the deferred tax assets annually. Since becoming a
taxable corporation in August 2005, we have not recorded any valuation
allowances to date on our deferred income tax assets. We evaluate and account
for uncertain tax positions using a two-step approach. Recognition occurs when
we conclude that a tax position based solely on its technical merits, is
more-likely-than-not to be sustained upon examination. Measurement determines
the amount of benefit that is greater than 50% likely to be realized upon the
ultimate settlement with a taxing authority that has full knowledge of the
facts. Derecognition of a tax position that was previously recognized occurs
when we determine that a tax position no longer meets the more-likely-than-not
threshold of being sustained upon examination. As of December 31, 2019 and 2018,
the Company has reserved approximately $6,773 and $1,960, respectively, for
uncertain tax positions, including interest and penalties.

Results of Operations


In July 2019, the FASB issued Accounting Standards Update 2019-07, "Codification
Updates to SEC Sections- Amendments to SEC Paragraphs Pursuant to SEC Final Rule
Releases No. 33-10532, Disclosure Update and Simplification", which makes a
number of changes meant to simplify certain disclosures in financial condition
and

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results of operations, particularly by eliminating year-to-year comparisons
between prior periods previously disclosed. In complying with the relevant
aspects of the rule covering the current year annual report, we now include
disclosures on results of operations for fiscal year 2019 versus 2018 only. For
a discussion of the results of operations for fiscal year 2018 vs 2017, see
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations" in our   Annual Report on Form 10-K filed with the SEC for the
fiscal year ended December 31, 2018   incorporated herein by reference.

The following table sets forth certain income statement data as a percentage of
net revenue for each of the periods indicated. University related expenses,
amortization of intangible assets and the loss on transaction have been excluded
from the table below:



                                      Year Ended December 31,
                                      2019          2018

Costs and expenses Technology and academic services 11.6 % 5.2 % Counseling services and support 28.7 24.2 Marketing and communication

             18.4          13.9
General and administrative               5.7           3.5




As reflected in the table above, the income statement data as a percentage of
revenue is not comparable between periods. This is due to the reduction in
revenues associated with the Company transitioning to an education service
company as of July 1, 2018, the date of the Transaction. As a result, the
Company has also provided two additional tables to enhance comparability between
periods by showing, on a comparable basis, the types of levels of operating
expenses the Company currently incurs as compared to prior to the Transaction.
The Company uses 60% of university related revenues for periods prior to July 1,
2018, which is the percentage of GCU's tuition and fee revenue to which the
Company is entitled under the Master Services Agreement, to calculate the
adjustment to university related revenue for purposes of deriving as adjusted
"Non-GAAP" net revenue. The percentages set forth below for periods prior to
July 1, 2018 have been derived by dividing the indicated expense by as adjusted
"Non-GAAP" net revenue. University related expenses, amortization of intangible
assets and the loss on transaction have been excluded from the table below:



                                        Year Ended December 31,
                                          2019          2018
As Adjusted "Non-GAAP" net revenue
Service revenue                       $    778,643$ 333,002
University related revenue                       -      512,499
Net revenue                                778,643      845,501
60% of university related revenue                -      307,499

As adjusted "Non-GAAP" net revenue $ 778,643$ 640,501






                                            Year Ended December 31,
                                            2019          2018
As % of As Adjusted "Non-GAAP" Revenue
Operating expenses
Costs and expenses
Technology and academic services              11.6 %         6.8 %
Counseling services and support               28.7          32.0
Marketing and communication                   18.4          18.3
General and administrative                     5.7           4.7




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Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Service revenue and University related revenue. Our service revenue for the year
ended December 31, 2019 was $778.6 million compared to service revenue and
university related revenue of $333.0 million and $512.5 million, respectively,
for the year ended December 31, 2018. Commencing July 1, 2018, the results of
our operations no longer include the operations of the University but rather
reflect the operations of the Company as an education services company with 22
university partners. As an education services company for GCU, our most
significant university partner, the Company receives, as service revenue, 60% of
GCU's tuition and fee revenue and no longer has university related revenue, thus
resulting in the decrease from the prior period. The sum of service revenue for
the six months ended December 31, 2018 of $333.0 million and 60% of university
related revenue for the six months ended June 30, 2018 of $307.5 million, totals
$640.5 million. The 21.6% increase year over year in comparable service fee
revenue was primarily due to our Orbis Education acquisition on January 22, 2019
and an increase in GCU enrollments between years of 5.9%. Partner enrollments in
programs serviced by Orbis Education at December 31, 2019 was 3,750. The Orbis
Education university partnership agreements generally generate a higher revenue
per student than our agreement with GCU as these agreements generally have a
higher percentage of service revenue, the partners have higher tuition rates
than GCU and the majority of these students are studying in the Accelerated
Bachelor of Science in Nursing program so these students take on average more
credits per semester. We are also seeing an increase in revenue per student from
our GCU partnership resulting from an increase in residential students who pay
GCU not only tuition and fees but room and board.

