The following discussion and analysis of our financial condition and results of
operations for the years ended December 31, 2020 and 2019 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 and on ground at its campus in Phoenix, Arizona.

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. See Note 3 - Acquisition to
consolidated financial statements for a full description of the Acquisition. In
the healthcare field, GCE, together with Orbis Education, works in partnership
with a growing number of top universities and healthcare networks across the
country, offering health care 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. As of December 31, 2020, GCE provides
education services to 25 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. Therefore, we will
refer to all university partners as "GCE partners" or "our partners" and will no
longer differentiate between partners of GCE and partners of Orbis Education; we
will, however, continue to disclose significant information for GCU, such as
enrollments, due to its size in comparison to our other university partners.

Impact of COVID-19


In March 2020, the World Health Organization declared the COVID-19 outbreak to
be a global pandemic. This contagious outbreak, which has continued to spread,
and the related adverse public health developments, including orders to
shelter-in-place, travel restrictions and mandated non-essential business
closures, have adversely affected workforces, organizations, customers,
economies and financial markets globally, leading to an economic downturn and
increased market volatility. It has also disrupted the normal operations of many
businesses, including ours, and that of our university partners. Due to the
economic disruption caused by the COVID-19 pandemic, the National Bureau of
Economic Research announced in June 2020 that the United States entered into a
recession in February 2020.



GCE has a long-term master services agreement with GCU (the "Master Services
Agreement") pursuant to which GCE provides education services to GCU in return
for 60% of GCU's tuition and fee revenues, which includes fee revenues from
room, board, and other ancillary businesses including a student-run golf course
and hotel. GCU has three types of students: traditional ground university
students, who attend class on its campus in Phoenix, Arizona and of which
approximately 70% have historically lived on campus in university owned
residence halls; professional studies

                                       47

Table of Contents

students, who are working adult students who attend class one night a week on the Phoenix campus; and online students who attend class fully online.


The COVID-19 outbreak, as well as measures taken to contain its spread, has
impacted GCU's students and its business in a number of ways. Beginning in March
2020, GCU's programs for its professional studies students and its traditional
ground university students were immediately converted to an online learning
environment and residential students were strongly encouraged to move off
campus. Summer 2020 semester classes were moved to an online environment as well
and most students were given the choice of attending the Fall semester in person
or completely online. Given GCE's historical experience delivering online
education services and the fact that all of GCU's students and faculty use the
university's online learning management system for at least some of the
coursework, the transition has been seamless and thus, the university has not
incurred a significant decrease in tuition revenue or significant increase in
costs associated with this transition. The following impacts from the COVID-19
pandemic, however, did serve to reduce GCU's non-tuition revenue during its
Spring, Summer and Fall 2020 semesters and, consequently, the service revenues
we earned under the Master Services Agreement:

Traditional ground university students who elected to move off campus near the

? end of the Spring 2020 semester received partial refunds for dormitory and meal

payments, which reduced GCU's revenue and thus the service revenues earned by


   GCE in the last nine days of March and the month of April;

Ancillary businesses operated by GCU such as its hotel and merchandise shops

were closed in late March. Some of these businesses remain closed while others

? opened with scaled back operations in mid-September, which reduced and will

continue to reduce GCU's revenues and thus the service revenues earned by GCE


   until these businesses are fully reopened;

Limited residential students remained on campus during the Summer semester,

? which reduced GCU's dormitory and ancillary revenues and thus the service


   revenues earned by GCE;




   GCU's doctoral students are required to attend two residencies on the

university's campus and at its hotel in Phoenix, Arizona as part of their

dissertation. On an annual basis approximately 3,000 learners attend the

week-long residency, most of whom have historically attended in the Summer.

