The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes that appear elsewhere in this report.

Forward-Looking Statements



This Quarterly Report on Form 10-Q, including Item 2, Management's Discussion
and Analysis of Financial Condition and Results of Operations, contains certain
"forward-looking statements" within the meaning of Section 27A of Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). These forward-looking statements include, without
limitation, statements regarding: proposed new programs; whether regulatory
developments or other matters may or may not have a material adverse effect on
our financial position, results of operations, or liquidity; projections,
predictions, expectations, estimates, or forecasts as to our business, financial
and operational results, and future economic performance; and management's goals
and objectives and other similar expressions concerning matters that are not
historical facts. Words such as "may," "should," "could," "would," "predicts,"
"potential," "continue," "expects," "anticipates," "future," "intends," "plans,"
"believes," "estimates" and similar expressions, the negative of these
expressions, as well as statements in future tense, identify forward-looking
statements.

Forward-looking statements should not be read as a guarantee of future
performance or results, and will not necessarily be accurate indications of the
times at, or by, which such performance or results will be achieved.
Forward-looking statements are based on information available at the time those
statements are made or management's good faith belief as of that time with
respect to future events, and are subject to risks and uncertainties that could
cause actual performance or results to differ materially from those expressed in
or suggested by the forward-looking statements. Important factors that could
cause such differences include, but are not limited to:

the harm to our business, results of operations, and financial condition, and

? harm to our most significant university partner in connection with the COVID-19

outbreak;

? the occurrence of any event change or other circumstance that could give rise

to the termination of any of the key university partner agreements;

our ability to properly manage risks and challenges associated with strategic

initiatives, including potential acquisitions or divestitures of, or

? investments in, new businesses, acquisitions of new properties and new

university partners, and expansion of services provided to our existing

university partners;

our failure to comply with the extensive regulatory framework applicable to us

either directly as a third-party service provider or indirectly through our

? university partners, including Title IV of the Higher Education Act and the

regulations thereunder, state laws and regulatory requirements, and accrediting

commission requirements;

? the ability of our university partners' students to obtain federal Title IV

funds, state financial aid, and private financing;

potential damage to our reputation or other adverse effects as a result of

? negative publicity in the media, in the industry or in connection with

governmental reports or investigations or otherwise, affecting us or other

companies in the education services sector;

risks associated with changes in applicable federal and state laws and

? regulations and accrediting commission standards, including pending rulemaking


   by the Department of Education applicable to us directly or indirectly through
   our university client;


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competition from other education service companies in our geographic region and

? market sector, including competition for students, qualified executives and

other personnel;

? our expected tax payments and tax rate, including the effect of the Tax Cuts

and Jobs Act of 2017;

? our ability to hire and train new, and develop and train existing, employees;

? the pace of growth of our university partners' enrollment and its effect on the

pace of our own growth;

? fluctuations in our revenues due to seasonality;

? our ability to, on behalf of our university partners, convert prospective

students to enrolled students and to retain active students to graduation;

our success in updating and expanding the content of existing programs and

? developing new programs in a cost-effective manner or on a timely basis for our

university partners;

? risks associated with the competitive environment for marketing the programs of

our university partners;

? failure on our part to keep up with advances in technology that could enhance

the experience for our university partners' students;

the extent to which obligations under our credit agreement, including the need

? to comply with restrictive and financial covenants and to pay principal and

interest payments, limits our ability to conduct our operations or seek new

business opportunities;

? our ability to manage future growth effectively;

? the impact of any natural disasters or public health emergencies; and

? general adverse economic conditions or other developments that affect the job

prospects of our university partners' students.




Additional factors that could cause actual results to differ from those
discussed in the forward-looking statements include, but are not limited to,
those described in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and in "Risk Factors" in Part I, Item 1A of
our Annual Report on Form 10-K (the "2019 Form 10-K") for the fiscal year ended
December 31, 2019, as updated in our subsequent reports filed with the
Securities and Exchange Commission ("SEC"), including any updates found in
Part II, Item 1A of this Quarterly Report on Form 10-Q or our other reports on
Form 10-Q. You should not put undue reliance on any forward-looking statements.
Forward-looking statements speak only as of the date the statements are made and
we assume no obligation to update forward-looking statements to reflect actual
results, changes in assumptions, or changes in other factors affecting
forward-looking information, except to the extent required by applicable
securities laws. If we do update one or more forward-looking statements, no
inference should be drawn that we will make additional updates with respect to
those or other forward-looking statements.

