~~0001434588lope:TermLoanFacilityMemberlope:SecondAmendmentToGceCreditAgreementMember2019-10-31~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

	For the quarterly period ended ~~June 30, 2021~~March 31, 2022


☐	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		20-3356009
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

2600 W. Camelback Road

Phoenix, Arizona 85017

(Address, including zip code, of principal executive offices)

(602) 247-4400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	LOPE	Nasdaq Global Select Market

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 ☒ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:


Large Accelerated Filer ☒		Accelerated Filer ☐
Non-accelerated Filer ☐		Smaller Reporting Company ☐
		Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The total number of shares of common stock outstanding as of ~~August~~May 2, ~~2021,~~2022, was ~~45,185,834.~~32,319,350.

Table of Contents

GRAND CANYON EDUCATION, INC.

FORM 10-Q

INDEX


	Page
PART I – FINANCIAL INFORMATION	3

Item 1 Financial Statements	3
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	2321
Item 3 Quantitative and Qualitative Disclosures About Market Risk	3529
Item 4 Controls and Procedures	3530

PART II – OTHER INFORMATION	3630

Item 1 Legal Proceedings	3630
Item 1A Risk Factors	3630
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	3630
Item 3 Defaults Upon Senior Securities	3731
Item 4 Mine Safety Disclosures	3731
Item 5 Other Information	3731
Item 6 Exhibits	3731
SIGNATURES	3933

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

GRAND CANYON EDUCATION, INC.

Consolidated Income Statements

(Unaudited)


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In thousands, except per share data)	2021		2020		2021		2020		2022		2021
Service revenue	$	201,487	$	185,768	$	438,421	$	407,423	$	244,133	$	236,934
Costs and expenses:
Technology and academic services		33,676		27,151		65,727		53,428		36,306		32,051
Counseling services and support		60,932		57,596		122,171		117,815		67,513		61,239
Marketing and communication		45,445		41,105		93,176		83,798		50,851		47,731
General and administrative		9,081		9,501		18,663		19,066		9,893		9,582
Amortization of intangible assets		2,105		2,105		4,210		4,210		2,105		2,105
Total costs and expenses		151,239		137,458		303,947		278,317		166,668		152,708
Operating income		50,248		48,310		134,474		129,106		77,465		84,226
Interest income on Secured Note		14,773		14,723		29,322		29,433		—		14,549
Interest expense		(763)		(1,073)		(1,562)		(2,619)		—		(799)
Investment interest and other		238		396		359		612		205		121
Income before income taxes		64,496		62,356		162,593		156,532		77,670		98,097
Income tax expense		15,035		15,346		35,020		38,137		19,592		19,985
Net income	$	49,461	$	47,010	$	127,573	$	118,395	$	58,078	$	78,112
Earnings per share:
Basic income per share	$	$ 1.09	$	1.00	$	2.78	$	2.51	$	1.67	$	1.70
Diluted income per share	$	1.09	$	1.00	$	2.78	$	2.49	$	1.66	$	1.69
Basic weighted average shares outstanding		45,490		46,893		45,810		47,174		34,806		46,084
Diluted weighted average shares outstanding		45,582		47,151		45,964		47,457		34,901		46,300

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

GRAND CANYON EDUCATION, INC.

Consolidated Balance Sheets


	June 30,		December 31,		March 31,		December 31,
(In thousands, except par value)	2021		2020		2022		2021
	(Unaudited)				(Unaudited)
ASSETS:
Current assets
Cash and cash equivalents	$	69,448	$	245,769	$	201,933	$	600,941
Investments		44,415		10,840		62,396		—
Accounts receivable, net		19,888		62,189		102,006		70,063
Interest receivable on Secured Note		—		5,011
Income tax receivable		1,330		1,294		—		1,275
Other current assets		11,989		8,639		14,020		8,766
Total current assets		147,070		333,742		380,355		681,045
Property and equipment, net		133,003		128,657		136,677		136,120
Right-of-use assets		59,303		61,020		55,672		57,652
Secured Note receivable, net		1,154,912		964,912
Amortizable intangible assets, net		189,428		193,638		183,114		185,219
Goodwill		160,766		160,766		160,766		160,766
Other assets		2,485		1,844		1,802		1,943
Total assets	$	1,846,967	$	1,844,579	$	918,386	$	1,222,745
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities
Accounts payable	$	22,452	$	16,583	$	29,638	$	24,306
Accrued compensation and benefits		36,210		34,248		31,986		32,714
Accrued liabilities		24,963		21,945		30,705		27,593
Income taxes payable		54		5,405		20,694		5,895
Deferred revenue		9,760		—		12,172		10
Current portion of lease liability		7,423		7,393		7,514		7,426
Current portion of notes payable		68,145		33,144
Total current liabilities		169,007		118,718		132,709		97,944
Deferred income taxes, noncurrent		22,069		20,288		27,344		25,962
Other long term liability		50		3
Other long-term liability						30		37
Lease liability, less current portion		55,101		56,611		51,866		53,755
Notes payable, less current portion		58,057		74,630
Total liabilities		304,284		270,250		211,949		177,698
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value, 10,000 shares authorized; 0 shares issued and outstanding at June 30, 2021 and December 31, 2020		—		—
Common stock, $0.01 par value, 100,000 shares authorized; 53,637 and 53,277 shares issued and 45,396 and 46,649 shares outstanding at June 30, 2021 and December 31, 2020, respectively		536		533
Treasury stock, at cost, 8,241 and 6,628 shares of common stock at June 30, 2021 and December 31, 2020, respectively		(461,052)		(303,379)
Preferred stock, $0.01 par value, 10,000 shares authorized; 0 shares issued and outstanding at March 31, 2022 and December 31, 2021						—		—
Common stock, $0.01 par value, 100,000 shares authorized; 53,826 and 53,637 shares issued and 33,278 and 37,722 shares outstanding at March 31, 2022 and December 31, 2021, respectively						538		536
Treasury stock, at cost, 20,548 and 15,915 shares of common stock at March 31, 2022 and December 31, 2021, respectively						(1,506,766)		(1,107,211)
Additional paid-in capital		281,103		282,467		299,858		296,670
Accumulated other comprehensive loss		(185)		—		(323)		—
Retained earnings		1,722,281		1,594,708		1,913,130		1,855,052
Total stockholders’ equity		1,542,683		1,574,329		706,437		1,045,047
Total liabilities and stockholders’ equity	$	1,846,967	$	1,844,579	$	918,386	$	1,222,745

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

GRAND CANYON EDUCATION, INC.

Consolidated ~~Statement~~Statements of ~~Other~~ Comprehensive Income

(Unaudited)


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
(In thousands)	2021		2020		2021		2020		2022		2021
Net income	$	49,461	$	47,010	$	127,573	$	118,395	$	58,078	$	78,112
Other comprehensive income, net of tax:
Unrealized losses on available-for-sale securities, net of taxes of $22 for the three months ended June 30, 2021 and $57 for the six months ended June 30, 2021		(65)		—		(185)		—
Unrealized losses on available-for-sale securities, net of taxes of $99 and $35 for the three months ended March 31, 2022 and 2021, respectively										(323)		(120)
Comprehensive income	$	49,396	$	47,010	$	127,388	$	118,395	$	57,755	$	77,992

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

GRAND CANYON EDUCATION, INC.

Consolidated Statement of Stockholders’ Equity

(In thousands)

(Unaudited)


	Six Months Ended June 30, 2021														Three Months Ended March 31, 2022
									Accumulated														Accumulated
							Additional		Other												Additional		Other
	Common Stock			Treasury Stock			Paid-in		Comprehensive		Retained				Common Stock			Treasury Stock			Paid-in		Comprehensive		Retained
	Shares	Par Value		Shares	Cost		Capital		Loss		Earnings		Total		Shares	Par Value		Shares	Cost		Capital		Loss		Earnings		Total
Balance at December 31, 2020	53,277	$	533	6,628	$	(303,379)	$	282,467	$	—	$	1,594,708	$	1,574,329
Comprehensive income	—		—	—		—		—		(120)		78,112		77,992
Common stock purchased for treasury	—		—	567		(56,348)		(7,000)		—		—		(63,348)
Share-based compensation	180		1	56		(5,994)		3,018		—		—		(2,975)
Exercise of stock options	176		2	—		—		2,678		—		—		2,680
Balance at March 31, 2021	53,633	$	536	7,251	$	(365,721)	$	281,163	$	(120)	$	1,672,820	$	1,588,678
Balance at December 31, 2021															53,637	$	536	15,915	$	(1,107,211)	$	296,670	$	—	$	1,855,052	$	1,045,047
Comprehensive income	—		—	—		—		—		(65)		49,461		49,396	—		—	—		—		—		(323)		58,078		57,755
Common stock purchased for treasury	—		—	982		(95,331)		(3,000)		—		—		(98,331)	—		—	4,575		(394,930)		—		—		—		(394,930)
Restricted shares forfeited	—		—	8		—		—		—		—		—	—		—	6		—		—		—		—		—
Share-based compensation	4		—	—		—		2,940		—		—		2,940	189		2	52		(4,625)		3,188		—		—		(1,435)
Exercise of stock options	—		—	—		—		—		—		—		—
Balance at June 30, 2021	53,637	$	536	8,241	$	(461,052)	$	281,103	$	(185)	$	1,722,281	$	1,542,683
Balance at March 31, 2022															53,826	$	538	20,548	$	(1,506,766)	$	299,858	$	(323)	$	1,913,130	$	706,437


	Six Months Ended June 30, 2020														Three Months Ended March 31, 2021
									Accumulated														Accumulated
							Additional		Other												Additional		Other
	Common Stock			Treasury Stock			Paid-in		Comprehensive		Retained				Common Stock			Treasury Stock			Paid-in		Comprehensive		Retained
	Shares	Par Value		Shares	Cost		Capital		Loss		Earnings		Total		Shares	Par Value		Shares	Cost		Capital		Loss		Earnings		Total
Balance at December 31, 2019	53,054	$	531	4,949	$	(169,365)	$	270,923	$	—	$	1,341,344	$	1,443,433
Cumulative effect from the adoption of accounting pronouncements, net of taxes of $1,168	—		—	—		—		—		—		(3,832)		(3,832)
Balance at December 31, 2020															53,277	$	533	6,628	$	(303,379)	$	282,467	$	—	$	1,594,708	$	1,574,329
Comprehensive income	—		—	—		—		—		—		71,385		71,385	—		—	—		—		—		(120)		78,112		77,992
Common stock purchased for treasury	—		—	787		(60,737)		—		—		—		(60,737)	—		—	567		(56,348)		(7,000)		—		—		(63,348)
Restricted shares forfeited	—		—	10		—		—		—		—		—	—		—	—		—		—		—		—		—
Share-based compensation	164		1	62		(4,969)		2,655		—		—		(2,313)	180		1	56		(5,994)		3,018		—		—		(2,975)
Exercise of stock options	3		—	—		—		72		—		—		72	176		2	—		—		2,678		—		—		2,680
Balance at March 31, 2020	53,221	$	532	5,808	$	(235,071)	$	273,650	$	—	$	1,408,897	$	1,448,008
Comprehensive income	—		—	—		—		—		—		47,010		47,010
Common stock purchased for treasury	—		—	111		(8,311)		—		—		—		(8,311)
Share-based compensation	3		—	—		—		2,678		—		—		2,678
Exercise of stock options	1		—	—		—		2		—		—		2
Balance at June 30, 2020	53,225	$	532	5,919	$	(243,382)	$	276,330	$	—	$	1,455,907	$	1,489,387
Balance at March 31, 2021															53,633	$	536	7,251	$	(365,721)	$	281,163	$	(120)	$	1,672,820	$	1,588,678

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

GRAND CANYON EDUCATION, INC.

Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended				Three Months Ended
	June 30,				March 31,
(In thousands)	2021		2020		2022		2021
Cash flows provided by operating activities:
Net income	$	127,573	$	118,395	$	58,078	$	78,112
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation		5,959		5,334		3,190		3,019
Depreciation and amortization		10,821		10,300		5,724		5,426
Amortization of intangible assets		4,210		4,210		2,105		2,105
Deferred income taxes		1,837		1,466		1,480		1,776
Other, including fixed asset impairments		302		111		719		65
Changes in assets and liabilities:
Accounts receivable and interest receivable from university partners		47,312		33,384		(31,943)		(29,601)
Other assets		(3,975)		(5,234)		(5,312)		(6,166)
Right-of-use assets and lease liabilities		237		1,079		179		165
Accounts payable		6,653		2,846		5,427		971
Accrued liabilities		5,027		9,266		2,377		10,714
Income taxes receivable/payable		(5,387)		32,206		16,074		16,305
Deferred revenue		9,760		7,689		12,162		6,936
Net cash provided by operating activities		210,329		221,052		70,260		89,827
Cash flows used in investing activities:
Capital expenditures		(15,757)		(12,229)		(6,784)		(8,911)
Additions of amortizable content		(271)		(147)		(95)		(90)
Funding to GCU		(190,000)		(75,000)
Purchases of investments		(51,223)		—		(62,834)		(31,337)
Proceeds from sale or maturity of investments		17,166		6,799		—		5,519
Net cash used in investing activities		(240,085)		(80,577)		(69,713)		(34,819)
Cash flows used in financing activities:
Principal payments on notes payable		(16,572)		(16,572)		—		(8,286)
Net borrowings from revolving line of credit		35,000		—
Repurchase of common shares including shares withheld in lieu of income taxes		(167,673)		(74,017)
Repurchase of common shares and shares withheld in lieu of income taxes						(399,555)		(69,342)
Net proceeds from exercise of stock options		2,680		74		—		2,680
Net cash used in financing activities		(146,565)		(90,515)		(399,555)		(74,948)
Net (decrease) increase in cash and cash equivalents and restricted cash		(176,321)		49,960
Net decrease in cash and cash equivalents and restricted cash						(399,008)		(19,940)
Cash and cash equivalents and restricted cash, beginning of period		245,769		122,572		600,941		245,769
Cash and cash equivalents and restricted cash, end of period	$	69,448	$	172,532	$	201,933	$	225,829
Supplemental disclosure of cash flow information
Cash paid for interest	$	1,658	$	2,619	$	—	$	895
Cash paid for income taxes	$	37,132	$	1,850	$	306	$	230
Supplemental disclosure of non-cash investing and financing activities
Purchases of property and equipment included in accounts payable	$	422	$	2,689	$	1,442	$	876
Allowance for credit losses of $5,000, net of taxes of $1,168 from adoption of ASU 2016-13	$	—	$	3,832
ROU Asset and Liability recognition	$	1,717	$	15,510	$	1,980	$	1,586

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

1. Nature of Business

Grand Canyon Education, Inc. (together with its subsidiaries, the “Company” or “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 most significant university partner is Grand Canyon University (“GCU”), an Arizona non-profit corporation, a comprehensive regionally accredited university that offers graduate and undergraduate degree programs, emphases and certificates across 9 colleges both online, on ground at its campus in Phoenix, Arizona and at 2 off-campus classroom and laboratory sites.