? Most of the residencies who were scheduled for the last week of March through

the end of July were cancelled. The doctoral residencies scheduled for August

through December were held at another location with lower than normal

attendance resulting in lower GCU revenues including at its hotel, and thus


   reduced the service revenues earned by GCE;

GCU shifted its start date for the Fall semester for its traditional ground

students from August 24, 2020 to September 8, 2020, which had the effect of

? moving tuition revenue for all GCU traditional students, and certain ancillary

revenue for residential students, from the third quarter of 2020 to the fourth


   quarter of 2020; and




   GCU shifted its move-in date for its residential students to the week of

September 21, 2020, which reduced housing revenue and certain ancillary revenue

for residential students by three weeks. In addition, approximately 4,900 of

? GCU's traditional campus students elected to attend the Fall semester entirely

in the online modality. Residential enrollment for the Fall of 2020 was

approximately 11,500 whereas residential bed capacity is approximately 14,500.

This reduction in residential students caused a reduction in GCU's revenue and


   thus the service revenues earned by GCE.




In January 2021, GCU announced the first week of the Spring 2021 semester would
be completed in an online modality to provide greater flexibility for students
returning to campus after the holidays. Face-to-face instruction for the Spring
semester for its traditional ground students commenced on January 11, 2021.
Approximately 3,500 traditional ground students have elected to complete the
Spring semester entirely in the online modality. Spring semester face-to-face
instruction will end April 1, 2021 for approximately 80% of classes, followed by
two weeks of online instruction from April 5, 2021 through April 16, 2021 with
Spring Break from April 19, 2021 to April 25, 2021. These changes will have the
effect of reducing GCU's dormitory and ancillary revenues in the Spring of 2021
and thus the service revenues earned by GCE.

                                       48

  Table of Contents



The changes described above at GCU have impacted or will impact GCE's service
revenue under the Master Services Agreement. In addition, due to the limited
operating expenses that we incur to deliver those services, there has been or
will be a direct reduction in our operating profit and operating margin.



GCE also has long-term services agreements with numerous other university
partners across the United States. The majority of these other university
partners' students are studying in the Accelerated Bachelor of Science in
Nursing program which is offered in a 12-16 month format in three or four
academic semesters. The Spring, Summer and Fall 2020 semesters were completed
without interruption and each university partner has started its Spring 2021
semester. Some students who were scheduled to start their program in the Summer
2020 semester delayed their start until the Fall 2020 which resulted in lower
enrollments and revenues in the Summer 2020 semester than was planned. In a
number of locations, the demand to start in the Fall 2020 semester was greater
than initially planned but a number of our university or healthcare partners
chose not to increase the Fall 2020 cohort size to compensate for the Summer
2020 start shortfall due to concerns about clinical availability. The Fall 2020
enrollment was only slightly lower than our original expectations as the Summer
2020 new start shortfall was offset by higher retention rates and slightly
higher than expected Fall 2020 new starts.



No other changes are currently anticipated related to the Spring 2021 semester
that would have an impact on GCE's service revenue, operating profit and
operating margins. However, if GCU determines that it must send its students
home prior to the end of the Spring semester and elects to give partial refunds
for dormitory and meal payments or if one of our other university partners
closes a location prior to the end of the Spring semester, such an event would
reduce the service revenues earned by GCE.



The COVID-19 outbreak also presents operational challenges to GCE as
approximately 90% of our workforce is currently working remotely and is expected
to continue doing so for the foreseeable future. This degree of remote working
could increase risks in the areas of internal control, cyber security and the
use of remote technology, and thereby result in interruptions or disruptions in
normal operational processes.



It is not possible for us to completely predict the duration or magnitude of the
adverse results of the COVID-19 pandemic and its effects on our business,
results of operations or financial condition at this time, but such effects may
be material in future quarters.



We estimate that the reduction in service revenue attributable to reduced
tuition, fees and ancillary revenues of our university partners resulting from
COVID-19 will be $4.5 million in the first quarter of 2021 with a comparable
reduction in operating profit.

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. Starting July 1, 2018, GCE generates all of its revenue through services agreements with its university partners ("Services Agreements"), pursuant to which GCE provides integrated technology and academic



                                       49

  Table of Contents

services, marketing and 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
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. 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.