Explanatory Note



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.

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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 2 - Acquisition to
consolidated financial statements for a full description of the Acquisition.
Orbis Education works in partnership with a growing number of top universities
and healthcare networks across the country to develop high-quality, career-ready
graduates who enter the workforce and ease healthcare industry demands. Orbis
Education offers four primary academic programs with site simulation and skill
labs located near healthcare providers. Therefore, the results of operations for
the six months ended June 30, 2019 include Orbis Education's financial results
for the period from January 22, 2019 to June 30, 2019.

SIGNIFICANT DEVELOPMENTS

Impact of COVID-19


In March 2020, the World Health Organization declared the novel coronavirus
outbreak ("COVID-19") 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 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.



The Company has a long-term master services agreement pursuant to which the
Company provides education services to its most significant university partner,
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 attending class on its campus in Phoenix, Arizona and
of which approximately 70% live on campus in university owned residence halls,
professional studies students who are working adult students that attend class
one night a week on the Phoenix campus, and online students that attend class
fully online.




This outbreak, as well as measures taken to contain the spread of COVID-19, 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. Given the Company'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 thus far 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. In addition, the following
impacts from the COVID-19 pandemic have served to reduce GCU's non-tuition
revenue during its Spring and Summer semesters and, consequently, the service
revenues we earn under the master services agreement:

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

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

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


   the Company 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, which reduced and will continue to reduce GCU's

revenues and thus the service revenues earned by the Company until these


   businesses are reopened;

? Summer semester classes were moved to an online environment and limited

residential students remained on campus during the Summer semester;

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 that


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were scheduled for the last week of March through the end of July were cancelled

and it is likely that most of the residencies through the end of the calendar


  year will also be cancelled.




On July 17, 2020, GCU announced its plans for the traditional campus Fall
semester. Those plans include moving back the start of instruction for the Fall
semester from August 24, 2020 to September 7, 2020, beginning the semester with
online instruction for all students, providing for residential students to move
in during the week of September 21, 2020, beginning face-to-face instruction on
September 28, 2020, eliminating some holiday breaks, and adding an additional
week of instruction in December. The change in the start date for GCU's ground
traditional students will have the effect of moving tuition revenue for all GCU
traditional students, and certain ancillary revenue for residential students,
from the 3rd quarter of 2020 to the 4th quarter of 2020, and the change in the
move-in date for GCU's residential students will reduce Fall semester room and
board revenue for the university by three weeks.



Although the complete financial impact of COVID-19 on GCU's Fall semester
enrollment will not be known until it begins the Fall semester, it is currently
anticipated that GCU's ground traditional enrollment will be higher than
initially anticipated but that the number of students living on campus in the
Fall semester will be less as a significant number of students have informed the
university that they plan to take all of their Fall semester courses online and
remain at home given COVID-19 health concerns. The changes described above at
GCU will impact the Company's service revenue under its Master Services
Agreement with GCU.



The Company also has long-term services agreements with numerous university
partners across the United States through its wholly owned subsidiary, Orbis
Education. Orbis Education offers four primary academic programs with site
simulation and skill labs located near healthcare providers. The majority of
Orbis Education 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 semester was completed without
interruption and each university partner is in its Summer semester. Some
students who were scheduled to start their program in the Summer semester
delayed their start until the Fall semester which resulted in slightly lower
enrollments and revenues in the Summer semester.



Although the complete financial impact of COVID-19 on our other university
partners' Fall semester enrollment will not be known until they begin the Fall
semester, it is currently anticipated that all university partners will begin
their Fall semesters on schedule and that new student starts in the Fall
semester will meet or exceed our initial estimates. However, we expect total
Fall enrollment to be less than initially anticipated; while additional students
would like to start the program in the Fall semester, in most cases the
university partner or hospital partner are not comfortable increasing the Fall
cohort size to make up for the students that deferred their start from the
Summer semester to the Fall semester primarily due to concerns around the
availability of clinical rotations.