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, by merger on January 22, 2019 ~~for $361,184, net of cash acquired~~ (the “Acquisition”). InSince the ~~healthcare field,~~Acquisition, GCE, together with Orbis Education, ~~works~~has continued to add additional university partners. In the healthcare field, we work in partnership with a growing number of top universities and healthcare networks across the country, offering healthcare-related academic programs at off-campus classroom and laboratory sites located near healthcare providers and developing high-quality, career-ready graduates who enter the workforce ready to meet the demands of the healthcare industry.

In addition, we provided certain services to a university partner to assist them in expanding their online graduate programs. As of ~~June 30, 2021,~~March 31, 2022, GCE provides education services to 27 university partners across the United States.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions have been eliminated in consolidation.

Unaudited Interim Financial Information

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles and pursuant to the rules and regulations of the United States Securities and Exchange Commission and the instructions to Form 10-Q and Article 10, consistent in all material respects with those applied in its financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021. They do not include all of the information and footnotes required by U.S. generally accepted accounting principles 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. These consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes included in its Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020~~2021 from which the December 31, ~~2020~~2021 balance sheet information was derived.

Investments

~~At June 30,~~As of March 31, 2022 and 2021, ~~and December 31, 2020,~~ the Company ~~considers~~considered its investments in corporate bonds, commercial paper, municipal securities, asset backed securities, municipal bonds, and collateralized mortgage obligations ~~either~~ as ~~trading securities or~~ available-for-sale securities based on the Company’s intent for the respective security. Trading securities are carried at fair value determined using Level 1 and Level 2 of the hierarchy of valuation inputs, with the use of quoted market prices and inputs other than quoted prices that are observable for the assets.securities. Available-for-sale securities are carried at fair 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 assets, with unrealized gains and losses, net of tax, reported as a separate component of other comprehensive income. Unrealized losses considered to be other-than-temporary are recognized

Table of Contents

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

~~reported as a separate component of other comprehensive income. Unrealized losses considered to be other-than-temporary are recognized~~ currently in earnings. Amortization of premiums, accretion of discounts, interest and dividend income and realized gains and losses are included in interest and other income. As of December 31, 2021, the Company had 0 investments.

Arrangements with GCU

On July 1, 2018, the Company consummated anas Asset Purchase Agreement (the “Asset Purchase Agreement”) with GCU. In conjunction with the Asset Purchase Agreement, we received a secured note from GCU as consideration for the transferred assets ~~(the “Transferred Assets”)~~ in the initial principal amount of $870,097 (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. As of June 30, 2021, the Company had loanedIn connection therewith, ~~$289,815 to GCU, net of repayments, including $190,000~~ ~~in June 2021. The~~ ~~$190,000~~ ~~that was borrowed in June 2021 was repaid in July 2021. In~~ ~~connection with the closing of the Asset Purchase Agreement,~~ the Company and GCU entered into a long-term master services agreement (the “Master Services Agreement”) pursuant to which the Company provides identified technology and academic services, counseling services and support, marketing and communication services, and several back-office services to GCU in return for 60% of GCU’s tuition and fee revenue. Except for identified liabilities assumed by GCU, GCE retained responsibility for all liabilities of the business arising from pre-closing operations.

Internally Developed Software

The Company capitalizes certain costs related to internal-use software, primarily consisting of direct labor associated with creating the software. Software development projects generally include three stages: the preliminary project stage (all costs are expensed as incurred), the application development stage (certain costs are capitalized and certain costs are expensed as incurred) and the post-implementation or operation stage (all costs are expensed as incurred). Costs capitalized in the application development stage include costs of design, coding, integration, and testing of the software developed. Capitalization of costs requires judgment in determining when a project has reached the application development stage and the period over which we expect to benefit from the use of that software. Once the software is placed in service, these costs are amortized straight-line over the estimated useful life of the software, which is generally three years. These assets are a component of our property and equipment, net in our consolidated balance sheets.

Capitalized Content Development

The Company capitalizes certain costs to fulfill a contract related to the development and digital creation of content on a course-by-course basis for each university partner, many times in conjunction with faculty and subject matter experts. The Company is responsible for the conversion of instructional materials to an on-line format, including outlines, quizzes, lectures, and articles in accordance with the educational guidelines provided to us by our university partners, prior to the respective course commencing. We also capitalize the creation of learning objects which are digital assets such as online demonstrations, simulations, and case studies used to obtain learning objectives.

Costs that are capitalized include payroll and payroll-related costs for employees who are directly associated and spend time producing content and payments to faculty and subject matter experts involved in the process. The Company starts capitalizing content costs when it begins to develop or to convert a particular course, resources have been assigned and a timeline has been set. The content asset is placed in service when all work is complete, and the curriculum could be used for instruction. Capitalized content development assets are included in other assets in our consolidated balance sheets. The Company has concluded that the most appropriate method to amortize the deferred content assets is on a straight-line basis over the estimated life of the course, which is generally four years which corresponds with course’s review and major revision cycle. As of March 31, 2022 and December 31, 2021, $969 and $1,168, respectively, net of amortization, of deferred content assets are included in other assets, long-term in the Company’s consolidated balance sheets and amortization is included in technical and academic services where the costs originated.

Table of Contents

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

~~corresponds with course’s review~~Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets for impairment, other than goodwill, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and ~~major revision cycle. As~~used is measured by a comparison of ~~June 30, 2021 and December 31, 2020, $1,214 and $1,198, respectively,~~the carrying amount of an asset to undiscounted future net ~~of amortization, of deferred content~~cash flows expected to be generated by the assets. If such assets are ~~included in other~~considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets ~~long-term in~~exceeds the ~~Company’s consolidated balance sheets and amortization is included in technical and academic services where~~fair value of the ~~costs originated.~~assets.

Leases

The Company determines if an arrangement is a lease at inception and evaluates the lease agreement to determine whether the lease is a finance or operating lease. Right-of-use (“ROU”) assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement to determine the present value of lease payments over the lease term. At lease inception, the Company determines the lease term by assuming no exercises of renewal options, due to the Company’s constantly changing geographical needs for its university partners. Leases with an initial term of 12 months or less are not recorded in the consolidated balance sheets and are recognized as lease expense on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, and the non-lease components are accounted for separately and not included in our ROU assets and lease liabilities. Leases primarily consist of off-campus classroom and laboratory site locations and office space.

Business Combinations

The purchase price of an acquisition is allocated to the assets acquired, including tangible and intangible assets, and liabilities assumed, based on their respective fair values at the acquisition date. The excess of the fair value of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Transaction costs associated with business combinations are expensed as incurred and are recorded in the loss on transaction in the consolidated financial statements. The determination of the fair value and useful lives of the intangible assets acquired involves certain judgments and estimates. These judgements 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. The net assets and result of operations of an acquired entity are included in the Company’s consolidated financial statements from the acquisition date.

Goodwill and Amortizable Intangible Assets

Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the tangible and intangible assets acquired and liabilities assumed. Goodwill is assessed at least annually for impairment during the fourth quarter, or more frequently if circumstances indicate potential impairment. Goodwill is allocated to our reporting unit at the education services segment, which is the same as the entity as a whole (entity level reporting unit). The Company has concluded there is 1 operating segment and 1 reporting unit for goodwill impairment consideration. The Financial Accounting Standards Board ~~(“FASB”)~~ has issued guidance that permits an entity to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. The Company reviews goodwill at least annually or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.

Finite-lived intangible assets that are acquired in a business combination are recorded at fair value on their acquisition dates and are amortized using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or on a straight-line basis over the estimated useful life of the intangible ~~asset.~~asset if the pattern of economic benefit cannot be reliability determined. Finite-lived intangible assets consist of university partner

Table of Contents

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

relationships and trade names. The Company reviews its finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. There were no indicators that the carrying amount of the finite-lived intangible assets were impaired as of ~~June 30, 2021.~~March 31, 2022. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the assets. If such

~~Table of Contents~~

~~Grand Canyon Education, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(In thousands, except per share data)~~

intangible assets are not recoverable, a potential impairment loss is recognized to the extent the carrying amounts of the assets exceeds the fair value of the assets.

Acquisition

On January 22, 2019, GCE acquired Orbis Education for $361,184 (inclusive of closing date adjustments and net of cash acquired). The Acquisition was accounted for in accordance with the acquisition method of accounting. Under this method the cost of the target is allocated to the identifiable assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The estimated fair values of current assets and liabilities were based upon their historical costs on the date of acquisition due to their short-term nature. The majority of property and equipment were also estimated based upon historical costs as they approximated fair value. Identified intangible assets of $210,280 consisted primarily of university partner relationships that were valued at $210,000. The fair value of university partner relationships was determined using the multiple-period excess earnings method. The fair value of the assets acquired, less the liabilities assumed, exceeded the purchase price by $157,825 which was recorded as goodwill.

Share-Based Compensation

The Company measures and recognizes compensation expense for share-based payment awards made to employees and directors. The fair value of the Company’s restricted stock awards is based on the market price of its common stock on the date of grant. Stock-based compensation expense related to restricted stock grants is expensed over the vesting period using the straight-line method for Company employees and the Company’s board of directors. The Company recognizes forfeitures as they occur.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued compensation and benefits and accrued liabilities expenses approximate their fair value based on the liquidity or the short-term maturities of these instruments. As of June 30, 2021 and December 31, 2020 the fair value of the Company’s Secured Note was $1,231,524 and $1,049,458, respectively. As of June 30, 2021 and December 31, 2020 the carrying value of Secured Note receivable was $1,154,912 and $964,912~~, respectively. The carrying value of notes payable approximates fair value as it is based on variable rate index.~~

The fair value of investments was determined using Level 1 and Level 2 of the hierarchy of valuation inputs, with the use of inputs other than quoted prices that are observable for the assets. The unit of account used for valuation is the individual underlying security. The basis for fair value measurements for each level is described below, with Level 1 having the highest priority.

-Level 1 – inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

-Level 2 – inputs are quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in non-active markets; and model-derived valuations whose inputs are observable or whose significant valuation drivers are observable.

-Level 3 – unobservable inputs that are not corroborated by market data.

Investments are comprised of corporate bonds, commercial paper, municipal securities, asset backed securities, municipal bonds, and collateralized mortgage obligations.

Table of Contents

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Revenue Recognition

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 ~~back office~~back-office services to its university partners in return for a percentage of tuition and fee revenue.

The Company’s Services Agreements have initial terms ranging from 7-15 years,, subject to renewal options, although certain agreements may give the university partners the right to terminate early if certain conditions are met. 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.

The Company’s receivables represent unconditional rights to consideration from our Services Agreements with our university partners. Accounts receivable, net is stated at ~~amortized cost,~~ net ~~of any allowance for credit losses~~realizable value and contains billed and unbilled revenue. The Company ~~evaluates~~utilizes the ~~need~~allowance method to provide for ~~an allowance for credit losses using relevant available information about~~doubtful accounts based on its evaluation of the expected credit ~~losses, including information about historical credit losses, past events, current conditions, and other factors which may affect the collectability of receivables.~~losses. There have been 0 amounts written off and 0 ~~allowance for credit losses~~reserves established as of ~~June 30, 2021 given historical collection experience.~~March 31, 2022. The Company will continue to review and revise its allowance methodology based on its collection experience with its partners.

For our partners with unbilled revenue, revenue recognition occurs in advance of billings. Billings for some university partners do not occur until after the service period has commenced and final enrollment information is available. Our unbilled revenue of ~~$8,811~~$141 and ~~$294~~$3,841 as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, are included in accounts receivable in our consolidated balance sheets. Deferred revenue represents the excess of amounts received as compared to amounts recognized in revenue on our consolidated statements of income as of the end of the reporting period, and such amounts are reflected as a current liability on our consolidated balance sheets. We generally receive payments for our services billed within 30 days of invoice. These payments are recorded as deferred revenue until the services are delivered and revenue is recognized.

