2023ANNUAL REPORT2600 W. CAMELBACK ROAD | PHOENIX, AZ 85017 | 833-GCE-4400 | GCE.COM PRIMARY IR CONTACTDaniel E. BachusChief Financial Officer Grand Canyon Education2600 W. Camelback RoadPhoenix, AZ 85017Phone: (602) 247-4400Website: gce.comTRANSFER AGENTComputershare Investor ServicesPO Box 43006Providence, RI 02940-3006ACCOUNTANTSKPMG LLPCOMMON STOCKThe Company’s common stock trades on the Nasdaq Global Market under the symbol LOPE.ANNUAL MEETING OF STOCKHOLDERSThe Company’s Annual Meeting of Stockholders will be held at 10:30 a.m., Arizona Time, on Tuesday, June 20, 2023 at the offices of Grand Canyon Education, Inc. located at 2600 W. Camelback Road, Phoenix, AZ 85017.BOARD OF DIRECTORSBrian E. MuellerChief Executive Officer and ChairmanChevy HumphreyDirector Sara R. DialDirectorLisa Graham KeeganDirector Jack A. HenryDirectorDavid M. AdameDirectorMANAGEMENTBrian E. MuellerChief Executive Officer and Chairman Dr. W. Stan MeyerChief Operating OfficerKathy J. ClaypatchChief Information OfficerDaniel J. BriggsOrbis Education, CEO Daniel E. BachusChief Financial Officer Dilek MarshChief Technology OfficerGRAND CANYON EDUCATIONCORPORATE INFORMATIONDEAR STOCKHOLDERS,Grand Canyon Education (GCE) continues to deliver significant results for its partner institutions, their students and the communities they reside in. GCE has used its expertise, technology and processes to help its partner institutions mitigate financial risk and ensure stability through these challenging times. As many in the higher education industry continue to experience declining enrollment and negative financial trends, accelerated during COVID, we have focused on where the jobs and careers are going to be in the future and are assisting our partner institutions to expand their programs and capacity in those areas to meet the local need for an educated workforce. GCE continues to partner with Grand Canyon University to differentiate its offerings by promoting a strong value proposition to the communities it serves. GCU has established over 26,850 B2B industry partnerships. From helping to grow talent from the inside, to developing state-specific programs in licensure, GCU is there to help meet the unique needs of its partners. In the 4.5 years since GCE has become a service provider, it has helped GCU graduate 125,654 students many with licensure degrees in which there is significant need such as teacher education, counseling, social work and nursing with a growing percentage enrolled as first-generation students. In addition, since 2019, an additional 9,182 students have graduated from our other university partners’ Accelerated Bachelor of Science in Nursing or Occupational Therapy Assistant programs. Some of the results from 2022 that I would like to highlight include: GCU’s traditional campus had an increase of 8.9% in new students in the Fall of 2022, an increase of 8.0% in total ground traditional enrollment and an increase of 10.5% in residential enrollment, resulting in 69.9% of ground traditional students living on campus. This was achieved even though the number of high school graduates continues to decline and the percentage of those graduates going directly from high school to college has also declined.We continue to support GCU’s online programs for working adults. In the second half of 2022, GCU had a return to new online growth and as a result, total online enrollments are expected to return to growth in early 2023. In our hybrid programs, we continue to invest heavily in new enrollment, simulation, virtual reality and pre-requisite strategies to alleviate the greatest challenges to graduating more nurses, specifically clinical faculty shortages and the difficult path to qualify for enrollment. Nursing boards in many states have lowered the number of clinical hours required as the result of the quality of and outcomes achieved from simulations and virtual reality. In addition, GCE has already enrolled over 1,000 students into GCU’s nursing pre-requisite courses that provide significant academic support, are affordable and are delivered 100% online with frequent start dates to increase the likelihood of successful completion. This will provide a healthy feeder system into our partners’ hybrid healthcare programs. Social responsibility, human capital development, environmental awareness and resiliency are significant focuses for Grand Canyon Education. To this end, GCE continues to provide contributions and volunteer hours that benefit many non-profit organizations such as Habitat for Humanity, GCU CityServe, Special Olympics and the Youth Opportunity Foundation. We offer our full-time employees 16 hours of PTO annually for community service. GCE has over 40 approved organizations where employees may donate their time. GCE supports community giving with its contribution of $5 million to private school tuition organizations in 2022, encouraging employee giving through our Allocate to Elevate program, soliciting donations for scholarships for our university partners’ students and sponsoring K-12 education development. GCE continues to foster a culture of workforce diversity. Of GCE’s 5,500 employees, 79.8% are women and other diverse persons, an increase of 1.5% over 2021. Among GCE employees who are manager level and above, totaling 605 persons, 68.8% are held by women and other diverse persons, an increase of 1.2% over 2021. Three of our six directors are women, and two directors identify with an underrepresented diverse ethnicity. We believe diversity enriches the workplace by improving productivity, company culture, employee retention and ultimately leads to increased profitability. GCE has remained steadfast in following its mission to support higher education across a broad spectrum of modalities while ensuring access across all socioeconomic statuses. GCE continues to lean into social responsibility, human capital development, environmental awareness and resiliency. As we move into 2023, we note positive trends providing a strong path for growth as we serve within the industry./s/ Brian E. MuellerChief Executive Officer and Chairman UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2022
OR
☐
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
(State or other jurisdiction of
incorporation or organization)
20-3356009
(I.R.S. Employer
Identification No.)
2600 W. Camelback Road, Phoenix, Arizona 85017
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (602) 247-4400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock
Trading Symbol(s)
LOPE
Name of each exchange on which registered
Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in
Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
Non-accelerated Filer
Emerging Growth Company
☒
☐
☐
Accelerated Filer
Smaller Reporting 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit
report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act). Yes ☐ No ☒
The total number of shares of common stock outstanding as of February 14, 2023 was 31,039,407.
As of June 30, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, the registrant’s common stock was listed on the
NASDAQ Global Market. As of June 30, 2022, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $3.0 billion.
Certain portions of the registrant’s Definitive Proxy Statement for its 2023 Annual Meeting of Stockholders (which is expected to be filed with the
Commission within 120 days after the end of the registrant’s 2022 fiscal year) are incorporated by reference into Part III of this Report.
DOCUMENTS INCORPORATED BY REFERENCE
GRAND CANYON EDUCATION, INC.
FORM 10-K
INDEX
Special Note Regarding Forward-Looking Statements
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Consolidated Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits and Consolidated Financial Statement Schedules
Exhibit Index
SIGNATURES
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Special Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K, including Item 1, Business; Item 1A, Risk Factors; and Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains certain “forward-
looking statements,” within the meaning of Section 27A of the 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, statements regarding: proposed new programs; statements as to whether regulatory 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, 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.
Important factors that could cause our actual performance or results to differ materially from those expressed in or
suggested by the forward-looking statements, include, but are not limited to:
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the harm to our business, results of operations, and financial condition, and harm to our university
partners resulting from epidemics, pandemics, 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;
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 ED 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;
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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;
our ability to manage future growth effectively;
the impact of any natural disasters or public health emergencies;
general adverse economic conditions or other developments that affect the job prospects of our
university partners’ students; and
other factors discussed under the headings “Risk Factors,” “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” “Business,” and “Regulation.”
Forward-looking statements speak only as of the date the statements are made. You should not put undue
reliance on any forward-looking statements. 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.
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Item 1. Business
Overview
Part I
Grand Canyon Education, Inc., a Delaware corporation (“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 that operates 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 four off-campus
classroom and laboratory sites. As of December 31, 2022, GCE provided education services and support to
approximately 113,000 students with more than 108,600 students enrolled in GCU’s programs, emphases and
certificates.
In January 2019, GCE began providing education services to numerous university partners across the United
States through our wholly owned subsidiary, Orbis Education Services LLC (“Orbis Education”), which we acquired on
January 22, 2019 (the “Acquisition”). Since the Acquisition, GCE, together with Orbis Education, 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 have provided certain services to a
university partner to assist them in expanding their online graduate programs. As of December 31, 2022, GCE provided
education services to 27 university partners across the United States.
We plan to continue to add additional university partners and to roll out 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”. We do disclose significant information for GCU, such as enrollments, due to its size in comparison to our
other university partners.
Our Business
GCE is an education services company with 27 university partners as of December 31, 2022. We have invested
over $291.8 million in the last 14 years in technology which includes the cost to develop systems that automate key
processes and enable us to scale these processes to hundreds of thousands of students. GCE is capable of supporting not
just core academic functions, technology and marketing but many additional key processes that surround those functions,
such as faculty recruiting and training, admissions, financial aid, accounting, and technical support. We provide these
services to our university partners pursuant to master services agreements that define the scope of our engagement, the
types of services provided and other key terms of the engagement.
Suite of Services
The following describes the various services that we are capable of providing to university partners. Services
actually provided to a given university partner depend upon the nature of programs supported by GCE, existing
university infrastructure, and university partner preferences.
Technology and Academic Services
We provide technology and academic services that can include the ongoing maintenance of our university
partners’ educational infrastructure, including online course delivery and management, student records, assessment,
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customer relations management and other internal administrative systems. These services can also include curriculum
conversion, support for content development, support for faculty and related training and development, technical
support, rent and occupancy costs for university partners’ simulation and skills labs, and assistance with state regulatory
compliance. We have established secure, reliable and scalable technology systems that provide a high-quality
educational environment and that give us the capability to grow our university partners’ programs and enrollment.
Technology Services may include the following:
• Learning Management System (“LMS”) - GCE designed and offers to its university partners a new
LMS, called Halo. GCU started utilizing Halo in the Fall of 2021 and has completed the transition of
all of its students to the new LMS. The basic functionality includes an interactive course syllabus,
discussion questions and forums, instruction interaction, class quizzes, group assignments, written
assignment submission and rubrics, grading, participation, attendance and integration with our
student information system. The functions in Halo have been reimagined to work more intuitively
with new user interface design and more seamless ways of accomplishing the same tasks. Halo was
designed as a “Cloud native” application taking advantage of all the performance and reliability
features of the Cloud. Halo supports small classes that are instructor led, highly interactive and
collaborative. Rich content that originates from a myriad of sources, including direct advisement
from industry, is coupled with a robust discussion environment. Students most often respond to the
content and discussion through written work. The writing assignments are designed to promote
critical thinking which is often connected to solving real world problems. This platform can easily
and reliably scale as student populations increase. The platform provides in-depth analytics that
allow us to closely monitor student success and the quality of instructional resources. GCE also
designed its previous learning management system, LoudCloud which GCU used beginning in 2011.
Internal administration - We utilize a commercial customer relations management development
platform to distribute, manage, track, and report on all interactions with prospective student leads as
well as all active and inactive students. This software is scalable to capacity levels well in excess of
current requirements. We also utilize a commercial software package to track Title IV funds, student
records, grades, accounts receivable, accounts payable and general ledger. We have done significant
internal software development around these systems to increase the productivity of our employees
and provide students an exceptional educational experience.
Infrastructure - We operate two data centers, one at GCU’s campus and one at another Phoenix-area
location. All of our servers are networked, and we have redundant data backup. We manage our
technology environment internally. Our wide area network is fully redundant to ensure maximum
uptime, bandwidth capacity and network performance. Student access is load balanced for optimal
performance. Real-time monitoring provides current system status across network, server, and
storage components. We provide cybersecurity services, support and incident response for all
infrastructure and software that we utilize.
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• Support - We provide 18/7 technical support for students and faculty. There are two systems utilized
by GCE to provide these services.
Academic Services may include the following:
• Program and Curriculum – GCE has a curriculum content department that provides design and
conversion services to our university partners. In collaboration with our university partners, we assist
with the program and course design by providing curricular assistance and recommendations with
respect to content and techniques that make use of the available technologies and methods embodied
in the learning management system. GCE developed a proprietary system to support these services.
• Faculty and Related Training and Development – GCE provides faculty support including
recruitment, training and oversight services to its university partners. Under the direction of our
university partners and their academic leadership, we recruit and screen candidates, and schedule
faculty based on university partner-created requirements. We evaluate all faculty according to
university partner standards and provide evaluation results, if requested. Many of the health sciences
specific faculty development resources are accredited by the International Association for
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Continuing Education and Training (“IACET”) and the American Nurses Credentialing Center
(“ANCC”) allowing faculty to earn continuing education credits.
• Class Scheduling – GCE has a class scheduling department and has developed a proprietary system
to provide these services to our university partners. Our scheduling software provides students the
ability to set their class schedule and flexibility to make changes and create opportunities to complete
courses in a myriad of online or onsite options. We optimize class size prior to course starts based on
university partner standards, in order to maximize class resources and faculty utilization.
• Skills and Simulation Lab Sites – GCE secures, develops and finances off-campus classroom and
laboratory sites for use in various programs offered by our university partners, including the
accelerated Bachelor of Science in Nursing (ABSN). Off-campus classroom and laboratory sites are
branded for specific university partners and all classrooms, faculty, counselors, staff and specialized
equipment are centralized and made accessible to every university partner student. The laboratories
contain the latest in skills and simulation learning technology; including computer-based scenarios,
hands-on work with physical simulators and internally developed Mixed Reality (“MR”) with state-
of-the-art technology, which help students gain unique experiences in an alternative clinical setting.
Counseling Services and Support
We provide counseling services and support including one-on-one admissions, schedule and financial
counseling and other support for prospective and current students of our university partners. We offer financial aid
processing as well.
Counseling Services and Support may include the following:
• Admissions Services – GCE provides prospective students with transparent information on program
requirements, finance options, degree time to completion and net price calculator results in alignment
with university partners’ standards. GCE has developed a robust proprietary system to efficiently
evaluate transcripts and build schedules for prospective students. GCE processes applications in
alignment with university partners’ admission standards and provides reports on those students
selected for admission.
• Financial Aid – GCE provides financial aid services, including awarding, certifying, originating and
disbursing Title IV program funds to students. We deliver Title IV program credit balance refunds to
students, process return of Title IV program funds to the federal government when appropriate and
provide financial aid counseling and entrance and exit loan counseling to students. Additionally, we
prepare required reports, including but not limited to enrollment reporting to the National Student
Loan Data system and the Integrated Postsecondary Education Data System. Additionally, GCE has
built a proprietary system called the Financial Transparent Degree Plan Calculator, which provides
students the cost of their entire program.
• Counseling Services – GCE provides proactive services to our university partners’ students
throughout their matriculation such as schedule building, and financial aid counseling. We provide
students an assigned advisor who proactively works with students throughout their matriculation
process. We assist students with program changes and communicate with those students throughout
their program to help with retention. We provide students with the ability to access a variety of
administrative services both telephonically and via the Internet. For example, students can apply for
financial aid, pay their tuition, order their transcripts, and apply for graduation online. We believe
this online accessibility provides the convenience and self-service capabilities that students value.
GCE assesses levels of satisfaction using student surveys.
• Field Experience Counseling – For university partner students pursuing programs that lead to
external credentials (e.g., teaching, nursing, counseling, social work, theology, etc.), GCE leverages
a growing nationwide network of approved healthcare facilities, schools, preceptors, and supervisors
to ensure that all students are able to meet program-specific requirements. Each student is assigned a
counselor before or during their first course, and several prescribed appointments with their
counselor are scheduled throughout the student’s program to ensure that all state-specific progression
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requirements are met well in advance of deadlines. GCE assists in gathering all required
documentation, verifying it as official, and storing it as part of the student’s record.
Marketing and Communication
We provide marketing and communication services that include lead acquisition, digital communication
strategies, brand identity advertising, media planning and strategy, video, data science and analysis to potential students
and other promotional and communication services.
GCE’s marketing leadership team approaches the marketplace with an outlook that applies the latest
advancements in integrated marketing strategy and new and emerging technologies while leveraging GCE’s buying
power. This methodology embraces proven traditional and online solutions that are developed in conjunction with our
university partners.
Marketing and Communication services may include the following:
• Lead Acquisition – GCE’s marketing team employs experts across a wide breadth of digital
marketing channels. These include Search Engine Optimization, Search Engine Marketing, Social
Media Optimization, organic content and strategic acquisition funnels across a variety of mobile
markets.
• Digital Communications Strategy – GCE’s subject matter experts utilize best-in-class technologies
through marketing automation, integrated email, SMS text messaging and social media. GCE
develops effective communication strategies that encompass the entire student lifecycle from
prospect through alumni.
• Brand Identity – GCE’s award-winning team of specialists have proven track records of developing
strong brands and ensuring the right image is exposed to the consumer. GCE specializes in
storytelling shaped by logo creation, positioning taglines, campaign and content development,
custom music, and sonic branding.
• Media Planning and Strategy –GCE offers full-service media planning and strategies that are built to
grow sophisticated brands through traditional and digital media platforms. GCE understands today’s
culture and how content is consumed in the everchanging world of media. GCE creates robust
strategies that build long lasting connections with proven results.
• Video – GCE’s team of in-house video experts specialize in high-quality content expanding across a
wide variety of marketing channels. Capabilities include broadcast-quality commercials, explainer
videos, mini- and full-length documentaries, original programming, animations, motion graphics,
and short, stackable video content for a variety of social media channels. GCE enhances its internal
team with preferred partners to help offset workload and provide scalability of production
requirements.
• Business Intelligence and Data Science – GCE employs a team of in-house data analysis
professionals who apply descriptive and prescriptive analytics to help understand the marketplace
and facilitate important business decisions. GCE specializes in all aspects of data analytics and
science, including predictive modeling, data mining and visualization to enrich today’s technology
and data-driven marketplace, while providing the information required for success.
• Market Research – GCE’s market research professionals survey market, population and job data for
various locations across the country in order to make data-driven recommendations for new sites,
partnerships, and educational offerings that will maximize reach and impact and provide education
and career training to the areas where it will be most impactful.
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Back-Office Services
In addition, we currently provide certain requested back-office services to GCU that include finance, human
resources, audit, and other corporate functions.
• Finance and accounting - Finance and accounting services include administration of payroll,
accounts payable, general ledger, student accounting, financial reporting, budgeting and taxes at the
direction of GCU.
• Human Resources - Human resources services include administration of performance management,
personnel policies, recruitment and onboarding of new personnel, and benefit plan design and
procurement, among others.
• Audit - Audit services include development and administration of a GCU approved annual internal
audit plan and execution of the audit plan for the service period.
• Procurement - Procurement services include management of purchasing and vendor relationships,
including travel services, review of vendor contracts, and maintenance of contracts in the
procurement system.
Social Responsibility and Human Capital Development
Social responsibility and human capital development are significant focuses of the Company. Our efforts are
led by our Chief Executive Officer and a portion of his compensation is tied to our success in these areas. To this end,
our business was created and continues to evolve to meet the needs of the local community in which we operate as well
as those outside our community. We started by identifying what we believe to be the educational challenges that our
country is facing and then worked to find solutions to these challenges. We believe these challenges include:
• University education is too expensive;
• Students are taking on too much debt;
• Bachelor degrees are taking too long to complete;
• Programs are not targeted enough toward careers. Recent surveys show that a large percentage of
college students would change majors if starting over, and a significant number of recent graduates
are under employed or are in jobs that don’t required degrees;
• As tuition increases, diversity decreases;
• Universities have inadequate counseling and support services, especially for distance learners;
• Most university professors have no formal training in teaching, learning or course design;
• Universities are under significant financial pressure, which has only been enhanced during 2020 and
2021 due to the pandemic and a declining number of high school graduates attending college.
We provide the capital, technology and expertise to our university partners to lessen the challenges in each of
the areas listed above (see Item 1. Business – Suite of Services). We work with these university partners to develop
educational models that allow them the ability to decrease tuition or increase scholarships to their students which will
often lower the debt their students incur. We work with our university partners and thousands of high schools across the
country on dual credit, online prerequisite courses and other programs that shorten the time to completion thereby
lowering cost and debt levels. We focus with our university partners and their local communities to develop programs
where there are skills shortages such as healthcare, teacher education, science, technology, engineering and math. GCE
provides expanded academic counseling services and support to the students of our university partners which has proven
to increase retention and completion. Our faculty services and curriculum development teams assist not only our
university partners but other universities and K12 schools in improving their online education pedagogy. And our
business model has helped our university partners as changes in the educational landscape and the pandemic has put
pressure on their financial condition.
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Community Involvement by GCE and its Employees. Examples of activities in which we and our employees
participate include:
•
Improving Our Neighborhood and Increased Home Values - Together with Habitat for Humanity and in
concert with our largest university partner, we are participating in the largest home renovation project in
the country in the West Phoenix area surrounding GCU’s campus. As of December 31, 2022,
1,109 projects have been completed in which 30,000 hours have been logged by volunteers. These efforts,
combined with GCE and GCU’s expanded presence in the community, have contributed to a significant
increase in home values since 2011 in the 85017 zip code.
• Furthering Job Creation - We, along with GCU have launched a number of new business enterprises that
have reduced costs, provided management opportunities for recent graduates and employment
opportunities for students and neighborhood residents, while spurring economic growth in the area.
•
Special Olympics - We participate in the annual Plane Pull Challenge, which benefits Special Olympics
Indiana (SOIN) athletes. The “Orbeasts” go head-to-head in a tug of war with a Boeing FedEx 757 jetliner
in SOIN’s largest single-day fundraiser. This event offers a unique opportunity for organizations to team
build and work together to raise important funds for SOIN athletes. The vision of Special Olympics Indiana
is that sport will open hearts and minds towards people with intellectual disabilities and create inclusive
communities across the state and throughout the world.
• Youth Opportunity Foundation - Our employees volunteer and donate time and funds to the Youth
Opportunity Foundation which provides advocacy, clinical treatment, education and workforce
development for at-risk young people in underprivileged areas.
GCE also invests in the following activities that benefit the community.
• Funding of Student Tuition Organizations - GCE contributes to private school tuition organizations, which
are entities that allocate financial contributions toward tuition assistance and scholarships for
disadvantaged students to attend Arizona private schools. In each of 2022 and 2021, we contributed $5.0
million to these organizations.
• Encouraging Employee Giving - We participate in Donate to Elevate, a program that encourages employees
to participate in the Arizona individual tax credit program, which allows individual taxpayers to contribute
money in lieu of state income tax payments to benefit private schools and other non-profit entities in
Arizona, as well as local public schools and public charter schools. Employees are encouraged to designate
tax dollars to the school or program of their choice.
•
•
Students Inspiring Students - GCE continues to support GCU’s free tutoring/mentoring program that serves
Phoenix-area K-12 schools. Students who seek academic assistance in the GCU Learning Lounge may
become eligible to receive the Students Inspiring Students full-tuition scholarship. To serve our clients and
community, we seek donations to fund this neighborhood scholarship program.
Sponsoring K-12 Educational Development - GCE supports GCU’s K-12 Educational Development
Department through sponsorship of GCU’s Canyon Professional Development and K-12 Targeted School
Assistance programs. Canyon Professional Development offers professional development opportunities for
educators and administrators, and their student/parent engagement programs aim to help students become
college ready. K-12 Targeted School Assistance programs also offer tutoring and mentorship and more to
community schools to improve learning environments and outcomes. Both initiatives elevate public,
private, charter and home schools in the form of scholarships, program discounts, professional
development, events, and more.
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• Continuing Community Involvement - GCE and our employees partner in countless other community events
and projects throughout the year. We offer our full-time employees a maximum of 16 hours of PTO
annually for community service. This time is used to volunteer at an approved charitable organization.
Over 40 organizations are approved for employee volunteerism, including Habitat for Humanity.
In addition, GCE has historically partnered in countless community events and projects throughout the year,
helping organizations such as the Phoenix Rescue Mission, Feed My Starving Children, Arizona Foster Care, Boy/Girl
Scouts, Goodwill Arizona, St. Vincent de Paul, Young Life, Elevate Phoenix, Back to School Clothing Drive and
St. Mary’s Food Bank. Our employees also went out into our surrounding neighborhoods to participate in programs such
as Serve the City, Canyon Kids, Salute Our Troops, Colter Commons senior home visits and the Run to Fight Children’s
Cancer.
We believe that we must have the best talent, including employees who possess a diverse range of experiences,
backgrounds and skills, in order to anticipate and meet the needs of our business and those of our university partners.
Over time, we have hired, developed and retained a diverse management and workforce that reflects our surrounding
community and that is a key component in GCE’s success and an important part of our culture. We provide employees
with training, development, and educational resources that promote learning and lead to real career advancement
opportunities. We believe that our success in attracting, retaining, and developing human capital is directly correlated to
our ability to provide employees both an interesting and engaging work experience as well as opportunities for
meaningful involvement in the surrounding community. Our employees take advantage of these opportunities and share
our commitment to and enthusiasm for community service projects, as well as charitable organizations throughout the
Phoenix area. Through these activities, our employees have the opportunity to volunteer and provide servant leadership
that benefits the surrounding neighborhoods and West Phoenix community.
Our Commitment to Diversity. A growing body of evidence suggests that diverse teams improve financial
outcomes and support innovation, resiliency, and productivity. GCE’s commitment to fostering diversity in its
community is evident in the following:
• Our Diversity Statement - Grand Canyon Education is a faith-friendly shared services provider that
embraces a world-view which outlines a responsibility to both charity and stewardship which simply stated
is, ‘to love others as yourself’. We are a community of people who value the pursuit of truth and find great
understanding in the convergence of differing viewpoints, backgrounds and ideas. We welcome employees
from all walks of life which has contributed to a growing diversity within our population. Our diversity
encompasses a multitude of dimensions, including age, disability, national origin, race, color, religion,
gender, veteran status and more. Our Christian perspective compels us to treat every individual equally
with respect and compassion. All community members deserve a comfortable space to express their
feelings, so that every voice is heard. All members of the Company will be welcomed, valued, and
provided safety in this community. Finally, diversity not only enriches the workplace and the educational
endeavors of our partners, it is critical to it. Maintaining a diverse environment requires a measure of
tolerance and understanding commensurate with the dignity and value of all human life. In sum, GCE
values diversity because it values every employee and university partners’ students entrusted to its care.
• Our Diverse Leadership - Our ability to attract and retain diverse talent is reflected at both the Board and
management levels. Three of our six directors are women and two directors identify with an
underrepresented diverse ethnicity. In addition, for all of our employees at the level of manager and above
totaling 605 persons, 68.8% are held by women and other diverse persons, collectively, an increase of
1.2% over 2021.
• Our Diverse Workforce - As of December 31, 2022, for all of our employees totaling 5,500, 79.8% are
women and other diverse persons, collectively, an increase of 1.5% over 2021. As of December 31, 2022,
GCE employed approximately 3,920 professional and administrative personnel, including technical and
academic advisors, counseling advisors, marketing and communication professionals, and personnel that
handle financial aid processing, information technology, human resources, corporate accounting, finance,
and other administrative functions. In addition, at December 31, 2022, GCE employed approximately 1,580
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part-time employees most of whom are student workers. None of our employees are a party to any
collective bargaining or similar agreement with us. We consider our relations with our employees to be
strong.
• Our Hiring Practices and Policies - GCE ensures company diversity through hiring policies and practices
that support diversity such as the Equal Employment Opportunity Policy, Nondiscrimination and Anti-
Harassment Policy and Complaint Procedure, and the Disability Accommodation Policy. We post all open
positions to a variety of diversity-related job boards to ensure we attract diverse candidates. We also
collect and analyze employee demographic data to identify current trends and areas of opportunity in
regard to our diversity efforts.
• Diversity Training - We provide employees and management with regular diversity training. New hires all
complete anti-discrimination and harassment training within 3 months of starting at GCE. Thereafter, all
employees complete the training every other year, while management undertakes it annually. We have also
provided Implicit Bias Training to all employees.
Employee Learning and Development (ELD) Services. We provide learning and development support to our
employees through numerous ELD initiatives. Onboarding Programs provide new employees a foundation from which
one can progress in his or her career at GCE. Leadership Development, Team Development, Advanced Skills, and Self-
Development Programs help employees improve their skills, assist management in identifying potential talent for
leadership roles, and support those employees already in leadership roles. Finally, our Compliance Curriculum ensures
that employee stays current with regulatory and other compliance requirements. These programs and curricula are
offered virtually as both synchronous and self-paced.
