UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2019

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

2600 W. Camelback Road

Phoenix, Arizona 85017

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

(602) 247-4400

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   ☒     No   ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   ☒    No   ◻

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

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

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

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

The total number of shares of common stock outstanding as of August 2, 2019, was 48,340,573.

GRAND CANYON EDUCATION, INC.

FORM 10-Q

INDEX

	Page
PART I – FINANCIAL INFORMATION	3
Item 1 Financial Statements	3
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3 Quantitative and Qualitative Disclosures About Market Risk	35
Item 4 Controls and Procedures	35
PART II – OTHER INFORMATION	36
Item 1 Legal Proceedings	36
Item 1A Risk Factors	36
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3 Defaults Upon Senior Securities	37
Item 4 Mine Safety Disclosures	37
Item 5 Other Information	37
Item 6 Exhibits	37
SIGNATURES	39
101.INS      XBRL Instance Document
101.SCH     XBRL Taxonomy Extension Schema
101.CAL     XBRL Taxonomy Extension Calculation Linkbase
101.LAB     XBRL Taxonomy Extension Label Linkbase
101.PRE     XBRL Taxonomy Extension Presentation Linkbase
101.DEF     XBRL Taxonomy Extension Definition Linkbase

2

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

GRAND CANYON EDUCATION, INC.

Consolidated Income Statements

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands, except per share data)	2019		2018		2019		2018
Service revenue	$	174,820	$	—	$	372,107	$	—
University related revenue		—		236,818		—		512,499
Net revenue		174,820		236,818		372,107		512,499
Costs and expenses:
Technology and academic services		22,528		10,678		41,153		21,375
Counseling services and support		54,299		50,838		107,392		101,585
Marketing and communication		35,726		30,095		71,693		58,622
General and administrative		9,216		5,762		20,613		13,181
Amortization of intangible assets		2,179		—		3,865		—
University related expenses		—		79,517		—		167,166
Loss on Transaction		(122)		1,440		3,966		1,990
Total costs and expenses		123,826		178,330		248,682		363,919
Operating income		50,994		58,488		123,425		148,580
Interest income on Secured Note		14,482		—		28,217		—
Interest expense		(2,907)		(57)		(5,493)		(403)
Investment interest and other		2,668		1,567		3,787		2,548
Income before income taxes		65,237		59,998		149,936		150,725
Income tax expense		14,125		13,960		25,581		31,006
Net income	$	51,112	$	46,038	$	124,355	$	119,719
Earnings per share:
Basic income per share	$	1.07	$	0.97	$	2.60	$	2.52
Diluted income per share	$	1.06	$	0.95	$	2.57	$	2.47
Basic weighted average shares outstanding		47,851		47,604		47,788		47,537
Diluted weighted average shares outstanding		48,313		48,411		48,307		48,422

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

3

GRAND CANYON EDUCATION, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(In thousands)	2019		2018		2019		2018
Net income	$	51,112	$	46,038	$	124,355	$	119,719
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale securities, net of taxes of $30 for the three months ended June 30, 2018, and $38 for the six months ended June 30, 2018		—		89		—		113
Unrealized gains (losses) on hedging derivatives, net of taxes of $35 and $26 for the three months ended June 30, 2019 and 2018, respectively, and $70 and $83 for the six months ended June 30, 2019 and 2018, respectively		(164)		78		(271)		252
Comprehensive income	$	50,948	$	46,205	$	124,084	$	120,084

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

4

GRAND CANYON EDUCATION, INC.

Consolidated Balance Sheets

	June 30,		December 31,
(In thousands, except par value)	2019		2018
	(Unaudited)
ASSETS:
Current assets
Cash and cash equivalents	$	65,801	$	120,346
Restricted cash and cash equivalents		300		61,667
Investments		14,205		69,002
Accounts receivable, net		13,660		46,830
Interest receivable on Secured Note		—		4,650
Income tax receivable		3,423		8
Other current assets		11,328		6,963
Total current assets		108,717		309,466
Property and equipment, net		116,772		111,039
Right-of-use assets		12,895		—
Secured Note receivable		1,069,912		900,093
Amortizable intangible assets, net		206,415		—
Goodwill		160,871		2,941
Other assets		1,940		478
Total assets	$	1,677,522	$	1,324,017
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Current liabilities
Accounts payable	$	18,273	$	14,274
Accrued compensation and benefits		17,318		15,427
Accrued liabilities		16,934		8,907
Income taxes payable		45		5,442
Deferred revenue		10,042		—
Current portion of lease liability		2,232		—
Current portion of notes payable		48,422		36,468
Total current liabilities		113,266		80,518
Deferred income taxes, noncurrent		17,752		6,465
Lease liability, less current portion		10,809		—
Notes payable, less current portion		207,888		23,437
Total liabilities		349,715		110,420
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.01 par value, 10,000 shares authorized; 0 shares issued and outstanding at June 30, 2019 and December 31, 2018		—		—
Common stock, $0.01 par value, 100,000 shares authorized; 53,033 and 52,690 shares issued and 48,351 and 48,201 shares outstanding at June 30, 2019 and December 31, 2018, respectively		530		527
Treasury stock, at cost, 4,682 and 4,489 shares of common stock at June 30, 2019 and December 31, 2018, respectively		(143,919)		(125,452)
Additional paid-in capital		265,396		256,806
Accumulated other comprehensive loss		(724)		(453)
Retained earnings		1,206,524		1,082,169
Total stockholders’ equity		1,327,807		1,213,597
Total liabilities and stockholders’ equity	$	1,677,522	$	1,324,017

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

5

GRAND CANYON EDUCATION, INC.