Allowance for Credit Losses

The Company records its accounts receivable and previously had recorded its Secured Note (as defined above) receivable at the net amount expected to be collected. Our accounts receivable are derived through education services

Table of Contents

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

~~Allowance for Credit Losses~~

~~The Company records its accounts receivable and Secured Note receivable at the net amount expected to be collected. Our accounts receivable are derived through education services~~ provided to university partners. Our Secured Note receivable was derived through the sale of ~~university related~~university-related assets to our most significant university partner, GCU. The Company maintains an allowance for credit losses resulting from our university partners not making payments. The Company determines the adequacy of the allowance by periodically evaluating each university partners balance, considering their financial condition and credit history, and considering current and forecasted economic conditions. ~~Since our transition to an education services company on July 1, 2018, and continued growth to~~ ~~27 university partners, the Company has 0 credit losses with any of our university partners.~~ In the first quarter of 2020, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments using a modified retrospective approach. This model requires consideration of a broader range of reasonable and supportable information and requires the Company to estimate expected credit losses including a measure of the expected risk of credit loss even if that risk is remote over the lifetime of the asset. Upon adoption, the Company recorded a reserve of $5,000 on its long-term Secured Note receivable. The cumulative effect for the Company upon adoption of this new standard was $3,832, net of taxes of $1,168. Bad debt expense is recorded as a technology and academic services expense in the consolidated income statements. In the fourth quarter of 2021, the Secured Note receivable was paid off and the credit loss reserve of $5,000 was reversed. The Company will also continue to actively monitor the impact of the COVID-19 pandemic as well as other factors on expected credit losses.

Technology and Academic Services

Technology and academic services consist primarily of costs related to ongoing maintenance of educational infrastructure, including online course delivery and management, student records, assessment, customer relations management and other internal administrative systems. This also includes costs to provide support for content development, faculty training, development and other faculty support, technology support, rent and occupancy costs for university partners’ off-campus ~~locations,~~classroom and laboratory sites, and assistance with state compliance. This expense category includes salaries, benefits and share-based compensation, information technology costs, amortization of content development costs and other costs associated with these support services. This category also includes an allocation of depreciation, amortization, and occupancy costs attributable to the provision of certain services, primarily at the Company’s Phoenix, Arizona and Indianapolis, Indiana locations.

Counseling Services and Support

Counseling services and support consist primarily of costs including team-based counseling and other support to prospective and current students as well as financial aid processing. This expense category includes salaries, benefits and share-based compensation, and other costs such as dues, fees and subscriptions and travel costs. This category also includes an allocation of depreciation, amortization, lease expense, and occupancy costs attributable to the provision of certain services, primarily at the Company’s Phoenix, Arizona and Indianapolis, Indiana locations.

Marketing and Communication

Marketing and communication includes lead acquisition, digital communication strategies, brand identity advertising, media planning and strategy, video, data science and analysis, marketing to potential students and other promotional and communication services. This expense category includes salaries, benefits and share-based compensation for marketing and communication personnel, brand advertising, marketing leads and other promotional and communication expenses. This category also includes an allocation of depreciation, amortization, lease expense, and occupancy costs attributable to the provision of certain services, primarily at the Company’s Phoenix, Arizona and Indianapolis, Indiana locations. Advertising costs are expensed as incurred.

General and Administrative

Table of Contents

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

~~General and Administrative~~

General and administrative expenses include salaries, benefits and share-based compensation of employees engaged in corporate management, finance, human resources, compliance, and other corporate functions. This category also includes an allocation of depreciation, amortization, lease expense, and occupancy costs attributable to the provision of these services, primarily at the Company’s Phoenix, Arizona and Indianapolis, Indiana locations.

Commitments and Contingencies

The Company accrues for contingent obligations when it is probable that a liability has been incurred and the amount is reasonably estimable. When the Company becomes aware of a claim or potential claim, the likelihood of any loss exposure is assessed. If it is probable that a loss will result and the amount of the loss is estimable, the Company records a liability for the estimated loss. If the loss is not probable or the amount of the potential loss is not estimable, the Company will disclose the claim if the likelihood of a potential loss is reasonably possible and the amount of the potential loss could be material. Estimates that are particularly sensitive to future changes include tax, legal, and other regulatory matters, which are subject to change as events evolve, and as additional information becomes available during the administrative and litigation process. The Company expenses legal fees as incurred.

Concentration of Credit Risk

The Company believes the credit risk related to cash equivalents and investments is limited due to its adherence to an investment policy that requires investments to have a minimum BBB rating, depending on the type of security, by one major rating agency at the time of purchase. All of the Company’s cash equivalents and investments as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 consist of investments rated BBB or higher by at least one rating agency. Additionally, the Company utilizes ~~more than~~at least one financial institution to conduct initial and ongoing credit analysis on its investment portfolio to monitor and lower the potential impact of market risk associated with its cash equivalents and investment portfolio. Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash balances, which are primarily invested in money market funds or on deposit at high credit quality financial institutions in the U.S. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At March 31 2022 and December 31, 2021, the Company had $200,926 and $ 600,130 in excess of the FDIC insured limit. The Company is also subject to credit risk for its accounts receivable balance and its Secured Note. The Company has not experienced any losses on receivables since July 1, 2018, the date the Company transitioned to an educational service provider. To manage accounts receivable risk, the Company maintains an allowance for doubtful accounts, if needed. The Company monitors the credit risk exposure of the counterparty of the Secured Note to determine whether an adjustment to allowance for credit loss is necessary. A significant deterioration in the financial viability of our counterparty and corresponding decline in the fair value of the collateralized assets could impact the collectability risk of the Secured Note.balance. Our dependence on our most significant university partner, ~~which is also the counterparty to the Secured Note,~~ with ~~85.7%~~87.6% and ~~87.0%~~87.4% of total service revenue for the ~~six-month~~three month periods ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, subjects us to the risk that declines in our customer’s operations would result in a sustained reduction in service revenue ~~and interest income on the Secured Note~~ for the Company.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Segment Information

The Company operates as a single education services company using a core infrastructure that serves the curriculum and educational delivery needs of its university partners. The Company’s Chief Executive Officer manages the Company’s operations as a whole and no expense or operating income information is generated or evaluated on any component level.

~~Table of Contents~~

~~Grand Canyon Education, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(In thousands, except per share data)~~

~~Accounting Pronouncements Adopted in 2021~~

~~In December 2019, the FASB issued ASU No. 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~. This ASU is intended to simplify various aspects related to accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for annual periods beginning after December 15, 2020 and interim periods within those annual periods, with early adoption permitted. Accordingly, the standard was adopted by the Company as of January 1, 2021. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The adoption of this guidance did not have a material impact on the Company’s financial condition, results of operations or statements of cash flows.

Recent Accounting Pronouncements

~~In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848):~~ ~~Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~. The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effect of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2022. The Company plans to elect the optional expedient for its credit facility by prospectively adjusting the effective interest rate if the cessation of the London Interbank Offered Rate (LIBOR) occurs. The Company does not believe the adoption of the reference rate reform will have a material impact on the Company’s financial condition, results of operations or statements of cash flows.

The Company has determined that no other recent accounting pronouncements apply to its operations or could otherwise have a material impact on its consolidated financial statements.

~~3. Investments~~

~~At June 30, 2021 and December 31, 2020, the Company had investments of $3,006 and $10,840~~, respectively, classified as trading. The trading investments are held in municipal and corporate securities as of June 30, 2021 and December 31, 2020 and are due in one year or less as of June 30, 2021. The cash flows of municipal securities are backed by the issuing municipality’s credit-worthiness.

~~At June 30, 2021, the Company had available-for-sale investments of $41,409, comprised of the following:~~

As of June 30, 2021




Gross

Gross

Estimated

Adjusted

Unrealized

Unrealized

Fair

Cost

Gains

(Losses)

Value
Corporate bonds

$
34,344

$
41

$
(281)

$
34,104
Commercial paper

3,997

—

—

3,997
Municipal securities

2,108

—

—

2,108
Asset backed securities

1,202

—

(2)

1,200
Total investments

$
41,651

$
41

$
(283)

$
41,409

~~For the six months ended June 30, 2021, the net unrealized gains or (losses) were $185, net of taxes. Available-for-sale debt securities are carried at fair value on the consolidated balance sheets. The Company estimates the lifetime~~

1514

Table of Contents

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

3. Investments

As of March 31, 2022, the Company had investments of $62,396, classified as available-for-sale securities. As of December 31, 2021, the Company had 0 investments.

As of March 31, 2022, the Company had available-for-sale investments comprised of the following:


	As of March 31, 2022
			Gross		Gross		Estimated
	Adjusted		Unrealized		Unrealized		Fair
	Cost		Gains		(Losses)		Value
Corporate bonds	$	30,468	$	1	$	(315)	$	30,154
Commercial paper		32,349		—		(107)		32,242
Total investments	$	62,817	$	1	$	(422)	$	62,396

For the three months ended March 31, 2022, the net unrealized losses were $323, net of taxes. Available-for-sale debt securities are carried at fair value on the consolidated balance sheets. The Company estimates the lifetime expected credit losses for all available-for sale debt securities in an unrealized loss position. If our assessment indicates that an expected credit loss exists, we determine the portion of the unrealized loss attributable to credit deterioration and record a reserve for the expected credit loss in the allowance for credit losses in technology and academic services in our consolidated income statements. ~~As of June 30, 2021, there were~~ ~~0 credit losses for our available-for-sale debt securities.~~


Available-for-sale securities maturing as of December 31:
2021 (Remainder of year)	$	6,105
2022		3,674
2022 (Remainder of year)			$	48,136
2023		9,225		5,400
2024		10,724		6,835
2025		1,052		2,025
Thereafter		10,629
Total	$	41,409	$	62,396

4. Net Income Per Common 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 and~~ restricted stock awards, 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. 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		Six Months Ended		Three Months Ended
	June 30,		June 30,		March 31,
	2021	2020	2021	2020	2022	2021
Denominator:
Basic weighted average shares outstanding	45,490	46,893	45,810	47,174	34,806	46,084
Effect of dilutive stock options and restricted stock	92	258	154	283	95	216
Diluted weighted average shares outstanding	45,582	47,151	45,964	47,457	34,901	46,300

Diluted weighted average shares outstanding excludes the incremental effect of unvested restricted stock ~~and shares that would be issued upon the assumed exercise of stock options~~ in accordance with the treasury stock method. For the ~~three month~~three-month periods ended ~~June 30,~~March 31, 2022 and 2021, approximately 206 and ~~2020, approximately~~ 1, ~~and 81, respectively, and for the six month perioded ended June 30, 2021 and 2020, approximately 2 and 182,~~ respectively, of the Company’s restricted stock awards outstanding were excluded from the calculation of ~~diluted earnings per share as their inclusion would have been anti-dilutive. These restricted stock awards could be dilutive in the future.~~

~~5. Allowance for Credit Losses~~

1615

Table of Contents

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

diluted earnings per share as their inclusion would have been anti-dilutive. These restricted stock awards could be dilutive in the future.

Balance at





Balance at

Beginning of

Charged to

Deductions/

End of

Period (1)

Expense

Transfers (2)

Period
Allowance for credit losses

Six months ended June 30, 2021

$
5,000

—

—

$
5,000
Six months ended June 30, 2020

$
5,000

—

—

$
5,000

5. Allowance for Credit Losses


	Balance at				Balance at
	Beginning of		Charged to	Deductions/	End of
	Period (1)		Expense	Transfers (2)	Period
Allowance for credit losses
Three months ended March 31, 2022	$	—	—	—	$	—
Three months ended March 31, 2021	$	5,000	—	—	$	5,000

(1)

Amount represents the cumulative effect of the adoption of ASU No. 2016-13 on the Secured Note.

(2)

Deductions represent accounts written off, net of recoveries.

6. Property and Equipment

Property and equipment consist of the following:


	June 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
Land	$	5,579	$	5,579	$	5,579	$	5,579
Land improvements		2,242		2,242		2,242		2,242
Buildings		51,399		51,399		51,399		51,399
Buildings and leasehold improvements		16,987		14,352		17,196		17,161
Computer equipment		101,224		100,575		115,232		113,680
Furniture, fixtures and equipment		16,609		15,439		18,028		17,921
Internally developed software		50,138		46,981		53,837		55,083
Construction in progress		9,062		5,043		5,947		3,381
		253,240		241,610		269,460		266,446
Less accumulated depreciation and amortization		(120,237)		(112,953)		(132,783)		(130,326)
Property and equipment, net	$	133,003	$	128,657	$	136,677	$	136,120

7. Amortizable Intangible Assets

Amortizable intangible assets consist of the following as of:

June 30, 2021

Estimated

Gross

Net

Average Useful

Carrying

Accumulated

Carrying

Life (in years)

Amount

Amortization

Amount
University partner relationships
25

$
210,000

$
(20,572)

$
189,428
Trade names
1

280

(280)

—
Total amortizable intangible assets, net

$
210,280

$
(20,852)

$
189,428

~~Amortization expense for university partner relationships and trade names for the years ending December 31:~~

Remainder of 2021
$
4,209
2022

8,419
2023

8,419
2024

8,419
2025

8,419
Thereafter

151,543

$
189,428


	March 31, 2022
	Estimated	Gross				Net
	Average Useful	Carrying		Accumulated		Carrying
	Life (in years)	Amount		Amortization		Amount
University partner relationships	25	$	210,000	$	(26,886)	$	183,114
Trade names	1		280		(280)		—
Total amortizable intangible assets, net		$	210,280	$	(27,166)	$	183,114

1716

Table of Contents

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Amortization expense for university partner relationships and trade names for the years ending December 31:


Remainder of 2022	$	6,314
2023		8,419
2024		8,419
2025		8,419
2026		8,419
Thereafter		143,124
	$	183,114

8. Leases

The Company has operating leases for off-campus classroom ~~site locations,~~and laboratory sites, office space, office equipment, and optical fiber communication lines. These leases have terms that range from ~~7 months~~one month to ~~9.7~~10.3 years. At lease inception, we determine the lease term by assuming no exercises of renewal options, due to the Company’s constantly changing geographical needs for its university partners. Leases with an initial term of 12 months or less are not recorded in the consolidated balance sheets and we recognize lease expense for these leases on a straight-line basis over the lease term. The Company had operating lease costs of ~~$4,862~~$2,396 and ~~$3,055~~$2,435 for the ~~six-month~~three-month periods ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively.