Employee Tuition Benefit – GCE promotes the concept of lifelong learning and supports this concept by
offering its employees a generous Tuition Benefit program through its university partner, GCU. After 3 months of
continuous service, fulltime employees admitted to GCU receive a 100% tuition reduction on undergraduate and
graduate programs Additionally, the tuition benefit is available for an eligible employee’s spouse or up to two children
with no more than two participants receiving the benefits at any one time. An eligible employee’s spouse or child
admitted to GCU receives a 100% tuition reduction on undergraduate programs and a 50% tuition reduction on graduate
programs.
Monitoring employee engagement and satisfaction – GCE administered a survey with all of its employees to
assess employee engagement and satisfaction. GCE received responses from 1,835 employees on the 2022 survey. The
survey asked a number of questions regarding employee engagement and satisfaction including whether they are actively
engaged with their work, whether they have a sense of pride in what they do and whether they enjoy the type of work
assigned to them. The responses to each question were overwhelmingly positive. To the prompt, “Overall I am satisfied
with GCE as an employer,” less than 10% of the responders disagreed with that statement. 92% of those responses
confirmed GCE enables a culture of diversity. This survey also inquired about the importance of Environmental, Social
and Governance topics that employees felt are important to GCE’s business performance and financial success both
internal and external impacts. The top five selected in the survey by employees were Employee Health and Wellbeing
(56%), Community Engagement (55%), Human Capital Management (51%), Workforce Diversity and Engagement
(33%) and Professional Integrity (32%).
Environmental Awareness
Online education is inherently more environmentally friendly than traditional campus education with a
reduction in greenhouse gas (“GHG”) production caused by traveling to and from a brick-and-mortar campus. It also
increases student capacity while eliminating the need for construction of a physical campus. A majority of our
university partners’ students are enrolled in hybrid or online educational models. In addition, a significant number of
our university partners’ students utilize an ebook format versus paper textbooks, which is more environmentally friendly
in that it saves paper and other materials and there is no shipment required.
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GCE owns a four-story 325,000 square foot administrative building, which includes office space for
approximately 2,700 employees, and a parking garage at our headquarters in Phoenix, Arizona. We constructed these
facilities in 2016 and, as with every one of our projects over the past 12 years, we designed them to maximize energy
efficiency and minimize electricity usage and environmental impact, which ultimately lowers our operating costs. Our
headquarters building includes the following design features:
• North/South Building Orientation - GCE’s office building is orientated with north/south exposure in order
to minimize direct sun and thereby reduce power usage. Exterior courtyards were arranged to ensure
summer shade thus creating outdoor areas that can be used by our employees throughout the year.
• Use of Window Glazing - Our building utilizes significant window glazing to allow for daylighting thus
reducing the need for supplemental electrical lighting. As a result, the building is designed to use just
.41 watts per square foot of electrical energy for lighting, which is half of what a typical environmentally
efficient building uses.
• Reducing Water Consumption - Water usage is another environmental factor for office space that is
magnified by the Arizona weather. GCE’s office building utilizes numerous water conservation methods
including push-tap faucets, waterless urinals, and a rooftop rainwater collection system for irrigating the
landscaping below, which significantly reduces our water consumption.
• Other Design Features - Additional environment-friendly design features include low VOC paints, use of
recycled building materials, interior and exterior LED light bulbs, motion sensor lighting and
implementation of an energy-efficient VRF mechanical system.
In addition to our efficient facilities, we have undertaken other measures to minimize our environmental impact,
including, among others:
•
•
•
implementing a Trip Reduction Program, which provides incentives to employees who participate in
carpooling or take public transportation to work;
providing a telecommute option for a significant number of positions; and
participating in a recycling program aimed at minimizing the volume of waste products generated by
GCE.
Due to our significant investment in infrastructure, since March 2020, when the World Health Organization
declared the COVID-19 a global pandemic, a significant portion of our diverse workforce is continuing to work
remotely. This has not only allowed our employees to remain physically safe but has also resulted in savings in the areas
of waste, janitorial costs, and travel costs related to business travel and commuting.
Our off-campus classroom and laboratory sites are all designed with the same efficient footprint in the 35 sites
opened as of December 31, 2022.
Climate Disclosures
We do not operate in a high-risk industry for climate risks. We believe that we have low climate risk with
respect to our physical environment (e.g., fires, drought, hailstorms, increasing weather pattern changes).
Approximately 90% of our workforce is continuing to work remotely. We have insurance policies in place to cover any
damage for our property, plant and equipment. Our Audit Committee is tasked with oversight of climate-related risks
for the Company.
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We are evaluating emissions reduction requirements with key suppliers for costs such as information security
systems, communication and marketing costs, travel costs, and continued expansion of our off-campus classroom and
laboratory sites. We currently do not have any regulatory emissions reporting obligations.
We do not have significant risk from a transition to a low-carbon economy, which could result in changing
customer behavior. Our customers are university partners located in the United States.
Corporate Governance
We believe that effective corporate governance is critical to our ability to create long term value for our
stockholders. The following highlights certain key aspects of our corporate governance framework:
• We Have an Independent and Diverse Board - Five of our six directors are independent. Three of our six
directors are diverse persons, and two of our directors identify with an under-represented diverse ethnicity.
• We Have Majority Voting for Directors - We have adopted majority voting for directors pursuant to which
nominees who fail to achieve an affirmative majority of votes cast must submit their resignation.
• We Hold Annual Elections for Directors - We do not have a staggered board.
• We Assess Board Performance - We conduct regular evaluations of our Board and Committees.
• Our Independent Directors Meet Without Management - Our independent directors meet regularly in
executive sessions without management present.
• We Have a Stock Ownership Policy - We require both our named executive officers and our directors to
maintain a meaningful ownership stake at levels specified in our stock ownership policy.
• Our Key Committees are Independent - We have fully independent Audit, Compensation and Nominating
and Corporate Governance Committees.
• We Do Not Have a “Poison Pill” - We do not maintain a stockholder rights plan.
Cybersecurity Controls
• Our Audit Committee is tasked with oversight of the cybersecurity controls in place at the Company.
• The Company employs a dedicated Chief Information Security Officer (“CISO”), with an experienced and
competent security team, and works closely with the Chief Risk Officer to provide risk reporting and
ensure security and compliance. The Company regularly engages third party experts to perform
cybersecurity assessments. These assessments are normally performed on an annual basis. Reports are sent
to the Audit Committee monthly, and Security, Risk and Compliance updates are provided quarterly.
• The Company has implemented policies and procedures for all employees including:
o
o
Information security/cybersecurity policies, which are internally available for all employees;
Information security/cybersecurity awareness training;
o A clear escalation process which employees can follow in the event an employee notices
something suspicious; and
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o
Information security/cybersecurity is part of the employee performance evaluations and/or
disciplinary actions.
• The Company maintains a cyber insurance policy. The Company has not had a security breach and has not
incurred any expenses for a security breach in the past three years.
Other Corporate Policy Matters
• Whistleblower hotline – GCE has a whistleblower hotline available to both internal and external parties.
The whistleblower policy is disclosed on the GCE intranet for employees and disclosed on the GCE
investor relations website for external parties. Hotline activity is managed by a third party and all claims
are reviewed and monitored by the Chief Risk Officer and General Counsel. All claims are discussed at
the quarterly Audit Committee meetings.
Seasonality
Our service revenue normally fluctuates due to changes in our university partners’ enrollment which tends to be
higher in the Spring and Fall periods and lower in the Summer. Our expenses do not normally fluctuate significantly
during the year which results in fluctuations in operating income between quarters. See “Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Seasonality.”
Competition
There are dozens of companies that seek to partner with non-profit schools and state universities to assist in the
development and operation of their educational programs. These companies provide various services that traditional
institutions historically have not had the experience or organizational capability to fully support. These services include
marketing and recruitment, enrollment management, curriculum development, online course design, student retention
support, technology infrastructure, and student and faculty call center support. Among the largest companies in this
sector are Pearson Online Learning Services, Wiley Education Services, and 2U.
The education services market, particularly with regard to those companies that help traditional universities
develop new degree programs often delivered online, has historically been characterized by a full-service, revenue-
sharing model, based on the premise that most traditional institutions are not only operationally unprepared to offer these
programs at scale but also are not equipped to make the significant upfront investments necessary to develop these
programs organically. In recent years, an alternative unbundled fee-for-service model has emerged, in which the
companies offer the same services, or some subset of services, for the market price of those services. Finally, other
industry providers affiliate with university partners to offer massive open online courses, which are aimed at unlimited
participation and open access via the web at little or no cost to the student.
The education services market is changing and expanding. It is highly fragmented and subject to evolving
technology, shifting needs of students and educators and introductions of new delivery modalities. We believe that the
competitive factors in the education services market include:
•
•
•
•
•
•
•
•
•
•
reputation and brand awareness;
quality of university partner base and performance track record;
the effectiveness of marketing and sales efforts;
robustness and evolution of technology solutions;
breadth and depth of services offerings;
convenient, flexible and dependable access to programs and classes;
level of student support services;
quality of student and faculty experience;
cost of programs; and
the time necessary to earn a degree.
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Proprietary Rights
We have developed and own, or are licensed to use, intellectual property that is or will be the subject of
copyright, trademark, service mark, patent, trade secret, or other protections. This intellectual property includes but is
not limited to technology, courseware materials and business know-how and internal processes and procedures
developed to respond to the requirements of operating a post-secondary educational institution with a significant online
campus and to comply with the rules and regulations of various education regulatory agencies. We rely on a combination
of copyrights, trademarks, service marks, trade secrets, domain names, and agreements to protect our intellectual
property. We protect our intellectual property by signing agreements with employees, independent contractors,
consultants, companies, and any other third party that creates intellectual property for us that assign any intellectual
property rights to us. In addition, we seek to maintain the confidentiality of our proprietary information through the use
of confidentiality agreements with employees, independent contractors, consultants and companies with which we
conduct business. While our intellectual property rights are important to us, we do not believe that the loss of any
individual property right or group of related rights would have a material adverse effect on our overall business.
Available Information
We were incorporated as a Delaware corporation in 2008 and completed our initial public offering in
November 2008. Our principal executive offices are located at 2600 West Camelback Road, Phoenix, Arizona 85017,
our telephone number is (602) 247-4400 and our Internet address is www.gce.com.
We make available free of charge on our website our Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, Forms 3, 4, and 5 filed on behalf of directors and executive officers, and all
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange
Commission (hereafter, the SEC). In addition, our earnings conference calls are web cast live via our website. In
addition to visiting our website, you may obtain any document we file with the SEC at www.sec.gov. The contents of
these websites are not incorporated into this filing and our references to the URLs for these websites are intended to be
inactive textual references only.
REGULATION OF OUR EDUCATION SERVICES BUSINESS
Institutions of higher education in America are subject to extensive regulation by state post-secondary, licensure
and certification agencies, accrediting commissions, and the federal government through the United States Department
of Education (“ED”) under the Higher Education Act (“HEA”). The regulations, standards, and policies of these
agencies cover the vast majority of operations of colleges and universities, including educational programs, facilities,
instructional and administrative staff, administrative procedures, marketing, recruiting, financial operations, athletics and
financial condition.
The HEA and the regulations promulgated thereunder are frequently revised, repealed or expanded. Congress
historically has reauthorized and amended the HEA in regular intervals, approximately every five to seven years. The re-
authorization process is currently under way. The re-authorization of the HEA could alter the regulatory landscape of the
higher education industry, and thereby impact the manner in which we conduct business and serve our university
partners. In addition, ED is independently conducting an ongoing series of rulemakings intended to assure the integrity
of the Title IV programs. ED also frequently issues formal and informal guidance instructing institutions of higher
education and other covered entities how to comply with various federal laws and regulations. ED guidance is subject to
frequent change and may impact our business model.
Prior to July 1, 2018, GCE, operated GCU. On July 1, 2018, GCE sold GCU to an independent, Arizona non-
profit corporation (the “Transaction”). As a result of the Transaction, we no longer own and operate an institution of
higher education, nor do we directly participate in Title IV programs. Instead, we operate as an education service
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company to institutions of higher education that do participate in Title IV programs. Nevertheless, we are required to
comply with certain regulations promulgated by ED for the following reasons:
• Our operations are subject to regulation by ED due to our university partners’ participation in the federal
student financial aid programs under Title IV of the HEA. Those Title IV programs include educational
loans with below-market interest rates that are issued by the federal government under the Federal Direct
Loan program (the “FDL Program”), as well as grant programs for students with demonstrated financial
need. To participate in the Title IV programs, a school must receive and maintain authorization by the
appropriate state agency or agencies, be accredited by an accrediting commission recognized by ED, and be
certified as an eligible institution by ED.
• As a third-party servicer under the HEA and the related regulations, we also have a direct relationship with
ED. ED regulates our operations insofar as we are performing certain functions classified as third-party
servicer functions under relevant regulations and sub-regulatory guidance. A “Third-party servicer” is any
person or entity used by “any eligible institution of higher education to administer, through either manual
or automated processing, any aspect of such institution’s student assistance programs.” Third-party
servicers must comply with a number of regulatory requirements. For example, they must conduct and
submit to ED compliance audits under 34 C.F.R. § 668.23. In addition, they must comply with the
requirements of 34 C.F.R. § 668.25, which among other things, requires third-party servicers, in their
contracts with institutions, to be contractually obligated to, among other things:
o Comply with all statutory provisions of or applicable to Title IV of the HEA, including the
requirement to use any funds that the servicer administers under any Title IV, HEA program and
any interest or other earnings thereon solely for the purposes specified in and in accordance with
that program;
o Refer to the Office of Inspector General of ED for investigation any information indicating there
is reasonable cause to believe that the institution might have engaged in fraud or other criminal
misconduct in connection with the institution’s administration of any Title IV, HEA program or an
applicant for Title IV, HEA program assistance might have engaged in fraud or other criminal
misconduct in connection with his or her application; and
o Be jointly and severally liable with the institution to the Secretary for any violation by the servicer
of any statutory provision of or applicable to Title IV of the HEA, any regulatory provision
prescribed under that statutory authority, and any applicable special arrangement, agreement, or
limitation entered into under the authority of statutes applicable to Title IV of the HEA.
We are also subject to a number of data security and privacy regulations given our role as a third-party service
provider, the compliance with which can materially impact our business model. In addition, as more fully described
below, we are subject to some of the regulations imposed on our university partners by virtue of the nature of the
services we provide.
This area is evolving, however, and the scope of services covered by regulations may change.
REGULATION OF OUR UNIVERSITY PARTNERS
Our current university partners and all likely future university partners are required to be authorized by
appropriate state post-secondary, licensure, and certification authorities. In addition, in order to participate in the federal
student financial aid programs, our university partners will need to be accredited by an accrediting commission
recognized by ED. Accreditation is a private, non-governmental process for evaluating the quality of educational
institutions and their programs in areas including student performance, governance, integrity, educational quality,
faculty, physical resources, administrative capability and resources, and financial stability. The HEA requires
accrediting commissions recognized by ED to review and monitor many aspects of an institution’s operations and to take
appropriate action if the institution fails to meet the accrediting commission’s standards.
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While we no longer own and operate an institution of higher education, nor do we directly participate in Title
IV programs, regulatory matters that materially affect GCU and our other university partners will, necessarily, have a
material impact on us. The following section describes regulatory matters that affect our university partners and that
may affect us as an education service company to institutions of higher education generally.
State Post-Secondary Education Regulation
Our university partners are authorized to offer education by the relevant state authorizing agencies for the state
in which the client is located. For example, GCU, our most significant university partner, is authorized to offer programs
by the Arizona State Board for Private Postsecondary Education, the regulatory agency governing private post-secondary
educational institutions in the State of Arizona, where it is located. This authorization is very important to our university
partners and, as a result, to our business. To maintain their state authorization, our university partners must continuously
meet standards relating to, among other things, educational programs, facilities, instructional and administrative staff,
marketing and recruitment, financial operations, addition of new locations and educational programs, and various
operational and administrative procedures. Our university partners’ failure to comply with the requirements of a state
regulatory agency could result in our university partners’ losing their ability to offer educational programs, which would
cause our university partners to lose their eligibility to participate in the Title IV programs and could force them, and us,
to cease operations. Alternatively, a state regulatory body could restrict our university partners’ ability to offer new or
certain degree and non-degree programs, which may impair our ability to grow.
State regulatory requirements for online education have historically varied among the states. To address this
issue and to meet ED requirements many schools have applied and sought to become an approved institutional
participant in the State Authorization Reciprocity Agreement (“SARA”). SARA is an agreement among member states,
districts and territories that establishes comparable national standards for interstate offering of post-secondary distance
education courses and programs. It is intended to make it easier for students to take online courses offered by post-
secondary institutions based in another state. SARA is overseen by a national council (NC-SARA) and administered by
four regional education compacts. GCU is a member of SARA in Arizona (AZ-SARA), which is administered by the
Western Interstate Commission for Higher Education (referred to as W-SARA). There is a yearly renewal for
participating in NC-SARA and AZ-SARA and institutions must agree to meet certain requirements to participate. As of
December 31, 2022, all states other than California are members of SARA.
Any state that does not participate in SARA may impose regulatory requirements on out-of-state higher
education institutions operating within their boundaries, such as those having a physical facility or conducting certain
academic activities within the state. GCU, for example, currently enrolls students in all 50 states and the District of
Columbia. Although it is currently licensed, authorized, in-process, or exempt in all non-SARA jurisdictions in which it
operates, if it fails to comply with state licensing or authorization requirements for a state, or fails to obtain licenses or
authorizations when required, it could lose its state license or authorization by that state or be subject to other sanctions,
including restrictions on our activities in, and fines and penalties imposed by, that state, as well as fines, penalties, and
sanctions imposed by ED. The loss of licensure or authorization by a university partner in any non-SARA state could
prohibit us from recruiting prospective students or offering services to current students in that state on behalf of such
university partner, which could significantly affect our business.
Individual state laws establish standards in areas such as instruction, qualifications of faculty, administrative
procedures, marketing, recruiting, financial operations, and other operational matters. To the extent required with respect
to an educational service category covered by our contractual relationship, we expect to assist our university partners in
meeting these requirements. Some states limit schools’ ability to offer educational programs and award degrees to
residents of those states. Some states also prescribe financial regulations that are different from those of ED and may
require the posting of surety bonds. While we are not directly subject to those laws, those laws may inhibit our university
partners from expanding or operating in those states, limiting our ability to serve our university partners, which could
significantly affect our business. In addition, state laws can indirectly regulate how GCE provides its services to its
university partners. For example, some states have considered new requirements that would dictate what information
GCE must convey to students and prospective students and impose reporting requirements related to the nature of our
services. To the extent such requirements were ultimately enacted into law, they could significantly affect our business.
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State Professional Licensure
Many states have specific requirements that an individual must satisfy in order to be licensed as a professional
in specified fields, including fields such as healthcare, education, and counseling. These requirements vary by state and
by field. A student’s success in obtaining licensure following graduation typically depends on several factors, including
the background and qualifications of the individual graduate, as well as the following factors, among others:
• whether the institution and the program were approved by the state in which the graduate seeks licensure,
or by a professional association;
• whether the program from which the student graduated meets all requirements for professional licensure in
that state;
• whether the institution and the program are accredited and, if so, by what accrediting commissions; and
• whether the institution’s degrees are recognized by other states in which a student may seek to work.
Many states also require that graduates pass a state test or examination as a prerequisite to becoming certified in
certain fields, such as nursing and teaching. Many states will certify individuals if they have already been certified in
another state.
Prior to opening a new off-campus classroom and laboratory site, university partners often require approval
from the applicable state board to offer its programs at that location. This can delay the site opening and timing can vary
based on the state and the university partner.
Although not directly regulated by these entities, we must be mindful of the requirements placed by state
professional licensure bodies on our university partner institutions to ensure those institutions maintain that licensure.
Accreditation
Accreditation is a private, non-governmental process for evaluating the quality of educational institutions and
their programs in areas including student performance, governance, integrity, educational quality, faculty, physical
resources, administrative capability and resources, and financial stability. To be recognized by ED, accrediting
commissions must adopt specific standards for their review of educational institutions, conduct peer-review evaluations
of institutions, and publicly designate those institutions that meet their criteria. An accredited school is subject to
periodic review by its accrediting commissions to determine whether it continues to meet the performance, integrity and
quality required for accreditation.
Our most significant university partner, GCU has been regionally accredited by the HLC and its predecessor
since 1968, most recently obtaining reaccreditation in 2017 for the ten-year period through 2027. The HLC is an
accrediting agency recognized by the Secretary of Education and accredits entire institutions of higher education. The
HLC has historically been categorized as a regional accreditor. Institutional accreditation by a recognized accreditation
agency is one of the prerequisites for an institution of higher education to be eligible to disburse Title IV aid to students.
In addition, GCU holds a number of programmatic accreditations related to the conduct of specific programs of the
college. Other colleges and universities depend, in part, on an institution’s accreditation (institutional, and, in some
cases, programmatic) in evaluating transfers of credit and applications to graduate schools. Employers rely on the
accredited status of institutions when evaluating candidates’ credentials, and students and corporate and government
sponsors under tuition reimbursement programs look to accreditation for assurance that an institution maintains quality
educational standards.
University partners other than GCU may be accredited by different accrediting bodies that are likely to have
standards that are different from those of the HLC. Moreover, other university partners may also hold various
programmatic accreditations that set additional requirements related to specific programs. As we work with university
partners in different regions we will need to work with those accrediting bodies and tailor our services to meet the
requirements of those accreditors.
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Regulation of Federal Student Financial Aid Programs
To be eligible to participate in the Title IV programs, an institution must comply with specific requirements
contained in the HEA and the regulations issued thereunder by ED. An institution must, among other things, be licensed
or authorized to offer its educational programs by the state in which it is physically located and maintain institutional
accreditation by an accrediting commission recognized by ED.
The substantial amount of federal funds disbursed to schools through the Title IV programs and the large
number of students and institutions participating in these programs have caused Congress to require ED to exercise
considerable regulatory oversight over educational institutions. As a result, our university partners are subject to
extensive oversight and review. Because ED periodically revises its regulations and changes its interpretations of
existing laws and regulations, we cannot predict with certainty how the Title IV program requirements will be applied in
all circumstances to our university partners or to us directly.
Significant regulations and other factors relating to the Title IV programs that could adversely affect us include
the following:
Congressional action. Congress must reauthorize the HEA on a periodic basis, usually every five to six years,
and the most recent reauthorization through September 30, 2013, occurred in August 2008. The reauthorized HEA
reauthorized all of the Title IV programs in which institutions participate but made numerous revisions to the
requirements governing the Title IV programs, including provisions relating to student loan default rates and the formula
for determining the maximum amount of revenue that institutions are permitted to derive from the Title IV programs. In
addition, members of Congress periodically introduce legislation that would impact Title IV programs and the higher
education industry generally. Because a significant percentage of our revenue is indirectly derived from the
Title IV programs, any action by Congress that significantly reduces Title IV program funding or the ability of our
university partners to participate in the Title IV programs could reduce the ability of some students to finance their
education at our university partner institutions and materially decrease their student enrollment.
CARES Act
On March 27, 2020, former President Trump signed into law the Coronavirus Aid, Relief, and Economic
Security (“CARES”) Act. Among other things, the $2.2 trillion bill established some flexibilities related to the
processing of federal student financial aid, established a higher education emergency fund, and created relief for some
federal student loan borrowers. Through the CARES Act, institutions of higher education were provided relief from
conducting a return to Title IV (R2T4) calculation in cases where the student withdrew because of the COVID-19
pandemic, including removing the requirement that the institution return unearned funds to ED and providing loan
cancellation for the portion of the Direct Loan associated with a payment period that the student did not complete due to
the COVID-19 pandemic. The CARES Act also allows institutions to exclude from satisfactory academic progress
calculations any attempted credits that the student did not complete due to the COVID-19 pandemic, without requiring
an appeal from the student. Additionally, under the legislation, institutions are permitted to transfer up to 100% of
Federal Work-Study (“FWS”) funds into their Federal Supplemental Educational Opportunity Grant (“FSEOG”)
allocation and are granted a waiver of the 2019/2020 and 2020/2021 non-federal share institutional match. Institutions
may continue to make FWS payments to student employees who are unable to meet their employment obligations due to
the COVID-19 pandemic. ED issued sub-regulatory guidance to institutions regarding implementation of the provisions
included in the CARES Act.
The CARES Act also suspended payments and interest accrual on federal student loans until September 30,
2020, in addition to suspending involuntary collections such as wage garnishment, tax refund reductions, and reductions
of federal benefits like Social Security benefits during the same timeframe. On March 30, 2021, the Secretary of
Education also extended student loan relief to all Federal Family Education Loans (“FFEL”) not previously covered.
Through a series of administrative actions, student loan relief has been extended, including on August 24, 2022, when
ED announced, “a final extension of the pause on student loan repayment, interest, and collections through June 30,
2023.”
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Finally, the CARES Act allocated $14 billion to higher education through the creation of the Education
Stabilization Fund. Fifty percent of the emergency funds received by institutions must go directly to students in the form
of emergency financial aid grants to cover expenses related to the disruption of campus operations due to the COVID-19
pandemic. Students who were previously enrolled in exclusively online courses prior to March 13, 2020 are not eligible
for these grants. Institutions may use remaining emergency funds not given to students for costs associated with
significant changes to the delivery of instruction due to the COVID-19 pandemic, as long as such costs do not include
payment to contractors for the provision of pre-enrollment recruitment activities, including marketing and advertising;
endowments; or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.
Institutions received funds under the Education Stabilization Fund based on a formula that factors in their
relative percentage of full-time, Federal Pell Grant-eligible students who were not exclusively enrolled in online
education prior to the emergency period. On April 9, 2020, ED published guidance and funding levels for the Education
Stabilization Fund.
Consolidated Appropriations Act, 2021
On December 27, 2020, former President Trump signed into law the Consolidated Appropriations Act of 2021.
Among other things, this package funded the federal government through September 2021, provided additional COVID-
related relief, and made a number of U.S. higher education changes.
The legislation includes a number of tax provisions, including replacing the tuition deduction with an expanded
Lifetime Learning Credit, which now shares the higher income limitations of the American Opportunity Tax Credit. The
legislation also extends until January 1, 2026 expanded employer-provided educational assistance permitting employers
to pay up to $5,250 toward an employee’s federal student loans as a tax-free benefit.
In addition, the legislation includes a number of higher education-related provisions, including: adopting the
FAFSA Simplification Act, which includes eliminating the “expected family contribution” from the Free Application for
Federal Student Aid (“FAFSA”) and replacing it with a “Student Aid Index;” expanding eligibility for Pell Grants;
restoring Pell Grant eligibility for incarcerated students attending non-profit institutions; restoring quarters/semesters of
Pell eligibility to students who have successfully asserted a borrower defense to repayment; repealing the limitation on
lifetime subsidized loan eligibility (known as “Subsidized Usage Limit Applies,” or SULA); and significantly
simplifying the FAFSA form. The ED published a FAFSA Simplification Information webpage on October 14, 2022 and
is expected to provide institutions with guidance on the higher education provisions included in the Consolidated
Appropriations Act of 2021, which take effect on July 1, 2023. According to a tweet from the official account of the
National Association of Student Financial Aid Administrators (“NASFAA”), on February 7, 2023, at a NASFAA
conference, the ED did not commit to an October 1, 2023 launch date for the FAFSA for 2024-2024, although the ED
said it would be offered in the fourth quarter of 2023. It is unclear what, if any, this delay will have on our business. We
will continue to monitor this situation.
The bill also provided $22.7 billion for higher education institutions and students impacted by COVID-19 in
which all of our university partners were eligible.