Consolidated Statement of Stockholders’ Equity

(In thousands)

(Unaudited)

	Six Months Ended June 30, 2019
									Accumulated
							Additional		Other
	Common Stock			Treasury Stock			Paid-in		Comprehensive		Retained
	Shares	Par Value		Shares	Cost		Capital		Loss		Earnings		Total
Balance at December 31, 2018	52,690	$	527	4,489	$	(125,452)	$	256,806	$	(453)	$	1,082,169	$	1,213,597
Comprehensive income	—		—	—		—		—		(271)		124,355		124,084
Common stock purchased for treasury	—		—	111		(10,340)		—		—		—		(10,340)
Restricted shares forfeited	—		—	14		—		—		—		—		—
Share-based compensation	152		1	68		(8,127)		5,184		—		—		(2,942)
Exercise of stock options	191		2	—		—		3,406		—		—		3,408
Balance at June 30, 2019	53,033	$	530	4,682	$	(143,919)	$	265,396	$	(724)	$	1,206,524	$	1,327,807

	Six Months Ended June 30, 2018
									Accumulated
							Additional		Other
	Common Stock			Treasury Stock			Paid-in		Comprehensive		Retained
	Shares	Par Value		Shares	Cost		Capital		Loss		Earnings		Total
Balance at December 31, 2017	52,277		523	4,152		(100,694)		232,670		(724)		854,176		985,951
Cumulative effect from the adoption of accounting pronouncements, net of taxes	—		—	—		—		—		—		(1,174)		(1,174)
Comprehensive income	—		—	—		—		—		365		119,719		120,084
Adoption impact – ASU 2018-02	—		—	—		—		—		(156)		156		—
Common stock purchased for treasury	—		—	15		(1,539)		—		—		—		(1,539)
Restricted shares forfeited	—		—	9		—		—		—		—		—
Share-based compensation	163		2	119		(11,524)		6,732		—		—		(4,790)
Exercise of stock options	112		1	—		—		1,767		—		—		1,768
Balance at June 30, 2018	52,552	$	526	4,295	$	(113,757)	$	241,169	$	(515)	$	972,877	$	1,100,300

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

6

GRAND CANYON EDUCATION, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
(In thousands)	2019		2018
Cash flows provided by operating activities:
Net income	$	124,355	$	119,719
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation		5,185		6,734
Provision for bad debts		—		8,669
Depreciation and amortization		9,065		27,971
Amortization of intangible assets		3,865		—
Deferred income taxes		1,373		1,246
Loss on transaction, net of costs and asset impairment		3,966		1,990
Other, including fixed asset impairments		(285)		1,018
Changes in assets and liabilities:
Accounts receivable and interest receivable from university partners		41,056		—
Accounts receivable		—		(7,784)
Prepaid expenses and other		(2,220)		(78)
Right-of-use assets and lease liabilities		147		—
Accounts payable		(102)		(1,373)
Accrued liabilities		1,746		512
Income taxes receivable/payable		(8,812)		(14,365)
Deferred rent		—		(189)
Deferred revenue		9,996		6,880
Student deposits		—		(7,288)
Net cash provided by operating activities		189,335		143,662
Cash flows used in investing activities:
Capital expenditures		(9,656)		(79,166)
Additions of amortizable content		(228)		—
Acquisition, net of cash acquired		(361,184)		—
Funding to GCU for capital expenditures		(169,819)		—
Purchases of investments		(1,772)		(21,265)
Proceeds from sale or maturity of investments		56,897		32,996
Net cash used in investing activities		(485,762)		(67,435)
Cash flows provided by (used in) financing activities:
Principal payments on notes payable		(72,041)		(3,433)
Debt issuance costs		(2,385)		—
Proceeds from notes payable		243,750		—
Net borrowings from revolving line of credit		26,250		—
Repurchase of common shares including shares withheld in lieu of income taxes		(18,467)		(13,063)
Net proceeds from exercise of stock options		3,408		1,768
Net cash provided by (used in) financing activities		180,515		(14,728)
Reclassification of restricted cash to assets held for sale		—		(87,875)
Net decrease in cash and cash equivalents and restricted cash		(115,912)		(26,376)
Cash and cash equivalents and restricted cash, beginning of period		182,013		248,008
Cash and cash equivalents and restricted cash, end of period	$	66,101	$	221,632
Supplemental disclosure of cash flow information
Cash paid for interest	$	4,837	$	379
Cash paid for income taxes	$	35,114	$	44,234
Supplemental disclosure of non-cash investing and financing activities
Purchases of property and equipment included in accounts payable	$	914	$	14,361
Reclassification of capitalized costs – adoption of ASC 606	$	—	$	9,015
Reclassification of deferred revenue – adoption of ASC 606	$	—	$	7,451
Lease adoption - gross up of right of use assets and lease liabilities	$	498	$	—
Reclassification of tax effect within accumulated other comprehensive income	$	—	$	156