As a result of the items mentioned above, we expect lower service revenue for
the third quarter of 2020 under both the Master Services Agreement with GCU and
under the Orbis Education's services agreements with our other university
partners. In addition, due to the limited operating expenses that we incur to
deliver those services, we expect there to be a direct reduction in our
operating profit and operating margins.



The COVID-19 outbreak also presents operational challenges to the Company as
approximately 90% of our entire 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, which could 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. If GCU is not able to fully open its campus to
its traditional residential students for the Fall academic semester, now
commencing in late September 2020, that will have a material impact on GCU's
revenue and thus the service revenue earned by the Company. Any decision by a
number of the Orbis Education's university partners to cancel or postpone the
Fall semester would also have a material impact on the service revenue earned by
the Company.



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We estimate that the shift in net revenue from the third quarter to the fourth
quarter as a result of the shift in the start date of the GCU Fall semester is
$9.9 million lower revenue in the third quarter and $9.9 million higher revenue
in the fourth quarter. We estimate that the potential reduction in net revenue
attributable to COVID-19, even assuming that all of our university partners
including GCU starts and completes their Fall semesters as planned, will be
approximately $20 million in the second half of 2020, $13.1 million in the third
quarter and $6.9 million in the fourth quarter with a comparable reduction in
operating profit during each period.

Critical Accounting Policies and Use of Estimates



Our critical accounting policies are disclosed in the 2019 Form 10-K for the
fiscal year ended December 31, 2019. During the six months ended June 30, 2020,
there have been no significant changes in our critical accounting policies.

Results of Operations



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:


                                      Three Months Ended           Six Months Ended
                                          June 30,                    June 30,
                                      2020          2019          2020         2019
Costs and expenses

Technology and academic services        14.6 %        12.9 %        13.1 %       11.1 %
Counseling services and support         31.0          31.1          28.9   

     28.9
Marketing and communication             22.1          20.4          20.6         19.3
General and administrative               5.1           5.3           4.7          5.5

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019



Service revenue. Our service revenue for the three months ended June 30, 2020
was $185.8 million, an increase of $11.0 million, or 6.3%, as compared to
service revenue of $174.8 million for the three months ended June 30, 2019. The
increase year over year in service revenue was primarily due to an increase in
university partner enrollments between years of 8.2% partially offset by a
decrease in revenue per student year over year. Partner enrollments in programs
serviced by Orbis Education at June 30, 2020 were 3,720, an increase of 12.2%
over 3,316 enrollments at June 30, 2019, while enrollments at GCU grew to
94,606, an increase of 8.0%. The decrease in revenue per student is primarily
due to the reduced Spring and Summer semester ancillary revenues at GCU
resulting from COVID-19 and the fact that there were two less revenue producing
days for GCU's ground campus Spring semester in the second quarter of 2020 as
compared to the second quarter of 2019 partially offset by the following factors
(described below) that have historically produced an increase in revenue per
student year over year. The partnership agreements that were acquired as part of
the Orbis Education acquisition generally generate a higher revenue per student
than our agreement with GCU as these agreements generally have a higher
percentage of service revenue, the partners have higher tuition rates than GCU
and the majority of these students are studying in the Accelerated Bachelor of
Science in Nursing program so these students take on average more credits per
semester. In addition, Orbis Education had five more locations opened in the
second quarter of 2020 than it did in the prior year period, resulting in a
24.2% year over year increase in Orbis Education revenues.

Technology and academic services. Our technology and academic services expenses
for the three months ended June 30, 2020 were $27.2 million, an increase of $4.7
million, or 20.5%, as compared to technology and academic services expenses of
$22.5 million for the three months ended June 30, 2019. These increases were
primarily due to increases in employee compensation and related expenses
including share-based compensation, and in occupancy and depreciation including
lease expenses of $3.9 million and $1.0 million, respectively, partially offset
by a slight decrease in technology and academic supply costs of $0.2 million.
These increases were primarily due to increased headcount to support our 24
university partners, and their increased enrollment growth, tenure-based salary
adjustments, an increase

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in benefit costs, and the increased number of Orbis Education site location
openings year over year. Our technology and academic services expenses as
a percentage of net revenue increased 1.7% to 14.6% for the three months ended
June 30, 2020, from 12.9% for the three months ended June 30, 2019 primarily due
to the Orbis Education university partnership agreements requiring a higher
level of technology and academic services than our agreement with GCU and due to
the reduced Spring and Summer semester ancillary revenues at GCU resulting from
COVID-19. Additionally, Orbis Education is incurring costs related to the
planned opening of seven new locations in Fall 2020 and four more in the Spring
of 2021 as compared to the five locations that were opened in the same period in
the prior year.