Business Combinations, Intangible Assets, and Goodwill. We apply the purchase
accounting standards for "Business Combinations," to acquisitions. The purchase
price of an acquisition is allocated to individual tangible and identifiable
intangible assets acquired and liabilities assumed based on their estimated fair
values on the acquisition date. Any excess purchase price over the assigned
values of net assets acquired is recorded as goodwill. On January 22, 2019, GCE
acquired, by merger, all of the outstanding equity interests of Orbis Education
for $361.2 million, net of cash acquired. As a result of this acquisition, GCE
recorded $210.3 million of intangible assets, primarily customer relationships,
and $157.8 million of goodwill. Refer to Note 3 - Acquisition within the
footnotes to the consolidated financial statements for additional information.
The acquired goodwill was allocated to the entity level reporting unit. The
determination of the fair value and useful lives of the intangible assets
acquired involves certain judgements 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.

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, 2020 and 2019,
GCE has reserved approximately $11,318 and $6,773, respectively, for uncertain
tax positions, including interest and penalties.

                                       50

  Table of Contents

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 2020 versus 2019 only. For
a discussion of the results of operations for fiscal year 2019 vs 2018, 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, 2019   incorporated herein by reference.

The following table sets forth certain income statement data as a percentage of
net revenue for each of the periods indicated. Amortization of intangible assets
and the loss on transaction have been excluded from the table below:



                                   Year Ended December 31,
                                   2020          2019

Costs and expenses Technology and academic services 13.7 % 11.6 % Counseling services and support 27.8 28.7 Marketing and communication 19.5 18.4 General and administrative

            5.1           5.7

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019



Service revenue. Our service revenue for the year ended December 31, 2020 was
$844.1 million, an increase of $65.5 million, or 8.4%, as compared to service
revenue of $778.6 million for the year ended December 31, 2019. The
increase year over year in service revenue was primarily due to an increase in
university partner enrollments between years of 8.5% partially offset by a
decrease in revenue per student year over year. Partner enrollments totaled
115,997 at December 31, 2020 as compared to 106,861 at December 31, 2019.
Enrollments at GCU grew to 111,624 at December 31, 2020, an increase of 8.3%
over enrollments at December 31, 2019, while enrollments at our other university
partners were 4,373, an increase of 16.6% over enrollments at December 31, 2019.
The decrease in revenue per student is primarily due to the service revenue
impact of the lower room, board, fee and ancillary revenues at GCU caused by
COVID-19 (see - Impact of COVID-19 above). This was partially offset by the fact
that our services agreements with our other university partners generally
generate a higher revenue per student than our agreement with GCU. This higher
revenue is due to our service agreements with other partners generally provide
us with a higher revenue share percentage, the partners have higher tuition
rates than GCU and the majority of their students are studying in the
Accelerated Bachelor of Science in Nursing program so these students take more
credits on average per semester. In addition, we opened seven new off-campus
classroom and laboratory sites in the third quarter of 2020 bringing the total
number of these sites to 30 as compared to 23 at December 31, 2019. Last, we
generated slightly more revenues in 2020 as compared to the same period in 2019
due to the timing of the Acquisition on January 22, 2019, and due to 2020 being
a Leap Year and thus providing an extra day of revenue in 2020 as compared to
2019.

Technology and academic services. Our technology and academic services expenses
for the year ended December 31, 2020 were $116.0 million, an increase of $25.5
million, or 28.2%, as compared to technology and academic services expenses of
$90.5 million for the year ended December 31, 2019. This increase was primarily
due to increases in employee compensation and related expenses including
share-based compensation, in occupancy and depreciation including lease
expenses, and in other technology and academic supply costs of $19.7 million,
$5.0 million and $0.8 million, respectively. These increases, in turn, were
primarily due to increased headcount to support our 25 university partners, and
their increased enrollment growth, tenure-based salary adjustments, an increase
in benefit costs, the timing of the Acquisition and the increased number of
off-campus classroom and laboratory sites open between years. Our technology and
academic services expenses as a percentage of net revenue increased 2.1% to

13.7% for the year ended

                                       51

  Table of Contents

December 31, 2020, from 11.6% for the year ended December 31, 2019 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 and due to the revenue
impacts caused by COVID-19 as we incur limited operating expenses to deliver
those services. Additionally, for the year ended December 31, 2020 we incurred
costs related to the opening of seven off-campus classroom and laboratory sites
in the second half of 2020 and we are incurring costs for four more locations
that will open in the first half of 2021. GCE has 30 off-campus classroom and
laboratory sites open as of December 31, 2020 as compared to the 23 sites that
were open as of December 31, 2019.