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

7

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. Prior to July 1, 2018, GCE owned and operated Grand Canyon University (the “University”), 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, at leased facilities and at facilities owned by third party employers of its students. On July 1, 2018, the Company sold the University to Grand Canyon University, an Arizona non-profit corporation formerly known as Gazelle University (“GCU”). As a result of this transaction (the “Transaction”), GCE became an educational services company focused on providing a full array of support services to institutions in the post-secondary education sector. GCE has developed significant technological solutions, infrastructure and operational processes to provide services to these institutions on a large scale. See Note 2 to our consolidated financial statements for a full description of the Transaction.

On December 17, 2018, the Company entered into a definitive Agreement and Plan of Merger to acquire Orbis Education Services, LLC (“Orbis Education”). Orbis Education is an education services company that supports healthcare education programs for 18 university partners across the United States. The closing of the merger occurred on January 22, 2019 and, as a result of the merger, GCE acquired all of the outstanding equity interests of Orbis Education for $361,184, net of cash acquired (the “Acquisition”). The Company financed a portion of the purchase price through a credit facility provided by a consortium of banks led by our existing bank group. See Note 3 to our consolidated financial statement for a full description of the Acquisition.

As a result of the Transaction and Acquisition, the Company no longer owns and operates an institution of higher education, but instead provides a bundle of services in support of its 19 university partners.

2. The Transaction

Asset Purchase Agreement and Related Agreements

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 (the “Transferred Assets”) in the initial principal amount of $870,097 (the “Secured Note”). The Secured Note contains customary commercial credit terms, including affirmative and negative covenants applicable to GCU, and provides that the Secured Note bears interest at an annual rate of 6.0%, has a maturity date of June 30, 2025, and is secured by all of the assets of GCU. The Secured Note provides for GCU to make interest only payments during the term, with all principal and accrued and unpaid interest due at maturity and also provides that we may loan additional amounts to GCU to fund approved capital expenditures during the first three years of the term. As of June 30, 2019, the Company had loaned an additional $199,815 to GCU for capital expenditures. In connection with the closing of the Asset Purchase Agreement, the Company and GCU entered into a long-term 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.

The Company was a party to a credit agreement with Bank of America, N.A. as Administrative Agent, and other lenders, dated December 21, 2012 and amended as of January 15, 2016. Effective July 1, 2018, the Company and the lenders amended the credit agreement (the “Amendment”) to release the assets pledged as collateral in order to enable GCE to sell them to GCU and complete the Transaction. In connection with the Amendment, GCE provided restricted cash collateral in the amount of $61,667 as of December 31, 2018.

8

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Disposed Assets, previously Assets and Liabilities Held for Sale

The Company received Board approval to consummate the Transaction on June 28, 2018, and completed the Transaction on July 1, 2018. As a result, the Company determined that it had met the accounting requirements to classify the assets and liabilities to be transferred in the Transaction as assets and liabilities held for sale as of June 30, 2018. The assets and liabilities held for sale were sold as part of the Transaction on July 1, 2018. Accordingly, the following balances were transferred to GCU as of July 1, 2018:

Restricted cash and cash equivalents	$	97,443
Accounts receivable, net of allowance for doubtful accounts of $6,093		9,780
Other assets		7,677
Property and equipment, net of accumulated depreciation of $166,066		870,097
Total assets held for sale, current	$	984,997
Accrued and other liabilities	$	5,025
Student deposits		88,010
Deferred revenue		46,325
Note payable		79
Total liabilities held for sale, current	$	139,439

The Company received the Secured Note for the Transferred Assets. The Company also transferred cash equal to $34,107 as part of the closing. Except for identified liabilities assumed by GCU, GCE retained responsibility for all liabilities of the business arising from pre-closing operations. For the six months ended June 30, 2018 the Company had transaction expenses of $1,990, included in Loss on Transaction.