Counseling services and support. Our counseling services and support expenses
for the three months ended June 30, 2020 were $57.6 million, an increase of $3.3
million, or 6.1%, as compared to counseling services and support expenses of
$54.3 million for the three months ended June 30, 2019. These increases were
primarily attributable to increases in employee compensation and related
expenses including share-based compensation, and in depreciation, amortization
and occupancy costs of $5.1 million and $0.4 million, respectively, partially
offset by a decrease in other counseling services and support expenses of $2.2
million. The increases in employee compensation and related expenses were
primarily due to increased headcount to support our 24 university partners, and
their increased enrollment growth, tenure-based salary adjustments, an increase
in benefit costs, and the increased number of Orbis Education site location
openings year over year. The decrease in other counseling services and support
expenses is primarily the result of decreased travel costs to service our 24
university partners. All non-essential travel ceased when the COVID-19 national
emergency was announced in mid-March. Our counseling services and support
expenses as a percentage of net revenue decreased 0.1% to 31.0% for the
three months ended June 30, 2020, from 31.1% for the three months ended June 30,
2019 primarily due to our ability to leverage our other counseling services and
support expenses across an increasing revenue base partially offset by the
reduced Spring and Summer semester ancillary revenues at GCU resulting from
COVID-19.

Marketing and communication. Our marketing and communication expenses for the
three months ended June 30, 2020 were $41.1 million, an increase of $5.4
million, or 15.1%, as compared to marketing and communication expenses of $35.7
million for the three months ended June 30, 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 locations which
resulted in increased advertising of $5.4 million. Our marketing and
communication expenses as a percentage of net revenue increased by 1.7% to 22.1%
for the three months ended June 30, 2020, from 20.4% for the three months ended
June 30, 2019, primarily due to the increase in the number of new university
partners and locations opening in the Fall of 2020 and Spring of 2021 as
compared to the same period in the prior year and due to the reduced Spring and
Summer semester ancillary revenues at GCU resulting from COVID-19.

General and administrative. Our general and administrative expenses for the
three months ended June 30, 2020 were $9.5 million, an increase of $0.3 million,
or 3.1%, as compared to general and administrative expenses of $9.2 million for
the three months ended June 30, 2019. This increase was primarily due to
increases in occupancy and depreciation of $0.3 million and an increase in
professional fees of $0.2 million, partially offset by a decrease in other
general and administrative expenses of $0.2 million. Our increases in occupancy
and depreciation are primarily related to the expansion of office space at our
Orbis Education headquarters in Indianapolis, Indiana. Our general and
administrative expenses as a percentage of net revenue decreased by 0.2% to 5.1%
for the three months ended June 30, 2020, from 5.3% for the three months ended
June 30, 2019 due to our ability to leverage our other general and
administrative expenses across an increasing revenue base partially offset by
the reduced Spring and Summer semester ancillary revenues at GCU resulting from
COVID-19.

Amortization of intangible assets. Amortization of intangible assets for the
three months ended June 30, 2020 was $2.1 million a decrease of $0.1 million as
compared to amortization of intangible assets for the three months ended June
30, 2019 of $2.2 million. As a result of the Orbis Education acquisition,
certain identifiable intangible assets were created (primarily customer
relationships) that will be amortized over their expected lives.

Loss on transaction. $0.1 million of transaction expenses were reversed in the three months ended June 30, 2019 related to the GCU transaction.