Technology and academic services. Our technology and academic services expenses
for the year ended December 31, 2019 were $90.5 million, an increase of $46.9
million, or 107.7%, as compared to technology and academic services expenses of
$43.6 million for the year ended December 31, 2018. This increase was primarily
attributable to the Orbis Education university partnership agreements, which
require certain technology and academic services including headcount, as well as
the use of classroom facilities and equipment to be provided to each university
partner. These costs along with the increased cost to service GCU resulted in
increases in employee compensation and related expenses including share-based
compensation, in occupancy and depreciation including lease expenses, and in
technology and academic supply costs of $36.4 million, $7.0 million, and $3.5
million, respectively. The increase in employee compensation and related
expenses is primarily due to the increase in the number of staff needed to
support our 22 university partners, and their increased enrollment growth,
tenure based salary adjustments and an increase in benefit costs between years.
Our technology and academic services expenses as a percentage of as adjusted
non-GAAP net revenue increased 4.8% to 11.6% for the year ended December 31,
2019, from 6.8% for the year ended December 31, 2018 primarily due to the Orbis
Education university partnership agreements acquired, which require a higher
level of technology and academic services than our agreement with GCU.

Counseling services and support. Our counseling services and support expenses
for the year ended December 31, 2019 were $223.6 million, an increase of $18.9
million, or 9.2%, as compared to counseling services and support expenses of
$204.7 million for the year ended December 31, 2018. This increase was primarily
attributable to the Orbis Education university partnership agreements, which
require certain counseling services and support, principally headcount to be
provided to each university partner. These costs along with the increased cost
to service GCU resulted in increases in employee compensation and related
expenses including share-based compensation, in other counseling services and
support related expenses, and in depreciation, amortization and occupancy costs
of $15.0 million, $2.9 million and $1.0 million, respectively. The increase in
employee compensation and related expenses is primarily due to increased
headcount to support our university partners, and their increased enrollment
growth, tenure-based salary adjustments and an increase in benefit costs
between years. The increase in other counseling services is primarily the result
of increased travel costs to service our 22 university partners. Our counseling
services and support expenses as a percentage of as adjusted non-GAAP net
revenue decreased 3.3% to 28.7% for the year ended December 31, 2019, from 32.0%
for the year ended December 31, 2018 primarily due to the counseling services
and support costs to service the Orbis Education partnership agreements being
less as a percentage of revenue than the costs to service the GCU agreement and
due to our ability to leverage our counseling services and support costs to
service GCU across an increasing revenue base.

Marketing and communication. Our marketing and communication expenses for the
year ended December 31, 2019 were $142.9 million, an increase of $25.5 million,
or 21.7%, as compared to marketing and communication

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expenses of $117.4 million for the year ended December 31, 2018. This increase
was primarily attributable to the Orbis Education partnership agreements, which
require marketing of the university partners' programs. These costs along with
the increased cost to market GCU's programs resulted in increased advertising,
and in employee compensation and related expenses including share-based
compensation of $22.5 million and $3.0 million, respectively. Our marketing and
communication expenses as a percentage of as adjusted non-GAAP net revenue
increased slightly by 0.1% to 18.4% for the year ended December 31, 2019, from
18.3% for the year ended December 31, 2018.

General and administrative. Our general and administrative expenses for the year
ended December 31, 2019 were $44.3 million, an increase of $14.3 million, or
47.9%, as compared to general and administrative expenses of $30.0 million for
the year ended December 31, 2018. This increase was primarily due to increases
in employee compensation including share-based compensation, in professional
fees, in other general and administrative costs, and in occupancy and
depreciation of $7.3 million, $3.0 million, $2.9 million, and $1.1 million,
respectively. Our increases in employee compensation, occupancy and
depreciation, and other general and administrative costs are primarily related
to the acquisition of Orbis Education, including additional headcount, and
office space in Indianapolis, Indiana. Our increase in professional fees is
primarily related to a payment made to an outside provider that assisted us in
obtaining a state tax refund with a favorable tax impact of $5.9 million in the
first quarter of 2019 and higher legal fees. Our increase in other general and
administrative costs is primarily due to increases in travel costs and an
increase in contributions made in lieu of state income taxes to school
sponsoring organizations from $3.7 million for the year ended December 31, 2018
to $4.0 million for the year ended December 31, 2019. Our general and
administrative expenses as a percentage of as adjusted non-GAAP net revenue
increased by 1.0% to 5.7% for the year ended December 31, 2019, from 4.7% for
the year ended December 31, 2018 due to higher general and administrative costs
at Orbis Education as a percentage of net revenue, partially offset by our
ability to leverage our other general and administrative expenses across an
increasing revenue base.