3. Acquisition

On January 22, 2019, GCE acquired Orbis Education for $361,184 (inclusive of closing date adjustments and net of cash acquired). Orbis Education is an education services company that supports healthcare education programs for 18 university partners across the United States. Concurrent with the closing of the Acquisition, GCE entered into an amended and restated credit agreement and used $191,000 from the amended and restated credit agreement and $171,034 of operating cash flows on hand to complete the purchase. See Note 11 of our consolidated financial statements for a description of the amended and restated credit agreement. The fair value of the assets acquired, less the liabilities assumed exceeded the purchase price by $157,930 which was recorded as goodwill. Transaction costs for the Acquisition for the year ended December 31, 2018 were $808 and for the six months ended June 30, 2019 were $3,966, which are included in the Loss on Transaction in our consolidated income statement.

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 following table provides a tabular depiction of the Company’s

9

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

allocation of the total purchase price to each of the assets acquired and liabilities assumed based on the Company’s fair value estimates.

Assets acquired
Cash, including $300 of pledged collateral	$	4,793
Accounts receivable, net of allowance of $0	$	3,236
Property and equipment	$	5,392
Right-of-use assets	$	13,069
Intangible assets	$	210,280
Other assets	$	2,793
Liabilities assumed
Accounts payable	$	4,308
Accrued and other liabilities	$	4,451
Lease liability	$	13,069
Deferred tax liability	$	9,643
Deferred revenue	$	45
Total net asset or liability purchased and assumed	$	208,047
Purchase price	$	365,977
Excess of fair value of net assets acquired over consideration given	$	157,930

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, consist 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 amounts recorded related to the Acquisition is subject to adjustment as the Company has not yet completed the final allocation of the purchase price. The Company adjusted its allocation of the purchase price by $9,643 in the three months ended June 30, 2019, primarily as the result of the tax effect of a lower tax basis in the acquired assets. The Company has one year from the date of the Acquisition to complete the allocation of the purchase price.

The Company has consolidated the results of operations for Orbis Education since its Acquisition on January 22, 2019. Consolidated net revenue and consolidated net income for the six months ended June 30, 2019 include $38,466 of service revenue and a loss, net of taxes, of $782 from Orbis Education, which includes $3,865 of amortization of intangible assets. The Company reclassified $414 of expense from technology and academic services and $92 of expense from general and administration to increase marketing and communication expenses by $506 for the

10

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

three months ended March 31, 2019. The following table reports pro forma information as if the Acquisition of Orbis Education had been completed at the beginning of the earliest period presented:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Net revenue
As Reported	$	174,820	$	236,818	$	372,107	$	512,499
Pro forma	$	174,820	$	251,784	$	375,357	$	541,039
Net income
As Reported	$	51,112	$	46,038	$	124,355	$	119,719
Pro forma	$	51,112	$	42,128	$	113,110	$	105,848

The pro forma information above for the three and six months ended June 30, 2019 and 2018 includes acquisition related costs in both periods, amortization of intangible assets as a result of the Acquisition, additional interest expense on the debt issued to finance the Acquisition, depreciation expense based on the estimated fair value of the assets acquired, and warrant expense and related tax effects. The pro forma financial information is not necessarily indicative of the results of operations that would have occurred had the transactions been consummated on January 1, 2019 and 2018.

4. Summary of Significant Accounting Policies

Principles of Consolidation

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

Unaudited Interim Financial Information

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles and pursuant to the rules and regulations of the United States Securities and Exchange Commission and the instructions to Form 10-Q and Article 10, consistent in all material respects with those applied in its financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018. They do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. Such interim financial information is unaudited but reflects all adjustments that in the opinion of management are necessary for the fair presentation of the interim periods presented. Interim results are not necessarily indicative of results for a full year. These consolidated financial statements should be read in conjunction with the Company’s audited financial statements and footnotes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 from which the December 31, 2018 balance sheet information was derived. For purposes hereof, the term “university related revenue” refer to the Company’s revenue from operations prior to the sale of the University to GCU, and the term “university related expenses” refers to the Company’s expenses related to the operation of the University prior to the sale of the University to GCU and that are now the responsibility of GCU.

Restricted Cash and Cash Equivalents

A significant portion of the Company’s university related revenue was received from students who participated in government financial aid and assistance programs. Prior to July 1, 2018, restricted cash and cash equivalents represented amounts received from the federal and state governments under various student aid grant and loan programs, such as Title IV. The Company received these funds subsequent to the completion of the authorization and disbursement

11

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

process and held them for the benefit of the student. The Department of Education requires Title IV funds collected in advance of student billings to be restricted until the course begins. Prior to the Transaction, the Company recorded all of these amounts as a current asset in restricted cash and cash equivalents. The majority of these funds remained as restricted for an average of 60 to 90 days from the date of receipt. Restricted cash and cash equivalents at December 31, 2018 represents the cash collateral on the credit agreement, which was released as part of the amended and restated credit agreement on January 22, 2019. Restricted cash and cash equivalents at June 30, 2019 represents cash pledged for leased office space.