As of ~~June 30, 2021,~~March 31, 2022, the Company had ~~$4,183~~$14,871 of non-cancelable operating lease commitments for athree off-campus classroom ~~site location,~~and laboratory sites and an office equipment lease that had not yet commenced. The Company’s weighted-average remaining lease term relating to its operating leases is ~~8.13~~7.75 years, with a weighted-average discount rate of ~~3.17%~~3.06%. As of ~~June 30, 2021,~~March 31, 2022, the Company had 0 financing leases.

Future payment obligations with respect to the Company’s operating leases, which were existing at ~~June 30, 2021,~~March 31, 2022, by year and in the aggregate, are as follows:


Year Ending December 31,	Amount		Amount
Remainder of 2021	$	4,556
2022		9,330
Remainder of 2022			$	6,836
2023		8,851		8,931
2024		8,359		8,440
2025		8,047		8,128
2026				8,012
Thereafter		31,727		26,294
Total lease payments	$	70,870	$	66,641
Less interest		8,346		7,261
Present value of lease liabilities	$	62,524	$	59,380

9. Notes Payable and Other Noncurrent Liabilities

~~We entered into an amended~~The Company upon its receipt of the paydown of $500,000 on the Secured Note in October 2021 repaid all amounts due under the outstanding term loan and ~~restated~~revolving credit facilities, terminated the credit agreement ~~dated January 22, 2019~~ and ~~two related amendments dated January 31, 2019 and dated February 1, 2019, respectively, that together provide a credit facility~~expensed all remaining capitalized loan cost of ~~$325,000 comprised of a term loan facility of $243,750 and a revolving credit facility of $81,250, both with a five-year~~$1,028 maturity date. The Company concluded that the amended and restated credit agreement is considered a loan modification. Accordingly, the Company allocated the costs paid to the bank consortium based on the borrowing dollars and recorded an asset of ~~$596 and a contra liability of $1,639, which are related to our revolver and term loan, respectively, that is being amortized~~ to interest ~~expense over the five-year~~ ~~maturity date.~~expense.

~~The Company entered into a further amendment for the credit facility on October 31, 2019. This amendment increased the revolving commitment by~~ ~~$68,750 to $150,000, while reducing the term loan by the same $68,750 to $150,625~~

. The Company concluded that this amendment is considered a loan modification. The amended and restated credit agreement contains standard covenants that, among other things, restrict the Company’s ability to incur additional debt or make certain investments, and require the Company to achieve certain financial ratios and maintain certain financial conditions. The Company’s obligations under the credit facility are secured by its assets, including all rights,

1817

Table of Contents

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

~~benefits and payments under the Secured Note and the Master Services Agreement. As of June 30, 2021, the Company is in compliance with its debt covenants and the note payable totals~~ ~~$92,049, excluding the contra liability of $847~~.

As of June 30,

As of December 31,


2021

2020
Notes Payable




Note payable, quarterly payment of $8,368 starting December 31, 2019; interest at 30-Day LIBOR plus 2.00% (2.09% at June 30, 2021) through January 22, 2024

$
91,202

$
107,774
Revolving line of credit; interest at Base Rate (4.0% at June 30, 2021)

35,000

—

126,202

107,774
Less: Current portion

68,145

33,144

$
58,057

$
74,630

~~Payments due under the notes payable obligations are as follows as of December 31:~~

Remainder of 2021

$
16,572
2022

33,144
2023

33,145
2024

8,341
2025

—
Total

$
91,202

10. Commitments and Contingencies

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 could be material. With respect to the majority of pending litigation matters, the Company’s 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.

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 Company’s financial condition, results of operations or cash flows.

~~Tax Reserves, Non-Income Tax Related~~COVID-19 Considerations

~~From time~~In March 2020, the World Health Organization declared COVID-19 a global pandemic. The contagious outbreak and the related adverse public health developments, including orders to ~~time the Company has exposure~~shelter-in-place, travel restrictions and mandated non-essential business closures, have adversely affected our business in a number of ways. The pandemic continues to ~~various non-income tax related matters that arise~~result in reductions in education service revenue, operating income and margins in the ~~ordinary course~~Spring of ~~business. The Company reserve is not material for tax matters where its ultimate exposure is considered probable~~2022. At this time there remains considerable uncertainty around the duration of the COVID-19 pandemic. However, the related financial impact and duration of the ~~potential loss can~~COVID-19 pandemic cannot be reasonably ~~estimated.~~estimated at this time.

~~Table of Contents~~

~~Grand Canyon Education, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(In thousands, except per share data)~~

11. Share-Based Compensation

Incentive Plan

The Company makes equity incentive grants pursuant to our 2017 Equity Incentive Plan (the “2017 Plan”) under which a maximum of 3,000 shares may be granted. As of ~~June 30, 2021, 1,414~~March 31, 2022, 1,225 shares were available for grants under the 2017 Plan.

Restricted Stock

During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, the Company granted ~~180~~189 shares of common stock with a service vesting condition to certain of its executives, officers and employees. The restricted shares have voting rights and vest in five annual installments of 20%, with the first installment vesting in March of the calendar year following the date of grant (the “first vesting date”) and subsequent installments vesting on each of the 4 anniversaries of the first vesting date. Upon vesting, shares will be withheld in lieu of taxes equivalent to the minimum statutory tax withholding required to be paid when the restricted stock vests. During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, the Company withheld 5652 shares of common stock in lieu of taxes at a cost of ~~$5,994~~$4,625 on the restricted stock vesting dates. ~~In June 2021, following the annual stockholders meeting, the Company granted 4~~ shares of common stock to the non-employee members of the Company’s Board of Directors. Included in this amount is an initial award of shares that was granted to a newly appointed non-employee director pursuant to the Company’s compensation program. The newly appointed non-employee director also received an annual grant of restricted shares. The restricted shares granted to these directors under the annual restricted shares grant have voting rights and vest on the earlier of (a) the one year anniversary of the date of grant or (b) immediately prior to the following year’s annual stockholders’ meeting. The initial award of shares that were granted to the newly appointed non-employee director have voting rights and vest on the one year anniversary of the date of grant. A summary of the activity related to restricted stock granted under the Company’s Incentive Plan since December 31, ~~2020~~2021 is as follows:

Weighted Average

Total

Grant Date

Shares

Fair Value per Share
Outstanding as of December 31, 2020

419

$
83.43
Granted

184

$
86.05
Vested

(144)

$
74.90
Forfeited, canceled or expired

(8)

$
87.24
Outstanding as of June 30, 2021

451

$
86.27


		Weighted Average
	Total	Grant Date
	Shares	Fair Value per Share
Outstanding as of December 31, 2021	427	$	86.24

2018

Table of Contents

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Granted	189	$	82.95
Vested	(130)	$	84.93
Forfeited, canceled or expired	(6)	$	85.57
Outstanding as of March 31, 2022	480	$	85.31

Stock Options

During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, 0 options were granted. ~~A summary~~As of ~~the activity since~~ December 31, ~~2020 related to stock~~2021, all options ~~granted under the Company’s Incentive Plan is as follows:~~have been exercised or expired.

Summary of Stock Options Outstanding




Weighted

Weighted


Average

Average

Exercise

Remaining

Aggregate

Total

Price per

Contractual

Intrinsic

Shares

Share

Term (Years)

Value ($)
Outstanding as of December 31, 2020

176

$
15.34

Granted

—

$
—




Exercised

(176)

$
15.34




Forfeited, canceled or expired

—

$
—




Outstanding as of June 30, 2021

—

$
—

—

$
—
Exercisable as of June 30, 2021

—

$
—

—

$
—

Share-based Compensation Expense

The table below outlines share-based compensation expense for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ related to restricted stock granted:


	2021		2020		2022		2021
Technology and academic services	$	1,158	$	1,026	$	594	$	606
Counseling services and support		2,971		2,694		1,583		1,488
Marketing and communication		51		50		35		30
General and administrative		1,779		1,564		978		895
Share-based compensation expense included in operating expenses		5,959		5,334		3,190		3,019
Tax effect of share-based compensation		(1,490)		(1,334)		(798)		(755)
Share-based compensation expense, net of tax	$	4,469	$	4,000	$	2,392	$	2,264

12. Treasury Stock

~~In January 2021 and July 2021, the~~The Board of Directors ~~increased the authorization~~has authorized under its existing stock repurchase program, ~~by $100,000 and $970,000, respectively, reflecting~~ an aggregate authorization for share repurchases since the initiation of our program of ~~$1,470,000.~~$1,645,000. The expiration date on the repurchase authorization is December 31, ~~2021.~~2022. Repurchases occur at the Company’s discretion. Repurchases may be made in the open market or in privately negotiated transactions, pursuant to the applicable Securities and Exchange Commission rules. The amount and timing of future share repurchases, if any, will be made as market and business conditions warrant.

On March 10, 2021, the Company entered into an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co. LLC (“Morgan Stanley”) to repurchase up to $35,000 of its outstanding shares of common stock as part of the Company’s share repurchase program. Under the ASR agreement, the Company received initial delivery of approximately 276 shares of common stock, representing approximately 80% of the number of shares of common stock initially underlying the ASR agreement based on the closing price of the common stock of $101.49, on March 9, 2021. At inception of the ASR agreement, the Company recognized the initial delivery of shares as treasury stock of $28,000 and recognized the remaining amount underlying the ASR agreement as a reduction of additional paid in capital of $7,000. The total number of shares that the Company repurchased under the ASR program was based on the volume-weighted average price of the common stock during the term of the ASR agreement, less a discount, and subject

~~Table of Contents~~

~~Grand Canyon Education, Inc.~~

~~Notes to Consolidated Financial Statements~~

~~(In thousands, except per share data)~~

to potential adjustments pursuant to the terms and conditions of the ASR agreement. The final settlement of the share repurchases under the ASR agreement was completed on May 4, 2021 with additional delivery of 46 shares of common stock. At settlement of the ASR agreement, the Company recognized an increase to additional paid in capital and a decrease in treasury stock ~~stock~~ of $7,000 related to the remaining delivery of shares. The ASR agreement resulted in a total of 322 shares repurchased at an average cost of ~~$108.76~~$108.76.

~~On May 14, 2021,~~19

Table of Contents

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

During the three months ended March 31, 2022 the Company ~~entered into an ASR agreement with Morgan Stanley to repurchase up to $50,000~~ ~~of its outstanding~~repurchased 4,575 shares of common stock, ~~as part of the Company’s share repurchase program. Under the ASR agreement, the Company received initial delivery on May 17, 2021 of approximately~~ ~~418 shares of common stock, representing approximately 80% of the number of shares of common stock initially underlying the ASR agreement based on the closing price of the common stock of $95.63, on May 14, 2021. At inception of the ASR agreement, the Company recognized the initial delivery of shares as treasury stock of~~ ~~$40,000, and recognized the remaining amount underlying the ASR agreement as a reduction to additional paid in capital of $10,000~~. The total number of shares that the Company will repurchase under the ASR program will be based on the volume-weighted average price of the common stock during the term of the ASR agreement, less a discount, and subject to potential adjustments pursuant to the terms and conditions of the ASR agreement. The final settlement of the share repurchases under the ASR agreement will be completed no later than September 9, 2021.

During the six months ended June 30, 2021 the Company repurchased 1,549 shares of common stock, which includes shares received as of June 30, 2021 under the ASR on March 10, 2021 and shares received under the ASR on May 17, 2021, at an aggregate cost of ~~$151,679~~$394,930. ~~At June 30, 2021,~~As of March 31, 2022, there remained $~~96,592~~200,503 available under its current share repurchase ~~authorization (which authorization was increased to $1,066,592~~ ~~in July 2021).~~authorization. Shares repurchased in lieu of taxes are not included in the repurchase plan totals as they were approved in conjunction with the restricted share awards.

2220

Table of Contents

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

The following discussion and analysis of our financial condition and results of operations 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, Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains certain “forward-looking statements” within the meaning of Section 27A of Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements include, without ~~limitation:~~limitation, statements ~~regarding~~regarding: proposed new programs; statements as to whether regulatory ~~economic, or business~~ developments or other matters may or may 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 management’s goals and objectives and other similar expressions concerning matters that are not historical facts. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar expressions, the negative of these expressions, as well as statements in future tense, identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management.

Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Currently, one of the most significant factors that could cause actual outcomes to differ materially from our forward-looking statements is the continuing, and potential future, adverse effects of the COVID-19 pandemic, and federal, state and/or local regulatory guidelines and private business actions to control it, on the global economy and the financial markets, the higher education industry in which we operate, our university partners, and, ultimately, on our financial condition, operating results and cash flows. The extent to which the COVID-19 pandemic will continue to impact us, and our university partners will depend on future developments, including the scope, severity and duration of the pandemic, and the resulting economic impacts and potential changes in behavior, among others, all of which are highly uncertain and cannot be predicted with confidence. Important factors that could cause our actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements, and which may be further heightened by the COVID-19 pandemic, include, but are not limited to:

●

the harm to our business, results of operations, and financial condition, and harm to our university partners resulting from epidemics, pandemics, including the COVID-19 outbreak, or public health crises;

●

the occurrence of any event, change or other circumstance that could give rise to the termination of any of the key university partner agreements;

●

our ability to properly manage risks and challenges associated with strategic initiatives, including potential acquisitions or divestitures of, or investments in, new businesses, acquisitions of new properties and new university partners, and expansion of services provided to our existing university partners;

●

our failure to comply with the extensive regulatory framework applicable to us either directly as a third-party service provider or indirectly through our university partners, including Title IV of the Higher Education Act and the regulations thereunder, state laws and regulatory requirements, and accrediting commission requirements;

●

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

2321

Table of Contents

●

potential damage to our reputation or other adverse effects as a result of negative publicity in the media, in the industry or in connection with governmental reports or investigations or otherwise, affecting us or other companies in the education services sector;

●

risks associated with changes in applicable federal and state laws and regulations and accrediting commission standards, including pending rulemaking by the Department of Education applicable to us directly or indirectly through our university partners;

●

competition from other education service companies in our geographic region and market sector, including competition for students, qualified executives and other personnel;

●

our expected tax payments and tax rate;

●

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

●

the pace of growth of our university partners’ enrollment and its effect on the pace of our own growth;

●

fluctuations in our revenues due to seasonality;

●

our ability to, on behalf of our university partners, convert prospective students to enrolled students and to retain active students to graduation;

●

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 for our university partners;

●

risks associated with the competitive environment for marketing the programs of our university partners;

●

failure on our part to keep up with advances in technology that could enhance the experience for our university partners’ students;

●

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

●

our ability to manage future growth effectively;

●

the impact of any natural disasters or public health emergencies; and

●

general adverse economic conditions or other developments that affect the job prospects of our university partners’ students.