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Interest income on Secured Note. Interest income on the secured note from GCU in
the initial principal amount of $870.1 million (the "Secured Note") for the
three months ended June 30, 2020 was $14.7 million, an increase of $0.2 million,
or 1.7%, as compared to $14.5 million for the three months ended June 30, 2019.
The Secured Note bears interest at 6% annually, and GCU makes monthly interest
payments. The increase over the prior year was primarily due to an increase in
the average principal balance of the Secured Note between periods due to net
capital expenditure loans made to GCU under the Secured Note during the past
twelve months.

Interest expense. Interest expense was $1.1 million for the three months ended
June 30, 2020, a decrease of $1.8 million, as compared to interest expense of
$2.9 million for the three months ended June 30, 2019. The decrease in interest
expense was primarily due to a decline in the average credit facility
outstanding balance between periods due to the paydown of the credit facility
during the past twelve months and an interest rate reduction of approximately
150 basis points since the end of 2019.

Investment interest and other. Investment interest and other for the
three months ended June 30, 2020 was $0.4 million, a decrease of $2.3 million,
as compared to $2.7 million in the three months ended June 30, 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 lower
interest rates.

Income tax expense. Income tax expense for the three months ended June 30, 2020
was $15.3 million, an increase of $1.2 million, or 8.6%, as compared to income
tax expense of $14.1 million for the three months ended June 30, 2019. This
increase was the result of an increase in our effective tax rate between
periods, partially offset by a decrease in taxable income. Our effective tax
rate was 24.6% during the second quarter of 2020 compared to 21.7% during the
second quarter of 2019. In the second quarter of 2020, the effective tax rate
was impacted by higher state taxes and lower excess tax benefits of nil in the
second quarter of 2020 as compared to $2.2 million in the same period in 2019
due to a lower stock price and lower stock option exercises in the second
quarter of 2020. The inclusion of excess tax benefits and deficiencies as a
component of our income tax expense will increase 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 three months ended June 30, 2020 was $47.0
million, a decrease of $4.1 million, or 8.0%, as compared to $51.1 million for
the three months ended June 30, 2019, due to the factors discussed above.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019


Service revenue. Our service revenue for the six months ended June 30, 2020 was
$407.4 million, an increase of $35.3 million, or 9.5%, as compared to service
revenue of $372.1 million for the six months ended June 30, 2019. The
increase year over year in service revenue was primarily due to an increase in
university partner enrollments between years of 8.2% and an increase in revenue
per student year over year. Partner enrollments in programs serviced by Orbis
Education at June 30, 2020 were 3,720, an increase of 12.2% over 3,316
enrollments at June 30, 2019, while enrollments at GCU grew to 94,606, an
increase of 8.0%. The increase in revenue per student is primarily due to the
following factors (described below). The partnership agreements that were
acquired as part of the Orbis Education acquisition generally generate a higher
revenue per student than our agreement with GCU as these agreements generally
have a higher percentage of service revenue, the partners have higher tuition
rates than GCU and the majority of these students are studying in the
Accelerated Bachelor of Science in Nursing program so these students take on
average more credits per semester. Also, we generated slightly more Spring
semester revenues in the first half of 2020 as compared to the first half of
2019 due to the timing of the Orbis Education acquisition on January 22, 2019,
due to 2020 being a Leap Year and thus providing an extra day of revenue in 2020
as compared to 2019, and because our most significant university partner, GCU,
had residential student enrollment growth year over year of 10.0% and
residential students generate higher revenue per student than other GCU students
due to ancillary revenues such as room and board. In addition, Orbis Education
had five more locations opened in the second quarter of 2020 than it did in

the
prior year

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period, resulting in a 37.6% year over year increase in Orbis Education revenues. This was partially offset by reduced Spring and Summer semester ancillary revenues at GCU resulting from COVID-19.