Investments

The Company considers its investments in municipal bonds, mutual funds, municipal securities, certificates of deposit and commercial paper as available-for-sale securities or trading securities based on the Company’s intent for the respective security. Available-for-sale securities are carried at fair value, determined using Level 1 and Level 2 of the hierarchy of valuation inputs, with the use of quoted market prices and inputs other than quoted prices that are observable for the assets, 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. As of December 31, 2018, the Company transferred its investments from available-for-sale to trading, due to the Company's decision to liquidate all investments to fund a portion of the purchase price paid in the Acquisition. Trading securities are carried at fair value and unrealized holding gains and losses are included in earnings. See Note 3 of our consolidated financial statements for further discussion on the Acquisition.

Derivatives and Hedging

Derivative financial instruments are recorded on the balance sheet as assets or liabilities and re-measured at fair value at each reporting date. For derivatives designated as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

Derivative financial instruments enable the Company to manage its exposure to interest rate risk. The Company does not engage in any derivative instrument trading activity. Credit risk associated with the Company’s derivative is limited to the risk that a derivative counterparty will not perform in accordance with the terms of the contract. Exposure to counterparty credit risk is considered low because these agreements have been entered into with institutions with Aa or higher credit ratings, and they are expected to perform fully under the terms of the agreements.

On February 27, 2013, the Company entered into an interest rate corridor to manage its 30 Day LIBOR interest exposure related to its variable rate debt. The fair value of the interest rate corridor instrument as of June 30, 2019 and December 31, 2018 was $187 and $600, respectively, which is included in other assets. The fair value of the derivative instrument was determined using a hypothetical derivative transaction and Level 2 of the hierarchy of valuation inputs. This derivative instrument was originally designated as a cash flow hedge of variable rate debt obligations. The adjustment of ($341) and $335 for the six months ended June 30, 2019 and 2018, respectively, for the effective portion of the gains and losses on the derivatives is included as a component of other comprehensive income, net of taxes.

The interest rate corridor instrument reduces variable interest rate risk starting March 1, 2013 through December 20, 2019 with a notional amount of $56,667 as of June 30, 2019. The corridor instrument’s terms permit the Company to hedge its interest rate risk at several thresholds; the Company pays variable interest monthly based on the 30 Day LIBOR rates until that index reaches 1.5%. If 30 Day LIBOR is equal to 1.5% through 3.0%, the Company pays 1.5%. If 30 Day LIBOR exceeds 3.0%, the Company pays actual 30 Day LIBOR less 1.5%.

12

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

At June 30, 2019, the Company expects to reclassify gains or losses on derivative instruments from accumulated other comprehensive income (loss) into earnings during the next 6 months as the derivative instrument expires in December 2019.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, investments, accounts receivable, accounts payable and accrued compensation and benefits and accrued liabilities expenses approximate their fair value based on the liquidity or the short-term maturities of these instruments. The carrying value of notes receivable, non-current approximates fair value as the Secured Note resulted from the Transaction and was negotiated at fair market value. The carrying value of notes payable approximates fair value as it is based on variable rate index. Derivative financial instruments are carried at fair value, determined using Level 2 of the hierarchy of valuation inputs as defined in the FASB Accounting Standards Codification (“Codification”), with the use of inputs other than quoted prices that are observable for the asset or liability.

The fair value of investments, primarily municipal securities, was 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. The unit of account used for valuation is the individual underlying security. The municipal securities are comprised of city and county bonds related to schools, water and sewer, utilities, transportation, healthcare and housing.

Revenue Recognition

University related revenue – prior to July 1, 2018

On January 1, 2018, the Company adopted “Revenue from Contracts with Customers” using the modified retrospective method applied to all contracts. Prior to the Transaction on July 1, 2018, net revenues consisted primarily of tuition, net of scholarships, and fees derived from courses taught by the University online, on ground, and at facilities it leased or those of employers, as well as from related educational resources that the University provided to its students, such as access to online materials. Tuition revenue was recognized pro-rata over the applicable period of instruction. A contract was entered into with a student and covered a course or semester. Revenue recognition occurred once a student started attending a course. The Company also charged online students an upfront learning management fee, which was deferred and recognized over the initial course. The Company had no costs that were capitalized to obtain or to fulfill a contract with a customer. Ancillary revenues included housing and fee revenues that were recognized over the period the services were provided and also included revenues from sales and services such as food and beverage, merchandise, hotel, golf and arena events that were recognized as sales occurred or services were performed as these services were transferred at a point in time. For the six months ended June 30, 2018, the Company’s revenue was reduced by approximately $101,176, as a result of scholarships that the Company offered to students. Sales tax collected from students is excluded from net revenues. Collected but unremitted sales tax is included as an accrued liability in our consolidated balance sheet.