Counseling services and support. Our counseling services and support expenses
for the year ended December 31, 2020 were $234.5 million, an increase of $10.9
million, or 4.9%, as compared to counseling services and support expenses of
$223.6 million for the year ended December 31, 2019. This increase was primarily
attributable to increases in employee compensation and related expenses
including share-based compensation and in depreciation, amortization and
occupancy costs of $18.0 million and $1.2 million, respectively, partially
offset by a decrease in other counseling services and support expenses of $8.3
million. The increases in employee compensation and related expenses were
primarily due to increased headcount to support our 25 university partners, and
their increased enrollment growth, tenure-based salary adjustments, and an
increase in benefit costs, while the increase in depreciation, amortization and
occupancy costs were primarily due to the timing of the Acquisition and the
increased number of off-campus classroom and laboratory sites open year over
year. The decrease in other counseling services and support expenses is
primarily the result of decreased travel costs to service our 25 university
partners. All non-essential travel ceased when the COVID-19 national emergency
was announced in mid-March and only a small amount of travel has occurred
subsequent to that date. Our counseling services and support expenses as
a percentage of net revenue decreased by 0.9% to 27.8% for the year ended
December 31, 2020, from 28.7% for the year ended December 31, 2019 primarily due
to the decrease in travel costs and our ability to leverage our other counseling
services and support expenses across an increasing revenue base, partially
offset by the revenue impacts caused by COVID-19 as we incur limited operating
expenses to deliver those services.

Marketing and communication. Our marketing and communication expenses for the
year ended December 31, 2020 were $164.3 million, an increase of $21.4 million,
or 15.0%, as compared to marketing and communication expenses of $142.9 million
for the year ended December 31, 2019. 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 $21.4 million and increased
employee compensation expenses and related expenses including share-based
compensation of $0.2 million, partially offset by a slight decrease in other
marketing supplies of $0.2 million. Our marketing and communication expenses as
a percentage of net revenue increased by 1.1% to 19.5% for the year ended
December 31, 2020, from 18.4% for the year ended December 31, 2019, primarily
due to the increase in the number of new university partners and increased
off-campus classroom and laboratory sites open between years and due to the
revenue impacts caused by COVID-19 as we incur limited operating expenses to
deliver those services.

General and administrative. Our general and administrative expenses for the year
ended December 31, 2020 were $43.4 million, a decrease of $0.9 million, or 2.2%,
as compared to general and administrative expenses of $44.3 million for the year
ended December 31, 2019. This decrease was primarily due to decreases in
professional fees of $1.8 million and in employee compensation and related
expenses including share-based compensation of $1.3 million, partially offset by
an increase in contributions in lieu of state income taxes to school sponsoring
organizations of $1.0 million from $4.0 million in 2019 to $5.0 million in 2020,
and increases in occupancy and depreciation of $0.8 million and in other general
and administrative expenses of $0.4 million. In 2019, our professional fees were
significantly higher due to a payment made to an outside provider that assisted
us in obtaining a state tax refund with a favorable impact of $5.9 million in
the first quarter of 2019. The decrease in employee compensation and related
expenses is primarily related to lower headcount at our office in Indiana as we
have transitioned a number of back office functions to Arizona. Our increase in
occupancy and depreciation are primarily related to the timing of the
Acquisition and the increased lease expense for our office in Indiana. Our
general and administrative expenses as a percentage of net revenue decreased by
0.6% to 5.1% for the year ended December 31, 2020, from 5.7% for the year ended
December 31, 2019 due to the lower professional fees and our ability to leverage
our other general and administrative expenses across an increasing revenue

                                       52

Table of Contents

base, partially offset by the revenue impacts caused by COVID-19 as we incur limited operating expenses to deliver those services.