Additional factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those described in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K (the ~~“2020~~“2021 Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) for the fiscal year ended December 31, ~~2020,~~2021, as updated in our subsequent reports filed with the SEC, including any updates found in Part II, Item 1A of this Quarterly Report on Form 10-Q or our other reports on Form 10-Q. You should not put undue reliance on any forward-looking statements. Forward-looking statements speak only as of the date the statements are made and we assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

~~Table of Contents~~

Explanatory Note

Table of Contents

solutions, infrastructure and operational processes to provide services to these institutions on a large scale. GCE’s most significant university partner is Grand Canyon University (“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, and at two off-campus classroom and laboratory sites.

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. InSince the ~~healthcare field,~~acquisition, GCE, together with Orbis Education, ~~works~~has continued to add additional university partners. In the healthcare field, we work in partnership with a growing number of top universities and healthcare networks across the country, offering healthcare-related academic programs at off-campus classroom and laboratory sites located near healthcare providers and developing high-quality, career-ready graduates who enter the workforce ready to meet the demands of the healthcare industry. In addition, we provided certain services to a university partner to assist them in expanding their online graduate programs. As of ~~June 30, 2021,~~March 31, 2022, GCE provides education services to 27 university partners across the United States.

We plan to continue to add additional university partners and ~~will roll out~~to introduce additional programs with both our existing partners and with new partners. We may engage with both new and existing university partners to offer healthcare programs, online only or hybrid programs, or, as is the case for our most significant partner, GCU, both healthcare and other programs. In addition, we have centralized a number of services that historically were provided separately to university partners of Orbis Education. Therefore, we refer to all university partners as “GCE partners” or “our partners” ~~and no longer differentiate between partners of GCE and partners of Orbis Education; we will, however, continue to~~. We do disclose significant information for GCU, such as enrollments, due to its size in comparison to our other university partners.

SIGNIFICANT DEVELOPMENTS

Impact of COVID-19

Since March 2020, the world has been, and continues to be, impacted by the COVID-19 pandemic. This contagious outbreak, which has continued to spread, and the related adverse public health developments that have occurred at various times since March 2020, including orders to shelter-in-place, travel restrictions and mandated non-essential business closures, have adversely affected workforces, organizations, customers, economies and financial markets globally. It has also disrupted the normal operations of many businesses, including ours, and that of our university partners.

~~GCE has a long-term master services agreement with GCU (the “Master~~Pursuant to the Master Services ~~Agreement”) pursuant to which~~Agreement, GCE provides education services to GCU in return for 60% of GCU’s tuition and fee revenues, which includes fee revenues from room, board, and other ancillary businesses including a student-run golf course and hotel. GCU has four types of students: traditional ground university students, who attend class on its campus in Phoenix, Arizona and of which approximately 70% have historically lived on campus in university owned residence halls; professional studies students, who are working adult students who attend class one night a week on the Phoenix campus; online students who attend class fully online; and students who are studying in hybrid programs in which the ground component takes place at off-campus classroom and laboratory sites.

The COVID-19 outbreak, as well as measures taken to contain its spread, has impacted GCU’s students and its business in a number of ways. ~~Beginning~~A full description of those impacts is described in ~~March 2020, GCU’s programs for its professional studies students and its traditional ground university students were immediately converted to~~our 2021 Form 10-K. Below is an online learning environment and residential students were strongly encouraged to move off campus. Summer 2020 semester classes were moved to an online environment as well and most students were given the choiceexplanation of attending the Fall 2020 semester in person or completely online. Given GCE’s historical experience delivering online education services and the fact that all of GCU’s students and faculty use the university’s online learning management system for at least some of the coursework, the transition was seamless and thus, the university did not incur a significant decrease in tuition revenue or significant increase in costs associated with this transition in March 2020. The followingthose impacts from the COVID-19 pandemic, ~~however, did serve to reduce~~that had an effect on GCU’s tuition and non-tuition revenue during ~~2020~~2021 and ~~have or will reduce GCU’s revenue during 2021~~the first quarter of 2022 and, consequently, the service revenues we earned under the Master Services Agreement:

~~Table of Contents~~

●

~~Traditional ground university students who elected to move off campus near the end of~~Room, board and certain fee income was negatively impacted in the Spring ~~2020~~ semester ~~received partial refunds for dormitory and meal payments, which reduced GCU’s revenue and thus the service revenues earned by GCE in the last nine days of March 2020 and the month of April 2020;~~

●

Ancillary businesses operated by GCU such as its hotel and merchandise shops were closed in late March 2020. Most of these businesses re-opened with scaled back operations in mid-September 2020, which reduced and will continue to reduce GCU’s revenues and thus the service revenues earned by GCE until these businesses are fully reopened;

●

Limited residential students remained on campus during the Summer 2020 semester, which reduced GCU’s dormitory and ancillary revenues and thus the service revenues earned by GCE in 2020. The number of residential students that remained on campus during the Summer 2021 semester, however, was higher than in the Summer of 2019;

●

GCU’s doctoral students are required to attend two residencies on the university’s campus and at its hotel in Phoenix, Arizona as part of their dissertation. On an annual basis approximately 3,000 learners attend the week-long residencies, most of whom have historically attended in the Summer. Most of the residencies which were scheduled for the last week of March 2020 through the end of July 2020 were cancelled, and the residencies scheduled for August 2020 through December 2020 were held at another location with lower than normal attendance. This reduced GCU’s revenues including at its hotel, and thus reduced service revenues earned by GCE until residencies returned to normal attendance. In the first quarter of 2021 doctoral residencies returned to the university’s campus and its hotel, although at lower than normal attendance rates; attendance at doctoral residencies in the second quarter of 2021 returned to 2019 levels;

●

~~GCU shifted its start date~~ for ~~the Fall 2020 semester for its traditional ground students from August 24, 2020 to September 8, 2020, which had the effect of shifting tuition revenue for all GCU~~GCU’s traditional students ~~and certain ancillary revenue for residential students, from the third quarter of 2020 to the fourth quarter of 2020. This later start date for the Fall semester has been retained in 2021~~ as the ~~semester is scheduled to begin on September 7, 2021;~~

●

GCU shifted its move-in date for its residential students in the Fall 2020 semester to the week of September 21, 2020, which reduced housing revenue and certain ancillary revenue for residential students by three weeks. In addition, approximately 4,900 of GCU’s traditional campus students elected to attend the Fall 2020 semester entirely in the online modality. Residential enrollment for the Fall 2020 semester was approximately 11,500 whereas residential bed capacity is approximately 14,500. This reduction in residential students caused a reduction in GCU’s revenue and thus the service revenues earned by GCE. There are currently no plans to have a late move-in date for the Fall 2021 semester and the number of students currently scheduled to live on campus is at capacity;

●

~~The~~ first week of the Spring 2021 semester was completed in an online modality ~~for GCU’s traditional students~~ to provide greater flexibility for students returning to campus after the holidays. Face-to-face instruction for the semester commenced on January 11, 2021 and ended April 1, 2021 for approximately 80% of classes, followed by two weeks of online instruction. Approximately 3,500 traditional ground students elected to complete the Spring 2021 semester entirely in the online modality. ~~These changes had~~GCU’s ground traditional students residing on campus in

Table of Contents

GCU’s residence halls returned to historical levels in the ~~effect~~Spring semester of ~~reducing GCU’s dormitory~~2022 and ~~ancillary~~the entire semester was conducted face-to-face. Thus, GCU experienced a significant year over year increase in these revenues in the ~~Spring~~first quarter of ~~2021~~2022 and thus the service revenues earned by ~~GCE.~~GCE;

●

During the second quarter of 2020, GCU’s online enrollment growth accelerated significantly into the high single digits. The increased level of online enrollment at that time resulted from a combination of factors including an acceleration of new students starting programs, a ~~higher than expected~~higher-than-expected number of students returning to the university that had taken a break from their program (“re-enters”) and a ~~lower than expected~~lower-than-expected number of students deciding to drop out of or take a break from their program. We believe these trends were primarily caused by the shutdowns precipitated by the COVID-19 outbreak as greater numbers of working

~~Table of Contents~~

adults decided to return to school to finish undergraduate degree programs that they had previously started or to start new graduate degree programs during this time. These trends generally continued through the first quarter of 2021. Beginning in the second quarter of 2021, online enrollment growth rates as compared to the prior year period began to slow as both new enrollments and re-enters were down year over year, the numbers of students dropping out of school or taking periodic breaks in their program returned to historical levels and students completing their programs increased significantly on a year over year basis. ~~We anticipate that some or all of these~~These trends ~~will continue~~continued through the rest of 2021 and thus the year over year online growth rate ~~might continue~~continued to decline. The decline in new enrollments as compared to the prior year beginning in the second quarter of 2021 and continuing through the first quarter of 2022 were also the result of recruitment challenges caused by the reduced access to schools, hospitals, and businesses where our potential students work. We believe that as the year over year comparables return to historical levels and schools, hospitals and businesses fully reopen, our online enrollment growth rate will begin to ~~re-accelerate.~~re-accelerate; and

●

Professional studies students have declined significantly since the onset of the COVID-19 outbreak. Professional studies students at that time were converted to the online learning environment; since then, most have completed their programs while no new cohorts have been started until very recently. Now that the university has approved the recruitment of new professional studies cohorts, we anticipate that the number of these students will begin to grow.

The changes described above at GCU have impacted or will impact GCE’s service revenue under the Master Services Agreement. In addition, due to the limited operating expenses that we incur to deliver those services, there has been or will be a direct reduction in our operating profit and operating margin.

GCE also ~~has long-term~~provides services ~~agreements with~~to numerous ~~other~~ university partners across the United ~~States.~~States, including GCU, at off-campus classroom and laboratory sites. The majority of these ~~other~~ university partners’ students are studying in the Accelerated Bachelor of Science in Nursing (“ABSN”) program which is offered in a ~~12-16 month~~12-16-month format in three or four academic semesters. ~~The Spring, Summer and Fall 2020 and Spring 2021 semesters were completed without interruption and each university partner has started its~~Beginning with the Summer 2021 ~~semester. Some~~semester we experienced a decline in revenue per student from students ~~who were~~in these programs caused primarily by some students delaying their scheduled clinical courses due to ~~start their programs~~vaccine mandates at hospital partners and we started to see a reduction in our off-site classroom and laboratory student enrollment growth rate due primarily to delays in the ~~Summer 2020 semester delayed their start until the Fall 2020 semester, which resulted in lower enrollments~~opening of scheduled new sites and ~~revenues in the Summer 2020 semester than was planned. In a number of locations, the demand to start in the Fall 2020 semester was greater than initially planned but a number~~requests by some of our university or ~~healthcare~~hospital partners ~~chose not~~or their state regulatory boards to ~~increase the Fall 2020~~reduce cohort ~~size to compensate for the Summer 2020 start shortfall~~sizes due to concerns ~~about~~over potential clinical ~~availability. The Fall 2020~~faculty availability caused by nursing and other healthcare employee shortages. This is especially true with one of our university partner’s Occupational Therapy Assistants (“OTA”) program in which enrollment ~~was only slightly lower than our original expectations~~declined 35.4% between March 31, 2021 and 2022 as the ~~Summer 2020~~university partner stopped admitting new ~~start shortfall was offset by higher retention rates~~students for most of 2021 due to clinical placement backlog. None of our ABSN partners have stopped admitting new students but some locations that were scheduled to open in 2021 and ~~slightly higher than expected Fall 2020 new starts.~~ 2022 have been pushed back and some existing partners have reduced incoming cohort sizes due to the concern that there are not enough nurses to serve as clinical faculty.

No other changes are currently anticipated with our other university partners related to the ~~Fall 2021~~Spring 2022 semester that would have a material impact on GCE’s service revenue, operating profit and operating margins. However, if one of our university partners were to close an off-campus classroom and laboratory site prior to the end of the ~~Fall 2021~~Spring 2022 semester or take some other action that adversely impacted program enrollment, such an event would reduce the service revenues earned by GCE.

Table of Contents

~~The~~Beginning at the time of the COVID-19 outbreak ~~also presents operational challenges to GCE as~~ a large percentage of our workforce ~~is currently working~~began to work remotely and is expected to continue doing so for the foreseeable future. This degree of remote working could increase risks in the areas of internal control, cyber security and the use of remote technology, and thereby result in interruptions or disruptions in normal operational processes.

It is not possible for us to completely predict the duration or magnitude of the adverse results of the COVID-19 pandemic and its effects on our business, results of operations or financial condition at this time, but such effects may be material in future quarters.

Critical Accounting Policies and Use of Estimates

Our critical accounting policies are disclosed in the ~~2020~~2021 Form 10-K for the fiscal year ended December 31, ~~2020.~~2021. During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, there were no significant changes in our critical accounting policies.