The following table presents our revenues disaggregated by the nature of transfer of services for the six months ended June 30, 2018:

Tuition revenues	$	522,430
Ancillary revenues (housing, meals, fees, golf, hotel, arena, other)		91,245
Total revenues		613,675
Scholarships		(101,176)
Net Revenues	$	512,499

The Company’s receivables represented unconditional rights to consideration from its contracts with students; accordingly, students were not billed until they started attending a course and the revenue recognition process had

13

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

commenced. Once a student had been invoiced, payment was due immediately. Included in each invoice to the student were all educational related items including tuition, net of scholarships, housing, educational materials, fees, etc. The Company did not have any contract assets. The Company’s contract liabilities were reported as deferred revenue and student deposits in the consolidated balance sheets. Deferred revenue and student deposits in any period represented the excess of tuition, fees, and other student payments received as compared to amounts recognized as revenue on the consolidated income statement and were reflected as current liabilities in the accompanying consolidated balance sheets. The Company’s education programs had starting and ending dates that differ from its fiscal quarters. Therefore, at the end of each fiscal quarter, a portion of revenue from these programs was not yet earned. The majority of the University’s traditional ground students did not attend courses during the summer months (May through August), which affected our results for our second and third fiscal quarters.

The Company had identified a performance obligation associated with the provision of its educational instruction and other educational services, housing services, and other academic related services and used the output measure for recognition as the period of time over which the services were provided to our students. The Company had identified performance obligations related to its hotel, golf course, restaurants, sale of branded promotional items and other ancillary activities and recognized revenue at the point in time goods or services were provided to its customers. The Company maintained an institutional tuition refund policy, which provided for all or a portion of tuition to be refunded if a student withdrew during stated refund periods. Certain states in which students reside impose separate, mandatory refund policies, which overrode the Company’s policy to the extent in conflict. If a student withdrew at a time when only a portion, or none of the tuition was refundable, then in accordance with its revenue recognition policy, the Company continued to recognize the tuition that was not refunded pro-rata over the applicable period of instruction. The Company did not record revenue on amounts that may be refunded. However, for students that had taken out financial aid to pay their tuition and for which a return of such money to the Department of Education under Title IV was required as a result of his or her withdrawal, the Company reassessed collectability for these students each quarter for the estimated revenue that will be returned and recognized the revenue in future periods when payment was received. The Company had elected the short-term contract exemption with respect to its performance obligations under its contracts with students as all such contracts had original terms of less than one year.

Service revenue commenced July 1, 2018

Starting July 1, 2018, 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. Effective July 1, 2018, the Company adopted “Revenue from Contracts with Customers” applied to our Services Agreements, as an education service provider.

The Company’s Services Agreements have initial terms ranging from 7-15 years, subject to renewal options, although certain agreements may give the university partners the right to terminate early if certain conditions are met. The Company’s Services Agreements have a single performance obligation, as the promises to provide the identified services are not distinct within the context of these agreements. The single performance obligation is delivered as our partners receive and consume benefits, which occurs ratably over a series of distinct service periods (daily or semester). Service revenue is recognized over time using the output method of measuring progress towards complete satisfaction of the single performance obligation. The output method provides a faithful depiction of the performance toward complete satisfaction of the performance obligation and can be tied to the time elapsed which is consumed evenly over the service period and is a direct measurement of the value provided to our partners. The service fees received from our partners over the term of the agreement are variable in nature in that they are dependent upon the number of students attending the university partner’s program and revenues generated from those students during the service period. Due to the variable nature of the consideration over the life of the service arrangement, the Company considers 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

14

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

consideration that becomes known and billable because these fees related 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 June 30, 2019 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 $1,554 as of June 30, 2019 represents contract assets 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.

Internally Developed Technology

The Company capitalizes certain costs related to internal-use software, primarily consisting of direct labor associated with creating technology. 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 sheet.

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. It is responsible for the conversion of instructional materials to an on-line format, including outlines, quizzes, lectures, and articles in accordance with the educational guidelines provided to us by our university partners, prior to the respective course commencing. We also capitalize the creation of learning objects which are digital assets such as online demonstrations, simulations, and case studies used to obtain learning objectives.

Costs that are capitalized include payroll and payroll-related costs for employees who are directly associated and spend time producing content and payments to faculty and subject matter experts involved in the process.  The Company starts capitalizing content costs when it begins to develop or to convert a particular course, resources have been assigned and a timeline has been set. The content asset is placed in service when all work is complete and the

15

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

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 June 30, 2019, $1,348 of deferred content assets are included in other assets, long-term in the Company’s consolidated balance sheets and amortization is included in technical and academic services where the costs originated.

Amortizable Intangible Assets

The Company capitalizes purchased intangible assets, such as university partner relationships (customer relationships), and tradenames, and amortizes them on a straight-line basis over their estimated useful lives.

Business Combinations

The purchase price of an acquisition is allocated to the assets acquired, including intangible assets, and liabilities assumed, based on their respective fair values at the acquisition date. Acquisition-related costs are expensed as incurred. The excess of the cost of an acquired entity, net of the amounts assigned to the assets acquired and liabilities assumed, is recognized as goodwill. 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

Goodwill represents the excess of the cost over the fair market value of net assets acquired, including identified intangible assets. Goodwill is tested annually or more frequently if circumstances indicate potential impairment. The Financial Accounting Standards Board (“FASB”) has issued guidance that permits an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step 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 value.