Technology and academic services. Our technology and academic services expenses
for the six months ended June 30, 2020 were $53.4 million, an increase of $12.2
million, or 29.8%, as compared to technology and academic services expenses of
$41.2 million for the six months ended June 30, 2019. These increases were
primarily due to increases in employee compensation and related expenses
including share-based compensation and in occupancy and depreciation including
lease expenses of $10.1 million and $2.2 million, respectively, partially offset
by a slight decrease of $0.1 million in other technology and academic supply
costs. These increases were primarily due to increased headcount to support our
24 university partners, and their increased enrollment growth, tenure-based
salary adjustments, an increase in benefit costs, the timing of the Orbis
Education acquisition and the increased number of sites between years. Our
technology and academic services expenses as a percentage of net revenue
increased 2.0% to 13.1% for the six months ended June 30, 2020, from 11.1% for
the six months ended June 30, 2019 primarily due to the Orbis Education
university partnership agreements requiring a higher level of technology and
academic services than our agreement with GCU and due to the reduced Spring and
Summer semester ancillary revenues at GCU resulting from COVID-19. Additionally,
Orbis Education is incurring costs related to the planned opening of seven new
locations in Fall 2020 and four more in the Spring of 2021 as compared to the
five locations that were opened in the same period in the prior year.

Counseling services and support. Our counseling services and support expenses
for the six months ended June 30, 2020 were $117.8 million, an increase of $10.4
million, or 9.7%, as compared to counseling services and support expenses of
$107.4 million for the six months ended June 30, 2019. These increases were
primarily attributable to increases in employee compensation and related
expenses including share-based compensation and in depreciation, amortization
and occupancy costs of $12.3 million and $0.7 million, respectively, partially
offset by a decrease in other counseling services and support expenses of $2.6
million. The increases in employee compensation and related expenses were
primarily due to increased headcount to support our 24 university partners, and
their increased enrollment growth, tenure-based salary adjustments, an increase
in benefit costs, the timing of the Orbis Education acquisition and the
increased number of Orbis Education site location openings year over year. The
decrease in other counseling services and support expenses is primarily the
result of decreased travel costs to service our 24 university partners. All
non-essential travel ceased when the COVID-19 national emergency was announced
in mid-March. Our counseling services and support expenses as a percentage of
net revenue stayed flat at 28.9% for both the six months ended June 30, 2020 and
2019 primarily due to our ability to leverage our other counseling services and
support expenses across an increasing revenue base partially offset by the
reduced Spring and Summer semester ancillary revenues at GCU resulting from
COVID-19.

Marketing and communication. Our marketing and communication expenses for the
six months ended June 30, 2020 were $83.8 million, an increase of $12.1 million,
or 16.9%, as compared to marketing and communication expenses of $71.7 million
for the six months ended June 30, 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 locations which resulted in
increased advertising of $12.0 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
$0.1 million. Our marketing and communication expenses as a percentage of net
revenue increased by 1.3% to 20.6% for the six months ended June 30, 2020, from
19.3% for the six months ended June 30, 2019, primarily due to the increase in
the number of new university partners and locations opening between years and
due to the reduced Spring and Summer semester ancillary revenues at GCU
resulting from COVID-19.

General and administrative. Our general and administrative expenses for the
six months ended June 30, 2020 were $19.1 million, a decrease of $1.5 million,
or 7.5%, as compared to general and administrative expenses of $20.6 million for
the six months ended June 30, 2019. This decrease was primarily due to decreases
in professional fees of $1.8 million and other general and administrative
expenses of $0.3 million, partially offset by an increase in occupancy and
depreciation of $0.5 million and in employee compensation of $0.1 million. In
the first half of 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. Our
increases in occupancy and depreciation are primarily related to the timing of
the acquisition resulting in higher costs such as the office space at our Orbis

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Education headquarters in Indianapolis, Indiana. Our general and administrative
expenses as a percentage of net revenue decreased by 0.8% to 4.7% for the
six months ended June 30, 2020, from 5.5% for the six months ended June 30, 2019
due to lower professional fees and our ability to leverage our other general and
administrative expenses across an increasing revenue base.

Amortization of intangible assets. Amortization of intangible assets for the
six months ended June 30, 2020 was $4.2 million, an increase of $0.3 million or
8.9% as compared to $3.9 million for the six months ended June 30, 2019. This
increase is related to the timing of the Acquisition date of Orbis Education,
which occurred on January 22, 2019. As a result of the Orbis Education
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 six months ended June 30,
2019 was $4.0 million due to transaction costs related to the Acquisition of
Orbis Education.

