Grand Canyon Education Inc. (LOPE) filed Quarterly Report for the period ended 2009-09-30.
Grand Canyon Education Inc. is a regionally accredited provider of online postsecondary education services focused on offering graduate and undergraduate degree programs in its core disciplines of education business and healthcare. In addition to its online programs it offers programs at its traditional campus in Phoenix Arizona and onsite at the facilities of employers. Grand Canyon Education Inc. has a market cap of $765.2 million; its shares were traded at around $16.79 with and P/S ratio of 4.7.
Highlight of Business Operations:
Instructional cost and services expenses. Our instructional cost and services expenses for the quarter ended September 30, 2009 were $23.5 million, an increase of $10.5 million, or 81.0%, as compared to instructional cost and services expenses of $13.0 million for the quarter ended September 30, 2008. This increase was primarily due to increases in instructional compensation and related expenses, faculty compensation, instructional supplies, depreciation and amortization, share-based compensation, and other miscellaneous instructional costs and services of $4.9 million, $2.0 million, $0.9 million, $0.8 million, $0.3 million, and $1.6 million, respectively. These increases are primarily attributable to the increased headcount (both staff and faculty) needed to provide student instruction and support services, including increased occupancy and equipment costs for the increased headcount, as a result of the increase in enrollments. Our instructional cost and services expenses as a percentage of net revenue increased by 2.5% to 35.5% for the quarter ended September 30, 2009, as compared to 33.0% for the quarter ended September 30, 2008. This increase was a result of increase in employee compensation and related expenses as a percentage of revenue as we have increased the support personnel to student ratios to further improve the customer service to our students, increased employer tax expense from the transition of our online faculty to employees from independent contractors, partially offset by the continued shift of our student population to online programs and our ability to leverage the relatively fixed cost structure of our campus-based facilities and ground faculty across an increasing revenue base, as well as increased class size.
Selling and promotional expenses. Our selling and promotional expenses for the quarter ended September 30, 2009 were $22.1 million, an increase of $3.6 million, or 19.0%, as compared to selling and promotional expenses of $18.5 million for the quarter ended September 30, 2008. This increase was primarily due to increases in selling and promotional employee compensation and related expenses, advertising, occupancy, and other selling and promotional related costs of $2.5 million, $0.4 million, $0.3 million, and $0.4 million, respectively. These increases were driven by a continued substantial expansion in our marketing efforts following the removal of our growth restrictions by the Department of Education in 2006, which resulted in an increase in recruitment, marketing, and enrollment staffing, and expenses related to our revenue sharing arrangement. Our selling and promotional expenses as a percentage of net revenue decreased by 13.8% to 33.4% for the quarter ended September 30, 2009, from 47.2% for the quarter ended September 30, 2008. This decrease occurred as a result of an increase in the productivity of our enrollment counselors that were hired during 2008, coupled with our efforts to focus on pursuing higher quality leads to increase enrollment. In this regard, we incur immediate expenses in connection with hiring new enrollment counselors while these individuals undergo training, and typically do not achieve full productivity or generate enrollments from these enrollment counselors until four to six months after their dates of hire. We plan to continue to add additional enrollment counselors in the future, although the number of additional hires as a percentage of the total headcount is expected to decrease, and we therefore expect selling and promotional expenses as a percentage of net revenue to continue to decline in the future.