Veterans Health Care and Benefits Improvement Act of 2020
On January 5, 2021, former President Trump signed into law the Veterans Health Care and Benefits
Improvement Act of 2020, which expanded student veterans’ protections. Among other things, the legislation requires a
risk-based review of schools if an institution is operating under Heightened Cash Monitoring 2 or provisional approval
status by ED, is subject to any punitive action by a federal or state entity, faces the loss or risk of loss of accreditation, or
has converted from for-profit to non-profit status. The legislation also restores veterans benefits to students whose school
closed, as long as the student transferred fewer than 12 credits from the closed school or program; protects students from
debt collection by the VA for overpaid tuition benefits; and establishes a number of institutional requirements, including:
providing clear disclosures about cost, loan debt, graduation and job placement rates, and acceptance of transfer credit;
ensuring institutions are accommodating short absences due to service; prohibiting same-day recruitment and
registration; and prohibiting more than three unsolicited recruiting contacts during any one-month period. Most
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provisions became effective August 1, 2021. Institutions were permitted to seek waivers for certain sections of the new
law if they were not able to satisfy compliance requirements by August 1, 2021.
THRIVE Act
On June 8, 2021, President Biden signed into law the Training in High-Demand Roles to Improve Veteran
Employment Act (the “THRIVE Act”), which amended provisions of the Veterans Health Care and Benefits
Improvement Act and the American Rescue Plan Act. The law requires the U.S. Department of Labor and VA to
collaborate on a list of high-demand occupations for a rapid retraining assistance program. Additionally, the law requires
the Government Accountability Office to report on the outcomes and effectiveness of retraining programs. The THRIVE
Act amended the Veterans Health Care and Benefits Improvement Act by clarifying that programs pursued solely
through distance education on a half-time basis or less are not eligible for the housing stipend that is generally available
for retraining programs. As noted above, the Veterans Health Care and Benefits Improvement Act prohibits certain high-
pressure recruiting tactics. The THRIVE Act requires the VA to take disciplinary action if a person with whom an
institution has a recruiting or educational services agreement violates the VA’s incentive compensation bans.
REMOTE Act
On December 21, 2021, President Biden signed into law the Responsible Education Mitigating Options and
Technical Extensions (“REMOTE”) Act, which amended provisions of the Veterans Health Care and Benefits
Improvement Act, the American Rescue Plan Act, and the THRIVE Act. The law includes changes to help institutions
satisfy the Veterans Health Care and Benefits Improvement Act’s requirements by using the College Financing Plan
template, in addition to extending some COVID-related flexibilities previously granted amid the pandemic. The law also
extended remote learning waivers through June 1, 2022, simplified the VA verification process for tuition
reimbursement, and fixed a technical error to ensure U.S. institutions of higher education can continue to use incentive
compensation to recruit foreign students without losing GI Bill funding for their students.
Ensuring the Best Schools for Veterans Act of 2022
On August 26, 2022, President Biden signed into law the Ensuring the Best Schools for Veterans Act of 2022,
which amended prior statutory language and made modifications to how the VA operationalizes the 85/15 requirement
(that is, the rule that generally forbids use of Department of Veterans Affairs benefits for students enrolling in a program
in which more than 85% of students enrolled in the program have any portion of their tuition, fees, or other charges paid
to or for them by the institution or by the VA). Among other things, the law clarifies that reporting associated with the
85/15 requirement does not apply to institutions at which 35% or fewer students receive GI bill benefits. The law also
exempts programs for which fewer than 10 students have any portion of their tuition, fees, or other charges paid to or for
them by the institution or by the VA.
Consolidated Appropriations Act, 2022
On March 15, 2022, President Biden signed into law the Consolidated Appropriations Act of 2022. The bill
allocated $76.4 billion to the Department of Education and its programs, including an increase to the maximum Pell
Grant award, bringing the total to $6,895 for the 2022-23 award year. In addition, campus-based aid programs were
increased, with $895 million allocated for the FSEOG program, an increase of $15 million above the FY 2021 enacted
level, and $1.21 billion allocated for FWS, an increase of $20 million above the FY 2021 enacted level.
In addition to the increases in federal student aid funding, the bill provided $2.1 billion for career, technical,
and adult education, $61 million above the FY 2021 enacted level, and an additional $3 billion for higher education
programs, $452 million more than the FY 2021 enacted level. The bill also dictated ED requirements related to federal
loan servicing, including appropriations for just over $2 billion for expenses related to the administration of the federal
loan program, and made a number of changes to the FAFSA Simplification Act.
Eligibility and certification procedures. Each institution must apply periodically to ED for continued
certification to participate in the Title IV programs. Such recertification generally is required every six years, but may be
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required earlier, including when an institution undergoes a change in control. To the extent ED suspends, limits,
modifies, conditions, or terminates any client institution’s eligibility to participate in the Title IV programs, that action is
likely to have a negative impact on our business. Indeed, this could range from disallowing the institution from adding
new programs or terminating the institution from Title IV eligibility.
The Transaction resulted in a change in control of our most significant university partner, GCU, following
which it began operating as a non-profit university and necessitating the application by GCU to ED for approval of the
change in control and for a new program participation agreement. In November 2019, GCU received a new provisional
Program Participation Agreement (“PPA”), which granted GCU the ability to participate in the Title IV programs on a
provisional basis through September 30, 2022. As required, GCU filed a renewal application three months in advance of
the scheduled expiration date. ED has not made a decision on its recertification application, and therefore its provisional
certification to participate in the Title IV programs has been automatically extended on a month-to-month basis until ED
makes its decision. Institutions are routinely given a month-to-month extension on their PPA until ED has completed its
review of the application. For example, when GCU’s provisional PPA expired in June 2008, it continued to receive a
month-to-month extension between that date and April 2011 when ED issued it a new, provisional PPA. For a school
that is certified on a provisional basis, ED may revoke the institution’s certification without advance notice or advance
opportunity for the institution to challenge that action. For a school that is provisionally certified on a month-to-month
basis, like GCU, ED may allow the institution’s certification to expire at the end of any month without advance notice,
and without any formal procedure for review of such action. To our knowledge, such action is very rare and has only
occurred upon a determination that an institution is in substantial violation of material Title IV requirements.
Administrative capability. ED regulations specify extensive criteria by which an institution must establish that it
has the requisite “administrative capability” to participate in the Title IV programs. To meet the administrative capability
standards, an institution must, among other things:
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comply with all applicable Title IV program requirements;
have an adequate number of qualified personnel to administer the Title IV programs;
have acceptable standards for measuring the satisfactory academic progress of its students;
not have student loan cohort default rates above specified levels;
have various procedures in place for awarding, disbursing and safeguarding Title IV funds and for
maintaining required records;
administer the Title IV programs with adequate checks and balances in its system of internal controls;
not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or
engaging in activity that is cause for debarment or suspension;
provide financial aid counseling to its students;
refer to ED’s Office of Inspector General any credible information indicating that any student, parent,
employee, third-party servicer or other agent of the institution has engaged in any fraud or other illegal
conduct involving the Title IV programs;
submit all required reports and consolidated financial statements in a timely manner; and
not otherwise appear to lack administrative capability.
As an education services company, we assist our university partners with some facets of these criteria. As such,
we must be mindful of, and compliant with, the administrative capability requirements. If an institution fails to satisfy
any of these criteria, ED may:
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require the institution to repay Title IV funds its students previously received;
transfer the institution from the advance method of payment of Title IV funds to heightened cash
monitoring status or the reimbursement system of payment;
place the institution on provisional certification status; or
commence a proceeding to impose a fine or to limit, suspend or terminate the institution’s participation in
the Title IV programs.
Imposition of these sanctions could have a negative impact on our ability to conduct our business.
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Financial responsibility. The HEA and ED regulations establish extensive standards of financial responsibility
that institutions must satisfy in order to participate in the Title IV programs. ED evaluates institutions for compliance
with these standards on an annual basis based on the institution’s annual audited consolidated financial statements, as
well as when the institution applies to ED to have its eligibility to participate in the Title IV programs recertified. The
most significant financial responsibility standard is the institution’s composite score, which is derived from a formula
established by ED based on three financial ratios:
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equity ratio, which measures the institution’s capital resources, financial viability and ability to borrow;
primary reserve ratio, which measures the institution’s ability to support current operations from
expendable resources; and
net income ratio, which measures the institution’s ability to operate at a profit or within its means.
ED assigns a strength factor to the results of each of these ratios on a scale from negative 1.0 to positive 3.0,
with negative 1.0 reflecting financial weakness and positive 3.0 reflecting financial strength. ED then assigns a
weighting percentage to each ratio and adds the weighted scores for the three ratios together to produce a composite
score for the institution. The composite score for an institution’s most recent fiscal year must be at least 1.5 for the
institution to be deemed financially responsible without the need for further ED oversight. In addition to having an
acceptable composite score, an institution must, among other things, provide the administrative resources necessary to
comply with Title IV program requirements, meet all of its financial obligations, including required refunds to students
and any Title IV liabilities and debts, be current in its debt payments, and not receive an adverse, qualified, or disclaimed
opinion by its accountants in its audited consolidated financial statements.
As an education service company, we are not directly subject to this regulation. However, if ED were to
determine that a university partner institution did not meet the financial responsibility standards due to a failure to meet
the composite score or other financial responsibility factors, ED could impose a range of sanctions on the institution,
such as requiring the institution to post a letter of credit, accept provisional certification (which would hamper the ability
of the institution to add new programs), comply with additional ED monitoring requirements, agree to receive Title IV
program funds under an arrangement other than ED’s standard advance funding arrangement, such as the reimbursement
system of payment or heightened cash monitoring, and comply with or accept other limitations on the ability to increase
the number of programs it offers or the number of students it enrolls, any of which sanctions on our university partners
could also adversely affect our business. In addition, because other regulators may use the composite score for their
purposes, a poor composite score could have additional effects. For example, NC-SARA utilizes the composite score in
determining whether an institution is eligible to participate in SARA.
Per the audited financial statements of GCU as of June 30, 2022 and 2021, GCU’s composite score was 1.8 and
1.9, respectively, using the proprietary school calculation methodology. If GCU’s future composite scores do not exceed
1.5, ED could impose sanctions. If any such sanctions were imposed, it could have a negative impact on our ability to
conduct our business.
Return of Title IV funds for students who withdraw. When a student who has received Title IV program funds
withdraws from school, the institution must determine the amount of Title IV program funds the student has “earned”
and then must return the unearned Title IV program funds (a “return to Title IV”) to the appropriate lender or ED in a
timely manner, which is generally no later than 45 days after the date the institution determined that the student
withdrew. If such payments are not timely made, the institution will be required to submit a letter of credit to ED equal
to 25% of the Title IV funds that the institution should have returned for withdrawn students in its most recently
completed fiscal year. Under ED regulations, the letter of credit requirement is triggered by late returns of Title IV
program funds for 5% or more of the withdrawn students (and involving more than two student refunds) in the audit
sample in the institution’s annual Title IV compliance audit for either of the institution’s two most recent fiscal years or
in a ED program review. Additionally, on January 4, 2023, the ED announced their intention to issue new regulations in
eight different areas of higher education regulations via negotiated rulemaking, including on Return to Title IV funds.
No specific proposals have been put forth at this time. To the extent our services for a university partner include
conducting returns to Title IV, as they do with GCU, we would likely be jointly and severally liable to ED, along with
the relevant university partner, for return of those funds.
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The “90/10 Rule.” A requirement of the HEA, commonly referred to as the “90/10 Rule,” that is applicable
only to proprietary, post-secondary educational institutions, provides that an institution loses its eligibility to participate
in the Title IV programs if the institution derives more than 90% of its revenue for each of two consecutive fiscal years
from Title IV program funds. For purposes of the 90/10 Rule, revenue is calculated under a complex regulatory formula
that requires cash basis accounting and other adjustments to the calculation of an institution’s revenue under generally
accepted accounting principles that appears in its consolidated financial statements. Under the 90/10 Rule, an institution
becomes ineligible to participate in the Title IV programs as of the first day of the fiscal year following the second
consecutive fiscal year in which it exceeds the 90% threshold, and its period of ineligibility extends for at least two
consecutive fiscal years. If an institution exceeds the 90% threshold for two consecutive fiscal years and it and its
students have received Title IV funds during the subsequent period of ineligibility, the institution will be required to
return those Title IV funds to the applicable lender or the ED. If an institution’s rate exceeds 90% for any single fiscal
year, it will be placed on provisional certification for at least two fiscal years.
Using the ED’s cash-basis, regulatory formula under the 90/10 Rule as currently in effect, GCU, our most
significant client, derived approximately 66.2% and 69.7% of its 90/10 Rule revenue from Title IV program funds for
the fiscal years ended June 30, 2022 and 2021, respectively, per GCU’s audited financial statements. Accordingly, even
if ED continues to treat GCU as a proprietary institution for Title IV purposes, we do not expect this rule to have any
material impact on GCU.
In March 2021, the $1.9 trillion American Rescue Plan Act of 2021 (“ARPA”) was signed into law. Among
other things, the ARPA also includes a provision that amends the 90/10 rule. The ARPA amends the 90/10 rule by
treating other “Federal funds that are disbursed or delivered to or on behalf of a student to be used to attend such
institution” in the same way as Title IV funds are currently treated in the 90/10 rule calculation. This means that
institutions subject to the 90/10 Rule will be required to limit the combined amount of Title IV funds and applicable
“Federal funds” revenue in a fiscal year to no more than 90% in a fiscal year as calculated under the rule. Consequently,
the ARPA change to the 90/10 rule is expected to increase the 90/10 rule calculations at GCU. The ARPA does not
identify the specific Federal funding programs that will be covered by this provision, but it is expected to include
funding from federal student aid programs such as the veterans’ benefits programs. GCU has informed us that it does
not believe any change to the 90/10 rule calculation being currently discussed will have a material impact on its
calculation.
The ARPA states that the amendments to the 90/10 rule apply to institutional fiscal years beginning on or after
January 1, 2023 and are subject to the HEA’s negotiated rulemaking process which may not commence earlier than
October 1, 2021. ED started the negotiated rulemaking process in January 2022. In March 2022, the negotiated
rulemaking committee reached consensus on changes to the 90/10 Rule. On July 26, 2022, ED released proposed 90/10
regulations consistent with this consensus language which revised the definition of “federal education assistance” that
will include tuition assistance programs offered by the U.S. Department of Defense and U.S. Department of Veterans
Affairs (“VA”), in addition to the Title IV programs already covered by the 90/10 Rule. On October 27, 2022, following
a 30 day comment period that ended August 26, 2022, ED released final 90/10 regulations, which are consistent with the
consensus language. The new 90/10 regulations are effective for fiscal years beginning on or after January 1, 2023.
Other legislation has been introduced in both chambers of Congress that seeks to modify the 90/10 Rule further,
including proposals to change the ratio requirement to 85/15 (federal to nonfederal revenue), or to eliminate the 90/10
Rule. We cannot predict whether or how legislative or regulatory changes will affect the 90/10 Rule.
Student loan defaults. Under the HEA, an educational institution may lose its eligibility to participate in some
or all of the Title IV programs if defaults by its students on the repayment of their federal student loans exceed certain
levels. For each federal fiscal year, ED calculates a rate of student defaults for each institution (known as a “cohort
default rate”). The rate is calculated by determining the rate at which borrowers who became subject to their repayment
obligation in one federal fiscal year default in that same year or by the end of the second year following the first federal
fiscal year (known as the “three-year method”).
ED applies legal thresholds to measure an institution’s compliance. If ED notifies an institution that its cohort
default rates exceeded 30%, for each of its three most recent federal fiscal years, the institution’s participation in the
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FDL Program and the Pell grant program would end 30 days after that notification, unless the institution appeals that
determination in a timely manner on specified grounds and according to specified procedures. In addition, an
institution’s participation in the FDL Program would end 30 days after notification by ED that its most recent cohort
default rate, is greater than 40%, unless the institution timely appeals that determination on specified grounds and
according to specified procedures. An institution whose participation ends under either of these provisions may not
participate in the relevant programs for the remainder of the fiscal year in which the institution receives the notification
or for the next two fiscal years. If an institution’s cohort default rate for any single federal fiscal year equals or exceeds
30%, ED may place the institution on provisional certification status.
While we cannot directly influence a university partner’s cohort default rates, and do not provide default rate
management services, in the course of performing services for a university partner we would work to assist such
university partner in ensuring that its cohort default rates do not present a compliance risk under this regulation.
Nonetheless, if a university partner institution exceeded the threshold under the three-year method, the sanction imposed
could have a negative impact on our ability to conduct our business. While GCU’s cohort default rates have historically
been significantly below these levels, we cannot assure you that this will continue to be the case.
Student Loan Relief. On August 24, 2022, ED announced that it would provide student loan relief to eligible
borrowers to address financial hardships in connection with the COVID-19 pandemic. Under the relief measures, up to
$10,000 in student debt will be forgiven for individual borrowers earning less than $125,000 or married couples or heads
of household earning less than $250,000, and up to $20,000 will be forgiven for such borrowers who formerly received
Pell Grants. In a memorandum prepared by ED General Counsel, ED stated that it has interpreted provisions of the
Higher Education Relief Opportunities for Students Act of 2003 to authorize the Secretary to exercise broad discretion in
granting student loan relief. Since ED’s student loan relief announcement, multiple lawsuits have been filed against ED
challenging its authority to grant such relief. The U.S. Supreme Court will hear arguments on this matter on February 28,
2023 and will likely issue an opinion in June 2023. We cannot predict the outcome of these lawsuits.
ED also announced its intent to publish a proposed rule to create a new income-driven repayment plan to reduce
future monthly payments for lower- and middle-income borrowers. The new plan would include a lower payment cap,
coverage of unpaid monthly interest, and loan forgiveness after 10 years of payment for borrowers with original loan
balances under a certain threshold.
Incentive compensation rule. An institution that participates in the Title IV programs may not provide any
commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or
financial aid to any person or entity engaged in any student recruitment, admissions, or financial aid awarding activity.
In its program participation agreement with ED, each higher education institution agrees that it will not “provide any
commission, bonus, or other incentive payment based in any part, directly or indirectly, upon success in securing
enrollments or the award of financial aid, to any person or entity who is engaged in any student recruitment or admission
activity, or in making decisions regarding the award of Title IV, HEA program funds.” Pursuant to this rule, we are
prohibited from offering our covered employees, who are those employees involved with or responsible for recruiting or
admissions activities, any bonus or incentive-based compensation based on the successful recruitment, admission or
enrollment of students into a postsecondary institution. We are also precluded from offering our covered employees who
work on financial aid matters (if any), any bonus or incentive-based compensation based on the award of financial aid to
students enrolled in a postsecondary institution.
In addition, the incentive compensation rule raises a question as to whether companies like ours, as an entity,
are prohibited from entering into tuition revenue-sharing arrangements with university partners. On March 17, 2011, ED
issued official agency guidance, known as a “Dear Colleague Letter,” or a DCL, providing guidance on this point. The
DCL states that “[t]he Department generally views payment based on the amount of tuition generated as an indirect
payment of incentive compensation based on success in recruitment and therefore a prohibited basis upon which to
measure the value of the services provided” and that “[t]his is true regardless of the manner in which the entity
compensates its employees.” But the DCL also provides an important exception to the ban on tuition revenue-sharing
arrangements between institutions and third parties. According to the DCL, ED does not consider payment based on the
amount of tuition generated by an institution to violate the incentive compensation ban if the payment compensates an
“unaffiliated third party” that provides a set of “bundled services” that includes recruitment services, such as those we
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provide. Example 2-B in the DCL is described as a “possible business model” developed “with the statutory mandate in
mind.” Example 2-B describes the following as a possible business model:
“A third-party that is not affiliated with the institution it serves and is not affiliated with any other institution
that provides educational services, provides bundled services to the institution including marketing, enrollment
application assistance, recruitment services, course support for online delivery of courses, the provision of
technology, placement services for internships, and student career counseling. The institution may pay the
entity an amount based on tuition generated for the institution by the entity’s activities for all the bundled
services that are offered and provided collectively, as long as the entity does not make prohibited compensation
payments to its employees, and the institution does not pay the entity separately for student recruitment services
provided by the entity.”
The DCL guidance indicates that an arrangement that complies with Example 2-B will be deemed to be in
compliance with the incentive compensation provisions of the HEA and ED’s regulations. Our business model and
contractual arrangements with our university partners closely follow Example 2-B in the DCL. In addition, we assure
that none of our “covered employees” is paid any bonus or other incentive compensation in violation of the rule.
Because the bundled services rule was promulgated in the form of agency guidance issued by ED in the form of
a DCL and is not codified by statute or regulation, the rule could be altered or removed without prior notice, public
comment period or other administrative procedural requirements that accompany formal agency rulemaking. Similarly, a
court could invalidate the rule in an action involving our company or our university partners, or in action that does not
involve us at all. The revision, removal or invalidation of the bundled services rule by Congress, ED or a court could
require us to change our business model.
In addition, we have requested guidance from ED that our specific model is proper under the incentive
compensation rule and that our company is not an “affiliate” of GCU for purposes of the DCL. We are awaiting a
response to this guidance request. See “Risk Factors – Risks Related to Our Business - If we are determined to have paid
improper incentive compensation to our covered employees, or tuition sharing arrangements are deemed to violate the
incentive compensation regulations, our business will be impaired.”
Borrower Defense to Repayment regulations. ED has long had a regulation that establishes standards for
borrowers that govern their ability to raise defenses to their obligation to repay certain Title IV loans, which defenses
were based on certain acts or omissions of the institution that relate to the making of the loan for enrollment at the school
or the provision of educational services for which the loan was provided and that gave rise to a cause of action under
state law against the school. This regulation currently applies to all loans first disbursed prior to July 1, 2017.
In 2016, ED published a regulatory package related to “Borrower Defense to Repayment.” This was a highly
consequential rule that, among other things, would make it easier for borrowers – individually or in groups – to
extinguish, in whole or in part, their student loans based on whether:
• The borrower or a governmental agency, has obtained against the school a nondefault, favorable contested
judgment based on state or federal law in a court of administrative tribunal;
• The institution failed to perform its obligations under the terms of a contract with the student; or
• The school or any of its representatives (including contractors) or any institution, organization, or person
with whom the school has an agreement to provide educational programs, or to provide marketing,
advertising, recruiting or admissions services, made a substantial misrepresentation (as defined by ED
regulations) that the borrower reasonably relied on to the borrower’s detriment when the borrower decided
to attend, or to continue attending, the school or decided to take out a Direct Loan.
These regulations also established separate procedures for claims initiated for individual borrowers and claims
initiated for groups of borrowers as well as separate procedures in the event that the institution is open or closed. The
rules established varying, borrower-favorable statutes of limitations for the initiation of claims and, in some cases,
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imposed an unlimited statute of limitations. If the ED official or hearing official approves the borrower’s defense to
repayment through the applicable administrative process established in the proposed regulations, ED may discharge the
borrower’s obligation to repay some or all of the borrower’s student loans, may return to the borrower amounts already
paid by the borrower toward the discharged portion of the loan, and may initiate a separate proceeding to collect the
discharged and returned amounts from the institution.
Although ED attempted to prevent the effectiveness of these regulations, an October 2018 court decision
mandated that the Borrower Defense to Repayment regulations that were originally published by ED in 2016 are now in
effect and apply to loans first disbursed after July 1, 2017, and (because of recent regulatory developments) prior to
July 1, 2020.
On September 23, 2019, ED published new regulations related to the “Borrower Defense to Repayment”
regulations. These regulations, which went into effect July 1, 2020 modify the existing regulations to now permit
borrowers to raise as a defense to repayment on a student loan any statement, act, or omission to a borrower that is false,
misleading, or deceptive; made with knowledge of its false, misleading, or deceptive nature or with a reckless disregard
for the truth; and directly and clearly related to the making of a Direct Loan for enrollment at the school or the provision
of educational services for which the loan was made. Among other things, the new regulations modify the procedures
and standards for borrowers to assert through an ED-administered process a defense to the borrowers’ obligation to
repay certain Title IV loans first disbursed on or after July 1, 2020, based on certain acts or omissions by the institution
or a covered party. The procedures establish a process for students to obtain a loan discharge by establishing by a
preponderance of the evidence that the institution made a misrepresentation of material fact, upon which the borrower
reasonably relied in deciding to obtain a covered loan, where such misrepresentation directly and clearly relates to
enrollment or continuing enrollment at the institution or to the provision of educational services for which the loan was
made, and where the borrower was financially harmed by the misrepresentation. The regulations establish revised
definitions for misrepresentation and financial harm, identify a nonexclusive list of items that may be evidence that a
misrepresentation occurred, identify a list of items that do not constitute a basis for a defense to repayment. The
regulations also set forth rules on a limitations period for submitting claims and circumstances for extending this period,
on the requirements for submitting an application for a discharge, on the consideration of the application by ED, on the
opportunities for the institution to respond and submit evidence, and on the process for discharging the borrower’s loan
and for ED to seek recovery of the discharged amounts from the institution.
In addition to revising the claims for defenses to repayment, the 2019 Borrower Defense to Repayment
regulations that became effective on July 1, 2020, revises the financial responsibility regulations that were a part of the
2016 version of those regulations. The 2019 regulation shortens and reduces the scope of the list of events that could
result in ED determining that an institution has failed ED’s financial responsibility standards and requiring a letter of
credit or other form of acceptable financial protection and the acceptance of other conditions or requirements.
Specifically, the regulations establish revised lists of mandatory triggering events and discretionary triggering events.
The regulation also establishes discretionary triggering events for which ED may determine that an institution is not able
to meet its financial or administrative obligations if the events are likely to have a material adverse effect on the financial
condition of the institution. The regulations require the institution to notify ED of the occurrence of a mandatory or
discretionary event in accordance with procedures established by ED, typically within 10 days of the occurrence of the
event with certain exceptions. ED may make a determination that an institution fails to meet the financial responsibility
standards based on the occurrence of one or more mandatory or discretionary triggers and impose a letter of credit and/or
other conditions upon the institution. As with the 2016 version of this rule, the 2019 version of the regulations could
require institutions we service – like GCU – to submit a letter of credit or other form of acceptable financial protection
and accept other conditions or requirements. This could put financial strain on our university partners and negatively
affect our business.
On August 10, 2021, the ED announced its intention to establish a negotiated rulemaking committee to develop
proposed regulations for borrower defenses to repayment and other topics related to programs authorized under Title IV
of the HEA. Negotiated rulemaking for the Affordability and Student Loans Committee began in October 2021 and
concluded in December 2021, with the committee failing to reach consensus on Borrower Defense to Repayment
(“BDTR”). On October 31, 2022, the ED released final BDTR regulations. Among other things, the final rule sets a
single standard and streamlined process for relief that will apply to all future and pending BDTR claims as of July 1,
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2023, instead of various standards based on the date of the borrower’s first loan disbursement; define what kinds of
misconduct could lead to borrower defense discharges, including substantial misrepresentations, substantial omissions of
fact, breaches of contract, aggressive and deceptive recruitment, and state or federal judgments or final ED actions that
could give rise to a BDTR claim; establish a reconsideration process for borrowers whose claims are not approved for a
full discharge; and create a process for forming groups of borrowers and adjudicating claims based on the common facts
of those group claims. The final rule also sets the expectation that the ED will hold colleges accountable for the cost of
discharges, including establishing a recoupment process separate from the approval of BDTR claims. In addition, the
final rule prohibits institutions from requiring borrowers to sign mandatory pre-dispute arbitration agreements or class
action waivers for claims related to the making of a Federal Direct Loan or the provision of educational services for
which the loan was obtained.
Note, the borrower defense to repayment regulations discussed herein were and are extensive and this does not
attempt to discuss all the facets of any of the versions of these regulations. We cannot determine what effect of these
regulations on out university partners or on GCE.
Compliance reviews. Our client institutions are subject to announced and unannounced compliance reviews and
audits by various external agencies, including ED, its Office of Inspector General, state licensing agencies, the
applicable state approving agencies for financial assistance to veterans, and accrediting commissions. As part of ED’s
ongoing monitoring of institutions’ administration of the Title IV programs, the HEA also requires institutions to
annually submit to ED a Title IV compliance audit conducted by an independent certified public accountant in
accordance with applicable federal and ED audit standards. In addition, to enable ED to make a determination of an
institution’s financial responsibility, each institution must annually submit audited financial statements prepared in
accordance with ED regulations.