Amortization of intangible assets. The amortization of intangible assets for the
year ended December 31, 2019 was $8.2 million and is related to the acquisition
of Orbis Education, which resulted in the creation of certain identifiable
intangible assets that will be amortized over their expected lives.

University related expenses. Our university related expenses for the year ended
December 31, 2018 were $173.3 million. These expenses represent the costs
transferred to the university for the six months ended June 30, 2018 and in the
six months ended December 31, 2018 are primarily due to the Company's Board of
Directors modifying the vesting condition for certain restricted stock awards
for personnel that transferred to GCU, which resulted in $7.9 million of
share-based compensation expense, and employer taxes of $0.2 million on such
modification. This amount was partially offset by reversals of employee related
liabilities totaling $1.9 million that were not part of the transferred assets
for the GCU transaction.

Loss on transaction. The loss on transaction for the year ended December 31,
2019 was $4.0 million due to transaction costs related to the acquisition of
Orbis Education. Our loss on transaction expenses for the year ended December
31, 2018 was primarily related to the GCU transaction and totaled $18.4 million,
which included third-party transaction costs of $5.8 million and an asset
impairment of $3.0 million. In addition, the Company transferred to GCU cash of
$9.6 million to fund a deferred compensation plan for GCU employees who were
formerly GCE employees and that held unvested restricted stock of GCE that was
forfeited upon the Transaction.

Interest income on Secured Note. As a component of the transaction with GCU, GCU
issued a Secured Note to GCE on July 1, 2018. Interest income on the Secured
Note for the year ended December 31, 2019 was $59.3 million, an increase of
$32.4 million, as compared to interest income on Secured Note of $26.9 million
for the year ended December 31, 2018. The Company recognizes interest income on
its Secured Note with GCU including borrowings made for capital expenditures,
earning interest at 6%, with monthly interest payments.

Interest expense. Interest expense was $11.3 million for the year ended December
31, 2019, an increase of $9.8 million, as compared to interest expense of $1.5
million for the year ended December 31, 2018. The increase in interest expense
is primarily due to the acquisition of Orbis Education, which resulted in a
$190.1 million increase in our outstanding credit facility, a slightly higher
interest rate on the credit facility, and additional fees on the revolving
credit facility. In addition, we had no capitalized interest as compared to the
same period in the prior year due to the

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significant decline in capital expenditures, and $1.1 million of interest expense was recognized in December 2019 due to the expiration of the interest rate corridor.


Investment interest and other. Investment interest and other for the year ended
December 31, 2019 was $4.4 million, an increase of $1.0 million, as compared to
$3.4 million for the year ended December 31, 2018.

Income tax expense. Income tax expense for the year ended December 31, 2019 was
$58.3 million, an increase of $0.3 million, or 0.6%, as compared to income tax
expense of $58.0 million for the year ended December 31, 2018. This increase is
the result of an increase in our taxable income between periods, offset by a
decrease in our effective tax rate. Our effective tax rate was 18.4% during the
year ended December 31, 2019 compared to 20.2% during the year ended December
31, 2018. The decrease in the effective tax rate was primarily the result of an
agreement with the Arizona Department of Revenue regarding previously filed
refund claims related to income tax obligations for prior calendar years, which
resulted in a favorable tax impact of $5.9 million recorded as a discrete tax
item in the first quarter of 2019. In addition, the effective tax rate was
favorably impacted by a law change with respect to Arizona state taxes,
partially offset by a slight decrease in excess tax benefits to $7.2 million
from $10.5 million for the year ended December 31, 2019 and 2018, respectively.
The inclusion of excess tax benefits and deficiencies as a component of our
income tax expense increases the volatility within our provision for income
taxes as the amount of excess tax benefits or deficiencies from share-based
compensation awards are dependent on our stock price at the date the restricted
awards vest, our stock price on the date an option is exercised, and the
quantity of options exercised. Our restricted stock vests in March each year so
the favorable benefit will primarily impact the first quarter each year.