General and administrative expenses. Our general and administrative expenses for the quarter ended September 30, 2009 were $8.6 million, an increase of $3.6 million, or 70.0%, as compared to general and administrative expenses of $5.0 million for the quarter ended September 30, 2008. This increase was primarily due to increases in bad debt expense, employee compensation, and share-based compensation, partially offset by a decrease in legal, audit and corporate insurance expenses of $2.1 million, $1.1 million, $0.6 million, and $0.2 million, respectively. Bad debt expense increased to $3.3 million for the quarter ended September 30, 2009 from $1.2 million for the quarter ended September 30, 2008 as a result of an increase in net revenues and the increase in aged receivables between periods. Employee compensation increased primarily as a result of the additions in July 2008 to our executive management team and the hiring of other personnel needed to operate as a public company. Share based compensation increased since prior to November 2008 we had never granted equity awards. The decrease in legal, audit, and corporate insurance is primarily related to lower legal costs in 2009 as a result of the settlement of the SunGard litigation and the completion of our initial public offering in November 2008, partially offset by increased insurance and audit costs associated with being a public company. Our general and administrative expenses as a percentage of net revenue increased by 0.1% to 12.9% for the quarter ended September 30, 2009, from 12.8% for the quarter ended September 30, 2008. This increase was primarily due to an increase in bad debt expense from $1.2 million in the third quarter of 2008 to $3.3 million in the third quarter of 2009. The increase was the result of both an increase in revenue and a refinement made in 2009 to our methodology for estimating bad debt expense to better reflect the pattern and timing of the aging of our receivables as well as to incorporate our most recent collections experience. On a sequential basis, bad debt expense as a percentage of revenue of 5.1% for the third quarter is down from 5.5% in the second quarter of 2009, and 5.2% for the year ended December 31, 2008. In addition, share-based compensation represented 0.9% of net revenue for the quarter ended September 30, 2009. These increases were partially offset by our ability to leverage our fixed infrastructure over an increasing revenue base.
Instructional cost and services expenses. Our instructional cost and services expenses for the nine months ended September 30, 2009 were $61.9 million, an increase of $24.9 million, or 67.2%, as compared to instructional cost and services expenses of $37.0 million for the nine months ended September 30, 2008. This increase was primarily due to increases in instructional compensation and related expenses, faculty compensation, occupancy, instructional supplies, depreciation and amortization, share-based compensation, and other miscellaneous instructional costs and services of $11.8 million, $5.3 million, $1.6 million, $1.6 million, $1.6 million, $0.4 million, and $2.6 million, respectively. These increases are primarily attributable to the increased headcount (both staff and faculty) needed to provide student instruction and support services, including increased occupancy and equipment costs for the increased headcount, as a result of the increase in enrollments. Our instructional cost and services expenses as a percentage of net revenue decreased by 0.2% to 33.5% for the nine months ended September 30, 2009, as compared to 33.7% for the nine months ended September 30, 2008. This decrease was a result of the continued shift of our student population to online programs and our ability to leverage the relatively fixed cost structure of our campus-based facilities and ground faculty across an increasing revenue base, as well as increased class size, partially offset by an increase in employee compensation and related expenses as a percentage of revenue as we have increased the support personnel to student ratios to further improve the customer service to our students.
Selling and promotional expenses. Our selling and promotional expenses for the nine months ended September 30, 2009 were $62.4 million, an increase of $16.4 million, or 35.5%, as compared to selling and promotional expenses of $46.0 million for the nine months ended September 30, 2008. This increase was primarily due to increases in selling and promotional employee compensation and related expenses, advertising, occupancy, and other selling and promotional related costs of $8.0 million, $5.9 million, $1.1 million, and $1.4 million, respectively. These increases were driven by a continued substantial expansion in our marketing efforts following the removal of our growth restrictions by the Department of Education in 2006, which resulted in an increase in recruitment, marketing, and enrollment staffing, and expenses related to our revenue sharing arrangement. Our selling and promotional expenses as a percentage of net revenue decreased by 8.2% to 33.8% for the nine months ended September 30, 2009, from 42.0% for the nine months ended September 30, 2008. This decrease occurred as a result of an increase in the productivity of our enrollment counselors that were hired during 2008, coupled with a focus on higher quality leads to enhance our efforts to enroll prospective students. In this regard, we incur immediate expenses in connection with hiring new enrollment counselors while these individuals undergo training, and typically do not achieve full productivity or generate enrollments from these enrollment counselors until four to six months after their dates of hire. We plan to continue to add additional enrollment counselors in the future, although the number of additional hires as a percentage of the total headcount is expected to decrease, and we therefore plan to continue to reduce selling and promotional expenses as a percentage of net revenue in the future.
General and administrative expenses. Our general and administrative expenses for the nine months ended September 30, 2009 were $26.1 million, an increase of $10.1 million, or 63.1%, as compared to general and administrative expenses of $16.0 million for t
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