~~Table of Contents~~

Results of Operations

The following table sets forth certain income statement data as a percentage of net revenue for each of the periods indicated. Amortization of intangible assets has been excluded from the table below:

Three Months Ended

Six Months Ended

June 30,

June 30,


2021

2020


2021

2020


Costs and expenses









Technology and academic services

16.7
%
14.6
%

15.0
%
13.1
%

Counseling services and support

30.2

31.0

27.9

28.9

Marketing and communication

22.6

22.1

21.3

20.6

General and administrative

4.5

5.1

4.3

4.7


	Three Months Ended
	March 31,
	2022		2021
Costs and expenses
Technology and academic services	14.9	%	13.5	%
Counseling services and support	27.7		25.8
Marketing and communication	20.8		20.1
General and administrative	4.1		4.0

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared to Three Months Ended ~~June 30, 2020~~March 31, 2021

Service revenue. Our service revenue for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~$201.5~~$244.1 million, an increase of ~~$15.7~~$7.2 million, or ~~8.5%~~3.0%, as compared to service revenue of ~~$185.8~~$236.9 million for the three months ended ~~June 30, 2020.~~March 31, 2021. The increase year over year in service revenue was primarily due to an increase in revenue per student year over year, ~~increases~~partially offset by a decrease in university partner enrollments between years of 3.5% and in revenue per student. Partner enrollments totaled 101,808 at June 30, 2021 as compared to 98,326 at June 30, 2020. University partner enrollments at our off-campus classroom and laboratory sites were 4,210, an increase of 13.2% over enrollments at June 30, 2020, which includes 176 GCU students at June 30, 2021. Enrollments at GCU grew to 97,774 at June 30, 2021, an increase of 3.3% over enrollments at June 30, 2020. GCU enrollment declines between March 31 and June 30 of each year as ground enrollment at GCU at June 30 of each year only includes traditional-aged students taking Summer school classes, which is a small percentage of GCU’s traditional-aged student body. The Spring semester for GCU’s traditional-aged student body ends near the end of April each year. GCU also had a decline in the year over year growth rate of its online students between March 31, 2021 to June 30, 2021 (see – ~~Impact of COVID-19~~ ~~above)~~4.5%. The increase in revenue per student between years is primarily due to the service revenue impact of the increased room, board ~~fee~~ and other ancillary revenues at GCU in the ~~second~~first quarter of ~~2021~~2022 as compared to the prior year period (see - ~~Impact of COVID-19~~ above) and the growth in the enrollment for students at off-campus classroom and laboratory sites. These increases were partially offset by a one-day shift in timing for the Spring campus semester resulting in one day moving into the first quarter of 2021 from the second quarter of 2021. Service revenue per student for off-campus classroom and laboratory sites generates a significantly higher revenue per student than we earn under our agreement with GCU, as these agreements generally provide us with a higher revenue share percentage, the partners have higher tuition rates than GCU and the majority of their students are studying in the Accelerated Bachelor of Science in Nursing program and take more credits on average per semester. The ten new off-campus classroom and laboratory sites opened in the past twelve months, partially offset by the non-renewal of the contract with a university partner with two sites in the first quarter of 2021 increased the total number of these sites to 31 as compared to 23 at June 30, 2020.

~~Technology and academic services~~. Our technology and academic services expenses for the three months ended June 30, 2021 were $33.7 million, an increase of $6.5 million, or 24.0%, as compared to technology and academic services expenses of $27.2 million for the three months ended June 30, 2020. This increase was primarily due to 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 $4.6 million, $1.4 million and $0.5 million, respectively. These increases were primarily due to increased headcount to support our 27 university partners, and their increased enrollment growth, tenure-based salary adjustments, an increase in benefit costs and the increased number of off-campus classroom and laboratory sites year over year. Our technology and academic services expenses as a percentage of net revenue increased 2.1% to 16.7% for the three months ended June 30, 2021, from 14.6% for the three months ended June 30, 2020. This increase was primarily due to partnership agreements with university partners that have off-campus classroom and laboratory sites requiring a higher level of technology and academic services than our agreement with GCU partially offset by the increased Spring and Summer 2021 semester ancillary revenues at GCU. GCE has 31 off-campus classroom and laboratory sites open as of June 30, 2021 as compared to the

~~Table of Contents~~

~~23 sites that were open as of June 30, 2020. Additionally, in the second quarter of 2021~~ ~~we incurred costs for a number of locations that we anticipate will open in the next 15 months.~~

~~Counseling services and support~~. Our counseling services and support expenses for the three months ended June 30, 2021 were $60.9 million, an increase of $3.3 million, or 5.8%, as compared to counseling services and support expenses of $57.6 million for the three months ended June 30, 2020. This increase was primarily attributable to increases in employee compensation and related expenses including share-based compensation and increases in other counseling services and support expenses of $1.8 million and $1.7 million, respectively, partially offset by a slight decrease in occupancy and depreciation expenses of $0.2 million. The increases in employee compensation and related expenses were primarily due to increased headcount to support our university partners, and their increased enrollment growth, tenure-based salary adjustments, an increase in benefit costs and the increased number of off-campus classroom and laboratory sites open year over year. The increase in other counseling services and support expenses is primarily the result of increased travel costs to service our 27 university partners as compared to the COVID-19 impacted second quarter of 2020, during which all non-essential travel ceased. Occupancy and depreciation costs declined slightly as a large percentage of our workforce continues to work remotely. Our counseling services and support expenses as a percentage of net revenue decreased 0.8% to 30.2% for the three months ended June 30, 2021, from 31.0% for the three months ended June 30, 2020 primarily due to our ability to leverage our counseling services and support expense across an increasing revenue base and the increased Spring and Summer 2021 semester ancillary revenues at GCU.

~~Marketing and communication~~. Our marketing and communication expenses for the three months ended June 30, 2021 were $45.4 million, an increase of $4.3 million, or 10.6%, as compared to marketing and communication expenses of $41.1 million for the three months ended June 30, 2020. This increase was primarily attributable to the increased cost to market our university partners’ programs and to the marketing of new university partners and new locations which resulted in increased advertising of $3.9 million, increased other communications expenses of $0.3 million and increased employee compensation, including share-based compensation, and related expenses of $0.1 million. Our marketing and communication expenses as a percentage of net revenue increased by 0.5% to 22.6% for the three months ended June 30, 2021, from 22.1% for the three months ended June 30, 2020, primarily due to the increase in the number of new off-campus classroom and laboratory sites opened since June 30, 2020 and sites planned to open in the next 15 months, partially offset by our ability to leverage our marketing and communication expenses across an increasing revenue base and the increased Spring and Summer 2021 semester ancillary revenues at GCU.

~~General and administrative~~~~. Our general and administrative expenses for the three~~ months ended June 30, 2021 were $9.1 million, a decrease of $0.4 million, or 4.4%, as compared to general and administrative expenses of $9.5 million for the three months ended June 30, 2020. This decrease was primarily attributable to a decrease in employee compensation, including share-based compensation, and related expenses of $0.4 million and a decrease in other general and administrative expenses of $0.3 million, partially offset by an in increase in professional fees of $0.3 million. The decrease in employee compensation and related expenses is primarily related to lower headcount at our office in Indiana as we have transitioned a number of back office functions to Arizona. Our decrease in other general and administrative expenses is primarily related to reduced travel costs. Our general and administrative expenses as a percentage of net revenue decreased by 0.6% to 4.5% for the three months ended June 30, 2021, from 5.1% for the three months ended June 30, 2020 due to the cost savings realized by consolidating certain back office functions, reduced travel costs, our ability to leverage our other general and administrative expenses across an increasing revenue base and the increased Spring and Summer 2021 semester ancillary revenues at GCU.

~~Amortization of intangible assets~~~~. Amortization of intangible assets for the three~~ months ended June 30, 2021 and 2020 were $2.1 million for both periods. As a result of the acquisition of our wholly owned subsidiary, Orbis Education, certain identifiable intangible assets were created (primarily customer relationships) that will be amortized over their expected lives.

~~Interest income on Secured Note~~. Interest income on the Secured Note from GCU in the initial principal amount of $870.1 million (the “Secured Note”) for the three months ended June 30, 2021 was $14.8 million, an increase of $0.1 million, as compared to $14.7 million for the three months ended June 30, 2020. The Secured Note bears interest at 6% annually, and GCU makes ~~monthly interest payments.~~

~~Table of Contents~~

~~Interest expense~~. Interest expense was $0.8 million for the three months ended June 30, 2021, a decrease of $0.3 million, as compared to interest expense of $1.1 million for the three months ended June 30, 2020. The decrease in interest expense was primarily due to a decline in the average credit facility outstanding balance between periods due to paydowns of the credit facility during the past twelve months and an average interest rate reduction of approximately 42 basis points from the second quarter of 2020 to the second quarter of 2021.

~~Investment interest and other~~~~. Investment interest and other for the three months ended June 30, 2021 was $0.2 million, a decrease of $0.2 million, as compared to $0.4 million in the three~~ ~~months ended June 30, 2020. This decrease was primarily attributable to a decline in interest income on excess cash due to lower interest rates.~~

~~Income tax expense~~~~. Income tax expense for the three months ended June 30, 2021 was $15.0 million, a decrease of $0.3 million, or 2.0%, as compared to income tax expense of $15.3 million for the three~~ months ended June 30, 2020. This decrease was the result of a decrease in our effective tax rate between periods partially offset by higher taxable income. The lower effective tax rate was primarily due to favorable adjustments as a result of the completion of several state audits. Our effective tax rate was 23.3% during the second quarter of 2021 compared to 24.6% during the second quarter of 2020.

~~Net income~~. Our net income for the three months ended June 30, 2021 was $49.5 million, an increase of $2.5 million, or 5.2%, as compared to $47.0 million for the three months ended June 30, 2020, due to the factors discussed above.

~~Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020~~

~~Service revenue~~. Our service revenue for the six months ended June 30, 2021 was $438.4 million, an increase of $31.0 million, or 7.6%, as compared to service revenue of $407.4 million for the six months ended June 30, 2020. The increase year over year in service revenue was primarily due to year over year increases in university partner enrollments and in revenue per student. Partner enrollments totaled 101,808 at June 30, 2021 as compared to 98,326 at June 30, 2020. University partner enrollments at our off-campus classroom and laboratory sites were 4,210, an increase of 13.2% over enrollments at June 30, 2020, which includes 176 GCU students at June 30, 2021. Enrollments at GCU grew to 97,774 at June 30, 2021, an increase of 3.3% over enrollments at June 30, 2020. GCU enrollment declines between March 31 and June 30 of each year as ground enrollment at GCU at June 30 of each year only includes traditional-aged students taking Summer school classes, which is a small percentage of GCU’s traditional-aged student body and professional studies students. The Spring semester for GCU’s traditional-aged student body ends near the end of April each year. GCU also had a decline in the year over year growth rate of its online students between March 31, 2021 to June 30, 2021 (see – ~~Impact of COVID-19~~ above). The increase in revenue per student is primarily due to the service revenue impact of the increased room, board, fee and other ancillary revenues at GCU in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 (see - Impact of COVID-19 above) and the growth in the enrollment for students at off-campus classroom and laboratory sites. Service revenue per student for off-campus classroom and laboratory sites generates a significantly higher revenue per student than we earn under our agreement with GCU, as these agreements generally provide us with a higher revenue share percentage, the partners have higher tuition rates than GCU and the majority of their students are studying in the Accelerated Bachelor of Science in Nursing program and take more credits on average per semester. ~~The ten~~In addition, we continued to open new off-campus classroom and laboratory sites ~~opened in the past twelve months, partially offset by the non-renewal of the contract with a university partner with two sites in the first quarter of 2021 increased~~increasing the total number of these sites to 29 at March 31, 2022. Partner enrollments totaled 110,217 at March 31, 2022 as compared to 23115,390 at ~~June 30, 2020. In addition, we generated slightly more revenues in 2020 as compared to~~March 31, 2021. University partner enrollments at our off-campus classroom and laboratory sites were 4,497, an increase of 1.2% over enrollments at March 31, 2021, which includes 283 GCU students at March 31, 2022. This growth rate has slowed over the ~~same period in 2021~~past year primarily due to ~~2020 being~~ a ~~Leap~~35.4% decline in OTA students. Year over year ABSN student growth has slowed to 5.7% at March 31, 2022. For further discussion (see – Impact of COVID-19 above). Enrollments at GCU declined to 106,003 at March 31, 2022, a decrease of 4.5% over enrollments at March 31, 2021. Enrollments for GCU ground students were 21,504 at March 31, 2022 up from 19,721 at March 31, 2021 primarily due to a 9.5% increase in traditional ground students between years. GCU’s ground traditional students residing on campus in GCU’s residence halls increased 25.8% from Spring of 2021 to Spring of 2022, representing approximately 70.3% of GCU’s ground traditional students. GCU’s decline in its working adult

Table of Contents

students (online and ~~thus providing an extra day~~professional studies) between March 31, 2021 and March 31, 2022 is discussed in Impact of ~~revenue in 2020 as compared to 2021.~~COVID-19 above.