Additionally, on October 8, 2021, ED announced establishment of an Office of Enforcement within ED's Office
of Federal Student Aid, designed to strengthen oversight over and enforcement against postsecondary schools that
participate in federal student loan, grant, and work-study programs. The Office of Enforcement restores an office first
established by ED in 2016. ED announced the Office of Enforcement would comprise four existing divisions:
Administrative Actions and Appeals Services Group, Borrower Defense Group, Investigations Group, and Resolution
and Referral Management Group. ED intends the Office of Enforcement to coordinate with other state and federal
partners, including the Department of Justice, Consumer Financial Protection Bureau, Federal Trade Commission, and
state attorneys general.
As a third-party servicer, not only are our university partners subject to reviews and audits that may require our
involvement, but we are also subject to program reviews from ED and the Office of the Inspector General. Further, we
also have an obligation to annually submit to ED a Title IV compliance audit conducted by an independent certified
public accountant in accordance with applicable federal and ED audit standards.
Gainful employment rules. Under the HEA, proprietary schools are eligible to participate in Title IV programs
in respect of educational programs that lead to “gainful employment in a recognized occupation,” with the limited
exception of qualified programs leading to a bachelor’s degree in liberal arts. ED attempted to define this in a series of
regulations from 2010 to 2016. On July 1, 2019, ED rescinded the previously enacted gainful employment regulations.
While this change was effective July 1, 2020, ED also permitted institutions to enact this change as early as July 1, 2019,
so long as any such institution made manifest its intention to be subject to the rescinded regulations. It is our
understanding that GCU had made manifest that intention and, as of July 1, 2019, is no longer subject to the gainful
employment rules. While GCU largely complied with the previously published gainful employment rules, the
previously published draft rates did indicate that four current degree programs were in the “Zone” – that is, potentially
faced sanctions in the future if GCU could not reform the program to comply with the regulations – including three
undergraduate education programs and the Masters in Theology.
On December 8, 2021, ED announced its intention to establish negotiated rulemaking committees to develop
proposed regulations for gainful employment and other topics related to programs authorized under Title IV of the HEA.
Negotiated rulemaking committee sessions occurred January-March 2022, and the Institutional and Programmatic
Eligibility committee failed to reach consensus on the Gainful Employment topic. ED has indicated its intention to
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publish draft Gainful Employment rules in April 2023, which would be effective no earlier than July 2024. While we are
watching this process closely, we cannot determine what the outcome will be or the effect of these regulations on out
university partners or on GCE.
Substantial misrepresentation. The HEA prohibits an institution that participates in Title IV programs from
engaging in “substantial misrepresentation” of the nature of its educational program, its financial charges, or the
employability of its graduates. ED has defined a misrepresentation as any statement made by the institution or a third
party that provides educational programs, marketing, advertising, recruiting, or admissions services to the institution that
is false, erroneous or has the likelihood or tendency to deceive. A substantial misrepresentation is any misrepresentation
on which the person to whom it was made could reasonably be expected to rely, or has reasonably relied, to that person’s
detriment.
The regulation also covers statements made by any representative of an institution, including agents, employees
and subcontractors, and statements made directly or indirectly to any third party, including state agencies, government
officials or the public, and not just to students or prospective students. Therefore, we are subject to this regulation.
Considering the breadth of the definition of “substantial misrepresentation,” it is possible that despite our
efforts to prevent such misrepresentations, our employees or contractors may make statements that could be construed as
substantial misrepresentations for which our university partners would be held responsible by ED. We and our
employees and subcontractors, as agents of our university partners, must use a high degree of care to comply with such
rules and are prohibited by contract from making any false, erroneous or misleading statements about our university
partners. To avoid an issue under the misrepresentation rule and similar rules, we assure that all marketing materials are
approved in advance by our university partners before they are used by our employees and we carefully monitor our
subcontractors.
Additionally, matters regarding substantial misrepresentation, and defining what constitutes “aggressive
recruiting,” are currently the subject of negotiated rulemaking. While we are watching this process closely, we cannot
determine what the outcome will be or the effect of these regulations on out university partners or on GCE.
Despite our best efforts, we may face complaints from students and prospective students of our university
partners over statements made by us and our agents throughout the conduct of our services which would expose our
university partners, and derivatively us, to increased risk of enforcement action and applicable sanctions or other
penalties and increased risk of private qui tam actions under the Federal False Claims Act. Also, if ED determines that
an institution (including its contractors) has engaged in substantial misrepresentation, ED may revoke an institution’s
program participation agreement, impose limitations on the institution’s participation in Title IV programs, deny
applications from the institution for approval of new programs or locations or other matters, or initiate proceedings to
fine the institution or limit, suspend, or terminate its eligibility to participate in Title IV programs. Similar rules apply
under state laws or are incorporated in institutional accreditation standards and the Federal Trade Commission (“ FTC”)
applies similar rules prohibiting any unfair or deceptive marketing practices to the education sector. On October 6, 2021
the FTC announced that it is resurrecting Penalty Offense Authority under Section 5(m) of the FTC Act (the “Act”).
Under the Act, the FTC may secure penalties against entities not a party to an original proceeding if the FTC can show
that the entity had actual knowledge that the conduct in question was found to be unfair or deceptive. Entities that have
actual knowledge of acts or practices the FTC has found to be unlawful and that subsequently engage in such unlawful
acts or practices may be held liable for civil penalties up to $50,120 per violation. Also on October 6, 2021, in an effort
to establish actual knowledge and create a pathway for penalties in the event of post-notice acts or practices, the FTC
issued notice to the 70 largest for-profit schools based on enrollment and revenues. The notice included a list of acts and
practices that the FTC has determined are unfair or deceptive, including but not limited to acts relating to
misrepresentation of employment opportunities and other benefits, together with citation to various prior determinations
from cases previously litigated by the FTC. GCU received the FTC’s notice on October 7, 2021. The FTC made clear
that receipt of the notice itself does not reflect any assessment as to whether GCU has engaged in deceptive or unfair
conduct.
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If ED or another regulator determines that statements made by us or on our behalf are in violation of the
regulations, we could be subject to sanctions and other liability, which could have a material adverse effect on our
business.
Negotiated Rulemaking. ED periodically issues new regulations and guidance that can have an adverse effect on
our partner institutions. ED has changed its regulations, and may make other changes in the future, in a manner which
could require us to incur additional costs in connection with providing the services that we provide our partners affect
their ability to remain eligible to participate in the Title IV programs, impose restrictions on their participation in the
Title IV programs, affect the rate at which students enroll in our partners’ programs, or otherwise have a significant
impact on our business and results of operations. We cannot predict the timing and content of any new regulations or
guidance that ED may seek to impose or whether and to what extent ED under the new administration may issue new
regulations and guidance that could adversely impact our partner institutions.
In May 2021, ED announced its intention to establish negotiated rulemaking committees to prepare proposed
regulations on an extensive range of topics including without limitation changes of ownership and change in control of
institutions of higher education, certification procedures for participation in the Title IV programs, standards of
administrative capability, ability to benefit standards, borrower defense to repayment, discharges for borrowers with a
total and permanent disability, closed school loan discharges, discharges for false certification of student eligibility, loan
repayment plans, the public service loan forgiveness program, mandatory pre-dispute arbitration and prohibition of class
action lawsuits provisions in institutional enrollment agreements, financial responsibility standards including events that
indicate heightened financial risk, gainful employment, and Pell Grant eligibility for prison education programs.
Additionally, on October 4, 2021, ED published a notice in the Federal Register announcing its intention to establish a
negotiated rulemaking committee to prepare proposed regulations affecting institutional and programmatic eligibility,
including the gainful employment rule and the 90/10 rule changes made by the ARPA. ED published many of these
regulations in Fall of 2022, some of which are discussed herein. Additionally, ED is expected to publish proposed
regulations related to gainful employment in the Federal Register for public comment in April 2023. If the final
regulations are published by or before November 1, 2023, then the regulations typically would not take effect until
July 1, 2024. However, we cannot predict the ultimate timing and content of any final regulations following the
conclusion of the rulemaking process. The negotiated rulemaking process could lead to future ED regulations that could
adversely impact our partner institutions.
On January 4, 2023, ED announced their intention to issue new regulations in eight different areas of higher
education regulations via negotiated rulemaking. The topics include:
• Distance Education
• Accreditation and Related Issues
• State Authorization
• Third-Party Servicers and Related Agencies
• Cash Management
• Return to Title IV
• Federal TRIO Programs
•
Improving Use of Deferments and Forbearances.
While ED has announced their intent to move forward on these topics in April, no proposed language has yet
been put forth. It is expected that ED will soon give dates and times for at least two or more regional field hearings
seeking public comment on the proposed regulatory topics they intend to review and rewrite. They will also provide a
calendar for when the required negotiated rulemaking sessions will be held. While we will be watching this closely, we
cannot predict what, if any impact this rulemaking will have on our business.
We cannot predict with certainty the ultimate combined impact of the regulatory changes which have occurred
in recent years and that may occur as a result of the upcoming negotiated rulemaking, nor can we predict the effect of
future legislative or regulatory action by federal, state or other agencies regulating our education programs or other
aspects of our operations, how any resulting regulations will be interpreted or whether we and our partner institutions
will be able to comply with these requirements in the future. Any such actions by legislative or regulatory bodies that
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affect our programs and operations could have a material adverse effect on our student population and our partner
institutions, including the need to cease offering a number of programs.
Regulatory Standards that May Restrict Institutional Expansion or Other Changes
Many actions that our university partners may wish to take in connection with expanding their operations or
other changes are subject to review or approval by the applicable regulatory agencies. For example, requirements and
standards of state post-secondary agencies, accrediting commissions, and ED limit an institution’s ability in certain
instances to establish additional teaching locations, implement new educational programs, or increase enrollment in
certain programs. Many states require review and approval before institutions can add new locations or programs, and
many states limit the number of pre-licensure professional students (such as nursing) colleges may enroll. Similarly,
accrediting agencies (institutional and programmatic) generally require institutions to notify them in advance of adding
new locations or implementing new programs, and upon notification may undertake a review of the quality of the facility
or the program and the financial, academic, and other qualifications of the institution.
With respect to ED, if an institution participating in the Title IV programs plans to add a new location or
educational program, the institution must generally apply to ED to have the additional location or educational program
designated as within the scope of the institution’s Title IV eligibility. Institutions that are fully certified to participate in
the Title IV programs are not required to obtain ED’s approval of additional programs that lead to a bachelor’s,
professional, or graduate degree at the same degree level as programs previously approved by ED, and, similarly, is not
required to obtain advance approval for new programs that prepare students for gainful employment in the same or a
related recognized occupation as an educational program that has previously been designated by ED as an eligible
program at that institution if it meets certain minimum-length requirements. GCU, because it is currently certified to
participate in the Title IV programs on a month-to-month basis, is required to obtain ED approval for new programs,
which requirement could impede GCU’s ability to introduce new programs and slow its growth.
Item 1A. Risk Factors
There are many factors that affect our business, financial condition, operating results, cash flows and
distributions, as well as the market price for our securities. The following is a description of important factors that may
cause our actual results of operations in future periods to differ materially from those currently expected or discussed in
forward-looking statements set forth in this Annual Report. Additional risks and uncertainties not presently known to us
or that we may currently deem immaterial also may impair our business operations. Forward-looking statements and
such risks, uncertainties and other factors speak only as of the date of this Annual Report, and we expressly disclaim any
obligation or undertaking to update or revise any forward-looking statement contained herein, to reflect any change in
our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such
statement is based, except to the extent otherwise required by law. See “Forward-Looking Statements.” These risk
factors should be read in conjunction with other information set forth in this Annual Report, including Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, Consolidated
Financial Statements and Supplementary Data, including the related Notes to Consolidated Financial Statements.
We currently provide services to 27 university partners across the United States, GCU is, and will for the
foreseeable future remain, our most significant university partner. Accordingly, the risk factors set forth below also
include risks attributable to GCU’s operations, which could materially affect us.
Risks Related to Our Relationship with GCU
A large percentage of our revenue is attributable to our contractual relationship as a service provider to GCU, and
the loss of, or a decline in enrollment in, GCU programs could significantly reduce our revenue and impact our
overall financial performance.
We expect the revenue derived from our Master Services Agreement with GCU to account for a large
percentage of our revenue for the foreseeable future. Any decline in reputation or changes in policies of GCU could
adversely affect its student enrollment and its overall financial and operating results, which could materially impact us.
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Furthermore, GCU has the right to terminate the Master Services Agreement early after seven (7) years and, upon the
termination or expiration of the Master Services Agreement, GCU is not required to continue using us as the provider of
the services set forth thereunder. If GCU were to terminate or not renew its relationship with us, or if certain of the
programs offered by GCU pursuant to the Master Services Agreement were to materially underperform for any reason, it
could negatively affect our reputation, revenue and future operating results.
GCU’s board of trustees and management have fiduciary and other duties that require them to focus on the best
interests of GCU and, over time, those interests could diverge from those of GCE.
While GCE believes that its relationship with GCU will remain strong, GCU’s board of trustees and
management have fiduciary and other duties that require them to focus on the best interests of GCU and, over time, those
interests could diverge from those of GCE.
Our Chief Executive Officer’s role as President of GCU may adversely affect his ability to run GCE.
Mr. Brian E. Mueller has served as the Chief Executive Officer of GCE since 2008, the Chairman of the Board
of GCE since 2017 and the President of GCU since 2012. In connection with the Transaction, the Board of Directors of
GCE and the board of trustees of GCU each determined that Mr. Mueller should retain those roles. Accordingly,
Mr. Mueller serves as the Chairman of the Board and Chief Executive Officer of GCE and as the President of GCU,
although he is prohibited from serving on the board of trustees of GCU. Our Board and the board of trustees of GCU
each recognized that Mr. Mueller’s dual role could raise conflict of interest issues. Accordingly, at the time of the
Transaction, GCU adopted governance provisions that prohibit Mr. Mueller from serving on the board of trustees of
GCU. We also jointly imposed a structure, through GCU’s governance documents and through express provisions of the
Master Services Agreement, that prevent Mr. Mueller from participating in day-to-day management of, or negotiations
between GCE and GCU relating to, the Master Services Agreement. In addition, Mr. Mueller’s dual capacity may at
times adversely affect his ability to devote time, attention, and effort to GCE.
Other Risks Related to Our Business
If we are determined to have paid improper incentive compensation to our covered employees, or tuition sharing
arrangements are deemed to violate the incentive compensation regulations, our business will be impaired.
An institution that participates in the Title IV programs may not provide any commission, bonus, or other
incentive payment based directly or indirectly on success in securing enrollments or financial aid to any person or entity
engaged in any student recruitment, admissions, or financial aid awarding activity. Current regulations provide that
higher education institutions agree that it will not “provide any commission, bonus, or other incentive payment based in
any part, directly or indirectly, upon success in securing enrollments or the award of financial aid, to any person or entity
who is engaged in any student recruitment or admission activity, or in making decisions regarding the award of title IV,
HEA program funds.” Pursuant to this regulation, we are prohibited from offering our covered employees, which are
those involved with or responsible for recruiting or admissions activities, any bonus or incentive-based compensation
based on the successful recruitment, admission or enrollment of students into a postsecondary institution. We are also
precluded from offering our covered employees that work on financial aid matters (if any), any bonus or incentive-based
compensation based on the award of financial aid to students enrolled in a postsecondary institution.
In addition, the regulation raises a question as to whether companies like ours, as an entity, are prohibited from
entering into tuition revenue-sharing arrangements with university partners. On March 17, 2011, ED issued official
agency guidance, known as a “Dear Colleague Letter,” or the DCL, providing guidance on this point. The DCL states
that “[t]he Department generally views payment based on the amount of tuition generated as an indirect payment of
incentive compensation based on success in recruitment and therefore a prohibited basis upon which to measure the
value of the services provided” and that “[t]his is true regardless of the manner in which the entity compensates its
employees.” But the DCL also provides an important exception to the ban on tuition revenue-sharing arrangements
between institutions and third parties. According to the DCL, ED does not consider payment based on the amount of
tuition generated by an institution to violate the incentive compensation ban if the payment compensates an “unaffiliated
third party” that provides a set of “bundled services” that includes recruitment services, such as those we provide.
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Example 2-B in the DCL is described as a “possible business model” developed “with the statutory mandate in mind.”
Example 2-B describes the following as a possible business model:
“A third party that is not affiliated with the institution it serves and is not affiliated with any other institution
that provides educational services, provides bundled services to the institution including marketing, enrollment
application assistance, recruitment services, course support for online delivery of courses, the provision of
technology, placement services for internships, and student career counseling. The institution may pay the
entity an amount based on tuition generated for the institution by the entity’s activities for all the bundled
services that are offered and provided collectively, as long as the entity does not make prohibited compensation
payments to its employees, and the institution does not pay the entity separately for student recruitment services
provided by the entity.”
The DCL guidance indicates that an arrangement that complies with Example 2-B will be deemed to be in
compliance with the incentive compensation provisions of the HEA and ED’s regulations. Our business model and
contractual arrangements with our university partners closely follow Example 2-B in the DCL. In addition, we assure
that none of our “covered employees” is paid any bonus or other incentive compensation in violation of the rule.
Because the bundled services rule was promulgated in the form of agency guidance issued by ED in the form of
a DCL and is not codified by statute or regulation, the rule could be altered or removed without prior notice, public
comment period or other administrative procedural requirements that accompany formal agency rulemaking. Similarly, a
court could invalidate the rule in an action involving our company or our university partners, or in action that does not
involve us at all. The revision, removal or invalidation of the bundled services rule by Congress, ED or a court could
require us to change our business model.
We may have difficulty integrating future acquisitions, which would reduce the anticipated benefits of those
transactions.
We intend to continually evaluate potential acquisitions of complementary businesses, products, services and
technologies, including those that are significant in size and scope. The risks we may encounter in acquisitions include:
•
if we incur significant debt to finance a future acquisition and our business does not perform as expected,
we may have difficulty complying with debt covenants;
• we may be unable to make a future acquisition which is in our best interest due to our existing
indebtedness;
if we use our stock to make a future acquisition, it will dilute existing stockholders;
•
• we may have difficulty assimilating the operations and personnel of any acquired company;
•
the challenge and additional investment involved with integrating new products, services and technologies
into our sales and marketing process;
our ongoing business may be disrupted by transition and integration issues;
the costs and complexity of integrating the internal information technology infrastructure of each acquired
business with ours may be greater than expected and may require additional capital investments;
•
•
• we may be unable to achieve the financial and strategic goals for any acquired businesses;
• we may have difficulty in maintaining controls, procedures and policies during the transition and
integration period following a future acquisition;
our relationships with existing clients could be adversely affected; and
as successor we may be subject to certain liabilities of our acquisition targets.
•
•
Our failure to effectively integrate any future acquisition would adversely affect the benefit of such transaction,
including potential synergies or sales growth opportunities, in the time frame anticipated.
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Our success depends, in part, on the effectiveness of our marketing and advertising programs in recruiting new
students.
Building awareness of our university partner institutions, and the programs they offer, is critical to our ability to
attract prospective students. It is also critical to our success that we convert prospective students to enrolled students in a
cost-effective manner and that these enrolled students remain active in the programs of our client institutions. The
tightness of the job market has historically had an impact on our ability to successfully recruit new students especially
for students considering re-careering into a different field. Historically the percentage of students we recruited that were
re-careering was low but with the increase in university partners and off-campus classroom and laboratory sites and the
growth in new online licensure programs by GCU, the number of students we recruit that are re-careering is growing.
Therefore, changes in the job market will impact our ability to recruit students. Some of the other factors that could
prevent us from successfully recruiting, enrolling, and retaining students in those programs include:
•
•
•
•
•
•
•
•
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the reduced availability of, or higher interest rates and other costs associated with, Title IV loan funds or
other sources of financial aid;
the emergence of more successful competitors;
factors related to our marketing, including the costs and effectiveness of Internet advertising and broad-
based branding campaigns and recruiting efforts;
performance problems with our online systems;
failure of our client institutions to maintain institutional and specialized accreditations;
the requirements of the education agencies that regulate our client institutions which could restrict their
initiation of new programs and modification of existing programs;
the requirements of the education agencies that regulate our university partner institutions which restrict the
ways schools can compensate their recruitment personnel;
increased regulation of online education, including in states in which our university partner institutions do
not have a physical presence;
restrictions that may be imposed on graduates of online programs that seek certification or licensure in
certain states;
student dissatisfaction with our services and programs;
damage to our reputation or other adverse effects as a result of negative publicity in the media, in industry
or governmental reports, or otherwise, affecting us or other companies in the post-secondary education
sector;
price reductions by competitors that we are unwilling or unable to match;
a decline in the acceptance of online education;
an adverse economic or other development that affects job prospects in our core disciplines; and
a decrease in the perceived or actual economic benefits that students derive from the programs offered by
any university partner institution.
If we are unable to continue to develop awareness of the programs of our university partners, and to recruit,
enroll, and retain students, enrollments would suffer and our ability to increase revenues and maintain profitability
would be significantly impaired.
Our failure to keep pace with changing market needs and technology could harm our ability to meet the needs of our
client institutions.
We have invested significant resources to develop and implement features that enhance the online classroom
experience, such as delivering course content through streaming video, simulations, and other interactive enhancements
as well as technology to meet the back-office support needs of our client institutions’ students. Our information
technology systems and tools could become impaired or obsolete due to our action or failure to act. For instance, we
could install new information technology without accurately assessing its costs or benefits, or we could experience
delayed or ineffective implementation of new information technology. We could fail to respond in a timely manner for
future technological developments in our industry. Should our actions or failure to act impair or render our information
technology less effective, this could have a material adverse effect on our business, financial condition, results of
operations and cash flows.
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A decline in the overall growth of enrollment in post-secondary institutions, or in the number of students seeking
degrees online, could cause our university partner institutions to experience lower enrollment, which could negatively
impact our future growth.
Based on industry analyses, enrollment growth in degree-granting, post-secondary institutions is slowing and
that the number of high school graduates that are eligible to enroll in degree-granting, post-secondary institutions is
expected to continue to decrease over the next few years. In order to maintain current growth rates, we will need to
attract a larger percentage of students in existing markets to our client institutions and work with university partner
institutions to create new academic programs. In addition, if job growth in the fields related to our university partners’
core disciplines is weaker than expected, as a result of any regional or national economic downturn or otherwise, fewer
students may seek the types of degrees that our clients offer. Our failure to attract new students for our university
partners, or the decisions by prospective students to seek degrees in other disciplines, would have an adverse impact on
our future growth.
We face competition from established and other emerging companies, which could divert university partners to our
competitors, result in pricing pressure and significantly reduce our revenue.
We expect existing competitors and new entrants to the educational services market to revise and improve their
business models constantly in response to challenges from competing businesses, including ours.
Our primary competitors include EmbanetCompass (owned by Pearson), Wiley Education Services, and 2U.
There are also several new and existing vendors providing some or all of the services we provide to other segments of
the education market, and these vendors may pursue the institutions we target. In addition, colleges and universities may
choose to continue using or to develop their own solutions in-house, rather than pay for our solutions.
Increased competition may result in changes in the revenue share percentage we are able to negotiate to receive
from a university partner. The competitive landscape may also result in longer and more complex sales cycles with a
prospective university partner, which would negatively affect our ability to add additional university partners and thus
our ability to grow our business.
A number of competitive factors could cause us to lose potential university partner opportunities or force us to
offer our solutions on less favorable economic terms, including
•
•
•
competitors may develop service offerings that our potential university partners find to be more compelling
than ours;
competitors may adopt more aggressive pricing policies and offer more attractive sales terms, adapt more
quickly to new technologies and changes in university partner and student requirements, and devote greater
resources to the acquisition of qualified students than we can; and
current and potential competitors may establish cooperative relationships among themselves or with third
parties to enhance their products and expand their markets, and our industry is likely to see an increasing
number of new entrants and increased consolidation. Accordingly, new competitors or alliances among
competitors may emerge and rapidly acquire significant market share.
We may not be able to compete successfully against current and future competitors. In addition, competition
may intensify as our competitors raise additional capital and as established companies in other market segments or
geographic markets expand into our market segments or geographic markets. If we cannot compete successfully against
our competitors, our ability to grow our business could be impaired.
We are subject to laws and regulations as a result of our collection and use of personal information, and any
violations of such laws or regulations, or any breach, theft, or loss of such information, could adversely affect our
reputation and operations.
Possession and use of personal information in our operations subjects us to risks and costs that could harm our
business. We collect, use, and retain large amounts of personal information regarding our primary university partner’s
applicants and students, including social security numbers, tax return information, personal and family financial data,
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and credit card numbers. We also collect and maintain personal information of our employees in the ordinary course of
our business. Our services can be accessed globally through the Internet. Therefore, we may be subject to the application
of national privacy laws in countries outside the U.S. from which applicants and students access our services. Such
privacy laws could impose conditions that limit the way we market and provide our services.
Our computer networks and the networks of certain of our vendors that hold and manage confidential
information on our behalf may be vulnerable to unauthorized access, employee theft or misuse, computer hackers,
computer viruses, and other security threats. Confidential information may also inadvertently become available to third
parties when we integrate systems or migrate data to our servers in connection with periodic hardware or software
upgrades.
Due to the sensitive nature of the personal information stored on our servers, our networks may be targeted by
hackers seeking to access this data. A user who circumvents security measures could misappropriate sensitive
information or cause interruptions or malfunctions in our operations. Although we use security and business controls to
limit access and use of personal information, a third party may be able to circumvent those security and business
controls, which could result in a breach of student or employee privacy. In addition, errors in the storage, use, or
transmission of personal information could result in a breach of privacy for current or prospective students or employees.
Possession and use of personal information in our operations also subjects us to legislative and regulatory burdens that
could require us to implement certain policies and procedures, such as the procedures we adopted to comply with the
Red Flags Rule that was promulgated by the FTC under the federal Fair Credit Reporting Act and that requires the
establishment of guidelines and policies regarding identity theft related to student credit accounts, and could require us
to make certain notifications of data breaches and restrict our use of personal information. Similarly, California passed
the California Consumer Privacy Act (CCPA) in 2018 (which went into effect in 2020), and Massachusetts recently
proposed MA Bill SD 341, “An Act relative to consumer data privacy.” There are similar bills pending in a number of
other states, as well. CCPA and MA Bill SD 341 each represent a trend toward stronger privacy protections and greater
data transparency in the U.S. Currently, federal law legislates privacy on an industry by industry basis. Without an
overarching federal law driving privacy compliance, the risk is high of a patchwork of privacy legislation formed by
individual state laws, similar to the states’ approach to breach notification obligations. This could not only increase costs
for compliance but also raise the risk of enforcement by individual state Attorneys General. A violation of any laws or
regulations relating to the collection or use of personal information could result in the imposition of fines against us. As
a result, we may be required to expend significant resources to protect against the threat of these security breaches or to
alleviate problems caused by these breaches. A major breach, theft, or loss of personal information regarding our
university partner’s students and their families or our employees that is held by us or our vendors, or a violation of laws
or regulations relating to the same, could have a material adverse effect on our reputation and result in further regulation
and oversight by federal and state authorities and increased costs of compliance.
We are required to comply with The Family Educational Rights and Privacy Act, or FERPA, and failure to do so
could harm our reputation and negatively affect our business.
FERPA generally prohibits an institution of higher education participating in Title IV programs from disclosing
personally identifiable information from a student’s education records without the student’s consent. Our university
partners and their students disclose to us certain information that originates from or comprises a student education record
under FERPA. As an entity that provides services to institutions participating in Title IV programs, we are indirectly
subject to FERPA, and we may not transfer or otherwise disclose any personally identifiable information from a student
record to another party other than in a manner permitted under the statute. If we violate FERPA, it could result in a
material breach of contract with one or more of our university partners and could harm our reputation. Further, in the
event that we disclose student information in violation of FERPA, ED could require a university partner to suspend our
access to their student information for at least five years.
Capacity constraints, system disruptions, or security breaches in our online computer networks and phone systems
could have a material adverse effect on our ability to attract and retain students.