Amortization of intangible assets. Amortization of intangible assets for the
year ended December 31, 2020 was $8.4 million, an increase of $0.2 million, as
compared to $8.2 million for the year ended December 31, 2019. This increase is
related to the timing of the Acquisition, which occurred on January 22, 2019. As
a result of the Acquisition, certain identifiable intangible assets were created
(primarily customer relationships) that will be amortized over their expected
lives.

Loss on transaction. The loss on transaction for the year ended December 31, 2019 was $4.0 million due to transaction costs related to the Acquisition.



Interest income on Secured Note. Interest income on the Secured Note for the
year ended December 31, 2020 was $59.2 million, a decrease of $0.1 million, or
0.2%, as compared to $59.3 million for the year ended December 31, 2019. GCE
recognizes interest income on its Secured Note with GCU including borrowings
made for capital expenditures, earning interest at 6%, with monthly interest
payments. The decrease over the prior year was primarily due to a decrease in
the average principal balance of the Secured Note between periods due to
repayments made by GCU under the Secured Note during the past 12 months.

Interest expense. Interest expense was $4.4 million for the year ended December
31, 2020, a decrease of $6.9 million, as compared to interest expense of $11.3
million for the year ended December 31, 2019. The decrease in interest expense
is primarily due to a decline in the average credit facility outstanding balance
between periods due to paydowns of the credit facility during the past 12 months
and a decrease in the average borrowing rate between years of approximately 163
basis points.

Investment interest and other. Investment interest and other for the year ended
December 31, 2020 was $0.9 million, a decrease of $3.5 million, as compared to
$4.4 million for the year ended December 31, 2019. This decrease was primarily
attributable to a decline in interest income on excess cash as the average
investment balance declined year over year and significantly lower interest
rates.

Income tax expense. Income tax expense for the year ended December 31, 2020 was
$75.9 million, an increase of $17.6 million, or 30.2%, as compared to income tax
expense of $58.3 million for the year ended December 31, 2019. This increase is
the result of an increase in our taxable income between periods, and an increase
in our effective tax rate. Our effective tax rate was 22.8% during the year
ended December 31, 2020 as compared to 18.4% during the year ended December 31,
2019. The 2019 effective tax rate was lower due to some large, one-time,
favorable discreet items. In 2019, an agreement was reached with the Arizona
Department of Revenue regarding previously filed refund claims related to income
tax obligations for prior calendar years, which resulted in a favorable tax
impact of $5.9 million recorded as a discrete tax item in the first quarter of
2019. In addition, the effective tax rate in 2019 was favorably impacted by a
law change with respect to Arizona state taxes and higher excess tax benefits of
$7.2 million compared to excess tax benefits of $1.4 million for the year ended
December 31, 2020. 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. Our restricted stock vests in
March each year so the favorable benefit will primarily impact the first quarter
each year.

Net income. Our net income for the year months ended December 31, 2020 was $257.2 million, a decrease of $2.0 million, or 0.8% as compared to $259.2 million for the year ended December 31, 2019, due to the factors discussed above.

Seasonality

Our net 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



                                       53

Table of Contents



enrollments, graduations, and student attrition. 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 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, Capital Resources, and Financial Position

Liquidity. Our unrestricted cash and cash equivalents and investments were $256.6 million and $143.9 million at December 31, 2020 and 2019, respectively. Our credit facility had an available line of credit of $150.0 million as of December 31, 2020.



During 2019, we financed our acquisition of Orbis Education for $361.2 million,
net of cash acquired, from an increase in our credit facility of $190.1 million
and the use of $171.1 million of operating cash on hand. Concurrent with the
closing of the Acquisition, we entered into an amended and restated credit
agreement dated January 22, 2019 and two related amendments dated January 31,
2019 and February 1, 2019, respectively, that together provided a credit
facility of $325.0 million comprised of a term loan facility of $243.8 million
and a revolving credit facility of $81.3 million, 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. The proceeds of the
term loan, together with $6.3 million drawn under the revolver and cash on hand,
were used to pay the purchase price in the Acquisition. Concurrent with the
entry into the amended and restated credit agreement and the completion of the
Acquisition, we repaid our existing term loan of $59.9 million and our cash
collateral of $61.7 million was released.