Net income. Our net income for the year months ended December 31, 2019 was $259.2 million, an increase of $30.2 million, or 13.2% as compared to $229.0 million for the year ended December 31, 2018, 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 our university
partners' enrollment. Our partners' enrollment varies as a result of new
enrollments, graduations, and student attrition. Revenues in the summer months
(May through August) are lower primarily due to the majority of GCU's
traditional ground students not attending courses during the summer months,
which affects our results for our second and third fiscal quarters. Since a
significant amount of our costs are fixed, the lower revenue resulting from the
decreased summer enrollment has historically contributed to lower operating
margins during those periods. Partially offsetting this summer effect 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.
Thus, we 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 these fluctuations 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, Capital Resources, and Financial Position

Liquidity. During 2019, we financed our acquisition of Orbis Education for
$361.2 million, net of cash acquired, from an increase in our credit facility of
$190.1 million and the use of $171.1 million of operating cash on hand. Our
unrestricted cash and cash equivalents and investments were $143.9 million at
December 31, 2019. As of December 31, 2019, we had $300,000 of restricted cash
and cash equivalents, for pledged collateral for a site lease.

Concurrent with the closing of the Acquisition, we entered into an amended and
restated credit agreement dated January 22, 2019 and two related amendments
dated January 31, 2019 and February 1, 2019, respectively, that together
provided a credit facility of $325.0 million comprised of a term loan facility
of $243.8 million and a revolving credit facility of $81.3 million, both with a
five-year maturity date. The term facility is subject to quarterly amortization
of principal, commencing with the fiscal quarter ended June 30, 2019, in equal
installments of 5% of the principal amount of the term facility per quarter.
Both the term loan and revolver have monthly interest payments currently at
30-Day

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LIBOR plus an applicable margin of 2%. The proceeds of the term loan, together
with $6.3 million drawn under the revolver and cash on hand, were used to pay
the purchase price in the Acquisition. Concurrent with the entry into the
amended and restated credit agreement and the completion of the Acquisition, we
repaid our existing term loan of $59.9 million and our cash collateral of $61.7
million was released.

The Company entered into a further amendment to the credit facility on October
31, 2019. This amendment increased the revolving commitment by $68.8 million to
$150.0 million, while reducing the term loan by the same $68.8 million to $150.6
million. The Company elected to repay the $68.8 million revolver balance on
November 1, 2019.

On July 1, 2018, in consideration for the transfer of assets under the Asset
Purchase Agreement, we received a secured note from GCU in the initial principal
amount of $870.1 million (the "Secured Note"). The Secured Note contains
customary commercial credit terms, including affirmative and negative covenants
applicable to GCU, and provides that the Secured Note bears interest at an
annual rate of 6.0%, has a maturity date of June 30, 2025, and is secured by all
of the assets of GCU. The Secured Note provides for GCU to make interest only
payments during the term, with all principal and accrued and unpaid interest due
at maturity and also provides that we may loan additional amounts to GCU to fund
approved capital expenditures during the first three years of the term. Funding
net of repayments of $100.0 million for capital expenditures for GCU since July
1, 2018 totals $99.8 million as of December 31, 2019.

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 and our revolving line of credit, will provide adequate funds
for ongoing operations, planned capital expenditures, and working capital
requirements for at least the next 24 months.

Share Repurchase Program

Our Board of Directors has authorized us to repurchase up to $175.0 million in
aggregate of common stock, from time to time, depending on market conditions and
other considerations. The current expiration date on the repurchase
authorization by our Board of Directors is December 31, 2020. Repurchases occur
at our discretion.

Under our share purchase authorization, we may purchase shares in the open
market or in privately negotiated transactions, pursuant to the applicable SEC
Rules. The amount and timing of future share repurchases, if any, will be made
as market and business conditions warrant.

Since the approval of the initial share repurchase plan, we have purchased
4.0 million shares of common stock at an aggregate cost of $122.7 million, which
includes 376,384 shares of common stock at an aggregate cost of $35.8 million
during the year ended December 31, 2019. At December 31, 2019, there remains
$52.3 million available under our current share repurchase authorization.

Cash Flows


Operating Activities. Net cash provided by operating activities for the years
ended December 31, 2019 and 2018 was $306.3 million and $199.1 million,
respectively. Cash provided by operations in 2019 and 2018 resulted from our net
income adjusted for non-cash charges for share-based compensation, depreciation
and amortization, timing of income tax and employee related payments and changes
in other working capital. The significant increase in net cash from operating
activities between 2018 and 2019 is primarily due to the higher net income and
changes in working capital balances.

