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Grand Canyon Education Inc. Reports Operating Results (10-Q)

August 09, 2010 | About:

10qk

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Grand Canyon Education Inc. (LOPE) filed Quarterly Report for the period ended 2010-06-30.

Grand Canyon Education Inc. has a market cap of $921.8 million; its shares were traded at around $20.17 with a P/E ratio of 25.5 and P/S ratio of 3.5. LOPE is in the portfolios of Wallace Weitz of Weitz Wallace R & Co, Pioneer Investments, Steven Cohen of SAC Capital Advisors, George Soros of Soros Fund Management LLC.
This is the annual revenues and earnings per share of LOPE over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of LOPE.


Highlight of Business Operations:

At June 30, 2010, we had approximately 36,300 students, an increase of 31.5% over the approximately 27,600 students we had at June 30, 2009. At June 30, 2010, 96.8% of our students were enrolled in our online programs, and 44.1% of our online students were pursuing master’s or doctoral degrees. In addition, revenue per student increased between periods as we increased tuition prices for students in our online and professional studies programs by 0.0% to 5.7%, depending on the program, with an estimated blended rate increase of 3.5% for our 2010-11 academic year, as compared to tuition price increases for students in our online and professional studies programs by 2.3% to 15.5% for our 2009-10 academic year, depending on the program, with an estimated blended rate increase of 5.0% for the prior academic year. Tuition for our traditional ground programs had no increase for our 2010-11 academic year, as compared to an increase of 6.6% for the prior academic year. In addition, we experienced an increase in the number of students taking 4 credit courses between years. Operating income was $40.8 million for the six months ended June 30, 2010, an increase of $18.8 million over the $22.0 million in operating income for the six months ended June 30, 2009.

Instructional cost and services expenses. Our instructional cost and services expenses for the quarter ended June 30, 2010 were $36.2 million, an increase of $15.8 million, or 77.2%, as compared to instructional cost and services expenses of $20.4 million for the quarter ended June 30, 2009. This increase was primarily due to increases in instructional compensation and related expenses, non-capitalizable system conversion costs, faculty compensation, instructional supplies, depreciation and amortization, share-based compensation, and other miscellaneous instructional costs and services of $4.3 million, $4.0 million, $2.8 million, $1.2 million, $0.8 million, $0.4 million, and $2.3 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, to support the increase in enrollments. Our instructional cost and services expenses as a percentage of net revenue increased by 4.7% to 37.1% for the quarter ended June 30, 2010, as compared to 32.4% for the quarter ended June 30, 2009. This increase was a result of costs incurred during our system conversion during the second quarter of 2010, 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 and increased instructional supplies and miscellaneous instructional costs due to increased licensing fees related to educational resources and continued improvement in curriculum development and new and enhanced innovative educational tools, partially offset by our ability to leverage the fixed cost structure of our campus-based facilities and ground faculty across an increasing revenue base.

Selling and promotional expenses. Our selling and promotional expenses for the quarter ended June 30, 2010 were $29.0 million, an increase of $8.3 million, or 39.8%, as compared to selling and promotional expenses of $20.7 million for the quarter ended June 30, 2009. This increase was primarily due to increases in selling and promotional employee compensation and related expenses, advertising and other promotional expenses of $4.1 million, $3.1 million and $1.1 million, respectively. These increases were driven by a continued expansion in our marketing efforts, 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 3.2% to 29.7% for the quarter ended June 30, 2010, from 32.9% for the quarter ended June 30, 2009. This decrease occurred as a result of an increase in the productivity of our enrollment counselors that were hired during 2009, 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 remain flat or decrease.

General and administrative expenses. Our general and administrative expenses for the quarter ended June 30, 2010 were $11.7 million, an increase of $3.0 million, or 34.4%, as compared to general and administrative expenses of $8.7 million for the quarter ended June 30, 2009. This increase was primarily due to increases in bad debt expense and employee compensation and related expenses of $2.2 million and $0.9 million, partially offset by decreases in other general and administrative expenses of $0.1 million. Bad debt expense increased to $5.5 million for the quarter ended June 30, 2010 from $3.3 million for the quarter ended June 30, 2009 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 additions in 2009 and the first quarter of 2010 resulting from our continued growth. Our general and administrative expenses as a percentage of net revenue decreased by 1.8% to 12.0% for the quarter ended June 30, 2010, from 13.8% for the quarter ended June 30, 2009. This decrease was primarily due to our ability to leverage certain costs such as administration and legal expenses across increasing revenue, partially offset by an increase in bad debt expense as a percentage of revenue from 5.2% in the second quarter of 2009 to 5.6% in the second quarter of 2010. As a result of current economic conditions, a higher percentage of aged receivables are not being paid.

Income tax expense. Income tax expense for the quarter ended June 30, 2010 was $8.0 million, an increase of $2.9 million from $5.1 million for the quarter ended June 30, 2009. This increase was primarily attributable to increased income before income taxes. Our effective tax rate was 39.2% during the second quarter of 2010 compared to 39.8% during the second quarter of 2009. The decrease in the effective tax rate between periods is due to resolution of the 2005 and 2006 IRS audit.

Instructional cost and services expenses. Our instructional cost and services expenses for the six months ended June 30, 2010 were $68.0 million, an increase of $29.6 million, or 77.1%, as compared to instructional cost and services expenses of $38.4 million for the six months ended June 30, 2009. This increase was primarily due to increases in instructional compensation and related expenses, faculty compensation, non-capitalizable system conversion costs, instructional supplies, depreciation and amortization, share-based compensation, and other miscellaneous instructional costs and services of $8.8 million, $6.4 million, $4.0 million, $2.3 million, $1.6 million, $0.7 million, and $5.8 million, respectively. These increases are primarily attributable to the i

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