Technology and academic services. Our technology and academic services expenses for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 were ~~$65.7~~$36.3 million, an increase of ~~$12.3~~$4.2 million, or ~~23.0%~~13.3%, as compared to technology and academic services expenses of ~~$53.4~~$32.1 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. This increase was primarily due to increases in employee compensation and related expenses, including share-based compensation and benefit expenses, in other technology and academic costs and in occupancy and depreciation including lease expenses ~~and in technology and academic supply costs~~ of ~~$8.9 million,~~ $2.8 million, $1.2 million and ~~$0.6~~$0.2 million, respectively. These increases were primarily due to increased headcount to support our 27 university partners, and their increased enrollment growth, tenure-based salary adjustments, an increase in benefit costs and the increased number of

~~Table of Contents~~

off-campus classroom and laboratory sites year over year. Our technology and academic services expenses as a percentage of net revenue increased ~~1.9%~~1.4% to ~~15.0%~~14.9% for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, from ~~13.1%~~13.5% for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. This increase was primarily due to partnership agreements with university partners that have off-campus classroom and laboratory sites requiring a higher level of technology and academic services than our agreement with GCU partially offset by the increased Spring ~~and Summer~~2022 semester ancillary revenues at GCU. ~~GCE has 31~~ We anticipate that technology and academic services expenses as a percentage of revenue will continue to increase in the future as we open more off-campus classroom and laboratory sites open as of June 30, 2021 as compared to the 23 sites that were open as of June 30, 2020. Additionally, in the second quarter of 2021 we incurred costs for a number of locations that we anticipate will open in the next 15 months. sites.

Counseling services and support. Our counseling services and support expenses for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 were ~~$122.2~~$67.5 million, an increase of ~~$4.4~~$6.3 million, or ~~3.7%~~10.2%, as compared to counseling services and support expenses of ~~$117.8~~$61.2 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. This increase was primarily attributable to increases in other counseling services and support expenses of $4.7 million, increases in employee compensation and related expenses including share-based compensation and benefit expenses of ~~$4.5~~$1.4 million ~~partially offset by a decrease~~and increases in occupancy and depreciation expenses of $0.3 million. The increase in other counseling services and support expenses is primarily the result of ~~$0.1 million.~~increased travel costs to service our 27 university partners as compared to the COVID-19 impacted first quarter of 2021, during which significantly lower travel costs were incurred. The increases in employee compensation and related expenses were primarily due to increased headcount to support our university partners, and their increased enrollment growth, tenure-based salary adjustments, an increase in benefit costs and the increased number of off-campus classroom and laboratory sites open year over year. The decrease in other counseling services and support expenses is primarily the result of decreased travel costs to service our 27 university partners. All non-essential travel ceased when the COVID-19 national emergency was announced in mid-March 2020. Travel costs remained low through the rest of 2020 and the first quarter of 2021 but returned to historical levels in the second quarter of 2021. Our counseling services and support expenses as a percentage of net revenue ~~decreased 1.0%~~increased 1.9% to ~~27.9%~~27.7% for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, from ~~28.9%~~25.8% for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 primarily due to significant increase year over year in travel and benefit costs, partially offset by our ability to leverage our counseling services and support expense across an increasing revenue base ~~and~~primarily due to the increased Spring ~~and Summer 2021~~2022 semester ancillary revenues at GCU. We anticipate that counseling services and support expense as a percentage of revenue will continue to be higher in 2022 than in 2021 as travel expenses return to pre-COVID-19 levels and we grow our employee base and their compensation to meet our university partners’ growth expectations and retain our employees.

Marketing and communication. Our marketing and communication expenses for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 were ~~$93.2~~$50.8 million, an increase of ~~$9.4~~$3.1 million, or ~~11.2%~~6.5%, as compared to marketing and communication expenses of ~~$83.8~~$47.7 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. This increase was primarily attributable to the increased cost to market our university partners’ programs and to the marketing of new university partners and new locations which resulted in increased advertising of ~~$8.6~~$2.3 million, increased employee compensation, including share-based compensation and ~~related~~benefit expenses of ~~$0.3~~$0.7 million and increased other communications expenses of ~~$0.5~~$0.1 million. Our marketing and communication expenses as a percentage of net revenue increased by 0.7% to ~~21.3%~~20.8% for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, from ~~20.6%~~20.1% for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, primarily due to the increase in the number of new university partners and their growth expectations and increased off-campus classroom and laboratory sites opened ~~since June 30, 2020~~ and sites planned ~~for opening~~to open in the next ~~15 months partially offset by increased Spring and Summer 2021 semester ancillary revenues at GCU.~~12 months.

General and administrative. Our general and administrative expenses for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 were ~~$18.7~~$9.9 million, ~~a decrease~~an increase of ~~$0.4~~$0.3 million, or ~~2.1%~~3.2%, as compared to general and administrative expenses of ~~$19.1~~$9.6 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. This ~~decrease~~increase was primarily attributable to ~~a decrease~~an increase in professional fees of $0.3 million and an increase in other general and administrative expenses of $0.1 million, partially offset by decreases in employee compensation, including share-based compensation, and related expenses of $0.1 million. The increase in professional fees is primarily due to increased legal and ~~a decrease~~ audit fees between years. Our increase

Table of Contents

in other general and administrative expenses ~~of $0.6 million and $0.6 million, respectively, partially offset by~~is primarily related to an increase in ~~professional fees of $0.8 million.~~travel costs. The decrease in employee compensation and related expenses is primarily related to lower headcount at our office in Indiana as we have transitioned a number of back office functions to Arizona. Our ~~decrease in other general and administrative expenses is primarily related to reduced travel costs. Our~~ general and administrative expenses as a percentage of net revenue ~~decreased~~increased by ~~0.4%~~0.1% to ~~4.3%~~4.1% for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, from ~~4.7%~~4.0% for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 due to the increased professional fees partially offset by the cost savings realized by consolidating certain ~~back office~~back-office functions ~~reduced travel costs,~~and our ability to leverage our other general and administrative expenses across an increasing revenue base ~~and~~primarily due to the increased Spring ~~and Summer 2021~~2022 semester ancillary revenues at GCU.

Amortization of intangible assets. Amortization of intangible assets for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ were ~~$4.2~~$2.1 million for both periods. As a result of the acquisition of our wholly owned subsidiary, Orbis Education, certain identifiable intangible assets were created (primarily customer relationships) that will be amortized over their expected lives.

~~Table of Contents~~

Interest income on Secured Note. Interest income on the Secured Note for the ~~six~~ three months ended ~~June 30,~~March 31, 2021 was ~~$29.3 million, a decrease of $0.1 million, as compared to $29.4 million for~~$14.5 million. GCE recognized interest income on the ~~six months ended June 30, 2020. The~~ Secured Note ~~bears~~including borrowings made for capital expenditures, at an interest atrate of 6% ~~annually,~~. GCU repaid all amounts owed on the Secured Note in the fourth quarter of 2021. As the Secured Note receivable was paid off in 2021 there was no interest income earned on the Secured Note in the first quarter of 2022 and ~~GCU makes~~ ~~monthly interest payments. The decrease from the prior year was primarily due to 2020 being a Leap Year with one additional day of interest.~~will be none in future periods.

Interest expense. Interest expense was ~~$1.6~~$0.8 million for the ~~six~~three months ended ~~June 30,~~March 31, 2021. The credit facility was repaid and terminated in early November 2021, ~~a decrease of $1.0 million, as compared to~~thus there was no interest expense ~~of $2.6 million for the six months ended June 30, 2020. The decrease in interest expense was primarily due to a decline~~incurred in the ~~average credit facility outstanding balance between periods due to paydowns~~first quarter of the credit facility during the past twelve months and an average interest rate reduction of approximately 99 basis points from the first half of 2020 to the first half of 2021 partially offset by 2020 being a Leap Year with one additional day of interest.2022.

Investment interest and other. Investment interest and other for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was ~~$0.4 million, a decrease of~~ $0.2 million, as compared to ~~$0.6 million in~~investment interest and other for the ~~six~~ three months ended ~~June 30, 2020. This decrease~~March 31, 2021 was ~~primarily attributable to a decline in interest income on excess cash due to lower interest rates.~~$0.1 million.

Income tax expense. Income tax expense for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was ~~$35.0~~$19.6 million, a decrease of ~~$3.1~~$0.4 million, or ~~8.2%~~2.0%, as compared to income tax expense of ~~$38.1~~$20.0 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. This decrease was the result of a decrease in our taxable income partially offset by an increase in our effective tax rate between periods. Our effective tax rate was ~~21.5%~~25.2% during the ~~six months ended June 30, 2021~~first quarter of 2022 compared to ~~24.4%~~20.4% during the ~~six months ended June 30, 2020.~~first quarter of 2021. In the first ~~half~~quarter of 2021, the effective tax rate was significantly impacted by excess tax benefits of $4.4 million as a result of exercises of the remaining stock options held by employees prior to their expiration. Excess tax benefits totaled only $0.1 million in the first quarter of 2022. In the first quarter of 2022, the effective tax rate was also unfavorably impacted by an increase in ~~excess tax benefits, which increased to $4.4 million in~~ the six months ended June 30, 2021 as compared to $0.6 million in the same period in 2020 due to a higher stock price and higher stock option exercises in the first half of 2021. The inclusion of excess tax benefits and deficiencies as a component of ourstate income tax expense will increase 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. ~~Also, the lower effective tax rate was impacted due to favorable adjustments as a result of the completion of several state audits.~~rate.

Net income. Our net income for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was ~~$127.6~~$58.1 million, ~~an increase~~a decrease of ~~$9.2~~$20.0 million, or ~~7.8%~~25.6%, as compared to ~~$118.4~~$78.1 million for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, 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 university 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 service 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~~~~. Our unrestricted cash and cash equivalents and investments were $113.9 million at June 30, 2021. Our credit facility had an available line of credit of $115.0 million as of June 30, 2021.~~

3227

Table of Contents

Liquidity and Capital Resources


	As of March 31,		As of December 31,
(In thousands)	2022		2021
Cash, cash equivalents and investments	$	264,329	$	600,941

Overview

Our liquidity position, as measured by cash and cash equivalents and investments decreased by $336.6 million between December 31, 2021 and March 31, 2022, which was largely attributable to share repurchases during the first quarter of 2022 of $399.6 million, partially offset by cash provided by operating activities of $70.3 million. Our unrestricted cash and cash equivalents and investments were $264.3 million at March 31, 2022 and $600.9 million at December 31, 2021.

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.

~~Arrangements with GCU~~

Cash Flows from Operating Activities


	Three Months Ended March 31,
(In thousands)	2022		2021
Net cash provided by operating activities	$	70,260	$	89,827

The decrease in cash generated from operating activities between the three months ended March 31, 2022 and the three months ended March 31, 2021 was primarily due to a decrease in net income and changes in working capital balances. We define working capital as the assets and liabilities, other than cash, generated through the Company’s primary operating activities. Changes in these balances are included in the changes in assets and liabilities presented in the consolidated statement of cash flows.

Cash Flows from Investing Activities


	Three Months Ended March 31,
(In thousands)	2022		2021
Net cash used in investing activities	$	(69,713)	$	(34,819)

Investing activities consumed $69.7 million of cash in the three months ended March 31, 2022 compared to $34.8 million in the three months ended March 31, 2021.

In ~~conjunction~~the first three months of 2022 cash used in investing activities consisted of the purchase of available-for-sale securities of $62.8 million with the ~~Asset Purchase Agreement with GCU, we received a Secured Note as consideration for~~excess cash flows generated from the transferred assets (the “Transferred Assets”). 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. GCU has been funding its capital expenditures using its own funds except that, in both June 2021 and 2020 GCU requested additional loan amounts that approximated its previous capital expenditures during those fiscal years. In both instances GCU repaid the amounts borrowed in the following month. As of June 30, 2021, the Company had loaned an additional $289,815 to GCU, net of repayments, including $190.0 million in June 2021. The $190.0 million borrowed in June 2021 was repaid in July 2021.

~~GCU has engaged a firm to assist it in refinancing the Secured Note. If GCU is successful in refinancing all or part~~recent repayment of the Secured Note ~~it would eliminate or reduce~~by GCU in the ~~interest income earned by us. It is currently~~fourth quarter of 2021. In 2021 purchases of investments, net of proceeds from the sale of investments totaled $25.8 million.

In the first three months of 2022 and 2021 cash used in investing activities also included the purchases of capital expenditures totaling $6.8 million and $8.9 million, respectively. Capital expenditures for both periods primarily consisted of leasehold improvements and equipment for new off-campus classroom and laboratory sites, as well as purchases of computer equipment, internal use software projects and furniture and equipment to support our ~~intention~~increasing employee headcount. The Company intends to continue to spend approximately $30.0 million to $35.0 million per year for capital expenditures.

Table of Contents

Cash Flows from Financing Activities


	Three Months Ended March 31,
(In thousands)	2022		2021
Net cash used in financing activities	$	(399,555)	$	(74,948)

Financing activities consumed $399.6 million of cash in the three months ended March 31, 2022 compared to $74.9 million in the three months ended March 31, 2021.

During the three months ended March 31, 2022 and 2021, $395.0 million and $56.3 million, respectively was used to purchase treasury stock in accordance with GCE’s share repurchase program, and in 2021 $7.0 million was paid to Morgan Stanley under our accelerated share repurchase (“ASR”) agreement for shares that ~~the proceeds received on a refinancing~~ would be ~~used~~settled no later than May 7, 2021. In 2022 and 2021, $4.6 million and $6.0 million, respectively, of cash was utilized to ~~repurchase our~~purchase common ~~stock, paydown our existing debt, or for other general corporate purposes. We can provide no assurance that GCU will be successful~~shares withheld in ~~refinancing~~lieu of income taxes resulting from the ~~Secured Note.~~

~~GCU generally pays for the service fees and~~vesting of restricted share awards. The Company intends to continue using a significant portion of its interest due on the Secured Note for the month in arrears. However, GCU paid its June 2021 estimated service fee and interest due on the Secured Note at the end of June 2021, thereby reducing the Secured Note, net and interest receivable on the Secured Note on our consolidated balance sheet as of June 30, 2021. GCU also paid the June 2020 estimated service fee and interest due on the Secured Note receivable at the end of June 2020 so the impact on cash flows for the change in accounts receivable and interest receivable from university partners during the six months ended June 30, 2021 in comparison to the six months ended June 30, 2020 was not material. We believe that GCU’s cash flows from operations ~~are currently sufficient~~ to ~~fund all~~repurchase its shares.