Investing Activities. Net cash used in investing activities was $405.9 million
and $238.2 million for the years ended December 31, 2019 and 2018, respectively.
Our cash used in investing activities in 2019 was primarily related to the
Acquisition, the funding of capital expenditures to GCU, and the liquidation of
short-term investments and capital expenditures. We paid $361.2 million, net of
cash acquired, to acquire Orbis Education on January 22, 2019. Funding to GCU
for capital expenditures during the year ended December 31, 2019 totaled $69.8
million, net of repayments made by GCU of $100.0 million in 2019. Proceeds from
investments, net of purchases of short-term investments, was $47.8

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million and $18.2 million for the years ended December 31, 2019 and 2018,
respectively. Cash used in investing activities for the year ended December 31,
2018 was primarily related to the GCU Transaction, which result in $131.6
million of cash being transferred to GCU at its close on July 1, 2018. Capital
expenditures were $22.4 million and $94.5 million for the years ended December
31, 2019 and 2018, respectively. During the year ended December 31, 2019,
capital expenditures primarily consisted of leasehold improvements and equipment
for new partner locations, internally developed software, as well as purchases
of computer equipment, other internal use software projects and furniture and
equipment to support our increasing employee headcount. During the year ended
December 31, 2018, capital expenditures primarily consisted of the University's
ground campus construction projects incurred prior to June 30, 2018 as well as
purchases of computer equipment, other internal use software projects and
furniture and equipment to support our increasing employee headcount.

Financing Activities. Net cash provided by financing activities was $40.1
million for the year ended December 31, 2019. Net cash used in financing
activities was $26.8 million for the year ended December 31, 2018. During 2019,
$243.8 million of proceeds was drawn on the term loan, and $26.3 million was
drawn and repaid on the revolver in 2019, and the term loan balance of the prior
credit agreement of $59.9 million was repaid along with the repayment of $101.3
million of principal and revolver payments on the new credit facility. In
addition, $2.4 million of debt issuance costs were incurred on the new credit
facility and $8.1 million was used to purchase common shares withheld in lieu of
income taxes resulting from the vesting of restricted share awards and $35.8
million was used to purchase treasury stock in accordance with the Company's
share repurchase program. Proceeds from the exercise of stock options of $3.8
million were received for the year ended December 31, 2019. During 2018, $15.2
million was used to purchase common shares withheld in lieu of income taxes
resulting from the vesting of restricted share awards and $9.6 million was used
to purchase treasury stock in accordance with the Company's share repurchase
program. Principal payments on notes payable totaled $6.7 million, partially
offset by proceeds from the exercise of stock options of $4.6 million.

Contractual Obligations

The following table sets forth, as of December 31, 2019, 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 notes payable(1)                  $ 140.9$      33.1$      66.3$      41.5    $         -
Lease liabilities(2)                           28.6            2.6            7.1            5.9           13.0
Purchase obligations(3)                         9.0            4.7            4.1            0.2              -
Total contractual obligations               $ 178.5$      40.4$      77.5$      47.6$      13.0

See Note 10, "Notes Payable and Other Noncurrent Liabilities," to our

(1) consolidated financial statements, included in Item 8, Consolidated Financial

Statements and Supplementary Data, for a discussion of our long term notes

payable and other obligations.

See Note 9, "Leases," to our consolidated financial statements, included in

(2) Item 8, Consolidated Financial Statements and Supplementary Data, for a

discussion of our leases.

(3) Represents unconditional purchase obligations and other obligations.

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


                                       52

Table of Contents

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. See Item 6, Selected Consolidated Financial and Other
Data, for a discussion of our Adjusted EBITDA computation and reconciliation.
For information on how we calculate as adjusted net revenue for comparison
purposes, see "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation - Results of Operations."

Recent Accounting Pronouncements

See Note 4 - Summary of Significant Accounting Policies, in Item 8, Consolidated Financial Statements and Supplementary Data.

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Financials (USD)
Sales 2020 856 M
EBIT 2020 293 M
Net income 2020 265 M
Finance 2020 246 M
Yield 2020 -
P/E ratio 2020 12,8x
P/E ratio 2021 11,6x
EV / Sales2020 3,70x
EV / Sales2021 3,06x
Capitalization 3 414 M
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Income Statement Evolution
Consensus
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Mean consensus BUY
Number of Analysts 3
Average target price 114,00  $
Last Close Price 71,50  $
Spread / Highest target 74,8%
Spread / Average Target 59,4%
Spread / Lowest Target 48,3%
EPS Revisions
Managers
NameTitle
Brian E. Mueller Chairman, President & Chief Executive Officer
William Stan Meyer Chief Operating Officer
Daniel E. Bachus Chief Financial Officer
Joseph N. Mildenhall Chief Information Officer
David J. Johnson Independent Director