GCE entered into a further amendment to the credit facility on October 31, 2019.
This amendment increased the revolving commitment by $68.8 million to $150.0
million, while reducing the term loan by the same $68.8 million to $150.6
million. GCE elected to repay the $68.8 million revolver balance on November 1,
2019. The amended facility is subject to quarterly amortization of principal,
commencing with the fiscal quarter ended December 31, 2019, in equal quarterly
payments of $8.4 million with a maturity date of January 2025. Both the term
loan and revolver have monthly interest payments currently at 30-Day LIBOR plus
an applicable margin of 2%.

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 and our revolving line of credit, will provide adequate funds
for ongoing operations, planned capital expenditures, and working capital
requirements for at least the next 24 months.

Arrangements with GCU



In conjunction with the Asset Purchase Agreement with GCU, we received a Secured
Note as consideration for the transferred assets (the "Transferred Assets"). 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%, has a maturity date of June 30, 2025,
and is secured by all 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 December 31, 2020, GCE had loaned an additional $99,815
to GCU, net of repayments. We believe that GCU's cash flows from operations are
currently sufficient to fund all of its capital expenditures although it is
possible that GCU may make requests to borrow additional amounts from us for
short term cash flow needs.

                                       54

  Table of Contents

Share Repurchase Program

In July 2020, December 2020 and January 2021, our Board of Directors increased
the authorization under our existing stock repurchase program by $50.0 million,
$100.0 million and $100.0 million, respectively, reflecting an aggregate
authorization for share repurchases since the initiation of our program of
$500.0 million. As of December 31, 2020, we had a total remaining authorization
of $148.3 million (which authorization was increased to $248.3 million in
January 2021). Pursuant to this authorization, in our discretion, we can
repurchase our common stock, from time to time, in open market or in privately
negotiated transactions, depending on market conditions and other
considerations. The amount and timing of future share repurchases, if any, will
be made as market and business conditions warrant, and we may modify, suspend or
discontinue repurchases at any time. The current expiration date on the
repurchase authorization by our Board of Directors is December 31, 2021.

Since 2011, we have purchased 5.6 million shares of common stock at an aggregate
cost of $251.7 million, which includes 1,601,788 shares of common stock at an
aggregate cost of $129.0 million during the year ended December 31, 2020.

Cash Flows



Operating Activities. Net cash provided by operating activities for the years
ended December 31, 2020 and 2019 was $308.8 million and $306.3 million,
respectively. The slight increase in cash generated from operating activities
between the years ended December 31, 2019 and 2020 was primarily due to 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.

Investing Activities. Net cash used in investing activities was $19.4 million
and $405.9 million for the years ended December 31, 2020 and 2019, respectively.
Our cash used in investing activities in 2020 was primarily related to capital
expenditures of $29.4 million partially offset by proceeds from the sale of
investments of $10.6 million. Funding to GCU for the year ended December 31,
2020 net of repayments totaled nil. Our cash used in investing activities in
2019 was primarily related to the Acquisition, the funding of capital
expenditures to GCU, and the liquidation of short-term investments and capital
expenditures. We paid $361.2 million, net of cash acquired, to acquire Orbis
Education on January 22, 2019. Funding to GCU for capital expenditures during
the year ended December 31, 2019 totaled $69.8 million, net of repayments made
by GCU of $100.0 million in 2019. Proceeds from investments, net of purchases of
short-term investments, was $47.8 million for the year ended December 31, 2019.
Capital expenditures were $22.4 million for the year ended December 31, 2019.
During the years ended December 31, 2020 and 2019, capital expenditures
primarily consisted of leasehold improvements and equipment for new off-campus
classroom and laboratory sites, internally developed software, as well as
purchases of computer equipment, other internal use software projects and
furniture and equipment to support our increasing employee headcount. The
increase in capital expenditures year over year is due to the increase in
off-campus classrooms and laboratory sites between years. As of December 31,
2020, 30 off-campus classroom and laboratory sites were opened compared to 23 as
of December 31, 2019.