Long-Lived Assets (other than goodwill)

The Company evaluates the recoverability of its long-lived assets for impairment 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.

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, support for faculty including training and development, 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 certain services, primarily at the Company’s Phoenix, Arizona location.

16

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Counseling Services and Support

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

Marketing and Communication

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

General and Administrative

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.

University related expenses

University related expenses represent the costs that were transferred to GCU in the Transaction and that are no longer incurred by the Company.

Commitments and Contingencies

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

Concentration of Credit Risk

The Company believes the credit risk related to cash equivalents and investments is limited due to its adherence to an investment policy that requires investments to have a minimum BBB rating, depending on the type of security, by one major rating agency at the time of purchase. All of the Company’s cash equivalents and investments as of June 30, 2019 and December 31, 2018 consist of investments rated BBB or higher by at least one rating agency. Additionally, the Company utilizes more than 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. The Company is also subject to credit risk for its accounts receivable balance. The Company has not

17

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

experienced any losses on receivables since July 1, 2018, the date the Company transitioned to an educational service provider. To manage accounts receivable risk, the Company maintains an allowance for doubtful accounts, if needed. Our dependence on our largest university partner subjects us to the risk that declines in our customer’s operations would result in a sustained reduction in revenues for the Company.

Use of Estimates

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

Segment Information

The Company operates as a single educational services company using a core infrastructure that serves the curriculum and educational delivery needs of its 19 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.

Accounting Pronouncements Adopted in 2019

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which introduced a lessee model that requires the majority of leases to be recognized on the balance sheet. On January 1, 2019, the Company adopted the ASU using the modified retrospective transition approach and elected the transition option to recognize the adjustment in the period of adoption rather than in the earliest period presented. Adoption of the new guidance resulted in an immaterial amount of right-of-use (“ROU”) assets and lease liabilities of $498. Subsequent to adoption, the Company recognized ROU assets of $13,069 and lease liabilities of $13,069 acquired in the Acquisition. As part of the adoption process the Company made the following elections:

● The Company elected the hindsight practical expedient, for all leases.

● The Company elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs for all leases.

● The Company elected to make the accounting policy election for short-term leases resulting in lease payments being recorded as an expense on a straight-line basis over the lease term.

ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company’s leases do not provide an implicit rate. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Refer to Note 10 to our consolidated financial statements for further disclosures regarding the impact of adopting this standard.

In August 2017, the FASB issued “Targeted Improvements to Accounting for Hedging Activities.” This standard targets improvements in the hedge relationship documentation, testing and disclosures for derivatives. This standard is effective for fiscal years and interim periods within those years, beginning after December 15, 2018. Accordingly, the standard was adopted by us as of January 1, 2019. The adoption of this guidance did not have a material impact on the Company’s financial condition, results of operations or statement of cash flows. The Company elected a qualitative approach starting in 2019 to assess its hedge effectiveness and included updated disclosures as required by the standard.

18

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

Recent Accounting Pronouncements

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350); Simplifying the Test for Goodwill Impairment, which eliminated step two from the goodwill impairment test and requires an entity to recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value, up to the amount of goodwill allocated to that reporting unit. The amendments in this standard are effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company expects that the adoption of this standard will impact its consolidated financial statements and related disclosures only to the extent that a future goodwill impairment test results in the recognition of an impairment charge.

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

5. Investments

At December 31, 2018, the Company transferred its investments from available-for-sale classification to trading, due to the Company’s decision to liquidate all investments to complete the Acquisition in the first quarter of 2019. Prior to December 31, 2018, the Company considered all investments as available-for-sale. At June 30, 2019 and December 31, 2018, the Company had $14,205 and $69,002, respectively, of investments. These investments were held in municipal and corporate securities as of June 30, 2019 and December 31, 2018.

6. Net Income Per Common Share

Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per common share reflects the assumed conversion of all potentially dilutive securities, consisting of stock options and restricted stock awards, for which the estimated fair value exceeds the exercise price, less shares which could have been purchased with the related proceeds, unless anti-dilutive. For employee equity awards, repurchased shares are also included for any unearned compensation adjusted for tax. The table below reflects the calculation of the weighted average number of common shares outstanding, on an as if converted basis, used in computing basic and diluted earnings per common share.

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2019	2018	2019	2018
Denominator:
Basic weighted average shares outstanding	47,851	47,604	47,788	47,537
Effect of dilutive stock options and restricted stock	462	807	519	885
Diluted weighted average shares outstanding	48,313	48,411	48,307	48,422

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 both the three and six month periods ended June 30, 2019 and 2018, none of the Company’s stock options and restricted stock awards outstanding were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.

7. Allowance for Doubtful Accounts

19

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

	Balance at				Balance at
	Beginning of		Charged to	Deductions/	End of
	Period		Expense	Transfers(1)(2)	Period
Allowance for doubtful accounts receivable
Six months ended June 30, 2019	$	—	—	—	$	—
Six months ended June 30, 2018	$	5,907	8,669	(8,483)	$	6,093

(1) Deductions represent accounts written off, net of recoveries.