Interest income on Secured Note. Interest income on the secured note from GCU in
the initial principal amount of $870.1 million (the "Secured Note") for the
six months ended June 30, 2020 was $29.4 million, an increase of $1.2 million,
or 4.3%, as compared to $28.2 million for the six months ended June 30, 2019.
The Secured Note bears interest at 6% annually, and GCU makes monthly interest
payments. The increase over the prior year was primarily due to an increase in
the average principal balance of the Secured Note between periods due to net
capital expenditure loans made to GCU under the Secured Note during the past
twelve months.

Interest expense. Interest expense was $2.6 million for the six months ended
June 30, 2020, a decrease of $2.9 million, as compared to interest expense of
$5.5 million for the six months ended June 30, 2019. The decrease in interest
expense was primarily due to a decline in the average credit facility
outstanding balance between periods due to the paydown of the credit facility
during the past twelve months and an interest rate reduction of approximately
150 basis points since the end of 2019.

Investment interest and other. Investment interest and other for the six months
ended June 30, 2020 was $0.6 million, a decrease of $3.2 million, as compared to
$3.8 million in the six months ended June 30, 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 lower interest rates.

Income tax expense. Income tax expense for the six months ended June 30, 2020
was $38.1 million, an increase of $12.5 million, or 49.1%, as compared to income
tax expense of $25.6 million for the six months ended June 30, 2019. This
increase was the result of an increase in our effective tax rate, and an
increase in our taxable income between periods. Our effective tax rate was 24.4%
during the six months ended June 30, 2020 compared to 17.1% during the six
months ended June 30, 2019. The lower effective tax rate in 2019 resulted from
an agreement 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 the second quarter of 2020, the effective
tax rate was impacted by higher state income taxes and lower excess tax benefits
of $0.6 million in the first six months of 2020 as compared to $6.8 million in
the same period in 2019. The lower excess tax benefits is primarily due to a
decrease in our stock price between years and lower stock option exercises. The
inclusion of excess tax benefits and deficiencies as a component of our income
tax expense will increase 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 six months ended June 30, 2020 was $118.4
million, a decrease of $6.0 million, or 4.8%, as compared to $124.4 million for
the six months ended June 30, 2019, due to the factors discussed above.

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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
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 university 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 service revenue, resulting in higher
operating income in the first and fourth quarters relative to other quarters. We
expect quarterly fluctuation in operating results to continue as a result of
these seasonal patterns.

Liquidity and Capital Resources

Liquidity. Our unrestricted cash and cash equivalents and investments were $187.2 million at June 30, 2020. Our credit facility had an available line of credit of $150.0 million as of June 30, 2020.


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") 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, 2020, the Company had loaned an additional
$169,815 to GCU, net of repayments. The additional amount loaned includes the
$75.0 million borrowed by GCU in June 2020. In practice, GCU pays for the
service fees and its interest due on the secured note receivable for the month
in arrears. However, at the same time as the additional borrowing of $75.0
million, GCU paid its June 2020 estimated service fee and interest due on the
secured note receivable of $50.0 million and $4.8 million, respectively, at the
end of June 2020 thereby reducing the accounts receivable, net and interest
receivable on secured note on our consolidated balance sheet at June 30, 2020.
GCU believes that its cash flows from operations are currently sufficient to
fund all of its capital expenditures although it is possible that it will
continue to borrow for short term cash flow needs. The $75.0 million that was
borrowed in June 2020 was repaid in July 2020 and GCU has returned to its
practice of paying the service fee and interest due on the secured note
receivable for the month in arrears. GCU paid the June 2019 estimated service
fee and interest due on the secured note receivable at the end of June 2019 so
the impact on cash flows for the change in accounts receivable and interest
receivable from university partners during the six months ended June 30, 2020 in
comparison to the six months ended June 30, 2019 was not material.

Share Repurchase Program


In July 2020, our Board of Directors increased the authorization under its
existing stock repurchase program by $50.0 million to a total of $300.0 million
of our common stock we can repurchase, from time to time, depending on market
conditions and other considerations. The current expiration date on the
repurchase authorization by our Board of

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Directors is December 31, 2021. Repurchases occur at the Company's discretion
and the Company may modify, suspend or discontinue the repurchase authorization
at any time.

Under our share repurchase authorization, we may purchase shares in the open
market or in privately negotiated transactions, pursuant to the applicable
Securities and Exchange Commission rules. The amount and timing of future share
repurchases, if any, will be made as market and business conditions warrant.