Financing Activities. Net cash used in financing activities was $166.3 million
for the year ended December 31, 2020. During 2020, $129.0 million was used to
purchase treasury stock in accordance with GCE's share repurchase program and
$5.0 million was used to purchase common shares withheld in lieu of income taxes
resulting from the vesting of restricted share awards. Principal payments on
notes payable totaled $33.1 million, partially offset by proceeds from the
exercise of stock options of $0.9 million. Net cash provided by financing
activities was $40.1 million for the year ended December 31, 2019. During 2019,
$243.8 million of proceeds was drawn on the term loan, and $26.3 million was
drawn and repaid on the revolver in 2019, and the term loan balance of the prior
credit agreement of $59.9 million was repaid along with the repayment of $101.3
million of principal and revolver payments on the new credit facility. In
addition, $2.4 million of debt issuance costs were incurred on the new credit
facility and $8.1 million was used to purchase common shares withheld in lieu of
income taxes resulting from the vesting of restricted share awards and $35.8
million was used to purchase treasury stock in accordance with GCE's share
repurchase program. Proceeds from the exercise of stock options of $3.8 million
were received for the year ended December 31, 2019.

                                       55

  Table of Contents

Contractual Obligations

The following table sets forth, as of December 31, 2020, the aggregate amounts of our significant contractual obligations and commitments with definitive payment terms due in each of the periods presented (in millions):

Payments Due by Period


                                                        Less than                                    More than
                                             Total       1 Year        2-3 Years      4-5 Years       5 Years
Notes payable(1)                            $ 107.8    $      33.1    $      66.3    $       8.4    $         -
Lease liabilities(2)                           64.0            7.4           14.3           13.3           29.0
Purchase obligations(3)                        18.0            7.4           10.6              -              -
Total contractual obligations               $ 189.8    $      47.9    $      91.2    $      21.7    $      29.0

See Note 10, "Notes Payable and Other Noncurrent Liabilities," to our

(1) consolidated financial statements, included in Item 8, Consolidated Financial

Statements and Supplementary Data, for a discussion of our notes payable and

other obligations.

See Note 9, "Leases," to our consolidated financial statements, included in

(2) Item 8, Consolidated Financial Statements and Supplementary Data, for a

discussion of our leases.

(3) Represents unconditional purchase obligations and other obligations.

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) loss on transaction; (iii) share-based compensation, and
(iv) 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, and our credit agreement requires us to comply with
covenants that include performance metrics substantially similar to 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

                                       56

  Table of Contents


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 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:


                                                           Year Ended December 31,
                                                            2020           2019
Net income                                               $   257,196    $  259,175
Plus: interest expense                                         4,402        11,311
Less: interest income on Secured Note                       (59,190)

(59,297)


Less: investment interest and other                            (915)

(4,385)


Plus: income tax expense                                      75,944

58,327


Plus: amortization of intangible assets                        8,419

8,223


Plus: depreciation and amortization                           21,233

18,696


EBITDA                                                       307,089

292,050


Plus: contributions in lieu of state income taxes(a)           5,000

4,003


Plus: loss on transaction(b)                                       -

3,966


Plus: share-based compensation(c)                             10,663

10,300

Plus: estimated litigation and regulatory reserves(d) 1,078 


 1,023
Adjusted EBITDA                                          $   323,830    $  311,342

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 22.8% and

(a) 18.4% for the years ended December 31, 2020 and 2019, respectively. Had these

contributions not been made, our effective tax rate would have been 23.9% and

19.3% for 2020 and 2019, 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) Represents costs incurred related to the Acquisition, including legal and

other third-party costs.

(c) Reflects share-based compensation expense related to GCE employees.

Reflects primarily regulatory litigation as GCE retained responsibility for

(d) all liabilities of GCU arising prior to the closing date of the Transaction.

See Note 2 - The Transaction in our consolidated financial statements for a


     full description of the Transaction.


                                       57

  Table of Contents

Recent Accounting Pronouncements

See Note 4 - Summary of Significant Accounting Policies, in Item 8, Consolidated Financial Statements and Supplementary Data.

© Edgar Online, source Glimpses