The performance and reliability of the infrastructure of our computer networks and phone systems, including
the online programs of our university partners, is critical to our operations, reputation and to our ability to attract and
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retain students on our university partners’ behalf. Any computer system disruption or failure, or a sudden and significant
increase in traffic on the servers that host our online operations, may result in the online courses and programs being
unavailable for a period of time. In addition, any significant failure of our computer networks or servers, whether as a
result of third-party actions or in connection with planned upgrades and conversions, could disrupt our operations.
Individual, sustained, or repeated occurrences could significantly damage the reputation of our technology/services and
result in a loss of potential or existing students of our university partner institutions. Additionally, our operations are
vulnerable to interruption or malfunction due to events beyond our control, including natural disasters and network and
telecommunications failures. Our computer networks may also be vulnerable to unauthorized access, computer hackers,
computer viruses, malicious code, organized cyber-attacks and other security problems. A user who circumvents security
measures could misappropriate proprietary information or cause interruptions to or malfunctions in operations. As a
result, we may be required to expend significant resources to protect against the threat of these security breaches or to
alleviate problems caused by these incidents. Any interruption to our operations could have a material adverse effect on
our ability to attract students to our university partner’s programs and to retain those students.
Risks Related to the Extensive Regulation of The Higher Education Industry
Our failure, or our university partners’ failure, to comply with the extensive regulatory requirements governing
institutions of higher education could result in financial penalties, restrictions on our operations or growth, or loss of
external financial aid funding for our university partners’ students.
To participate in the Title IV programs, a school must be authorized by the appropriate state post-secondary
agency or agencies, be accredited by an accrediting commission recognized by ED, and be certified as an eligible
institution by ED. In addition, the operations and programs of our primary university partner, and any future university
partners, are regulated by other state education agencies and additional accrediting commissions. As a result of these
requirements, we are subject to extensive regulation from state entities, institutional accrediting commissions,
specialized accrediting commissions, and ED. These regulatory requirements cover many of our operations, as well as
the operations of our university partners. These include regulations related to educational programs, instructional and
administrative staff, administrative procedures, marketing, recruiting, financial operations, and financial condition of any
university partner. These regulatory requirements also affect our ability to assist university partner institutions with
adding new educational programs and changing existing educational programs. The agencies that regulate higher
education periodically revise their requirements and modify their interpretations of existing requirements. Regulatory
requirements are not always precise and clear, and regulatory agencies may sometimes disagree with the way we have
(or any university partner has) interpreted or applied these requirements. Any misinterpretation of regulatory
requirements could materially adversely affect us. If we fail, or any university partner institution fails, to comply with
any of these regulatory requirements, we or any university partner could suffer financial penalties, limitations on our
operations, or other sanctions, each of which could materially adversely affect us. In addition, if we or any university
partner are charged with regulatory violations, our reputation could be damaged, which could have a negative impact on
our stock price and enrollments at university partner institutions. ED and other regulators have increased the frequency
and severity of their enforcement actions against post-secondary schools. In some cases, these enforcement actions have
resulted in material sanctions, loss of Title IV eligibility, or closure in schools. We cannot predict with certainty how all
of these regulatory requirements will be applied, or whether we will be able to comply with all of the applicable
requirements in the future.
Rulemaking by ED could materially and adversely affect our business.
Over the past few years, ED has regularly promulgated new regulations and guidance that impact our university
partners and our business directly. These and other regulations and guidance documents, including those discussed
above under “Business – Regulation,” can increase our operating costs and, in some cases, change the manner in which
we operate our business. In addition, because certain of these regulations have been vacated or blocked as a result of
litigation challenging the regulations, there remains substantial uncertainty regarding their present or future effectiveness
or enforcement. New or amended regulations in the future, particularly regulations focused on third-party servicers,
could further negatively impact our business.
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If ED does not recertify a university partner institution to continue participating in the Title IV programs, the
students we assist would lose their access to Title IV program funds, or a university partner institution could be
recertified but required to accept significant limitations as a condition of its continued participation in the Title IV
programs.
ED certification to participate in the Title IV programs lasts a maximum of six years, and institutions are thus
required to seek recertification from ED on a regular basis in order to continue their participation in the Title IV
programs. An institution must also apply for recertification by ED if it undergoes a change in control, as defined by ED
regulations, and may be subject to similar review if it expands its operations or educational programs in certain ways.
As an example, on November 6, 2019, ED informed GCU that it had approved the Transaction and granted to
GCU a provisional PPA, permitting GCU to participate in Title IV, HEA programs on a provisional basis for the period
through September 30, 2022. This PPA, which was automatically granted on a provisional basis due to the fact that the
Transaction constituted a change of control of GCU, was granted without any requirement to post a letter of credit or any
growth restrictions. Accordingly, GCU is authorized to participate in Title IV, HEA programs for the stated period. As
required, GCU filed a renewal application three months in advance of the scheduled expiration date. ED has not made a
decision on its recertification application, and therefore its provisional certification to participate in the Title IV
programs has been automatically extended on a month-to-month basis until ED makes its decision. Institutions are
routinely given a month-to-month extension on their PPA until ED has completed its review of the application. For
example, when GCU’s provisional PPA expired in June 2008, it continued to receive a month-to-month extension
between that date and April 2011 when ED issued it a new, provisional PPA. For a school that is certified on a
provisional basis, the ED may revoke the institution’s certification without advance notice or advance opportunity for the
institution to challenge that action. For a school that is provisionally certified on a month-to-month basis, like GCU, the
ED may allow the institution’s certification to expire at the end of any month without advance notice, and without any
formal procedure for review of such action. To our knowledge, such action is very rare and has only occurred upon a
determination that an institution is in substantial violation of material Title IV requirements.
There can be no assurance that ED will recertify any university partner institution at that time or that it will not
impose conditions or other restrictions on any university partner institution as a condition of approving any future
recertification. If ED does not renew or withdraws certification to participate in the Title IV programs from any
university partners, students at that institution would no longer be able to receive Title IV program funds. Alternatively,
ED could renew a university partner institution’s certification, but restrict or delay students’ receipt of Title IV funds,
limit the number of students to whom it can disburse such funds, place other restrictions on the institution, or it could
delay recertification after any university partners’ program participation agreement expires, in which case our university
partner’s certification would continue on a month-to-month basis, which is GCU’s current status. Any of these outcomes
could have a material adverse effect on our university partners’ enrollments and us.
A university partner institution could lose the ability to participate in the Title IV programs if it fails to maintain its
institutional accreditation, and our university partners’ student enrollments could decline if a client institution fails to
maintain any of its accreditations or approvals.
An institution must be accredited by an accrediting commission recognized by ED in order to participate in the
Title IV programs. Our primary university partner, GCU has been regionally accredited by the HLC and its predecessor
since 1968, most recently obtaining reaccreditation in 2017 for the ten-year period through 2027, and the HLC approved
the Transaction in February 2018. Some of our other partners are accredited by HLC while the others are accredited by
different accrediting bodies that are likely to have standards that are different from those of the HLC. Accrediting bodies
review the accredited status of institutions periodically (for example, the HLC reviews institutions every ten years, along
with a mid-term report in year four).
If any client institution fails to satisfy the relevant accrediting standards, it could lose accreditation, which
would cause a revocation of its eligibility to participate in the Title IV programs. This could cause a significant decline
in student enrollments and could have a material adverse effect on us. In addition, many university partner institutions
will have educational programs that are also accredited by specialized accrediting commissions or approved by
specialized state agencies. If our university partner institutions fail to satisfy the standards of any of those specialized
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accrediting commissions or state agencies, the institution could lose the specialized accreditation or approval for the
affected programs, which could result in materially reduced student enrollments in those programs and have a material
adverse effect on us.
A university partner institution may lose eligibility to participate in the Title IV programs if its student loan default
rates are too high.
An institution may lose its eligibility to participate in some or all of the Title IV programs if, for three
consecutive years, 30% or more of its students who were required to begin repayment on their student loans in one year
default on their payment by the end of the second year. In addition, an institution may lose its eligibility to participate in
some or all of the Title IV programs if the default rate of its students exceeds 40% for any single year. While GCU’s
cohort default rates, for example, have historically been significantly below these levels, we cannot assure you that this
will continue to be the case. Increases in interest rates or declines in income or job losses for students could contribute to
higher default rates on student loans. In addition, while we will conduct appropriate diligence on new university partner
institutions, we cannot guarantee that all university partner institutions will have a cohort default rate as low as GCU.
Having a university partner exceed the student loan default rate thresholds and losing eligibility to participate in the Title
IV programs would have a material adverse effect on our business, prospects, financial condition, and results of
operations. Any future changes in the formula for calculating student loan default rates, economic conditions, or other
factors that cause default rates to increase, could materially adversely affect us.
If our university partner institutions do not meet specific financial responsibility standards established by ED, they
may be required to post a letter of credit or accept other limitations in order to continue participating in the Title IV
programs, or could lose eligibility to participate in the Title IV programs.
To participate in the Title IV programs, an institution must either satisfy specific quantitative standards of
financial responsibility prescribed by ED or post a letter of credit in favor of ED and possibly accept operating
restrictions as well. These financial responsibility tests are applied to each institution on an annual basis based on the
institution’s audited consolidated financial statements, and may be applied at other times, such as if the institution
undergoes a change in control. These tests may also be applied to an institution’s parent company or other related entity.
The operating restrictions that may be placed on an institution that does not meet the quantitative standards of financial
responsibility include being transferred from the advance payment method of receiving Title IV program funds to either
the reimbursement or the heightened cash monitoring system, which could result in a significant delay in the institution’s
receipt of those funds. As a service provider, we are not directly subject to this regulation. However, if ED were to
determine that a university partner institution did not meet the financial responsibility standards due to a failure to meet
the composite score or other financial responsibility factors, ED could impose a range of sanctions on the institution,
such as requiring the institution to post a letter of credit, accept provisional certification (which would hamper the ability
of the institution to add new programs), comply with additional ED monitoring requirements, agree to receive Title IV
program funds under an arrangement other than ED’s standard advance funding arrangement, such as the reimbursement
system of payment or heightened cash monitoring, and to comply with or accept other limitations on the ability to
increase the number of programs offered by our client institutions or the number of students they enroll, any of which
sanctions could have an adverse impact on our business. For example, GCU, calculated its composite score with respect
to its fiscal years ending June 30, 2022 and 2021. As of June 30, 2022 and 2021, GCU’s composite score per GCU’s
audited financial statements was 1.8 and 1.9, respectively, using the proprietary school calculation. If GCU’s future
composite scores do not exceed 1.5, ED could impose sanctions. If any such sanctions were imposed on GCU or one of
our other partners, it could have a negative impact on our ability to conduct our business. In addition, if its composite
score dropped low enough, it could cause GCU to be ineligible for participation in NC-SARA, which would require
GCU to become authorized in numerous states in which it operates or has students.
If our university partner institutions do not comply with ED’s administrative capability standards, we could suffer
harm.
To continue participating in the Title IV programs, an institution must demonstrate to ED that the institution is
capable of adequately administering the Title IV programs under specific standards prescribed by ED. These
administrative capability criteria require, among other things, the institution to have an adequate number of qualified
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personnel to administer the Title IV programs, have adequate procedures for disbursing and safeguarding Title IV funds
and for maintaining records, submit all required reports and consolidated financial statements in a timely manner, and
not have significant problems that affect the institution’s ability to administer the Title IV programs. As a service
provider, we assist our university partners with some facets of these areas. As such, we must be mindful of, and
compliant with, the administrative capability requirements. If our university partner institutions fail to satisfy any of
these criteria, ED may assess financial penalties against such institutions, restrict the manner in which those institutions
receive Title IV funds, require them to post a letter of credit, place them on provisional certification status, or limit or
terminate participation in the Title IV programs, any of which could materially adversely affect us. As a third-party
servicer, if we are the cause of the administrative deficiency, we may also face monetary sanctions and actions to limit,
suspend, or terminate our ability to offer those and other services to institutions of higher education.
A finding that our university partner institutions violated ED’s substantial misrepresentation regulation could
materially and adversely affect our business.
The HEA prohibits an institution that participates in Title IV programs from engaging in “substantial
misrepresentation” of the nature of its educational program, its financial charges, or the employability of its graduates.
Under these rules, a misrepresentation is any statement made by the institution or a third party that provides educational
programs, marketing, advertising, recruiting, or admissions services to the institution that is false, erroneous or has the
likelihood or tendency to deceive or confuse. A substantial misrepresentation is any misrepresentation on which the
person to whom it was made could reasonably be expected to rely, or has reasonably relied, to that person’s detriment.
The regulation also covers statements made by any representative of an institution, including agents, employees and
subcontractors, and statements made directly or indirectly to any third party, including state agencies, government
officials or the public, and not just to students or prospective students. Considering the breadth of the definition of
“substantial misrepresentation,” it is possible that despite our efforts to prevent such misrepresentations, our employees
or contractors may make statements that could be construed as substantial misrepresentations for which our current and
any future university partners would be held responsible by ED. We and our employees and subcontractors, as agents of
our university partners, must use a high degree of care to comply with such rules and are prohibited by contract from
making any false, erroneous or misleading statements about our university partners. To avoid an issue under the
misrepresentation rule and similar rules, we assure that all marketing materials are approved in advance by our
university partners before they are used by our employees and we carefully monitor our employees and subcontractors
conversations with students and prospective students.
Despite our best efforts, we may face complaints from our university partners’ students and prospective
students over statements made by us and our agents throughout the conduct of all our services which would expose our
university partners, and derivatively us, to increased risk of enforcement action and applicable sanctions or other
penalties and increased risk of private qui tam actions under the Federal False Claims Act. Also, if ED determines that
an institution (including its contractors) has engaged in substantial misrepresentation, ED may revoke an institution’s
program participation agreement, impose limitations on the institution’s participation in Title IV programs, deny
applications from the institution for approval of new programs or locations or other matters, or initiate proceedings to
fine the institution or limit, suspend, or terminate its eligibility to participate in Title IV programs. Similar rules apply
under state laws or are incorporated in institutional accreditation standards and the FTC applies similar rules prohibiting
any unfair or deceptive marketing practices to the education sector. If ED or other regulator determines that statements
made by us or on our university partner’s behalf are in violation of the regulations, we could be subject to sanctions and
other liability, which could have a material adverse effect on our business.
To the extent we are performing return to Title IV calculations for our university partner institutions, we are subject
to sanctions if we fail to correctly calculate and timely return Title IV program funds for students who withdraw
before completing their educational program.
A school participating in the Title IV programs must calculate the amount of unearned Title IV program funds
that it has disbursed to students who withdraw from their educational programs before completing such programs and
must return those unearned funds to the appropriate lender or ED in a timely manner, generally within 45 days of the
date the school determines that the student has withdrawn. To the extent our services for a university partner include
conducting returns to Title IV, as they do with our primary university partner, GCU, we would likely be jointly and
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severally liable to ED, along with the relevant client, for return of those funds. Further, we could be fined or otherwise
sanctioned by ED, which could increase our cost of regulatory compliance and materially adversely affect us. Further, a
failure to comply with these regulatory requirements could result in termination of our ability to continue providing these
services to other university partner institutions, which would materially affect us.
A reduction in funding or new restrictions on eligibility for the Federal Pell Grant Program, or the elimination of
subsidized Stafford loans, could make college less affordable for certain students at our university partner
institutions, which could negatively impact our university partner institutions’ enrollments, revenue and results of
operations.
The U.S. Congress must periodically reauthorize the HEA and annually determine the funding level for each
Title IV program. In 2008, the HEA was reauthorized through September 30, 2013 by the Higher Education Opportunity
Act. Changes to the HEA, including changes in eligibility and funding for Title IV programs, are likely to occur in
subsequent reauthorizations, but we cannot predict the scope or substance of any such changes.
Any action by Congress that significantly reduces Title IV program funding, whether through across-the-board
funding reductions, sequestration or otherwise, or materially impacts the eligibility of our client institutions or students
to participate in Title IV programs would have a material adverse effect on our client institutions enrollment, financial
condition, results of operations and cash flows. Congressional action could also require us to modify our practices in
ways that could increase our administrative costs and reduce our operating income, which could have a material adverse
effect on our financial condition, results of operations and cash flows.
We cannot offer new programs for our university partners or expand university partner operations into certain states
if such actions are not timely approved by the applicable regulatory agencies, and our university partners may have to
repay Title IV funds disbursed to students enrolled in any such programs, schools, or states if they do not obtain prior
approval.
Our expansion efforts include developing new educational programs for our university partners. If our
university partner institutions are unable to obtain the necessary approvals for such new programs or operations, or if our
university partner institutions are unable to obtain such approvals in a timely manner, our ability to consummate the
planned actions and the ability of our university partner institutions to provide Title IV funds to any affected students
would be impaired, which could have a material adverse effect on our expansion plans. For example, GCU, because it is
currently certified to participate in the Title IV programs on a month-to-month basis, is required to obtain ED approval
for new programs, which requirement could impede GCU’s ability to introduce new programs and slow its growth.
If our university partner institutions do not maintain state authorization, they may not operate or participate in the
Title IV programs.
A school that grants degrees or certificates must be authorized by the relevant education agency of the state in
which it is located. State authorization is also required for their students to be eligible to receive funding under the Title
IV programs. To maintain their state authorization, our university partner institutions must continuously meet standards
relating to, among other things, educational programs, facilities, instructional and administrative staff, marketing and
recruitment, financial operations, addition of new locations and educational programs, and various operational and
administrative procedures. If our client institutions fail to satisfy any of these standards, they could lose state
authorization to offer educational programs, which would also cause them to lose eligibility to participate in the Title IV
programs and have a material adverse effect on us.
In addition, almost every state imposes regulatory requirements on educational institutions that have physical
facilities located within the state’s boundaries. Individual state laws establish standards in areas such as educational
programs, facilities, instructional and administrative staff, marketing and recruitment, financial operations, addition of
new locations and educational programs, and various operational and administrative procedures, some of which are
different than the standards prescribed by other regulators. Several states have sought to assert jurisdiction over
educational institutions offering online degree programs that have no physical location in the state but that have some
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activity in the state, such as enrolling or offering educational services to students who reside in the state, employing
faculty who reside in the state, or advertising to or recruiting prospective students in the state.
State regulatory requirements for online education have historically varied among the states. To address this
issue and to meet new ED requirements many schools have applied and have been approved to be an approved
institutional participant in the State Authorization Reciprocity Agreement (“SARA”). SARA is an agreement among
member states, districts and territories that establishes comparable national standards for interstate offering of post-
secondary distance education courses and programs. It is intended to make it easier for students to take online courses
offered by post-secondary institutions based in another state. SARA is overseen by a national council (NC-SARA) and
administered by four regional education compacts. GCU, for example, is a member of SARA in Arizona (AZ-SARA),
which is administered by the Western Interstate Commission for Higher Education (referred to as W-SARA). There is
a yearly renewal for participating in NC-SARA and AZ-SARA and institutions must agree to meet certain requirements
to participate. As of June 30, 2018, all states other than California are members of SARA.
Any state that does not participate in SARA may impose regulatory requirements on out-of-state post-
secondary institutions operating within their boundaries, such as those having a physical facility or conducting certain
academic activities within the state. GCU, for example, enrolls students in all 50 states and the District of Columbia.
Although it is currently licensed, authorized, in-process, or exempt in all non-SARA jurisdictions in which it operates, if
GCU fails to comply with state licensing or authorization requirements for a state, or fails to obtain licenses or
authorizations when required, it could lose its state license or authorization by that state or be subject to other sanctions,
including restrictions on its activities in, and fines and penalties imposed by, that state, as well as fines, penalties, and
sanctions imposed by ED. The loss of licensure or authorization in any non-SARA state by a client institution could
prohibit us from recruiting prospective students or offering services to current students in that state, which could
significantly reduce our university partner’s enrollments.
Laws, regulations, or interpretations related to doing business over the Internet could also increase our cost of
doing business and affect our ability to recruit students in particular states, which could, in turn, negatively affect
enrollments and revenues and have a material adverse effect on our business.
Additionally, regulatory agencies may sometimes disagree with the way we have interpreted or applied these
requirements. Any misinterpretation by us of these regulatory requirements or adverse changes in regulations or
interpretations thereof by regulators could materially adversely affect us. If a university partner institution fails to
comply with state licensing or authorization requirements for a state in which it operates, or fails to obtain licenses or
authorizations when required, it could lose its state licensure or authorization by that state or be subject to other
sanctions, including restrictions on its activities in, and fines and penalties imposed by, that state, as well as fines,
penalties, and sanctions imposed by ED. The loss of licensure or authorization in a state other than a state in which a
university partner institution is physically located could prohibit us from recruiting prospective students or assisting with
offering educational services to current students in that state, which could significantly reduce enrollments.
Furthermore, our university partners must typically maintain a composite score of at least 1.5 to maintain their
membership in a State Authorization Reciprocity Agreement, or SARA. Failure to maintain that score, and loss of
eligibility for SARA, could result in the loss of the ability to offer online programs in various states unless the university
partner is otherwise eligible to do so. This could greatly affect our ability to market our university partners’ online
programs.
Government agencies, regulatory agencies, and third parties may conduct compliance reviews, bring claims, or
initiate litigation against us or our university partners based on alleged violations of the extensive regulatory
requirements applicable to us and our university partners, which could cause the imposition of sanctions against us
or our university partners.
Because our university partner institutions operate in a highly regulated industry, they are subject to program
reviews, audits, investigations, claims of non-compliance, and lawsuits by government agencies, regulatory agencies,
students, employees, stockholders, and other third parties alleging non-compliance with applicable legal requirements,
many of which are imprecise and subject to interpretation. Similarly, we could be subject to those same reviews. If the
43
result of any such proceeding is unfavorable to our university partners, they may lose or have limitations imposed on
their state licensing, accreditation, or Title IV program participation; be required to pay monetary damages (including
triple damages in certain whistleblower suits); or be subject to fines, injunctions, or other penalties, any of which could
have a material adverse effect on their business, prospects, financial condition, and results of operations. Similarly,
reviews of us directly could also impose a host of limitations and monetary penalties and fines for wrongful actions on
our part. Claims and lawsuits brought against us or our university partners, even if they are without merit, may also
result in adverse publicity, damage our reputation, negatively affect the market price of our stock, adversely affect
student enrollments, and reduce the willingness of third parties to do business with us. Even if we adequately address the
issues raised by any such proceeding and successfully defend against it, we may have to devote significant financial and
management resources to address these issues, which could harm our business.
The regulatory guidance governing third-party servicers imposes a number of requirements on our business and may
expose us to liability for certain regulatory violations that are coextensive with our university partner institutions.
A “Third-party servicer” is any person or entity used by “any eligible institution of higher education to
administer, through either manual or automated processing, any aspect of such institution’s student assistance
programs.” Third party servicers have a number of requirements. For example, they must conduct and submit to ED
compliance audits under 34 C.F.R. § 668.23. In addition, they must comply with the requirements of 34 C.F.R. § 668.25,
which requires third-party servicers, in their contracts with institutions, to be contractually obligated to, among other
things:
• Comply with all statutory provisions of or applicable to Title IV of the HEA, including the requirement to
use any funds that the servicer administers under any Title IV, HEA program and any interest or other
earnings thereon solely for the purposes specified in and in accordance with that program;
• Refer to the Office of Inspector General of ED for investigation any information indicating there is
reasonable cause to believe that the institution might have engaged in fraud or other criminal misconduct in
connection with the institution’s administration of any Title IV, HEA program or an applicant for Title IV,
HEA program assistance might have engaged in fraud or other criminal misconduct in connection with his
or her application; and
• Be jointly and severally liable with the institution to the Secretary for any violation by the servicer of any
statutory provision of or applicable to Title IV of the HEA, any regulatory provision prescribed under that
statutory authority, and any applicable special arrangement, agreement, or limitation entered into under the
authority of statutes applicable to Title IV of the HEA.
We are also subject to a number of data security and privacy regulations given our role as a third-party servicer
and these standards are evolving. To the extent we continue to provide third party servicer functions, we will be subject
to these requirements, the compliance with which can materially impact our business model. Additionally, on January 4,
2023, ED announced their intention to issue new regulations in eight different areas of higher education regulations via
negotiated rulemaking including those regulations related to third-party services. ED has not put forth any specific
proposals at this time. We will monitor this rulemaking as it develops.
Proposed legislation, additional rulemaking or additional examinations from U.S. Congress may impact general
public perception of the industry in a negative manner resulting in a material and adverse impact on our business.
The process of re-authorization of the HEA began in 2014 and is ongoing. Congressional hearings began in
2013 and will continue to be scheduled by the U.S. Senate Committee on Health, Education, Labor and Pensions, the
U.S. House of Representatives Committee on Education and the Workforce and other Congressional committees
regarding various aspects of the education industry, including accreditation matters, student debt, student recruiting, cost
of tuition, distance learning, competency-based learning, student success and outcomes and other matters.
Criticisms of the overall student lending and post-secondary education sectors may impact general public
perceptions of educational institutions, including our university partner institutions and us, in a negative manner.
Adverse media coverage regarding educational institutions – whether or not a university partner – or regarding third
party services such as us directly could damage our reputation. The environment surrounding access to and the costs of
44
student loans remains in a state of flux. The uncertainty surrounding these issues, and any resolution of these issues that
increases loan costs or reduces students’ access to Title IV loans or to student extended payment plans, could reduce
student demand for educational programs which would adversely impact our revenues and operating profit or result in
increased regulatory scrutiny.
The increased scrutiny and results-based accountability initiatives in the education sector, as well as ongoing
policy differences in Congress regarding spending levels, could lead to significant changes in connection with the
reauthorization of the HEA or otherwise. These changes may place additional regulatory burdens on postsecondary
schools generally, and specific initiatives may be targeted at or have an impact upon companies like us that provide
services to institutions of higher education. The adoption of any laws or regulations that limit our ability to provide our
bundled services to our university partners could compromise our ability to drive revenue through their programs or
make our platform less attractive to them. Congress could also enact laws or regulations that require us to modify our
practices in ways that could increase our costs.
Changing requirements related to data privacy may create increased costs and operational difficulties for university
partner institutions and, potential for GCE.
On December 18, 2020, ED announced that it was finalizing a new Campus Cybersecurity Program framework.
This proposed multi-year phased implementation would begin with a self-assessment of the National Institute of
Standards and Technology Special Publication 800–171 Rev. 2, Controlled Unclassified Information in Nonfederal
Systems (NIST 800–171 Rev. 2) readiness and outreach activities. ED specifically said it was “committed to fully
advancing and encouraging all postsecondary institutions implementation of NIST 800-171 controls.” This
announcement was addressed both to institutions of higher education and their third-party servicers.
While details related to this announcement are few, it does suggest that ED will be taking a greater role in
ensuring universities and their service providers meet NIST standards and are protecting the students and ED data
received. Although management is reviewing this letter and the issues it raises, compliance with NIST will likely
increase operational cost if required to come into compliance.
Risks Related to Owning our Common Stock
Provisions in our charter documents and the Delaware General Corporation Law could make it more difficult for a
third party to acquire us and could discourage a takeover and adversely affect existing stockholders.
Anti-takeover provisions of our certificate of incorporation, bylaws, the Delaware General Corporation Law, or
DGCL, and regulations of state and federal education agencies could diminish the opportunity for stockholders to
participate in acquisition proposals at a price above the then-current market price of our common stock. For example,
while we have no present plans to issue any preferred stock, our Board of Directors, without further stockholder
approval, may issue shares of undesignated preferred stock and fix the powers, preferences, rights, and limitations of
such class or series, which could adversely affect the voting power of your shares. In addition, our bylaws provide for an
advance notice procedure for nomination of candidates to our Board of Directors that could have the effect of delaying,
deterring, or preventing a change in control. Further, as a Delaware corporation, we are subject to provisions of the
DGCL regarding “business combinations,” which can deter attempted takeovers in certain situations. The approval
requirements of ED, our regional accrediting commission, and state post-secondary, licensure, and certification agencies
for a change in control transaction could also delay, deter, or prevent a transaction that would result in a change in
control. We may, in the future, consider adopting additional anti-takeover measures. The authority of our Board of
Directors to issue undesignated preferred or other capital stock and the anti-takeover provisions of the DGCL, as well as
other current and any future anti-takeover measures adopted by us, may, in certain circumstances, delay, deter, or
prevent takeover attempts and other changes in control of the company not approved by our Board of Directors.
