Grand Canyon Education Tops Expectations

Grand Canyon Education (LOPE -0.81%), an educational services provider, released its results for the fourth quarter on Feb. 19. Both earnings and revenues exceeded analysts' expectations. The company reported adjusted earnings per share (EPS) of $2.95, narrowly topping the projected $2.94. It also recorded revenue of $292.6 million, surpassing the forecasted $289 million. Overall, the quarter's results were favorable, though there were aspects, such as slight declines in traditional enrollments at its partner institutions, that warrant attention.MetricQ4 2024Q4 2024 Analysts' EstimateQ4 2023% ChangeAdjusted EPS$2.95$2.94$2.776.5%Revenue$292.6 million$289.0 million$278.3 million5.1%Net income$81.9 millionN/A$80.7 million1.4%Operating margin34.2%N/A35.1%(90 basis points)Source: Analysts' estimates provided by FactSet. Overview of Grand Canyon EducationGrand Canyon Education provides crucial educational support services to institutions, primarily focusing on online and campus-based programs. Its main partnership is with Grand Canyon University (GCU), a private for-profit Christian institution with more than 98,000 online students in addition to its on-campus students. That institution accounts for the large majority of Grand Canyon Education's partner enrollment. GCE's recent strategic focus has been on boosting technological investments and scalability to enhance service offerings and establish a competitive edge. Maintaining the efficiency of these services while exploring new university partnerships remains critical for its sustainable growth.Given the regulatory environment impacting higher education, GCE has prioritized technological investments. Expanding its off-campus sites to 45 has increased its reach and scale as it strives to balance growth with managing its relationship with Grand Canyon University.Quarterly HighlightsDuring the fourth quarter, revenue topped expectations, driven by a combination of increased enrollments and higher revenue per student. Net income totaled $81.9 million compared to $80.7 million in the prior-year period. The total revenue per semester benefited from early semester starts and higher tuition rates for accelerated bachelor of science in nursing programs.Operating margins, however, decreased to 34.2% due to impairment and other charges. Nonetheless, investments in technology consistently improved online enrollments, which grew by 7.1%, offsetting some declines in traditional enrollment at GCU, where the number of on-campus students dipped to 24,552 from 25,209. Additionally, technology and off-campus program enhancements positively influenced enrollment figures.Outlook and GuidanceGrand Canyon Education has projected that its quarterly service revenues for the first quarter will range between $286.5 million and $287.5 million, with an operating margin expectation between 30% and 30.2%. This guidance indicates a more measured year-over-year growth trajectory compared to previous quarters.For 2025, the company forecasts service revenue between $1.075 billion and $1.097 billion, showcasing optimism about continued demand growth for its services. GCE's strategy revolves around enhancing its digital education offerings and diversifying its partnerships to mitigate its dependence on Grand Canyon University.