Perhaps no publicly traded company has an earning release as difficult to digest as Grand Canyon Education's (NASDAQ:LOPE). For its entire life on the market, the company has functioned as a typical for-profit educator -- though "typical" isn't fair, as Grand Canyon has done well by its students in terms of debt and graduation rates. It has also built an impressive physical campus where tuition hasn't been hiked in over a decade.

But the waters got much muddier this summer when the company -- Grand Canyon Education (GCE) -- separated from the school -- Grand Canyon University (GCU). After an $800 million-plus payment to GCE, shareholders were left with an educational services company that receives 60% of GCU's tuition and is free to pursue other schools to partner with.

 a man using digital tablet for education, with education and online learning media icons

Image source: Getty Images.

Grand Canyon Education earnings: The raw numbers

As you might expect, this separation makes for some very difficult comparisons year over year. In all the information discussed below, we'll assume that GCE was functioning in the same capacity last year. It will help paint a more accurate picture of where the company is headed.

We'll start with the headline numbers.

Metric

Q4 2018

Q4 2017

Growth

Revenue

$178 million

$163 million

9%

Operating income

$81 million

$70 million

16%

EPS

$1.56

$1.41

11%

Data source: Grand Canyon Education investor relations. Results are on adjusted basis as described above. Revenue, operating income, and growth percentages rounded to nearest whole number. EPS = earnings per share.

Because GCU is GCE's only current customer, enrollment numbers at the school are crucial. For the quarter, the number of students attending the school -- both via remote and on-campus classes -- grew 7.8% to 97,369.

What's truly impressive about these results is the fact that revenue and enrollment were able to grow so fast while costs -- including those associated with advertising and recruiting new students -- rose just 4.2%. That leverage helped operating income and earnings grow faster than revenue.

Speaking on the company's conference call, CEO Brian Mueller -- who also functions as the president of GCU -- said a lot of credit was due to the fact that GCU has reverted back to its not-for-profit status. Because of the history of malfeasance and the stigma attached to for-profit diploma mills, the "for-profit" moniker had deterred students from looking into GCU. Apparently that's no longer the case -- and GCE is reaping the rewards of that change.

What else happened during the quarter?

In January, GCE announced that it had acquired Orbis Education for $366 million. The school focuses on providing degrees in nursing, a profession that is looking at steady growth in the coming decades as more and more baby boomers enter their golden years.

But just as important, Mueller offered a somewhat detailed look into how the company is looking for new partners. Specifically, GCE is looking to offer its expertise in both online education and back-office software to institutions of higher education. But Mueller made it crystal clear it wouldn't be a free-for-all, and the school would be carefully selecting partners moving forward.

He said the company had five potential schools it was talking to last quarter. It has since walked away from two of those schools, is holding ongoing conversations with the other three, and has identified and entered talks with two more schools.

The reasoning for walking away from the two schools is telling. While not revealing their identities -- other than to say one was a state school in the western United States -- Mueller made it clear GCE would not be partnering with schools that could cannibalize (i.e., compete with and take potential students away from) GCU.

He said that talks with one school were very positive and encouraging. But as soon as it came time to nail down the details, GCE realized it would not be a perfect fit. The partner school was too much like GCU -- offering similar programs, at a similar price point, in similar geographies. He stressed over and over again that the ideal partners would all be differentiated. Once a partner school is signed on, it would need to not compete -- geographically, in specialty, or in pricing -- with schools GCE is already serving.

This will obviously limit the total number of potential clients GCE can serve. Short-term investors might scoff at this, but it is likely a prudent long-term move. GCE wants to be partners for the long haul, and because its payment will likely be derived exclusively from a cut of enrollments, it is in GCE's best interest to only serve one master.

Check out the latest GCEearnings call transcript.

Looking ahead

Grand Canyon offered very detailed guidance for the year to come, including the following.

Time Frame

Revenue

EPS

Q1 2019

$195.5 million

$1.49

Q2 2019

$174.4 million

$0.94

Q3 2019

$190.2 million

$1.11

Q4 2019

$215.4 million

$1.56

Full-year 2019

$775.5 million

$5.10

Data source: Grand Canyon Education investor relations.

For those keeping track at home: If GCE hits these revenue numbers, it would represent a 21% increase in revenue -- showing that management clearly believes there's room for enrollment to grow, both at GCE and Orbis. Expected earnings of $5.10 also mean that, at roughly $100 per share, the stock is trading for under 20 times earnings. 

The three major things for shareholders to watch are enrollment figures, continued leverage in recruitment, and announcements about partnerships with schools -- which will likely take time to develop, but should surface within the next 12 to 24 months.