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

August 06, 2012 | About:
10qk

10qk

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Grand Canyon Education Inc. (LOPE) filed Quarterly Report for the period ended 2012-06-30.

Grand Canyon Education Inc has a market cap of $717.9 million; its shares were traded at around $16.28 with a P/E ratio of 12.8 and P/S ratio of 1.7.

Highlight of Business Operations:

At June 30, 2012, we had approximately 44,400 students, an increase of 12.4% over the approximately 39,500 students we had at June 30, 2011. At June 30, 2012, 94.8% of our students were enrolled in our online programs, and of our online and professional studies students, 42.0% were pursuing masters 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 5.9%, depending on the program, with an estimated blended rate increase of 2.5% for our 2012-13 academic year, as compared to tuition price increases for students in our online and professional studies programs of 0.0% to 6.5% for our 2011-12 academic year, depending on the program, with an estimated blended rate increase of 3.2% for the prior academic year. Tuition for our traditional ground programs had no increase for our 2012-13 or 2011-12 academic years.

Instructional costs and services expenses. Our instructional costs and services expenses for the quarter ended June 30, 2012 were $53.4 million, an increase of $7.0 million, or 15.2%, as compared to instructional costs and services expenses of $46.4 million for the quarter ended June 30, 2011. This increase was primarily due to increases in employee compensation, program review reserve, faculty compensation, other instructional supplies, depreciation and amortization expenses, and other instructional costs and services expenses of $3.1 million, $3.0 million, $1.6 million, $1.4 million, $1.1 million, and $1.3 million, respectively. These increases were partially offset by a $4.5 million decrease in bad debt expense. The increase in employee compensation and faculty compensation is primarily due to an increase in headcount (both staff and ground and on-line fulltime faculty) needed to provide student instruction and support services to support the increase in enrollments. Additionally, in 2011 a reversal of $0.7 million was recorded in employee compensation for amounts accrued in previous periods that were to be paid to non-enrollment employees for students they previously recruited and for which bonuses were to be paid when those students completed 24 credit hours. As a result of new compensation rules that became effective July 1, 2011, these amounts could no longer be paid. The reserve for our program review primarily represents the estimated amounts that will be returned related to certain Pell grants. The increase in depreciation and amortization is the result of our continued growth and expansion of the ground traditional campus in order to accommodate the growth in our traditional ground enrollment. We also incurred an increase in instructional supplies due to increased licensing fees related to educational resources and increased food costs associated with a higher number of residential students. Our instructional costs and services expenses as a percentage of net revenues decreased by 0.2% to 44.8% for the quarter ended June 30, 2012, as compared to 45.0% for the quarter ended June 30, 2011 primarily due to improvements in bad debt expense, partially offset by increases as a percentage of net revenues in employee compensation and related expenses, other instructional supplies, program review reserve, and depreciation and amortization expenses. Bad debt expense decreased as a percentage of net revenues from 8.0% in the second quarter of 2011 to 3.1% in the second quarter of 2012 as a result of improved collections of receivables due from current students between periods due to operational improvements made during 2011 and a reduction in receivables due from former students.

Selling and promotional expenses. Our selling and promotional expenses for the quarter ended June 30, 2012 were $32.8 million, an increase of $5.1 million, or 18.2%, as compared to selling and promotional expenses of $27.7 million for the quarter ended June 30, 2011. This increase is primarily the result of increases in employee compensation and advertising of $4.2 million and $0.8 million, respectively. Our selling and promotional expenses as a percentage of net revenue increased by 0.6% to 27.5% for the quarter ended June 30, 2012, from 26.9% for the quarter ended June 30, 2011. The increase in employee compensation was due to changes made by the University to comply with the new employee compensation rules that went into effect July 1, 2011. During the second quarter of 2011, the University reversed $1.5 million of amounts accrued in previous periods that were to be paid to enrollment employees for students they previously recruited and for which bonuses were to be paid when those students completed 24 credit hours. Due to the compensation rule changes effective July 1, 2011, these amounts could no longer be paid. Additionally in 2012, employee compensation and related expenses as a percentage of revenue increased as a result of increasing the number of enrollment counselors between years. 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. The advertising expense increased due to us entering into a new revenue sharing agreement with MindStreams, L.L.C. in the third quarter of 2011.

Selling and promotional expenses. Our selling and promotional expenses for the six months ended June 30, 2012 were $67.3 million, an increase of $9.8 million, or 17.0%, as compared to selling and promotional expenses of $57.5 million for the six months ended June 30, 2011. This increase is primarily the result of increases in employee compensation and advertising of $6.3 million and $3.9 million, respectively, which is partially offset by lower promotional expenses of $0.4 million for the quarter. Our selling and promotional expenses as a percentage of net revenue increased by 0.4% to 28.5% for the six months ended June 30, 2012, from 28.1% for the six months ended June 30, 2011. The increase in employee compensation was due to changes made by the University to comply with the new employee compensation rules that went into effect July 1, 2011. During the second quarter of 2011, the University reversed $1.5 million of amounts accrued in previous periods that were to be paid to enrollment employees for student they previously recruited and for which bonuses were to be paid when those students completed 24 credit hours. Due to the compensation rule changes effective July 1, 2011, these amounts could no longer be paid. Additionally, employee compensation and related expenses as a percentage of revenue increased as a result of increasing the number of enrollment counselors between years. 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. The advertising expense increased due to us entering into a new revenue sharing agreement with MindStreams, L.L.C. in the third quarter of 2011.

General and administrative expenses. Our general and administrative expenses for the six months ended June 30, 2012 were $15.2 million, an increase of $1.3 million, or 9.9%, as compared to general and administrative expenses of $13.9 million for the six months ended June 30, 2011. This increase was primarily due to increases in employee compensation and related expenses of $1.1 million. Our general and administrative expenses as a percentage of net revenue decreased by 0.4% to 6.4% for the six months ended June 30, 2012, from 6.8% for the six months ended June 30, 2011.

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