8. Property and Equipment

Property and equipment consist of the following:

	June 30,		December 31,
	2019		2018
Land	$	5,579	$	5,579
Land improvements		2,242		2,242
Buildings		51,399		51,409
Buildings and leasehold improvements		11,144		9,581
Computer equipment		90,421		85,316
Furniture, fixtures and equipment		8,456		4,955
Internally developed software		33,835		39,270
Construction in progress		2,132		2,376
		205,208		200,728
Less accumulated depreciation and amortization		(88,436)		(89,689)
Property and equipment, net	$	116,772	$	111,039

9. Intangible Assets

Amortizable intangible assets consist of the following as of:

	June 30, 2019
	Estimated	Gross				Net
	Average Useful	Carrying		Accumulated		Carrying
	Life (in years)	Amount		Amortization		Amount
University partner relationships	25	$	210,000		(3,734)	$	206,266
Trade names	1		280		(131)		149
Total amortizable intangible assets, net		$	210,280		(3,865)	$	206,415

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

2019	$	4,358
2020		8,419
2021		8,419
2022		8,419
2023		8,419
Thereafter		168,381
	$	206,415

20

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

10. Leases

The Company has operating leases for classroom site locations, office space, office equipment, and optical fiber communication lines. These leases range from 3 months to 10 years. At lease inception, we determined 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 $1,507 and $781 for the six month period ended June 30, 2019 and 2018, respectively. The consolidated financial statements for years before January 1, 2019 are not presented on the same accounting basis with respect to leases. There was an immaterial amount of future lease obligations as of June 30, 2018. The majority of leases that existed for the six months ended June 30, 2018 were assigned to GCU in the Transaction that occurred on July 1, 2018.

As of June 30, 2019, the Company had $2,193 of non-cancelable operating lease commitments, primarily for a classroom site location, that has not yet commenced. This operating lease will commence in 2019 with a lease term of 10 years. The Company’s weighted-average remaining lease term relating to its operating leases is 6.00 years, with a weighted-average discount rate of 4.4%. As of June 30, 2019, the Company had no financing leases.

Future payment obligations with respect to the Company’s operating leases, which were existing at June 30, 2019, by year and in the aggregate, are as follows:

Year Ending December 31,	Amount
2019	$	1,655
2020		2,824
2021		2,680
2022		2,453
2023		1,703
Thereafter		3,909
Total lease payments	$	15,224
Less interest		2,183
Present value of lease liabilities	$	13,041

11. Notes Payable and Other Noncurrent Liabilities

We entered into an amended and restated credit agreement dated January 22, 2019 and two related amendments dated January 31, 2019 and dated February 1, 2019, that together provide a credit facility of $325,000 comprised of a term loan facility of $243,750 and a revolving credit facility of $81,250, both with a five year maturity date. The term facility is subject to quarterly amortization of principal, commencing with the fiscal quarter ended June 30, 2019, in equal installments of 5% of the principal amount of the term facility per quarter. Both the term loan and revolver have monthly interest payments currently at 30 Day LIBOR plus an applicable margin of 2%. The proceeds of the term loan, together with $6,250 drawn under the revolver and operating cash on hand were used to complete the Acquisition. Concurrent with the amendment of the credit agreement and Acquisition, we repaid our existing term loan of $59,850 and our cash collateral of $61,667 was released. The amended and restated credit agreement contains standard covenants that, among other things, restrict the Company’s ability to incur additional debt or make certain investments, and require the Company to achieve certain financial ratios and maintain certain financial conditions. As of June 30, 2019, the Company is in compliance with its debt covenants. The Company concluded that the amended and restated credit agreement is considered a loan modification. Accordingly, the Company allocated the costs paid to the bank consortium based on the borrowing dollars and has recorded an asset of $596 and a contra liability of $1,639, which are

21

Grand Canyon Education, Inc.

Notes to Consolidated Financial Statements

(In thousands, except per share data)

related to our revolver and term loan, respectively, that is being amortized to interest expense over the five year maturity date. Additionally, the Company expensed $150 of third party costs in the first quarter related to this loan modification.

	As of June 30,		As of December 31,
	2019		2018
Notes Payable
Note payable, quarterly payment of $12,188 starting June 30, 2019; interest at 30 day LIBOR plus 2.00% (4.44% at June 30, 2019) through January 22, 2024	$	230,060	$	59,905
Revolving line of credit; interest at 30 day LIBOR plus 2.0% (4.44% at June 30, 2019)		26,250		—
		256,310		59,905
Less: Current portion		48,422		36,468
	$	207,888	$	23,437

Payments due under the notes payable obligations are as follows as of June 30, 2019:

2019	$	24,211
2020		48,422
2021		48,422
2022		48,422
2023		48,422
Thereafter		38,411