In 2021, principal payments on notes payable and capital leases totaled $8.3 million, partially offset by proceeds from the exercise of ~~its capital expenditures without additional loans from us although it is possible that GCU will continue to borrow from us for short term cash flow needs.~~stock options of $2.7 million

Share Repurchase Program

Under our share repurchase 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.

On March 10, 2021, the Company entered into an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co. LLC (“Morgan Stanley”) to repurchase up to $35.0 million of its outstanding shares of common stock as part of the Company’s share repurchase program. Under the ASR agreement, the Company received initial delivery of approximately 275,889 shares of common stock, representing approximately 80% of the number of shares of common stock initially underlying the ASR agreement based on the closing price of the common stock of $101.49, on March 9, 2021. The total number of shares that the Company repurchased under the ASR program was based on the volume-weighted average price of the common stock during the term of the ASR agreement, less a discount, and was

~~Table of Contents~~

subject to potential adjustments pursuant to the terms and conditions of the ASR agreement. The final settlement of the share repurchases under the ASR agreement was completed on May 4, 2021 with additional delivery of 45,914 shares of common stock. The ASR agreement resulted in a total of 321,803 shares repurchased at an average cost of $108.76.

On May 14, 2021, the Company entered into an ASR agreement with Morgan Stanley to repurchase up to $50.0 million of its outstanding shares of common stock as part of the Company’s share repurchase program. Under the ASR agreement, the Company received initial delivery on May 17, 2021 of approximately 418,279 shares of common stock, representing approximately 80% of the number of shares of common stock initially underlying the ASR agreement based on the closing price of the common stock of $95.63, on May 14, 2021. The total number of shares that the Company will repurchase under the ASR program will be based on the volume-weighted average price of the common stock during the term of the ASR agreement, less a discount, and subject to potential adjustments pursuant to the terms and conditions of the ASR agreement. The final settlement of the share repurchases under the ASR agreement will be completed by September 9, 2021.

We repurchased ~~981,431~~4,575,048 shares of common stock in the three months ended ~~June 30, 2021, including the shares delivered during the quarter as part of the two ASR transactions discussed above.~~March 31, 2022. At ~~June 30, 2021,~~March 31, 2022, there remains ~~$96.6~~$200.5 million available under our share repurchase authorization ~~(which authorization was increased to $1,066.6 million in July 2021)~~.

~~Cash Flows~~

~~Operating Activities~~. Net cash provided by operating activities for the six months ended June 30, 2021 was $210.3 million as compared to $221.1 million for the six months ended June 30, 2020. The decrease in cash generated from operating activities between the six months ended June 30, 2020 and the six months ended June 30, 2021 was primarily due to changes between years in the working capital balances, primarily income taxes. We define working capital as the assets and liabilities, other than cash, generated through the Company’s primary operating activities. Changes in these balances are included in the changes in assets and liabilities presented in the consolidated statement of cash flows. Our income taxes payable balance increased $32.2 million between December 31, 2019 and June 30, 2020 as compared to a decrease of $5.4 million between December 31, 2020 and June 30, 2021 primarily due to the Treasury Department extending the due date in 2020 of certain estimated tax payments due to COVID-19 from April 15, 2020 to July 15, 2020. This was partially offset by an increase in net income between periods.

~~Investing Activities~~~~. Net cash used in investing activities was $240.1~~ million and $80.6 million for the six months ended June 30, 2021 and 2020, respectively. The net cash used in investing activities in the six months ended June 30, 2021 consisted of capital expenditures of $15.8 million and purchases of investments, net of proceeds from the sale of investments of $34.1 million. Funding to GCU during the first six months of 2021 totaled $190.0 million, which was repaid in July 2021. During the six months ended June 30, 2020, we paid $12.2 million for capital expenditures and received proceeds from investments of $6.8 million. Funding to GCU during the first six months of 2020 totaled $75.0 million, which was repaid in July 2020. During the six-month period for 2021 and 2020, capital expenditures primarily consisted of leasehold improvements and equipment for new university partner locations, as well as purchases of computer equipment, other internal use software projects and furniture and equipment to support our increasing employee headcount. The increase in capital expenditures between periods is primarily due to the increase in the number of sites opened or those that will be opened during the next 15 months. We invest approximately $1.5 million in leasehold improvements and equipment for each off-campus classroom and laboratory site. We have opened ten off-campus classroom and laboratory sites since June 30, 2020. We plan to open a number of additional sites in the next 15 months.

~~Financing Activities~~. Net cash used in financing activities was $146.6 million and $90.5 million for the six months ended June 30, 2021 and 2020, respectively. During the six months ended June 30, 2021, $6.0 million was used to purchase common shares withheld in lieu of income taxes resulting from the vesting of restricted share awards, $151.7 million was used to purchase treasury stock in accordance with the Company’s share repurchase program, and $10.0 million was paid to Morgan Stanley under our ASR agreement for shares that will be settled no later than September 9, 2021. Principal payments on notes payable and capital leases totaled $16.6 million, partially offset by

~~Table of Contents~~

proceeds from the exercise of stock options of $2.7 million and borrowings on our line of credit of $35.0 million. During the six months ended June 30, 2020, $5.0 million was used to purchase common shares withheld in lieu of income taxes resulting from the vesting of restricted share awards and $69.0 million was used to purchase treasury stock in accordance with the Company’s share repurchase program. Principal payments on notes payable and capital leases totaled $16.6 million, partially offset by proceeds from the exercise of stock options of $0.1 million.

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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~Impact of inflation.~~ We believe that inflation has not had a material impact on our results of operations for the three months ended June 30, 2021 or 2020. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.

Market risk. As of ~~June 30, 2021,~~March 31, 2022, we have no derivative financial instruments or derivative commodity instruments. We invest cash in excess of current operating requirements in money market instruments and commercial paper at multiple financial institutions.

Interest rate risk. We manage interest rate risk by investing excess funds in cash equivalents, BBB or higher rated corporate bonds, commercial paper, municipal securities, asset backed securities, municipal bonds, and collateralized mortgage obligations bearing variable interest rates, which are tied to various market indices or individual bond coupon rates. 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 before their maturity date that have declined in market value due to changes in interest rates. At ~~June 30, 2021,~~March 31, 2022, 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.~~

Table of Contents

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 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, 2021,~~March 31, 2022, 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.

Based on an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (who is our principal executive officer) and our Chief Financial Officer (who is our principal financial officer), 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

~~Table of Contents~~

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

None.

Item 1A. Risk Factors

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, ~~2020.~~

2021.

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

~~In January 2021 and July 2021, our~~Our Board of Directors ~~increased the authorization~~has authorized under its existing stock repurchase program, ~~by $100.0 million and $970.0 million, respectively, reflecting~~ an aggregate authorization for share repurchases since the initiation of the program of ~~$1,470.0~~$1,645.0 million. The current expiration date on the repurchase authorization by our Board of Directors is December 31, ~~2021.~~2022. Repurchases occur at the Company’s discretion and the Company may modify, suspend or discontinue the repurchase authorization at any time. Repurchases may be made in the open market or in privately negotiated transactions, pursuant to the applicable Securities and Exchange Commission rules. The amount and timing of future share repurchases, if any, will be made as market and business conditions warrant.

During the three Onmonths ended March ~~10, 2021, the Company entered into an accelerated share repurchase (“ASR”) agreement with Morgan Stanley & Co. LLC (“Morgan Stanley”) to repurchase up to $35.0 million of its outstanding~~31, 2022, 4,575,048 shares of common stock ~~as part of~~were repurchased by the ~~Company’s~~Company. At March 31, 2022, there remains $200.5 million available under our share repurchase program. Under the ASR agreement, the Company received initial delivery of approximately 275,889 shares of common stock, representing approximately 80% of the number of shares of common stock initially underlying the ASR agreement based on the closing price of the common stock of $101.49, on March 9, 2021. The total number of shares that the Company repurchased under the ASR program was based on the volume-weighted average price of the common stock during the term of the ASR agreement, less a discount, and was subject to potential adjustments pursuant to the terms and conditions of the ASR agreement. The final settlement of the share repurchases under the ASR agreement was completed on May 4, 2021 with additional delivery of 45,914 shares of common stock. The ASR agreement resulted in a total of 321,803 shares repurchased at an average cost of $108.76.

3630

Table of Contents

~~During the six~~ months ended June 30, 2021, 1,548,686 shares of common stock were repurchased by the Company, which includes the shares delivered as of June 30, 2021 from the ASR agreements on March 10, 2021 and May 17, 2021. At June 30, 2021, there remains $96.6 million available under our share repurchase authorization (which authorization was increased to $1,066.6 million in July 2021).

The following table sets forth our share repurchases of common stock and our share repurchases in lieu of taxes, which are not included in the repurchase plan totals as they were approved in conjunction with the restricted share awards, during each period in the ~~second~~first quarter of fiscal ~~2021:~~2022:


				Total Number of	Maximum Dollar					Total Number of	Maximum Dollar
				Shares Purchased as	Value of Shares					Shares Purchased as	Value of Shares
		Average		Part of Publicly	That May Yet Be			Average		Part of Publicly	That May Yet Be
	Total Number of	Price Paid		Announced	Purchased Under		Total Number of	Price Paid		Announced	Purchased Under
Period	Shares Purchased	Per Share		Program	the Program		Shares Purchased	Per Share		Program	the Program
Share Repurchases
April 1, 2021 – April 30, 2021	31,360	$	110.32	31,360	$	188,500,000
May 1, 2021 – May 31, 2021	720,046	$	98.74	720,046	$	117,400,000
June 1, 2021 – June 30, 2021	230,025	$	90.30	230,025	$	96,600,000
January 1, 2022 – January 31, 2022							1,685,637	$	85.83	1,685,637	$	450,700,000
February 1, 2022 – February 28, 2022							1,807,066	$	82.53	1,807,066	$	301,600,000
March 1, 2022 – March 31, 2022							1,082,345	$	93.42	1,082,345	$	200,500,000
Total	981,431	$	97.13	981,431	$	96,600,000	4,575,048	$	86.32	4,575,048	$	200,500,000
Tax Withholdings
April 1, 2021 – April 30, 2021	—	$	—	—	$	—
May 1, 2021 – May 31, 2021	—	$	—	—	$	—
June 1, 2021 – June 30, 2021	—	$	—	—	$	—
January 1, 2022 – January 31, 2022							—	$	—	—	$	—
February 1, 2022 – February 28, 2022							—	$	—	—	$	—
March 1, 2022 – March 31, 2022							52,446	$	88.19	—	$	—
Total	—	$	—	—	$	—	52,446	$	88.19	—	$	—

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits

Number	Description	Method of Filing
3.1	Amended and Restated Certificate of Incorporation.	Incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed with the SEC on February 20, 2019.

3.2	Third Amended and Restated Bylaws.	Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 29, 2014.

4.1	Specimen of Stock Certificate.	Incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 filed with the SEC on September 29, 2008.

~~Table of Contents~~

31.1		Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.		Filed herewith.

Table of Contents

31.2	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	Filed herewith.

32.1	Certification of Principal 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 Principal 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.

101	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2021,~~March 31, 2022, formatted in Inline XBRL: (i) Consolidated Income Statements, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements tagged as blocks of text and including detailed tags.	Filed herewith.

104	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2021,~~March 31, 2022, formatted in Inline XBRL (included as Exhibit 101).	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.

3832

Table of Contents

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 5, 2021~~May 4, 2022		By:	/s/ Daniel E. Bachus
		Daniel E. Bachus
		Chief Financial Officer
	��	(Principal Financial Officer)

3933


	As of June 30, 2021
			Gross		Gross		Estimated
	Adjusted		Unrealized		Unrealized		Fair
	Cost		Gains		(Losses)		Value
Corporate bonds	$	34,344	$	41	$	(281)	$	34,104
Commercial paper		3,997		—		—		3,997
Municipal securities		2,108		—		—		2,108
Asset backed securities		1,202		—		(2)		1,200
Total investments	$	41,651	$	41	$	(283)	$	41,409


	June 30, 2021
	Estimated	Gross				Net
	Average Useful	Carrying		Accumulated		Carrying
	Life (in years)	Amount		Amortization		Amount
University partner relationships	25	$	210,000	$	(20,572)	$	189,428
Trade names	1		280		(280)		—
Total amortizable intangible assets, net		$	210,280	$	(20,852)	$	189,428


Remainder of 2021	$	4,209
2022		8,419
2023		8,419
2024		8,419
2025		8,419
Thereafter		151,543
	$	189,428


	As of June 30,		As of December 31,
	2021		2020
Notes Payable
Note payable, quarterly payment of $8,368 starting December 31, 2019; interest at 30-Day LIBOR plus 2.00% (2.09% at June 30, 2021) through January 22, 2024	$	91,202	$	107,774
Revolving line of credit; interest at Base Rate (4.0% at June 30, 2021)		35,000		—
		126,202		107,774
Less: Current portion		68,145		33,144
	$	58,057	$	74,630


Remainder of 2021	$	16,572
2022		33,144
2023		33,145
2024		8,341
2025		—
Total	$	91,202


	Summary of Stock Options Outstanding
		Weighted		Weighted
		Average		Average
		Exercise		Remaining	Aggregate
	Total	Price per		Contractual	Intrinsic
	Shares	Share		Term (Years)	Value ($)
Outstanding as of December 31, 2020	176	$	15.34
Granted	—	$	—
Exercised	(176)	$	15.34
Forfeited, canceled or expired	—	$	—
Outstanding as of June 30, 2021	—	$	—	—	$	—
Exercisable as of June 30, 2021	—	$	—	—	$	—