45
If securities analysts do not publish research or reports about our business or industry or if they downgrade their
evaluations of our stock, the price of our stock could decline.
The activity within the trading market for our common stock depends in part on the research and reports that
industry or financial analysts publish about us, our business and the for-profit education sector. In recent periods, a
number of analysts have dropped coverage of the sector. If analysts cease coverage of us or additional analysts cease
coverage of our sector, we could lose visibility in the market for our stock, which in turn could cause our stock price to
decline. If one or more of the analysts covering us downgrade their estimates or evaluations of our stock, the price of our
stock could decline.
If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a
timely basis could be impaired.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act
and the rules and regulations of The Nasdaq Global Select Market. The Sarbanes-Oxley Act requires, among other
things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We
are required to perform system and process evaluation and testing of our internal control over financial reporting to
allow management to report on the effectiveness of our internal control over financial reporting in our Form 10-K filing
for that year, as required by Section 404 of the Sarbanes-Oxley Act. This may require us to incur substantial additional
professional fees and internal costs to further expand our accounting and finance functions and expend significant
management efforts. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a
timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce
timely and accurate financial statements. If that were to happen, the market price of our stock could decline and we
could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC, or
other regulatory authorities.
Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital
appreciation, if any, will be your sole source of gains and you may never receive a return on your investment.
You should not rely on an investment in our common stock to provide dividend income. We have not declared
or paid cash dividends on our common stock to date. We currently intend to retain our future earnings, if any, to fund the
development and growth of our business or to repurchase shares of our common stock. In addition, the terms of our
existing credit facility preclude, and the terms of any future debt agreements is likely to similarly preclude, us from
paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the
foreseeable future. Investors seeking cash dividends should not purchase our common stock.
Other General Risks
Our success depends upon our ability to recruit and retain key personnel.
Our success to date has largely depended on, and will continue to depend on, the skills, efforts, and motivation
of our executive officers, who generally have significant experience with our business and the education industry, and
we may have difficulties in locating and hiring qualified personnel and in retaining such personnel once hired. In
addition, other than non-compete agreements of limited duration that we have with certain executive officers, we have
not historically sought non-compete agreements with key personnel and they may leave and subsequently compete
against us. The loss of the services of any of our key personnel, many of whom are not party to employment agreements
with us, or our failure to attract and retain other qualified and experienced personnel on acceptable terms, could cause
our business to suffer.
A failure of our information systems to properly store, process and report relevant data may reduce our
management’s effectiveness, interfere with our regulatory compliance and increase our operating expenses.
We are dependent on the integrity of our data management systems. If these systems do not effectively collect,
store and process relevant data for the operation of our business, whether due to equipment malfunctions or constraints,
46
software deficiencies, or human error, our ability to effectively report, plan, forecast and execute our business plan and
comply with applicable laws and regulations, including the HEA, as reauthorized, and the regulations thereunder, will be
impaired, perhaps materially. Any such impairment could materially and adversely affect our financial condition, results
of operations, and cash flows.
Occurrence of natural or man-made catastrophes could materially and adversely affect our business, financial
condition, results of operations and prospects.
Natural events, health epidemics (including the outbreak of the COVID-19 pandemic), acts of God, terrorist
attacks and other acts of violence, computer cyber-terrorism or other catastrophes could result in significant worker
absenteeism, increased student attrition rates for our university partners, lower asset utilization rates, voluntary or
mandatory closure of facilities, our inability to meet dynamic employee health and safety requirements, our inability to
meet contractual service levels, our inability to procure essential supplies, travel restrictions on our employees and other
disruptions to our business. In addition, these events could adversely affect the economy, financial markets and activity
levels of our university partners. Any of these events, their consequences or the costs related to mitigation or
remediation could have a material adverse effect on our business, financial condition, results of operations and prospects.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
GCE owns a four story 325,000 square foot administrative building, which includes office space for
approximately 2,700 employees, and a parking garage in close proximity to GCU’s ground campus. We constructed this
space in 2016 and every aspect of the design was intended to maximize energy efficiency and minimize environmental
impact. Lighting load and related electricity usage is a major environmental drain for most office buildings, and this is
especially true in Arizona. GCE’s office building is orientated with north/south exposure in order to minimize direct
sun, and exterior courtyards were arranged to ensure summer shade thus creating outdoor areas that can be used
throughout the year. The design also utilized significant window glazing to allow for daylighting thus reducing the need
for supplemental electrical lighting. As a result, the building is designed to use just .41 watts per square foot of electrical
energy for lighting, which is half of what a typical environmentally efficient building uses. Water usage is another
environmental factor for office space that is magnified by the Arizona weather. GCE’s office building utilizes a rooftop
rainwater collection system for irrigating the landscaping below, which reduces water consumption. Additional
environment-friendly design features include low VOC paints, use of recycled building materials, interior and exterior
LED light bulbs, and implementation of an energy-efficient VRF mechanical system. Overall, GCE’s office building is
60% more energy efficient than a standard office building.
In addition to its owned facilities, GCE leases 28 off-campus classroom and laboratory sites for use in serving
its university partners, four office locations in California, one office location in Colorado, and office space in
Indianapolis, Indiana. GCE has commitments to add more off-campus classroom and laboratory sites as of December 31,
2022 that have not yet commenced and plans to add additional off-campus classroom and laboratory sites in Arizona and
in other states in the U.S. to accommodate our growth plans in 2023 and beyond. GCE works to maximize energy
efficiency and minimize environmental impact in operating its leased facilities just as it does with its owned properties.
Item 3. Legal Proceedings
From time to time, we are subject to ordinary and routine litigation incidental to our business. While the
outcomes of these matters are uncertain, management does not expect that the ultimate costs to resolve these matters will
have a material adverse effect on our financial position, results of operations or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
47
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common stock trades on the Nasdaq Global Market under the symbol “LOPE.” The holders of our common
stock are entitled to one vote per share on any matter to be voted upon by stockholders. All shares of common stock rank
equally as to voting and all other matters. The shares of common stock have no preemptive or conversion rights, no
redemption or sinking fund provisions, are not liable for further call or assessment, and are not entitled to cumulative
voting rights.
Holders
As of December 31, 2022, there were approximately 165 registered holders of record of common stock. A
substantially greater number of holders of common stock are “street name” or beneficial holders, whose shares are held
of record by banks, brokers and other financial institutions.
Dividends
We currently do not anticipate paying cash dividends on our common stock in the foreseeable future.
Recent Sales of Unregistered Securities
None.
Securities Authorized for Issuance under Equity Compensation Plans
The information required by Item 201(d) of Regulation S-K is provided under Item 12, Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters, “Equity Compensation Plan
Information,” which is incorporated herein by reference.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In January 2021, July 2021, January 2022 and October 2022 our Board of Directors increased the authorization
under its existing stock repurchase program by $100.0 million, $970.0 million, $175.0 million and $200.0 million
respectively, reflecting an aggregate authorization for share repurchases since the initiation of the program of $1,845.0
million. The current expiration date on the repurchase authorization by our Board of Directors is December 31, 2023.
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.
Since the initial approval of our share repurchase plan, we have purchased 21,572,283 shares of common stock
at an aggregate cost of $1,649.2 billion, which purchases are recorded at cost in the accompanying December 31, 2022
consolidated balance sheet and statement of stockholders’ equity. At December 31, 2022, there remained $195.8 million
available under our current share repurchase authorization. During the fourth quarter and the year ended December 31,
2022, GCE repurchased 318,935 and 6,794,693 shares of common stock, respectively, at an aggregate cost of
$28.0 million and $599.6 million, respectively.
48
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 effected in conjunction with the vesting of
restricted share awards, during each period in the fourth quarter of fiscal 2022:
Period
Share Repurchases
October 1, 2022 – October 31, 2022
November 1, 2022 – November 30, 2022
December 1, 2022 – December 31, 2022
Total
Tax Withholdings
October 1, 2022 – October 31, 2022
November 1, 2022 – November 30, 2022
December 1, 2022 – December 31, 2022
Total
GCE Stock Performance
Average
Total Number of
Price Paid
Shares Purchased Per Share
Total Number of
Maximum Dollar
Shares Purchased as Value of Shares
That May Yet Be
Purchased Under
the Program
Part of Publicly
Announced
Program
— $
271,382
47,553
318,935
$ 84.53
—
$ 106.55
$ 87.81
— $
— $
— $
— $
—
—
—
—
271,382 $ 200,900,000
— $ 200,900,000
47,553 $ 195,800,000
318,935 $ 195,800,000
— $
— $
— $
— $
—
—
—
—
The following graph compares the cumulative total return of our common stock with the cumulative total
returns of the S&P 500 Index and our education services peer group of eight companies that includes: Wiley Education
Services, Pearson plc, CHEGG, Inc., Laureate Education, Inc., Strategic Education, Inc., Adtalum Global
Education, Inc., 2U, Inc. and Coursera. The graph also includes for the required transition year, our 2020 selected
education peer group of seven companies that includes: Wiley Education Services, Pearson plc, CHEGG, Inc., Laureate
Education, Inc., Strategic Education, Inc., Adtalum Global Education, Inc., and 2U, Inc. This chart assumes that an
investment of $100 was made in our common stock, in the index, and in the peer group on December 31, 2017 and that
all dividends paid by us and such companies were reinvested, and tracks the relative performance of such investments
through December 31, 2022.
49
Grand Canyon Education, Inc.
S&P 500
2022 Peer Group
12/18
12/19
12/17
100.00 107.38 106.99 104.00
100.00
100.00 104.68
12/22
95.73 118.02
95.62 125.72 148.85 191.58 156.89
89.87
96.97 121.11
97.10
12/20
12/21
The information contained in the performance graph shall not be deemed “soliciting material” or to be “filed”
with the SEC nor shall such information be deemed incorporated by reference into any future filing under the Securities
Act or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
The stock price performance included in this graph is not necessarily indicative of future stock price
performance.
Item 6. [Reserved]
50
Item 7. 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 for the years ended
December 31, 2022 and 2021 should be read in conjunction with our consolidated financial statements and related notes
that appear in Item 8, Consolidated Financial Statements and Supplementary Data. In addition to historical information,
the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual
results could differ materially from those discussed in the forward-looking statements. Factors that could cause or
contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K,
particularly in Special Note Regarding Forward-Looking Statements and in Item 1A, Risk Factors.
Executive Overview
GCE is a publicly traded education services company dedicated to serving colleges and universities. GCE has
developed significant technological solutions, infrastructure and operational processes to provide services to these
institutions on a large scale. GCE’s most significant university partner is GCU, a comprehensive regionally accredited
university that offers graduate and undergraduate degree programs, emphases and certificates across nine colleges both
online, on ground at its campus in Phoenix, Arizona and at four 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. Since the
Acquisition, GCE, together with Orbis Education, 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 have provided certain services to a university partner to assist them in expanding
their online graduate programs. As of December 31, 2022, GCE provides education services to 27 university partners
across the United States.
We plan to continue to add additional university partners and 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”. We do disclose significant information for GCU, such as enrollments, due to its size in comparison to our
other university partners.
Critical Accounting Policies and Estimates
The discussion of our financial condition and results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP.
During the preparation of these consolidated financial statements, we are required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an
ongoing basis, we evaluate our estimates and assumptions, including those discussed below. We base our estimates on
historical experience and on various other assumptions that we believe are reasonable under the circumstances. The
results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions, and the impact of such differences may be material to our consolidated financial statements.
We believe that the following critical accounting policies involve our more significant judgments and estimates
used in the preparation of our consolidated financial statements:
Revenue recognition. GCE generates all of its revenue through services agreements with its university partners
(“Services Agreements”), pursuant to which GCE provides integrated technology and academic services, marketing and
51
communication services, and as applicable, certain back office services to its university partners in return for a
percentage of tuition and fee revenue.
GCE’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, GCE 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, GCE recognizes the variable consideration that becomes
known and billable because these fees relate to the distinct service period in which the fees are earned. GCE meets the
criteria in ASC 606 Revenue from Contracts with Customers 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. GCE 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.
Income taxes. We recognize the amount of taxes payable or refundable for the current year and deferred tax
assets and liabilities for future tax consequences of events that have been recognized in our consolidated financial
statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in
which the temporary differences are expected to be realized. Our deferred tax assets are subject to periodic recoverability
assessments. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that
more likely than not will be realized. Realization of the deferred tax assets is principally dependent upon achievement of
projected future taxable income offset by deferred tax liabilities. We evaluate the realizability of the deferred tax assets
annually. Since becoming a taxable corporation in August 2005, we have not recorded any valuation allowances to date
on our deferred income tax assets. We evaluate and account for uncertain tax positions using a two-step approach.
Recognition occurs when we conclude that a tax position based solely on its technical merits, is more-likely-than-not to
be sustained upon examination. Measurement determines the amount of benefit that is greater than 50% likely to be
realized upon the ultimate settlement with a taxing authority that has full knowledge of the facts. Derecognition of a tax
position that was previously recognized occurs when we determine that a tax position no longer meets the more-likely-
than-not threshold of being sustained upon examination. As of December 31, 2022 and 2021, GCE has reserved
approximately $15,862 and $14,108, respectively, for uncertain tax positions, including interest and penalties.
Results of Operations
In July 2019, the FASB issued Accounting Standards Update 2019-07, “Codification Updates to SEC Sections-
Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and
Simplification”, which makes a number of changes meant to simplify certain disclosures in financial condition and
results of operations, particularly by eliminating year-to-year comparisons between prior periods previously disclosed. In
complying with the relevant aspects of the rule covering the current year annual report, we now include disclosures on
results of operations for fiscal year 2022 versus 2021 only. For a discussion of the results of operations for fiscal year
2021 vs 2020, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in
our Annual Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2021 incorporated herein by
reference.
52
The following table sets forth certain income statement data as a percentage of revenue for each of the periods
indicated. Amortization of intangible assets have been excluded from the table below:
Costs and expenses
Technology and academic services
Counseling services and support
Marketing and communication
General and administrative
Year Ended December 31,
2022
2021
16.5 %
30.0
21.5
5.0
14.7 %
27.8
20.4
4.7
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Service revenue. Our service revenue for the year ended December 31, 2022 was $911.3 million, an increase of
$14.7 million, or 1.6%, as compared to service revenue of $896.6 million for the year ended December 31, 2021. The
increase year over year in service revenue was primarily due to increases in GCU traditional campus enrollments and
revenue per student year over year partially offset by a decrease in online enrollments at GCU of 1.6% and to a lesser
extent, students in a university partner’s Occupational Therapy Assistants (“OTA”) program in which enrollment
declined 11.3% between December 31, 2022 and 2021. The increase in revenue per student between years is primarily
due to the service revenue impact of the increased ground campus enrollments which generates higher revenue per
student due to the room, board and other ancillary revenues earned by GCU and the higher revenue per student at off-
campus classroom and laboratory sites. Service revenue per student for Accelerated Bachelor of Science in Nursing
(“ABSN”) program students at 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 take more credits on
average per semester. Partner enrollments totaled 112,955 at December 31, 2022 as compared to 112,554 at
December 31, 2021. University partner enrollments at our off-campus classroom and laboratory sites were 4,636, a
decrease of 1.0% over enrollments at December 31, 2021, which includes 320 and 269 GCU students at December 31,
2022 and 2021, respectively. This growth rate has slowed over the past year primarily due to the 11.3% decline in OTA
students as the university partner stopped admitting new students for most of 2021 due to clinical placement backlog.
Year over year ABSN students decreased 0.3% at December 31, 2022. None of our ABSN partners have stopped
admitting new students due to the clinical faculty challenges that began during the pandemic, however some locations
that were scheduled to open in 2021 and 2022 have been pushed back and some existing partners have reduced incoming
cohort sizes which has slowed the growth. In addition, in a joint decision between us and one of our university partners,
two ABSN off-campus classroom and laboratory sites were closed at the beginning of this year to allow the university
partner to focus its resources closer to its home location. Excluding the prior year enrollments from locations that have
been closed in the past twelve months, ABSN students grew by 3.6% year over year. We did open six new off-campus
classroom and laboratory sites in the year ended December 31, 2022 increasing the total number of these sites to 35 at
December 31, 2022 and we anticipate opening six to eight more in 2023 which should re-accelerate the ABSN student
enrollment growth. Enrollments at GCU increased to 108,639 at December 31, 2022, a slight increase of 0.5% over
enrollments at December 31, 2021 primarily due to the increase in ground traditional and ABSN off-campus enrollments
partially offset by the decrease in GCU online enrollments between years. The decline in GCU online enrollments
between years is primarily due to recruitment challenges caused by reduced access to schools, hospitals, and businesses
where our potential students work due to COVID-19. In the second half of 2022, we have seen an online new student
increase over the prior year. As the year-over-year comparables returned to historical levels, and schools, hospitals, and
businesses are generally reopened, our online enrollment growth rate has begun to re-accelerate. Enrollments for GCU
ground students were 25,522 at December 31, 2022 up from 23,629 at December 31, 2021 primarily due to a 8.6%
increase in traditional ground students between years.
Technology and academic services. Our technology and academic services expenses for the year ended
December 31, 2022 were $150.5 million, an increase of $18.4 million, or 13.9%, as compared to technology and
academic services expenses of $132.1 million for the year ended December 31, 2021. Excluding the $5.0 million
reversal of the credit loss reserve in the fourth quarter of 2021 as a result of the repayment by GCU for the Secured Note
and capital expenditure loans, there was an increase of $13.4 million or 9.8%, year over year. This increase was
53
primarily due to increases in employee compensation and related expenses including share-based compensation, in other
technology and academic supply costs, and in occupancy and depreciation including lease expenses of $9.2 million, $2.6
million and $1.6 million, respectively. The 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 open between years. Our technology and
academic services expenses as a percentage of service revenue, excluding the reversal of the $5.0 million credit loss in
2021 increased 1.3% to 16.5% for the year ended December 31, 2022, from 15.2% for the year ended December 31,
2021 primarily due to our services agreements with university partners that provide for off-campus classroom and
laboratory sites, which necessitate a higher level of technology and academic services than does our agreement with
GCU. 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-site classroom and laboratory sites.
Counseling services and support. Our counseling services and support expenses for the year ended
December 31, 2022 were $273.3 million, an increase of $24.1 million, or 9.7%, as compared to counseling services and
support expenses of $249.2 million for the year ended December 31, 2021. This increase was primarily attributable to
increases in employee compensation and related expenses including share-based compensation, increases in other
counseling services and support expenses and in depreciation, amortization and occupancy costs of $13.6 million, $9.8
million and $0.8 million, respectively. The increases in employee compensation and related expenses were primarily due
to increased headcount to support our 27 university partners, and their increased enrollment growth, tenure-based salary
adjustments, and an increase in benefit costs. 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 2021,
during which significantly lower travel costs were incurred. Occupancy and depreciation costs increased slightly due to
the increased number of off-campus classroom and laboratory sites open year over year. Our counseling services and
support expenses as a percentage of service revenue increased 2.2% to 30.0% for the year ended December 31, 2022,
from 27.8% for the year ended December 31, 2021 primarily due to increased travel costs and the increase in our
employee base and their compensation to meet our university partners’ growth expectations and retain our employees
increasing at a faster rate than revenue growth. We anticipate that counseling services and support expenses as a
percentage of revenue will continue to increase on a year over year basis in the first half of 2023 as a result of the
investments made primarily in the second half of 2022, but are hopeful that the growth rate will be more in line with our
revenue growth in the second half of 2023.
Marketing and communication. Our marketing and communication expenses for the year ended December 31,
2022 were $196.1 million, an increase of $13.2 million, or 7.2%, as compared to marketing and communication
expenses of $182.9 million for the year ended December 31, 2021. This increase was primarily attributable to the
increased cost to market our university partners’ programs and due to the marketing of new university partners and new
off-campus classroom and laboratory sites which resulted in increased advertising of $10.6 million and increased
employee compensation expenses and related expenses including share-based compensation of $2.9 million, partially
offset by a decrease in other marketing supplies of $0.4 million. Our marketing and communication expenses as
a percentage of service revenue increased by 1.1% to 21.5% for the year ended December 31, 2022, from 20.4% for the
year ended December 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 open between years. Although we will continue to
invest heavily in this area, we are hopeful that the growth rate will be more in line with our revenue growth in 2023.
General and administrative. Our general and administrative expenses for the year ended December 31, 2022
were $45.5 million, an increase of $3.7 million, or 8.8%, as compared to general and administrative expenses of $41.8
million for the year ended December 31, 2021. This increase was primarily due to increases in other general and
administrative expenses of $2.0 million and increases in employee compensation and related expenses including share-
based compensation of $1.7 million. The increase in other general and administrative expenses is primarily due to
continued increases in travel costs and increases in charitable contributions over the prior year. The increase in
employee compensation and related expenses is increased headcount to support our 27 university partners, and their
increased enrollment growth, tenure-based salary adjustments, and an increase in benefit costs. Our general and
administrative expenses as a percentage of service revenue increased by 0.3% to 5.0% for the year ended December 31,
2022, from 4.7% for the year ended December 31, 2021 due to the other general and administrative expense and
54
employee compensation costs growing at a faster rate than our revenue growth. Although we will continue to invest
heavily in this area, we are hopeful that the growth rate will be more in line with our revenue growth in 2023.
Amortization of intangible assets. Amortization of intangible assets for the years ended December 31, 2022 and
2021 were $8.4 million for both periods. As a result of the Acquisition, 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 for the year ended December 31, 2022
was nil as compared to $52.1 million for the year ended December 31, 2021. GCE recognized interest income on its
Secured Note with GCU including borrowings made for capital expenditures, at an interest rate of 6%. The decrease
over the prior year was due to GCU repaying $500.0 million of the outstanding balance of the Secured Note receivable
on October 29, 2021 and the remaining balance of the Secured Note receivable of $469.9 million on December 9, 2021.
As the Secured Note receivable is paid off we do not anticipate any interest income to be earned in the future.
Interest expense. Interest expense was $3.6 million for the year ended December 31, 2021 as compared to
interest expense of nil for the year ended December 31, 2022. The decrease in interest expense is primarily due to the
repayment and termination of the credit facility in early November 2021, partially offset by the write-off of the
remaining deferred loan costs of $1.0 million in 2021 at the time of the termination of the credit facility.
Investment interest and other. Investment interest and other for the year ended December 31, 2022 was $2.6
million, an increase of $2.0 million, as compared to $0.6 million for the year ended December 31, 2021. Interest rates
have increased in 2022 resulting in increased investment interest income.
Income tax expense. Income tax expense for the year ended December 31, 2022 was $55.4 million, a decrease
of $15.5 million, or 21.9%, as compared to income tax expense of $70.9 million for the year ended December 31, 2021.
This decrease is the result of a decline in taxable income between years, partially offset by a slight increase in our
effective tax rate between years. Our effective tax rate was 23.1% during the year ended December 31, 2022 as
compared to 21.4% during the year ended December 31, 2021. The effective tax rate in 2021 was favorably impacted by
higher excess tax benefits of $4.4 million compared to excess tax benefits of $0.1 million for the year ended
December 31, 2022. The inclusion of excess tax benefits and deficiencies as a component of our income tax expense
increases the volatility within our provision for income taxes as the amount of excess tax benefits or deficiencies from
share-based compensation awards are dependent on our stock price at the date the restricted awards vest, our stock price
on the date an option is exercised, and the quantity of options exercised. In 2021 the remaining stock options that had
been granted ten years prior were exercised by certain of our executives prior to their expiration generating the large
excess tax benefit. As there are no stock options remaining, we anticipate our excess tax benefit or expense will be
similar to what it was in 2022 going forward. Our restricted stock vests in March each year so any benefit or expense
will primarily impact the first quarter each year.
Net income. Our net income for the year ended December 31, 2022 was $184.7 million, a decrease of $75.6
million, or 29.1% as compared to $260.3 million for the year ended December 31, 2021, due to the factors discussed
above.
Seasonality
Our service 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. Service revenues in the summer months (May through August) are lower
primarily due to the majority of GCU’s traditional ground students not attending courses during the summer months,
which affects our results for our second and third fiscal quarters. Since a significant amount of our costs are fixed, the
lower revenue resulting from the decreased summer enrollment has historically contributed to lower operating margins
during those periods. Partially offsetting this summer effect has been the sequential quarterly increase in enrollments that
has occurred as a result of the traditional fall school start. This increase in enrollments also has occurred in the first
quarter, corresponding to calendar year matriculation. Thus, we experience higher net revenue in the fourth quarter due
to its overlap with the semester encompassing the traditional fall school start and in the first quarter due to its overlap
55
with the first semester of the calendar year. A portion of our expenses do not vary proportionately with these fluctuations
in net revenue, resulting in higher operating income in the first and fourth quarters relative to other quarters. We expect
quarterly fluctuation in operating results to continue as a result of these seasonal patterns.
Liquidity and Capital Resources
(In thousands)
Cash, cash equivalents and investments
Overview
As of December 31,
2021
600,941
$ 181,704 $
2022
Our liquidity position, as measured by cash and cash equivalents and investments decreased by $419.2 million
between December 31, 2021 and December 31, 2022, which was largely attributable to share repurchases in accordance
with our share repurchase program and capital expenditures during the year ended December 31, 2022 of $604.2 million
and $35.2 million, respectively, partially offset by cash provided by operating activities of $220.8 million. Our
unrestricted cash and cash equivalents and investments were $181.7 million and $600.9 million at December 31, 2022
and 2021, respectively.
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, will provide adequate funds for ongoing operations,
planned capital expenditures, and working capital requirements for at least the next 24 months.
Cash Flows from Operating Activities
(In thousands)
Net cash provided by operating activities
Year Ended December 31,
2022
$ 220,819 $
2021
313,119
The decrease in cash generated from operating activities between the years ended December 31, 2021 and 2022
was primarily due to a decrease in net income and changes in other working capital balances. We define working capital
as the assets and liabilities, other than cash, generated through GCE’s primary operating activities. Changes in these
balances are included in the changes in assets and liabilities presented in the statement of cash flows.
Cash Flows from Investing Activities
(In thousands)
Net cash (used in) provided by investing activities
Year Ended December 31,
2022
2021
950,979
$ (97,139) $
Investing activities consumed $97.1 million of cash in fiscal 2022. Investing activities provided $951.0 million
of cash in fiscal 2021 primarily due to the repayment of the Secured Note receivable by GCU for $969.9 million.
In 2022 and 2021 cash used in investing activities was primarily related to capital expenditures of $35.2 million
and $28.9 million, respectively. Capital expenditures for both fiscal years 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 increasing employee headcount.
The Company intends to continue to spend approximately $30.0 million to $35.0 million per year for capital
expenditures.
Purchases from investments, net of proceeds, were $61.5 million. Proceeds from investments, net of purchases
of short-term investments, were $10.5 million in fiscal 2021. In 2022 and 2021, the Company elected to utilize its
excess cash balances from both operating cash flows and the payoff of the Secured Note to repurchase its shares.
56
Cash Flows from Financing Activities
(In thousands)
Net cash used in financing activities
Year Ended December 31,
2022
$ (604,212) $
2021
(908,926)
Financing activities consumed $604.2 million of cash in fiscal 2022 compared to $908.9 in fiscal 2021. During
2021 principal and revolver payments were $107.8 million. 2021 payments represented quarterly term loan repayments
through the third quarter with the remaining balance of the credit facility paid and the credit facility terminated in
October 2021, when the Secured Note receivable began to be repaid by GCU.
Proceeds received from option exercises totaled $2.7 million in fiscal 2021.
During fiscal 2022 and 2021, $599.6 million and $797.8 million, respectively, was used to purchase treasury
stock in accordance with GCE’s share repurchase program. In 2022 and 2021, $4.6 million and $6.0 million,
respectively, of cash was utilized to purchase common shares withheld in lieu of income taxes resulting from the vesting
of restricted share awards. The Company intends to continue using a portion of its cash flows from operations to
repurchase its shares.