During the three months ended June 30, 2020, 111,100 shares of common stock were
repurchased by the Company. At June 30, 2020, there remains $58.3 million
available under our share repurchase authorization, prior to the increase made
in July.



Cash Flows


Operating Activities. Net cash provided by operating activities for the six
months ended June 30, 2020 was $221.1 million as compared to $189.3 million for
the six months ended June 30, 2019. The increase in cash generated from
operating activities between the six months ended June 30, 2019 and the
six months ended June 30, 2020 was primarily due to changes in other working
capital balances partially offset by the decrease in net income between periods.
We define working capital as the assets and liabilities, other than cash,
generated through the Company's primary operating activities. Changes in these
balances are included in the changes in assets and liabilities presented in the
consolidated statement of cash flows. Our income taxes payable balances
increased $41.0 million between periods, primarily due to the Treasury
Department extending the due date of certain estimated tax payments due to
COVID-19 from April 15, 2020 to July 15, 2020.

Investing Activities. Net cash used in investing activities was $80.6 million
and $485.8 million for the six months ended June 30, 2020 and 2019,
respectively. The net cash used in investing activities in the six months ended
June 30, 2020 was capital expenditures of $12.2 million, partially offset by
proceeds from the sale of investments of $6.8 million. Funding to GCU during the
first six months of 2020 totaled $75.0 million. During the six months ended June
30, 2019, we paid $361.2 million, net of cash acquired, to acquire Orbis
Education on January 22, 2019. Funding to GCU during the first six months of
2019 totaled $169.8 million. Proceeds from investments, net of purchases of
short-term investments, was $55.1 million for the six months ended June 30,
2019. Capital expenditures were $9.7 million for the six months ended June 30,
2019. During the six-month period for 2020 and 2019, capital expenditures
primarily consisted of leasehold improvements and equipment for new university
partner locations, 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 between periods is
primarily due to the increase in the number of Orbis Education location
openings. Orbis Education invests approximately $1.5 million in leasehold
improvements and equipment for each location. Orbis Education plans to open
seven new locations in the Fall of 2020 and another four new locations in the
Spring of 2021 as compared to the five locations it opened in the Fall of 2019
and no new locations opened in the Spring of 2020.

Financing Activities. Net cash used in financing activities was $90.5 million
for the six months ended June 30, 2020. Net cash provided by financing
activities was $180.5 million for the six months ended June 30, 2019. During the
six months ended June 30, 2020, $5.0 million was used to purchase common shares
withheld in lieu of income taxes resulting from the vesting of restricted share
awards and $69.0 million was used to purchase treasury stock in accordance with
the Company's share repurchase program. Principal payments on notes payable and
capital leases totaled $16.6 million. During the six months ended June 30, 2019,
$270.0 million of proceeds was drawn on the credit facility, and the term loan
balance of the prior credit agreement of $59.9 million was repaid along with
$12.1 million of principal 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 $10.4 million was used
to purchase treasury stock in accordance with the Company's share repurchase
program. Proceeds from the exercise of stock options of $3.4 million were
received in the six months ended June 30, 2019.

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Contractual Obligations


The following table sets forth, as of June 30, 2020, the aggregate amounts of
GCE's significant contractual obligations and commitments with definitive
payment terms due in each of the periods presented (in millions). Less than one
year amounts represent payments due from July 1, 2020 through December 31,

2020.


                                                                        Payments Due by Period
                                                        Less than                                    More than
                                             Total       1 Year        2-3 Years      4-5 Years       5 Years
Long term notes payable                     $ 124.3    $      16.6    $      66.3    $      41.4    $         -
Lease liabilities(1)                           45.2            2.1           10.1            9.2           23.8
Purchase obligations(2)                         4.9            0.4            4.3            0.2              -
Total contractual obligations               $ 174.4    $      19.1    $      80.7    $      50.8    $      23.8

(1) The lease liabilities exclude $17.4 million of non-cancelable operating lease

commitments for classroom site locations, that had not yet commenced.

(2) The purchase obligation amounts include expected spending by period under

contracts for GCE that were in effect at June 30, 2020.

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.

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