Share Repurchase Program
In January 2021, July 2021, and January 2022 our Board of Directors increased the authorization under its
existing stock repurchase program by $100.0 million, $970.0 million and $175.0 million respectively, reflecting an
aggregate authorization for share repurchases since the initiation of the program of $1,645.0 million. The current
expiration date on the repurchase authorization by our Board of Directors is December 31, 2023. Repurchases occur at
the Company’s discretion and the Company may modify, suspend or discontinue the repurchase authorization at any
time.
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
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
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 August 13, 2021 with additional delivery of 139,270 shares of common stock. The ASR agreement
resulted in a total of 557,549 shares repurchased at an average cost of $89.68.
57
Since 2011, we have purchased 21.6 million shares of common stock at an aggregate cost of $1,649.2 million,
which includes 6,794,693 shares of common stock at an aggregate cost of $599.6 million during the year ended
December 31, 2022.
Contractual Obligations
Our contractual obligations primarily consist of capital expenditures primarily for new off-campus classroom and
laboratory sites opening and continued spend on computer equipment, software licenses, internal software development
and furniture and equipment to support our increasing employee headcount. See Note 9 - Leases, in Item 8, Consolidated
Financial Statements and Supplementary Data. There are no other material contractual obligations or commitments for
the Company.
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.
Adjusted EBITDA (Non-GAAP Financial Measure)
In addition to our GAAP results, we use Adjusted EBITDA as a supplemental measure of our operating
performance and as part of our compensation determinations. Adjusted EBITDA is not required by or presented in
accordance with GAAP and should not be considered as an alternative to net income, operating income, or any other
performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or as
a measure of our liquidity.
Adjusted EBITDA is defined as net income plus interest expense, less interest income and other gain (loss)
recognized on investments, plus income tax expense, plus depreciation and amortization (EBITDA), as adjusted for
(i) contributions to private Arizona school tuition organizations in lieu of the payment of state income taxes; (ii) share-
based compensation, and (iii) unusual charges or gains, such as litigation and regulatory reserves, impairment charges
and asset write-offs, and exit or lease termination costs. We present Adjusted EBITDA, a non-GAAP financial measure,
because we consider it to be an important supplemental measure of our operating performance. We also make certain
compensation decisions based, in part, on our operating performance, as measured by Adjusted EBITDA. All of the
adjustments made in our calculation of Adjusted EBITDA are adjustments to items that management does not consider
to be reflective of our core operating performance. Management considers our core operating performance to be that
which can be affected by our managers in any particular period through their management of the resources that affect our
underlying revenue and profit generating operations during that period and does not consider the items for which we
make adjustments (as listed above) to be reflective of our core performance.
We believe Adjusted EBITDA allows us to compare our current operating results with corresponding historical
periods and with the operational performance of other companies in our industry because it does not give effect to
potential differences caused by variations in capital structures (affecting relative interest expense, including the impact
of write-offs of deferred financing costs when companies refinance their indebtedness), tax positions (such as the impact
on periods or companies of changes in effective tax rates or net operating losses), the book amortization of intangibles
(affecting relative amortization expense), and other items that we do not consider reflective of underlying operating
performance. We also present Adjusted EBITDA because we believe it is frequently used by securities analysts,
investors, and other interested parties as a measure of performance.
In evaluating Adjusted EBITDA, investors should be aware that in the future we may incur expenses similar to
the adjustments described above. Our presentation of Adjusted EBITDA should not be construed as an inference that our
58
future results will be unaffected by expenses that are unusual, non-routine, or non-recurring. Adjusted EBITDA has
limitations as an analytical tool in that, among other things, it does not reflect:
•
•
•
•
cash expenditures for capital expenditures or contractual commitments;
changes in, or cash requirements for, our working capital requirements;
interest expense, or the cash required to replace assets that are being depreciated or amortized; and
the impact on our reported results of earnings or charges resulting from the items for which we make
adjustments to our EBITDA, as described above and set forth in the table below.
In addition, other companies, including other companies in our industry, may calculate these measures
differently than we do, limiting the usefulness of Adjusted EBITDA as a comparative measure. Because of these
limitations, Adjusted EBITDA should not be considered as a substitute for net income, operating income, or any other
performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or as
a measure of our liquidity. We compensate for these limitations by relying primarily on our GAAP results and use
Adjusted EBITDA only as a supplemental performance measure. For more information, see our consolidated financial
statements and the notes to those consolidated financial statements included elsewhere in this Annual Report on
Form 10-K.
The following table reconciles net income to Adjusted EBITDA for the periods indicated:
Net income
Plus: interest expense
Less: interest income on Secured Note
Less: investment interest and other
Plus: income tax expense
Plus: amortization of intangible assets
Plus: depreciation and amortization
EBITDA
Plus: contributions in lieu of state income taxes(a)
Plus: loss on fixed asset disposal(b)
Less: reversal of credit loss reserve(c)
Plus: share-based compensation(d)
Plus: litigation and regulatory reserves(e)
Adjusted EBITDA
Year Ended December 31,
2022
2021
$ 184,675 $ 260,344
3,601
(52,090)
(610)
70,945
8,419
21,994
312,603
5,000
—
(5,000)
11,526
3,225
$ 291,336 $ 327,354
2
—
(2,621)
55,444
8,419
22,758
268,677
5,000
1,249
—
12,642
3,768
(a) Represents contributions to various private Arizona school tuition organizations to assist with funding for
education. In connection with such contributions made, we received a dollar-for-dollar state income tax credit,
which resulted in a reduction in our effective income tax rate to 23.1% and 21.4% for the years ended
December 31, 2022 and 2021, respectively. Had these contributions not been made, our effective tax rate would
have been 24.7% and 22.6% for 2022 and 2021, respectively. Such contributions are viewed by our
management to be made in lieu of payments of state income taxes and are therefore excluded from evaluation of
our core operating performance.
(b) Represent loss on fixed asset disposals.
(c) Represents the reversal of the credit loss reserve on the Secured Note receivable due to repayment in full by
GCU in the fourth quarter of 2021.
(d) Reflects share-based compensation expense related to GCE employees.
(e) Reflects primarily regulatory litigation as GCE retained responsibility for all liabilities of GCU arising prior to
the closing date of the Transaction.
59
Recent Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies, in Item 8, Consolidated Financial Statements and
Supplementary Data.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk. As of December 31, 2022, we have no derivative financial instruments or derivative commodity
instruments. We invest cash in excess of current operating requirements in short term certificates of deposit and money
market instruments, municipal bond portfolios, or municipal mutual funds at multiple financial institutions.
Interest rate risk. We manage interest rate risk by investing excess funds in cash equivalents, BBB or higher
rated municipal bonds, municipal mutual funds and commercial paper 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 December 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.
60
Item 8. Consolidated Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm (KPMG LLP, Phoenix, Arizona, Auditor Firm: 185)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Income Statements for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Page
62
64
65
66
67
68
69
61
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Grand Canyon Education, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Grand Canyon Education, Inc. and subsidiaries (the
Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income,
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the
related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the
results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission, and our report dated February 16, 2023 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates
to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way
our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it
relates.
Evaluation of the sufficiency of audit evidence over service revenue
As discussed in Note 2 to the consolidated financial statements, service revenue is recognized from the delivery of
support services to institutions in the post-secondary education sector of the United States (University Partners). The
transaction price for support services is based on the Company receiving a contracted percentage of the University
Partner’s tuition and fee revenue. The tuition and fee information received varies depending
62
on the respective University Partner’s reporting processes and the services provided. The Company recorded $911
million of service revenue for the year ended December 31, 2022.
We identified the evaluation of the sufficiency of audit evidence over service revenue as a critical audit matter. This
required especially subjective auditor judgment because service revenue recorded by the Company is dependent on the
tuition and fee information of the University Partners. This included determining the nature and extent of procedures to
be performed and evaluating the evidence obtained over the tuition and fee information.
The following are the primary procedures we performed to address this critical audit matter. We applied auditor
judgment to determine the nature and extent of procedures to be performed over tuition and fee information of the
University Partners. We evaluated the design and tested the operating effectiveness of certain internal controls related to
service revenue. This included controls related to the accurate recording of amounts dependent on University Partners’
tuition and fee revenue information. For a sample of transactions, we compared the amounts recognized as service
revenue for consistency with underlying documentation, including contracts with University Partners and student
enrollment documentation.
We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed, including the
nature of such evidence.
/s/ KPMG LLP
We have served as the Company’s auditor since 2012.
Phoenix, Arizona
February 16, 2023
63
Grand Canyon Education, Inc.
Consolidated Balance Sheets
ASSETS:
(In thousands, except par value)
Current assets
Cash and cash equivalents
Investments
Accounts receivable, net
Income tax receivable
Other current assets
Total current assets
Property and equipment, net
Right-of-use assets
Amortizable intangible assets, net
Goodwill
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities
Accounts payable
Accrued compensation and benefits
Accrued liabilities
Income taxes payable
Deferred revenue
Current portion of lease liability
Total current liabilities
Deferred income taxes, noncurrent
Other long-term liability
Lease liability, less current portion
Total liabilities
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value, 10,000 shares authorized; 0 shares issued and
outstanding at December 31, 2022 and December 31, 2021
Common stock, $0.01 par value, 100,000 shares authorized; 53,830 and 53,637 shares
issued and 31,058 and 37,722 shares outstanding at December 31, 2022 and December
31, 2021, respectively
Treasury stock, at cost, 22,772 and 15,915 shares of common stock at
December 31, 2022 and December 31, 2021, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
As of December 31,
2022
2021
$
$
$
120,409 $
61,295
77,413
2,788
11,368
273,273
147,504
72,719
176,800
160,766
1,687
600,941
—
70,063
1,275
8,766
681,045
136,120
57,652
185,219
160,766
1,943
832,749 $ 1,222,745
20,006 $
36,412
22,473
12,167
—
8,648
99,706
26,195
436
68,793
195,130
24,306
32,714
27,593
5,895
10
7,426
97,944
25,962
37
53,755
177,698
—
538
—
536
(1,107,211)
(1,711,423)
296,670
309,310
(533)
—
1,855,052
2,039,727
637,619
1,045,047
832,749 $ 1,222,745
$
The accompanying notes are an integral part of these consolidated financial statements.
64
Grand Canyon Education, Inc.
Consolidated Income Statements
(In thousands, except per share data)
Service revenue
Costs and expenses:
Technology and academic services
Counseling services and support
Marketing and communication
General and administrative
Amortization of intangible assets
Total costs and expenses
Operating income
Interest income on Secured Note
Interest expense
Investment interest and other
Income before income taxes
Income tax expense
Net income
Earnings per share:
Year Ended December 31,
2021
2022
$ 911,306 $ 896,564
150,493
273,313
196,090
45,491
8,419
673,806
237,500
—
(2)
2,621
240,119
55,444
132,078
249,179
182,872
41,826
8,419
614,374
282,190
52,090
(3,601)
610
331,289
70,945
$ 184,675 $ 260,344
2020
$ 844,096
116,012
234,534
164,334
43,360
8,419
566,659
277,437
59,190
(4,402)
915
333,140
75,944
$ 257,196
Basic income per share
Diluted income per share
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
$
$
5.75 $
5.73 $
32,131
32,237
5.94
5.92
43,835
43,958
$
$
5.49
5.45
46,880
47,165
The accompanying notes are an integral part of these consolidated financial statements.
65
Grand Canyon Education, Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive income, net of tax:
Year Ended December 31,
2021
2022
$ 184,675 $ 260,344
2020
$ 257,196
Unrealized losses on available-for-sale securities, net of taxes of $168 for
the year ended December 31, 2022
Comprehensive income
(533)
—
$ 184,142 $ 260,344
—
$ 257,196
The accompanying notes are an integral part of these consolidated financial statements.
66
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T
Grand Canyon Education, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Cash flows provided by operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation
Reversal of credit loss reserve
Depreciation and amortization
Amortization of intangible assets
Deferred income taxes
Other, including fixed asset impairments
Changes in assets and liabilities:
Accounts receivable and interest receivable from university partners
Other assets
Right-of-use assets and lease liabilities
Accounts payable
Accrued liabilities
Income taxes receivable/payable
Deferred revenue
Net cash provided by operating activities
Cash flows (used in) provided by investing activities:
Capital expenditures
Additions of amortizable content
Funding to GCU
Repayment by GCU
Purchases of investments
Proceeds from sale or maturity of investments
Net cash (used in) provided by investing activities
Cash flows used in financing activities:
Principal payments on notes payable
Repurchase of common shares and shares withheld in lieu of income taxes
Net proceeds from exercise of stock options
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash, beginning of period
Cash and cash equivalents and restricted cash, end of period
Supplemental disclosure of cash flow information
Cash paid for interest
Cash paid for income taxes
Supplemental disclosure of non-cash investing and financing activities
Purchases of property and equipment included in accounts payable
Allowance for credit losses of $5,000, net of taxes of $1,168 from adoption of ASU 2016-13
ROU Asset and Liability recognition
Year Ended December 31,
2021
2020
2022
$
184,675 $
260,344
$
257,196
12,642
—
22,758
8,419
401
853
(7,350)
(2,604)
1,193
(3,894)
(1,023)
4,759
(10)
220,819
(35,232)
(397)
—
—
(171,549)
110,039
(97,139)
11,526
(5,000)
21,994
8,419
5,674
677
(2,863)
(256)
545
7,392
4,148
509
10
313,119
(28,875)
(515)
(190,000)
1,159,912
(56,335)
66,792
950,979
—
(604,212)
—
(604,212)
(480,532)
600,941
120,409 $
(107,774)
(803,832)
2,680
(908,926)
355,172
245,769
600,941
2 $
48,573 $
3,697
61,900
$
$
$
1,131 $
— $
15,067 $
1,536
$
— $
$
3,368
10,663
—
21,233
8,419
3,136
571
(13,250)
(621)
2,151
1,012
18,612
(279)
(20)
308,823
(29,418)
(524)
(75,000)
75,000
—
10,591
(19,351)
(33,144)
(134,014)
883
(166,275)
123,197
122,572
245,769
4,306
68,381
1,206
3,832
33,250
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
68
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 that operates a
comprehensive regionally accredited university that offers graduate and undergraduate degree programs, emphases and
certificates across nine colleges both online, on ground at its campus in Phoenix, Arizona and at four off-site 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 (the
“Acquisition”). Since the Acquisition, GCE, together with Orbis Education, 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 have provided certain services to a university
partner to assist them in expanding their online graduate programs. As of December 31, 2022, GCE provides education
services to 27 university partners across the Unites States.
GCE was formed in Delaware in November 2003 as a limited liability company, under the name Significant
Education, LLC, for the purchase of acquiring the assets of the University from a non-profit foundation on February 2,
2004. On August 24, 2005, the Company converted from a limited liability company to a corporation and changed its
name to Significant Education, Inc. On May 9, 2008, the Company changed its name to Grand Canyon Education, Inc.
On July 1, 2018, the Company sold the university to GCU (the “Transaction”). The Company’s wholly owned
subsidiaries were historically used to facilitate expansion of the university campus prior to the Transaction.
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.
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, including the collection of accounts receivables and reserves associated
with uncertain tax positions. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company invests a portion of its cash in excess of current operating requirements in short term certificates
of deposit and money market instruments. The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents.
Investments
As of December 31, 2022, the Company considered its investments in corporate bonds, commercial paper,
municipal securities, asset backed securities, municipal bonds, and collateralized mortgage obligations as available-for-
69
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
sale securities based on the Company’s intent for the respective securities. As of December 31, 2021, the Company had
no investments. 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 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.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the
straight-line method. Normal repairs and maintenance are expensed as incurred. Expenditures that materially extend the
useful life of an asset are capitalized. Construction in progress represents items not yet placed in service and are not
depreciated. Depreciation is provided using the straight-line method over the estimated useful lives of the assets.
Furniture and fixtures, computer equipment, and vehicles generally have estimated useful lives of ten, four, and five
years, respectively. Leasehold improvements are depreciated over the shorter of their lease term or their useful life. Land
improvements and buildings are depreciated over lives ranging from 10 to 40 years.
Transaction and Arrangements with GCU
On July 1, 2018, the Company consummated an 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 in the initial principal amount of $870,097 (the “Secured Note”) which was repaid by GCU in
the fourth quarter of 2021. In connection therewith, 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 Technology
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 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
70
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
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 December 31, 2022 and 2021, $910 and $1,168,
respectively, net of amortization, of deferred content assets are included in other assets in the Company’s consolidated
balance sheets and amortization is included in technical and academic services where the costs originated.
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 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 assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair
value of the 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 value and useful lives of the intangible assets acquired
involves certain judgments and estimates. These judgments can include, but are not limited to, the cash flows that an
asset is expected to generate in the future and the appropriate weighted average cost of capital. The net assets and result
of operations of an acquired entity are included on 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 one operating segment and one reporting unit for goodwill impairment
consideration. The Financial Accounting Standards Board (“FASB”) has issued guidance that permits an entity to first
71
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
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. Following this assessment, the
Company determined that it is more likely than not that its fair value exceeds 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 if the
pattern of economic benefit cannot be reliability determined. Finite-lived intangible assets consist of university partner
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 December 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 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 approximate their fair value based on the liquidity or the short-term maturities of
these instruments.
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 of fair value measurements for each level is described below, with
Level 1 having the highest priority.
72
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
-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.
Income Taxes
The Company accounts for income taxes payable or refundable for the current year and deferred tax assets and
liabilities for future tax consequences of events that have been recognized in the Company’s consolidated financial
statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in
which the temporary differences are expected to be realized.
The Company applies a more-likely-than-not threshold for financial statement recognition and measurement of
an uncertain tax position taken or expected to be taken in a tax return. The Company recognizes interest and penalties
related to uncertain tax positions in income tax expense. As of December 31, 2022 and 2021, the Company has reserved
approximately $15,862 and $14,108, respectively, for uncertain tax positions, including interest and penalties, which is
classified within accrued liabilities on the accompanying consolidated balance sheet.
The Company has deferred tax assets, which are subject to periodic recoverability assessments. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be
realized. Realization of the deferred tax assets is principally dependent upon achievement of projected future taxable
income.
Commitments and Contingencies
The Company accrues for a contingent obligation 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.
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 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
73
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
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 net realizable value and contains billed and unbilled
revenue. The Company utilizes the allowance method to provide for doubtful accounts based on its evaluation of the
collectability of the amounts due. There have been no amounts written off and no reserves established as of
December 31, 2022 given historical collection experience. 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 $5,560 and $3,841 as of December 31, 2022 and 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 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 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 partner’s balance, considering their financial condition and credit history, and considering current and
forecasted economic conditions. 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 statement. In the fourth quarter of 2021, the Secured Note receivable was paid off in full and the credit loss
reserve of $5,000 was reversed. The Company will continue to actively monitor other factors on expected credit losses.
74
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
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, 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 these 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, rent, and occupancy costs attributable to the provision of these
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 these services, primarily at the Company’s Phoenix, Arizona and
Indianapolis, Indiana locations. Advertising costs are expensed as incurred.
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.
Insurance/Self-Insurance
The Company uses a combination of insurance and self-insurance for a number of risks, including claims
related to employee healthcare, workers’ compensation, general liability, and business interruption. Liabilities associated
with these risks are estimated based on, among other things, historical claims experience, severity factors, and other
actuarial assumptions. The Company’s loss exposure related to self-insurance is limited by stop loss coverage on a per
occurrence and aggregate basis. The Company regularly analyzes its reserves for incurred but not reported claims, and
for reported but not paid claims related to self-funded insurance programs. While the Company believes reserves are
adequate, significant judgment is involved in assessing these reserves such as assessing historical paid claims, average
lags between the claims’ incurred date, reported dates and paid dates, and the frequency and severity of claims. There
may be differences between actual settlement amounts and recorded reserves and any resulting adjustments are included
in expense once a probable amount is known.
75
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
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 required 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
December 31, 2022 and 2021 consist of investments rated BBB or higher by at least one rating agency. Additionally, the
Company utilizes 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 December 31, 2022 and December 31, 2021, the Company had $119,639 and $600,130, respectively,
in excess of the FDIC insured limit. The Company is also subject to credit risk for its accounts receivable balance. The
Company has not experienced any losses on accounts receivables since July 1, 2018, the date the Company transitioned
to an education service company. To manage accounts receivable risk, the Company maintains an allowance for
doubtful accounts, if needed. Our dependence on our most significant university partner, with 85.8% and 85.9% of total
service revenue for the years ended December 31, 2022 and 2021, respectively, subjects us to the risk that declines in our
customer’s operations would result in a sustained reduction in service revenue for the Company.
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.
Recent Accounting Pronouncements
The Company has determined that no recent accounting pronouncements apply to its operations or could
otherwise have a material impact on its consolidated financial statements.
3. Investments
As of December 31, 2022, the Company had investments of $61,295, classified as available-for sale securities.
As of December 31, 2021, the Company had no investments.
As of December 31, 2022, the Company had available-for-sale investments comprised of the following:
Corporate bonds
Total investments
Adjusted
Cost
61,996
61,996
$
$
$
$
As of December 31, 2022
Gross
Gross
Unrealized
Unrealized
(Losses)
Gains
Estimated
Fair
Value
17
17
$
$
(718) $
(718) $
61,295
61,295
For the year ended December 31, 2022, the net unrealized losses were $533, net of taxes. Available-for-sale
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
76
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
consolidated income statements. As of December 31, 2021, there were no unrealized gains or losses for available-for
sale debt securities as all matured or were sold by December 31, 2021.
Available-for-sale securities maturing as of December 31:
Available-for-sale securities maturing as of December 31:
2023
2024
2025
Total
4. Allowance for Credit Losses
$
$
35,991
15,444
9,860
61,295
Balance at
Beginning of Charged to Deductions/ End of
Transfers(3) Period
Expense(2)
Period(1)
Balance at
Allowance for credit losses
Year ended December 31, 2022
Year ended December 31, 2021
Year ended December 31, 2020
$
$
$
—
5,000
5,000
—
(5,000)
—
—
— $
— $
—
— $ 5,000
(1) Amount in the year ended December 31, 2020 represents the cumulative effect of the adoption of
(2)
ASU No. 2016- 13 on the Secured Note receivable.
In the fourth quarter of 2021, the Secured Note receivable was paid off in full and the credit loss reserve of $5,000
was reversed.
(3) Deductions represent accounts written off, net of recoveries.
5. Property and Equipment
Property and equipment consist of the following:
Land
Land improvements
Buildings
Buildings and leasehold improvements
Computer equipment
Furniture, fixtures and equipment
Internally developed software
Construction in progress
Less accumulated depreciation and amortization
Property and equipment, net
$
As of December 31,
2021
2022
5,579
2,242
51,399
17,161
113,680
17,921
55,083
3,381
266,446
(130,326)
$ 147,504 $ 136,120
5,098 $
2,242
51,399
21,911
119,316
21,323
58,904
16,336
296,529
(149,025)
Depreciation expense associated with property and equipment totaled $22,115, $21,441 and $20,830 for the
years ended December 31, 2022, 2021 and 2020, respectively.
77
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
6. Intangible Assets
Amortizable intangible assets consist of the following as of:
University partner relationships
Trade names
Total amortizable intangible assets, net
Estimated
Average Useful
Life (in years)
25
1
December 31, 2022
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$
$
210,000 $
280
210,280
$
(33,200) $
(280)
(33,480) $
176,800
—
176,800
Amortization expense for university partner relationships and trade names for the years ending December 31:
2023
2024
2025
2026
2027
Thereafter
7. Leases
$
$
8,419
8,419
8,419
8,419
8,419
134,705
176,800
The Company has operating leases for off-campus classroom and laboratory site locations, office space, office
equipment, and optical fiber communication lines. These leases have terms that range from two months to ten years and
eight months. 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 has operating lease costs of $10,666, $9,723 and $7,594 for the years
ended December 31, 2022, 2021 and 2020, respectively.
As of December 31, 2022, the Company had $23,310 of non-cancelable operating lease commitments for four
off-campus classroom and laboratory sites and $192 for optical fiber communication lines that had not yet commenced.
The Company’s weighted-average remaining lease term relating to its operating leases is 8.04 years, with a weighted-
average discount rate of 3.35%. As of December 31, 2022, the Company had no financing leases.
Future payment obligations with respect to the Company’s operating leases, which were existing at
December 31, 2022, by year and in the aggregate, are as follows:
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less interest
Present value of lease liabilities
78
$
Amount
10,844
11,143
10,867
10,805
10,193
35,104
88,956
11,515
77,441
$
$
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
8. Notes Payable and Other Noncurrent Liabilities
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 revolving credit facilities, terminated the credit agreement and
expensed all remaining capitalized loan costs of $1,028 to interest expense.
9. Commitments and Contingencies
Legal Matters
From time to time, the Company is 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 is 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
From time to time the Company has exposure to various non-income tax related matters that arise in the
ordinary course of business. At both December 31, 2022 and 2021, the Company has no reserve for tax matters where its
ultimate exposure is considered probable and the potential loss can be reasonably estimated.
10. Earnings Per 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.
Year Ended December 31,
2021
2020
2022
Denominator:
Basic weighted average shares outstanding
Effect of dilutive stock options and restricted stock
Diluted weighted average shares outstanding
32,131
106
32,237
43,835 46,880
285
43,958 47,165
123
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 each of the years ended December 31, 2022, 2021 and 2020, approximately 58, 79, and 142, 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.
79
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
11. Equity Transactions
Preferred Stock
As of December 31, 2022 and 2021, the Company had 10,000 shares of authorized but unissued and
undesignated preferred stock. The Company’s charter provides that the board of directors has authority to issue preferred
stock, with voting powers, designations, preferences, and special rights, qualifications, limitation, or restrictions as
permitted by law as determined by the board of directors, without stockholder approval. The board of directors may
authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or
other rights of the holders of the common stock.
Treasury Stock
In January 2021, July 2021, January 2022 and October 2022 the Board of Directors increased the authorization
under its existing stock repurchase program by $100,000, $970,000, $175,000 and $200,000, respectively, reflecting an
aggregate authorization for share repurchases since the initiation of our program of $1,845,000. The expiration date on
the repurchase authorization is December 31, 2023. 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
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 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.
On May 14, 2021, the Company entered into an ASR agreement with Morgan Stanley to repurchase up to
$50,000 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 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 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 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 August 13, 2021 with additional delivery of 139 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 of $10,000
related to the remaining delivery of shares. The ASR agreement resulted in a total of 558 shares repurchased at an
average cost of $89.68.
80
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
During the year ended December 31, 2022, the Company repurchased 6,795 shares of common stock at an
aggregate cost of $599,587. As of December 31, 2022, there remained $195,847 available under its current share
repurchase 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.
12. Income Taxes
The Company has deferred tax assets and liabilities that reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Deferred tax assets are subject to periodic recoverability assessments. Realization of the deferred tax
assets, net of deferred tax liabilities is principally dependent upon achievement of projected future taxable income.
Based upon the level of historical taxable income and projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believes it is more-likely-than-not that the Company will realize the
benefits of these deductible differences. The Company has no valuation allowance at December 31, 2022 and 2021.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. As changes in tax laws or rates
are enacted, deferred tax assets and liabilities are adjusted though income tax expense.
The components of income tax expense (benefit) are as follows:
Year Ended December 31,
2021
2022
2020
Current:
Federal
State
Deferred:
Federal
State
Tax expense recorded as an increase of paid-in capital
$ 50,194 $ 59,450
5,822
65,272
5,017
55,211
$ 63,932
8,875
72,807
(578)
811
233
—
5,050
623
5,673
—
$ 55,444 $ 70,945
2,842
295
3,137
—
$ 75,944
A reconciliation of income tax computed at the U.S. statutory rate to the effective income tax rate is as follows:
Year Ended December 31,
2022
2021
2020
21.0 % 21.0 % 21.0 %
2.4
2.8
(1.2)
(1.6)
(1.3)
(0.1)
0.1
0.2
0.8
0.4
23.1 % 21.4 % 22.8 %
2.4
(1.2)
(0.4)
—
1.0
Statutory U.S. federal income tax rate
State income taxes, net of federal tax benefit
State tax credits, net of federal effect
Excess tax benefits
Nondeductible expenses
Other
Effective income tax rate
81
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
Significant components of the Company’s deferred income tax assets and liabilities, included in Deferred
income taxes, non-current on the consolidated balance sheets are as follows:
Deferred tax assets:
Share-based compensation
Employee compensation
Intangibles
Leases
State taxes
Other
Deferred tax assets
Deferred tax liability:
Property and equipment
Goodwill
Other
Deferred tax liability
Net deferred tax liability
As of December 31, As of December 31,
2022
2021
$
$
$
2,725
1,109
14,872
1,270
3,998
232
24,206
2,422
802
17,598
847
3,508
199
25,376
(13,350)
(37,051)
—
(50,401)
(26,195) $
(14,905)
(36,295)
(138)
(51,338)
(25,962)
The net deferred tax liability on the accompanying consolidated balance sheet is comprised of the following:
Deferred income taxes, current
Deferred income taxes, non-current
Net deferred tax liability
As of December 31, As of December 31,
2022
$
5,172
(31,367)
(26,195) $
2021
4,172
(30,134)
(25,962)
$
$
The Company recognizes the impact of a tax position in its financial statements if that position is more-likely-
than-not to be sustained on audit, based on the technical merits of the position. The Company discloses all unrecognized
tax benefits, which includes the reserves recorded for uncertain tax positions on filed tax returns and the unrecognized
portion of affirmative claims. The Company recognizes interest and penalties related to uncertain tax positions in income
tax expense. Unrecognized tax benefits as of December 31, 2022 and 2021 were $15,862 and $14,108, respectively.
The reconciliation of the beginning and ending balance of unrecognized tax benefits at December 31, is as
follows:
Unrecognized tax benefits, beginning of year
Tax positions taken during the current year
Increases
Decreases
Tax positions taken during a prior year
Increases
Decreases
Decreases for settlements during the period
Reductions for lapses of applicable statute of limitations
Unrecognized tax benefits, end of year
2022
2021
$ 14,108 $ 11,318
2,814
—
3,973
—
1,313
(1,954)
—
(419)
262
(1,064)
(74)
(307)
$ 15,862 $ 14,108
82
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
As of December 31, 2022 and 2021, the unrecognized tax benefit recorded of $15,862 and $14,108,
respectively, if reversed, would impact the effective tax rate. At December 31, 2022 and 2021, the Company had
accrued $93 and $0, respectively, in interest and $112 and $0, respectively, in penalties. It is reasonably possible that the
amount of the unrecognized tax benefit will change during the next 12 months, however management does not expect
the potential change to have a material effect on the results of operations or financial position.
The Company’s uncertain tax positions were related to tax years that remained subject to examination by tax
authorities. As of December 31, 2022, the earliest tax year still subject to examination for federal and state purposes is
2019 and 2018, respectively.
13. Share-Based Compensation Plans
Incentive Plans
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 December 31, 2022, 1,221 shares were available for
grants under the 2017 Plan.
Restricted Stock
During fiscal years 2022, 2021, and 2020, the Company granted 189, 180, and 164 shares of common stock,
respectively, with a service vesting condition to certain of its executives, officers, and employees. The restricted shares
have voting rights and vest evenly at 20% over each of the next five years. Upon vesting, shares will be held in lieu of
taxes equivalent to the statutory tax withholding required to be paid when the restricted stock vests. During the years
ended December 31, 2022, 2021 and 2020, the Company withheld 52, 56, and 62 shares of common stock in lieu of
taxes at a cost of $4,625, $5,994, and $4,969, on the restricted stock vesting dates, respectively. During 2022, 2021 and
2020, following the annual stockholders meeting, the Company granted 4, 4 and 3 shares of common stock to the non-
employee members of the Company’s Board of Directors. The restricted shares granted to these directors 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. Included in the 2021 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 2021
newly appointed non-employee director also received an annual grant of restricted shares. The initial award of shares
that were granted in 2021 to the newly appointed non-employee director have voting rights and vest on the one year
anniversary of the date of grant.
83
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
A summary of the activity related to restricted stock granted under the Company’s Incentive Plan is as follows:
Weighted Average
Outstanding as of December 31, 2019
Granted
Vested
Forfeited, canceled or expired
Outstanding as of December 31, 2020
Granted
Vested
Forfeited, canceled or expired
Outstanding as of December 31, 2021
Granted
Vested
Forfeited, canceled or expired
Outstanding as of December 31, 2022
Grant Date
Total
Shares Fair Value per Share
76.43
84.31
65.19
84.64
83.43
86.05
74.90
87.00
86.24
83.10
85.07
85.49
85.32
$
422
167
$
(155) $
(15) $
$
419
184
$
(144) $
(32) $
$
427
193
$
(134) $
(10) $
$
476
As of December 31, 2022, there was approximately $29,497 of total unrecognized share-based compensation
cost related to unvested restricted stock awards. These costs are expected to be recognized over a weighted average
period of 2.08 years.
Stock Options
No options were granted in 2022, 2021 and 2020. Prior to 2012, the Company granted time vested options to
purchase shares of common stock with an exercise price equal to the fair market value on the date of grant to employees.
These time vested options vested ratably over a period of five years and expire ten years from the date of grant. A
summary of the activity related to stock options granted under the Company’s Incentive Plan is as follows:
Summary of Stock Options Outstanding
Weighted
Average
Exercise
Price per
Share
Total
Shares
Outstanding as of December 31, 2019
Granted
Exercised
Forfeited, canceled or expired
Outstanding as of December 31, 2020
Granted
Exercised
Forfeited, canceled or expired
Outstanding as of December 31, 2021
232
176
$
— $
$
(56)
— $
$
— $
$
— $
— $
(176)
15.42
—
15.66
—
15.34
—
15.34
—
—
Share-based Compensation
Share-based Compensation Expense Assumptions – Restricted Stock Awards
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
84
Grand Canyon Education, Inc.
Notes to Consolidated Financial Statements
(In thousands, except per share data)
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. The restricted shares have voting rights.
The table below outlines share-based compensation expense for the fiscal years ended December 31, 2022,
2021 and 2020 related to restricted stock and stock options granted:
Technology and academic services
Counseling services and support
Marketing and communication
General and administrative
2022
$ 2,424
6,287
154
3,777
2021
2020
$ 2,112 $ 2,049
5,364
100
3,150
5,749
101
3,564
Share-based compensation expense included in operating
expenses
Tax effect of share-based compensation
Share-based compensation expense, net of tax
12,642
(3,161)
$ 9,481
11,526
(2,882)
10,663
(2,666)
$ 8,644 $ 7,997
401(k) Plan
The Company has established a 401(k) Defined Contribution Benefit Plan (the “Plan”). The Plan provides
eligible employees, upon date of hire, with an opportunity to make tax-deferred contributions into a long-term
investment and savings program. All employees over the age of 21 are eligible to participate in the plan. The Plan allows
eligible employees to contribute to the Plan subject to Internal Revenue Code restrictions and the Plan allows the
Company to make discretionary matching contributions. The Company plans to make a matching contribution to the
Plan of approximately $2,662 for the year ended December 31, 2022. The Company made discretionary matching
contributions to the Plan of $2,345 and $2,225 for the years ended December 31, 2021 and 2020, respectively.
14. Related Party Transactions
Related party transactions include transactions between the Company and certain of its affiliates. The
following transactions were in the normal course of operations and were measured at the exchange amount, which is the
amount of consideration established and agreed to by the parties.
As of and for the years ended December 31, 2022, 2021 and 2020, related party transactions consisted of the
following:
Affiliates
GCE Community Fund (“GCECF”) - GCECF was initially formed in 2014. GCECF makes grants for
charitable, educational, literary, religious or scientific purposes within the meaning of Section 501(c ) (3) of the Internal
Revenue Code, including for such purposes as the making of distributions to organizations that qualify as exempt
organizations under Section 501 (c ) (3) of the Code. The Company’s CEO and Director serves as the president of
GCECF. All of the board seats are taken by Company executives. The Company is not the primary beneficiary of
GCECF, and accordingly, the Company does not consolidate GCECF’s statement of activities with its financial results.
The Company contributed $1,150 and $1,100 for the years ended December 31, 2022 and 2020, respectively, of which
no amounts were owed as of December 31, 2022 and 2020.
85
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information
required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within
the specified time periods and accumulated and communicated to our management, including our Chief Executive
Officer (“Principal Executive Officer”) and Chief Financial Officer (“Principal Financial Officer”), as appropriate, to
allow timely decisions regarding required disclosure. We have established a Disclosure Committee, consisting of certain
members of management, to assist in this evaluation. Our Disclosure Committee meets on a quarterly basis and more
often if necessary.
Under the supervision and with the participation of our management, including our Principal Executive Officer
and Principal Financial Officer, an evaluation was performed on the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act), as
of the end of the period covered by this annual report. Based on that evaluation, our management, including the Principal
Executive Officer and Principal Financial Officer, concluded that our disclosure controls and procedures were effective
as of December 31, 2022.
Attached as exhibits to this Annual Report on Form 10-K are certifications of our Chief Executive Officer and
Chief Financial Officer, which are required in accordance with Rule 13a-14 of the Exchange Act. This Disclosure
Controls and Procedures section includes information concerning management’s evaluation of disclosure controls and
procedures referred to in those certifications and, as such, should be read in conjunction with the certifications of our
Chief Executive Officer and Chief Financial Officer.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining effective internal control over financial reporting,
as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial
statements for external purposes in accordance with generally accepted accounting principles (“GAAP”).
Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
consolidated financial statements in accordance with GAAP, and that receipts and expenditures are being
made only in accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of our assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitation, our internal control systems and procedures may not prevent or detect
misstatements. An internal control system, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,
have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that
controls may become inadequate because of changes in condition, or that the degree of compliance with the policies and
procedures may deteriorate.
86
Management performed an assessment of the effectiveness of our internal control over financial reporting as of
December 31, 2022, utilizing the criteria described in the “Internal Control-Integrated Framework (2013)” issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The objective of this assessment was to
determine whether our internal control over financial reporting was effective as of December 31, 2022. Based on its
assessment, management believes that, as of December 31, 2022, the Company’s internal control over financial reporting
is effective.
The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by
KPMG LLP, an independent registered public accounting firm, as stated in their audit report which is included herein.
87
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Grand Canyon Education, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Grand Canyon Education, Inc. and subsidiaries' (the Company) internal control over financial reporting
as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related
consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in
the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial
statements), and our report dated February 16, 2023 expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
88
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ KPMG LLP
Phoenix, Arizona
February 16, 2023
89
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31,
2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
We have a policy governing transactions in our securities by directors, officers, employees and others which
permits these individuals to enter into trading plans complying with Rule 10b5-1 under the Securities Exchange Act of
1934, as amended. Generally, under these trading plans, the individual relinquishes control over the transactions once the
trading plan is put into place. Accordingly, sales under these plans may occur at any time, including possibly before,
simultaneously with, or immediately after significant events involving our company.
We anticipate that, as permitted by Rule 10b5-1 and our policy governing transactions in our securities, some or
all of our directors, officers and employees may establish or terminate trading plans in the future. We intend to disclose
the names of executive officers and directors who establish or terminate a trading plan in compliance with Rule 10b5-1
and the requirements of our policy governing transactions in our securities in our future quarterly and annual reports on
Form 10-Q and 10-K filed with the Securities and Exchange Commission. We undertake no obligation, however, to
update or review the information provided herein, including for revision or termination of an established trading plan,
other than in such quarterly and annual reports.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Information relating to our Board of Directors, Executive Officers, and Corporate Governance required by this
item appears in the sections entitled “Corporate Governance and Board Matters” and “Proposal No. 1: Election of
Directors” in our 2023 proxy statement, to be filed within 120 days of our fiscal year end (December 31, 2022) and such
information is incorporated herein by reference.
Our employees must act ethically at all times and in accordance with the policies in our Code of Business
Conduct and Ethics. We require full compliance with this policy from all designated employees including our Chief
Executive Officer, Chief Financial Officer, and Chief Accounting Officer. We publish the policy, and any amendments
or waivers to the policy, in the Corporate Governance section of our website located at www.gce.com/ Investor
Relations/Corporate Governance.
The charters of our Audit Committee, Compensation Committee, and Nominating and Corporate Governance
Committee are also available in the Corporate Governance section of our website located at www.gce.com/Investor
Relations/Corporate Governance.
Item 11. Executive Compensation
Information relating to this item appears in the section entitled “Executive Compensation” in our 2023 proxy
statement, to be filed within 120 days of our fiscal year end (December 31, 2022) and such information is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information relating to this item appears in the sections entitled “Executive Compensation” and “Beneficial
Ownership of Common Stock” in our 2023 proxy statement, to be filed within 120 days of our fiscal year end
(December 31, 2022) and such information is incorporated herein by reference.
90
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information relating to this item appears in the sections entitled “Corporate Governance and Board Matters —
Director Independence” and “Certain Relationships and Related Party Transactions” in our 2023 proxy statement, to be
filed within 120 days of our fiscal year end (December 31, 2022) and such information is incorporated herein by
reference.
Item 14. Principal Accounting Fees and Services
Information relating to this item appears in the section entitled “Ratification of Independent Registered Public
Accounting Firm — Fees” in our 2023 our proxy statement, to be filed within 120 days of our fiscal year end
(December 31, 2022) and such information is incorporated herein by reference.
PART IV
Item 15. Exhibits and Consolidated Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1.
Consolidated Financial Statements filed as part of this report
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Income Statements for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Page
62
64
65
66
67
68
69
2.
Consolidated Financial Statement Schedules:
Schedules are omitted because they are not required, or because the information required is included in the
Consolidated Financial Statements and Notes thereto.
3.
Exhibits
Number
2.1
Description
Method of Filing
Asset Purchase Agreement, dated July 1, 2018, by
and between Grand Canyon Education, Inc. and
Grand Canyon University (formerly known as
Gazelle University)#
Incorporated by reference to Exhibit 2.1 to GCE’s
Quarterly Report on Form 10-Q filed with the SEC
on November 8, 2018.
2.2
Agreement and Plan of Merger, dated December 17,
2018, by and among Grand Canyon Education, Inc.,
GCE Cosmos Merger Sub, LLC and Orbis
Education Services, LLC#
Incorporated by reference to Exhibit 2.2 to GCE’s
Annual Report on Form 10-K filed with the SEC on
February 20, 2019.
3.1
Amended and Restated Certificate of Incorporation
(as amended)
Incorporated by reference to Exhibit 3.1 to GCE’s
Annual Report on Form 10-K filed with the SEC on
February 20, 2019.
91
Number
3.2
Third Amended and Restated Bylaws
Description
4.1
Specimen of Stock Certificate
4.2
Description of Common Stock
10.1
2008 Equity Incentive Plan, as amended†
10.2
2017 Equity Incentive Plan, as amended†
10.3
Form of Restricted Stock Agreement under the 2017
Equity Incentive Plan, as amended†
10.4
Second Amended and Restated Executive
Employment Agreement, dated July 1, 2018, by and
between Grand Canyon Education, Inc. and Brian E.
Mueller†
Method of Filing
Incorporated by reference to Exhibit 3.1 to GCE’s
Current Report on Form 8-K filed with the SEC on
October 29, 2014.
Incorporated by reference to Exhibit 4.1 to
Amendment No. 2 to GCE’s Registration Statement
on Form S-1 filed with the SEC on September 29,
2008.
Incorporated by reference to Exhibit 4.2 to GCE’s
Annual Report on Form 10-K filed with the SEC on
February 20, 2020.
Incorporated by reference to Exhibit 10.1 to GCE’s
Quarterly Report on Form 10-Q filed with the SEC
on November 14, 2011.
Incorporated by reference to Exhibit 10.1 to GCE’s
Current Report on Form 8-K filed with the SEC on
June 14, 2017.
Incorporated by reference to Exhibit 10.3 to GCE’s
Annual Report on Form 10-K filed with the SEC on
February 21, 2018.
Incorporated by reference to Exhibit 10.1 to GCE’s
Quarterly Report on Form 10-Q filed with the SEC
on November 8, 2018.
10.5
Second Amended and Restated Executive
Employment Agreement, dated July 1, 2018, by and
between Grand Canyon Education, Inc. and W. Stan
Meyer†
Incorporated by reference to Exhibit 10.2 to GCE’s
Quarterly Report on Form 10-Q filed with the SEC
on November 8, 2018.
10.6
Second Amended and Restated Executive
Employment Agreement, dated July 1, 2018, by and
between Grand Canyon Education, Inc. and Daniel
E. Bachus†
Incorporated by reference to Exhibit 10.3 to GCE’s
Quarterly Report on Form 10-Q filed with the SEC
on November 8, 2018.
10.7
First Amended and Restated Executive Employment
Agreement, dated July 1, 2018, by and between
Grand Canyon Education, Inc. and Dilek Marsh†
Incorporated by reference to Exhibit 10.5 to GCE’s
Quarterly Report on Form 10-Q filed with the SEC
on November 8, 2018.
10.8
Second Amended and Restated Executive
Employment Agreement, dated April 29, 2020, by
and between Grand Canyon Education, Inc. and
Daniel J. Briggs
Incorporated by reference to Exhibit 10.1 to GCE’s
Quarterly Report on Form 10-Q filed with the SEC
on August 4, 2020.
10.9
Form of Director and Officer Indemnity Agreement
Incorporated by reference to Exhibit 10.21 to
Amendment No. 2 to GCE’s Registration Statement
on Form S-1 filed with the SEC on September 29,
2008.
92
Number
Description
Method of Filing
10.10
Credit Agreement dated July 1, 2018, by and
between Grand Canyon Education, Inc. and Grand
Canyon University (formerly known as Gazelle
University).
Incorporated by reference to Exhibit 10.7 to GCE’s
Quarterly Report on Form 10-Q filed with the SEC
on November 8, 2018.
10.11
10.12
Master Services Agreement, dated July 1, 2018, by
and between Grand Canyon Education, Inc. and
Grand Canyon University (formerly known as
Gazelle University).##
Incorporated by reference to Exhibit 10.8 to GCE’s
Quarterly Report on Form 10-Q/A filed with the
SEC on April 23, 2019.
Amended and Restated Credit Agreement, dated
January 22, 2019, by and among Grand Canyon
Education, Inc., Bank of America, N.A., and the
other parties named therein.
Incorporated by reference to Exhibit 10.14 to GCE’s
Annual Report on Form 10-K filed with the SEC on
February 20, 2019.
10.13
Amended and Restated Security and Pledge
Agreement, dated January 22, 2019, by and among
Grand Canyon Education, Inc., Bank of America,
N.A., and the other parties named therein.
Incorporated by reference to Exhibit 10.15 to GCE’s
Annual Report on Form 10-K filed with the SEC on
February 20, 2019.
10.14
First Amendment, dated January 31, 2019 to
Amended and Restated Credit Agreement, dated
January 22, 2019 by and among Grand Canyon
Education, Inc., Bank of America, N.A., and the
other parties named therein.
10.15
First Incremental Facility Amendment, dated
February 1, 2019 to Amended and Restated Credit
Agreement, dated January 22, 2019 by and among
Grand Canyon Education, Inc., Bank of America,
N.A., and the other parties named therein.
10.16
Second Amendment, dated October 31, 2019 to
Amended and Restated Credit Agreement, dated
January 22, 2019 by and among Grand Canyon
Education, Inc., Bank of America N.A., and the
other parties named therein.
Incorporated by reference to Exhibit 10.16 to GCE’s
Annual Report on Form 10-K filed with the SEC on
February 20, 2019.
Incorporated by reference to Exhibit 10.17 to GCE’s
Quarterly Report on Form 10-Q filed with the SEC
on February 20, 2019.
Incorporated by reference to Exhibit 10.18 to GCE’s
Annual Report on Form 10-K filed with the SEC on
November 6, 2019.
10.17
Modification of Credit Agreement, Dated
October 29, 2021, by and between Grand Canyon
Education, Inc. and Grand Canyon University.
Incorporated by reference to Exhibit 10.1 to GCE’s
Quarterly Report on Form 10-Q filed with the SEC
on November 2, 2021.
21.0
Subsidiaries of Grand Canyon Education, Inc.
Filed herewith.
23.1
Consent of KPMG LLP, Independent Registered
Filed herewith.
Public Accounting Firm
24.1
Power of Attorney
Filed herewith (on signature page)
93
Number
31.1
Certification of Principal Executive Officer Pursuant
Filed herewith.
Description
Method of Filing
to Rule 13a-14(a) and 15d-14(a) as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
31.2
Certification of Principal Financial Officer Pursuant
Filed herewith.
to Rule 13a-14(a) and 15d-14(a) as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
32.1
32.2
101
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.
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.
Filed herewith.
The following financial statements from GCE’s
Annual Report on Form 10-K for the year ended
December 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) Consolidated Financial Statements tagged as
blocks of text and including detailed tags.
104
The cover page from GCE’s Annual Report on Form
Filed herewith.
10-K for the year ended December 31, 2022,
formatted in Inline XBRL (included as Exhibit 101).
† Indicates a management contract or any compensatory plan, contract or arrangement.
# Schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. GCE will
furnish supplementally a copy of any omitted schedule or similar attachment to the Securities and Exchange
Commission upon request.
## Certain portions of this document have been redacted pursuant to Regulation S-K, Item 601(b)(10)(iv).
†† 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 GCE, whether made before or after the date hereof, regardless of any general incorporation language in
such filing.
94
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
GRAND CANYON EDUCATION, INC.
By: /s/ Brian E. Mueller
Name: Brian E. Mueller
Title: Chief Executive Officer
Dated: February 16, 2023
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Brian E. Mueller, Daniel E. Bachus, and Sarah S. Collins, and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to
file the same, with all exhibits thereto and other documents in connection therewith the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all
intents and purposes as he or she might or could do in person hereby ratifying and confirming all that said attorneys-in-
fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Brian E. Mueller
Brian E. Mueller
/s/ Daniel E. Bachus
Daniel E. Bachus
/s/ Lori Browning
Lori Browning
/s/ Sara R. Dial
Sara R. Dial
/s/ Jack A. Henry
Jack A. Henry
/s/ Lisa Graham Keegan
Lisa Graham Keegan
/s/ Chevy Humphrey
Chevy Humphrey
/s/ David M. Adame
David M. Adame
Title
Date
Chief Executive Officer and Chairman
(Principal Executive Officer)
February 16, 2023
Chief Financial Officer
(Principal Financial Officer)
February 16, 2023
SVP, Controller –Chief Accounting Officer
(Principal Accounting Officer)
February 16, 2023
February 16, 2023
February 16, 2023
February 16, 2023
February 16, 2023
February 16, 2023
Director
Director
Director
Director
Director
95
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PRIMARY IR CONTACTDaniel E. BachusChief Financial Officer Grand Canyon Education2600 W. Camelback RoadPhoenix, AZ 85017Phone: (602) 247-4400Website: gce.comTRANSFER AGENTComputershare Investor ServicesPO Box 43006Providence, RI 02940-3006ACCOUNTANTSKPMG LLPCOMMON STOCKThe Company’s common stock trades on the Nasdaq Global Market under the symbol LOPE.ANNUAL MEETING OF STOCKHOLDERSThe Company’s Annual Meeting of Stockholders will be held at 10:30 a.m., Arizona Time, on Tuesday, June 20, 2023 at the offices of Grand Canyon Education, Inc. located at 2600 W. Camelback Road, Phoenix, AZ 85017.BOARD OF DIRECTORSBrian E. MuellerChief Executive Officer and ChairmanChevy HumphreyDirector Sara R. DialDirectorLisa Graham KeeganDirector Jack A. HenryDirectorDavid M. AdameDirectorMANAGEMENTBrian E. MuellerChief Executive Officer and Chairman Dr. W. Stan MeyerChief Operating OfficerKathy J. ClaypatchChief Information OfficerDaniel J. BriggsOrbis Education, CEO Daniel E. BachusChief Financial Officer Dilek MarshChief Technology OfficerGRAND CANYON EDUCATIONCORPORATE INFORMATIONDEAR STOCKHOLDERS,Grand Canyon Education (GCE) continues to deliver significant results for its partner institutions, their students and the communities they reside in. GCE has used its expertise, technology and processes to help its partner institutions mitigate financial risk and ensure stability through these challenging times. As many in the higher education industry continue to experience declining enrollment and negative financial trends, accelerated during COVID, we have focused on where the jobs and careers are going to be in the future and are assisting our partner institutions to expand their programs and capacity in those areas to meet the local need for an educated workforce. GCE continues to partner with Grand Canyon University to differentiate its offerings by promoting a strong value proposition to the communities it serves. GCU has established over 26,850 B2B industry partnerships. From helping to grow talent from the inside, to developing state-specific programs in licensure, GCU is there to help meet the unique needs of its partners. In the 4.5 years since GCE has become a service provider, it has helped GCU graduate 125,654 students many with licensure degrees in which there is significant need such as teacher education, counseling, social work and nursing with a growing percentage enrolled as first-generation students. In addition, since 2019, an additional 9,182 students have graduated from our other university partners’ Accelerated Bachelor of Science in Nursing or Occupational Therapy Assistant programs. Some of the results from 2022 that I would like to highlight include: GCU’s traditional campus had an increase of 8.9% in new students in the Fall of 2022, an increase of 8.0% in total ground traditional enrollment and an increase of 10.5% in residential enrollment, resulting in 69.9% of ground traditional students living on campus. This was achieved even though the number of high school graduates continues to decline and the percentage of those graduates going directly from high school to college has also declined.We continue to support GCU’s online programs for working adults. In the second half of 2022, GCU had a return to new online growth and as a result, total online enrollments are expected to return to growth in early 2023. In our hybrid programs, we continue to invest heavily in new enrollment, simulation, virtual reality and pre-requisite strategies to alleviate the greatest challenges to graduating more nurses, specifically clinical faculty shortages and the difficult path to qualify for enrollment. Nursing boards in many states have lowered the number of clinical hours required as the result of the quality of and outcomes achieved from simulations and virtual reality. In addition, GCE has already enrolled over 1,000 students into GCU’s nursing pre-requisite courses that provide significant academic support, are affordable and are delivered 100% online with frequent start dates to increase the likelihood of successful completion. This will provide a healthy feeder system into our partners’ hybrid healthcare programs. Social responsibility, human capital development, environmental awareness and resiliency are significant focuses for Grand Canyon Education. To this end, GCE continues to provide contributions and volunteer hours that benefit many non-profit organizations such as Habitat for Humanity, GCU CityServe, Special Olympics and the Youth Opportunity Foundation. We offer our full-time employees 16 hours of PTO annually for community service. GCE has over 40 approved organizations where employees may donate their time. GCE supports community giving with its contribution of $5 million to private school tuition organizations in 2022, encouraging employee giving through our Allocate to Elevate program, soliciting donations for scholarships for our university partners’ students and sponsoring K-12 education development. GCE continues to foster a culture of workforce diversity. Of GCE’s 5,500 employees, 79.8% are women and other diverse persons, an increase of 1.5% over 2021. Among GCE employees who are manager level and above, totaling 605 persons, 68.8% are held by women and other diverse persons, an increase of 1.2% over 2021. Three of our six directors are women, and two directors identify with an underrepresented diverse ethnicity. We believe diversity enriches the workplace by improving productivity, company culture, employee retention and ultimately leads to increased profitability. GCE has remained steadfast in following its mission to support higher education across a broad spectrum of modalities while ensuring access across all socioeconomic statuses. GCE continues to lean into social responsibility, human capital development, environmental awareness and resiliency. As we move into 2023, we note positive trends providing a strong path for growth as we serve within the industry./s/ Brian E. MuellerChief Executive Officer and Chairman 2023ANNUAL REPORT2600 W. CAMELBACK ROAD | PHOENIX, AZ 85017 | 833-GCE-4400 | GCE.COM