Grand Canyon Education, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Grand Canyon Education Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone telephone. Thank you. I would now like to turn the conference over to your host today, Mr. Dan Bakus, Chief Financial Officer. Sir, the floor is yours.

Joining me on today's call is our Chairman and CEO, Brian Mueller. Please note that many of our comments today will contain forward-looking statements that involve risk and uncertainties. Various factors could cause our actual results to be materially different from any future results expressed or implied by such statements. These factors are discussed in our SEC filings, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. We undertake no obligation to provide updates with regard to the forward-looking statements made during this call, and we recommend that all investors review these reports thoroughly before taking a financial position in GCE. And with that, I'll turn the call over to Brian. Good afternoon.

Welcome to Grand Canyon Education's second quarter fiscal year 2021 conference call. GCE had another successful quarter. In long term, the future is very bright. We continue to experience some short-term issues due to the pandemic, which I detailed on the first quarter call, and I will provide an update in a minute. However, long-term, we are building three unique and differentiated platforms that will provide significant and impactful growth. The pandemic has been a serious challenge for universities, and many are experiencing significant enrollment and financial issues. It continues to be GCE's goal to create educational models that address the real issues within higher education. I believe those issues continue to be, one, The out-of-control rising costs of university education. From the early 1980s to the late 2010s, the price of college increased eight times the increase in wages. Number two, the increasing debt levels that will seriously hinder graduates as they begin their adult lives. Three, as tuition level goes up, diversity on college campuses goes down. Four, bachelor's degrees should not take four to six years to complete. Five, programs and delivery models lock the creativity and flexibility necessary to address critical shortages in some very important industries. Six, there are inadequate counseling and support services, especially for first-generation students or those studying at a distance. Seven, three-fifths of college graduates would change majors if they were starting over, 30% for better job opportunities. Eight, prior to the pandemic, 43% of college graduates were underemployed in their first job. Two-thirds remain in jobs that don't require college degrees five years later. Grand Canyon Education is a large organization, is in a very strong financial position, and can invest in educational infrastructure to help institutions grow their student enrollments. For example, GCE just completed the development of a new and extremely robust online learning system and is implementing it currently across GCU's more than 110,000 students. One of our partner institutions now derives 14% of their total revenues from GCE Orbis healthcare programs, and they want to do more. The combination of institutions looking for additional revenue streams and our ability to help them launch programs locally that prepare students for in-demand occupations is creating rapid partnership growth. Let me explain how GCE is in a great position to support the three main pillars or platforms of our business. The first pillar, Grand Canyon University Online, has 91,572 students that as of June 30, 2021, and in the quarter just completed, total students grew 4.1% year over year. GCU has historically put a priority on new program development to help students gain employment and build careers in the modern economy and is also focused on programs leading to professional licensure, with most of those being at the graduate level. As we previously discussed, when the pandemic hit last March, we saw a huge surge in new enrollments in the months of April, May, and June. New enrollments continued to grow above our stated objectives the next 12 months, and total enrollments grew above expectations because of very high retention and reentry rates. We knew the last three quarters of this year would be challenging because of the very high comps, but we are also running into three additional challenges. New starts did not meet our original expectations in April and May because many schools, hospitals, counseling centers, and businesses had not opened up the way we expected them to, and our access to their employees had not returned to normal. We saw improvements in June as things started to open up, which resulted in significant year-over-year growth in new enrollments in June. Even with the strong June new enrollment, GCU's online new enrollment declined in the high single digits year-over-year in the second quarter. Additionally, because of the high retention rates during 2020, the number of graduates are exceeding our expectations and our reentry pool dried up, which is pressuring the year-over-year total enrollment growth rate. It's extremely important to note the miss in enrollment has been mostly at the graduate level. We haven't pivoted to recruiting more adult undergraduate students in the short term because GCU's high-quality student body produces very good metrics, including high graduation rates, low cohort default rates, less than 6%, a 69.7% 90-10 percentage, low student debt amounts as compared to state and private universities, and very low parent plus amounts as compared to state universities. With the spread of the Delta variant, we encountered some of the same issues that we incurred in April, May, and July. We still consider this enrollment challenge to be short-term. although we don't know exactly how long it will be until our direct work with companies, hospitals, school districts, and counseling centers return to historical levels. As a result, we don't want to change a very successful 13-year strategy. Given this uncertainty, we have given a range of outcomes for the second half of the year, with the high end of the range being if things return to normal in the next few weeks, and the low end of the range assumes that our work remains at the April, May, July levels through the rest of 2021. Regardless, we are confident in our ability to grow GCU Online's enrollments at our long-term stated objectives once things return to normal. The second pillar or platform to our business is the GCU traditional campus. As many of you know, GCU began the fall 2020 semester with 22,363 ground campus students, of whom approximately 5,000 stayed home and took their classes online. In the spring 2021 semester, GCU started with 19,721 ground campus students of whom approximately 3,500 stayed home and took their classes online. This resulted in approximately 3,000 fewer students paying room, board, and other fees related to being an on-campus student. However, this was partially offset because GCU actually had an increase of 11.5% in ground traditional students excluding professional studies. We are extremely excited with the current trends related to the GCU campus enrollment. Based on the number of students currently registered, we should meet or exceed both the university's new enrollment goal and total enrollment goal. The university is also currently at near capacity for residential enrollment. GCU actually built three new residence halls this year, believing that they wouldn't need to build any new residence halls the following year. Not only will the residence halls be at capacity this year, GCU will have to build at least two new residence halls to meet the demand for the following year. In addition, the approximately 9,000 new students attending campus this fall will have an average incoming GPA of 3.6. GCU's Honors College will grow to greater than 2,800 students with average incoming GPAs exceeding 4.0. The traditional ground campus continues to be highly diverse with approximately 28% Hispanic, 6% African American and over 40% students of color. This is a remarkable achievement given the challenges of the last year and the enrollment declining at many universities. The fall semester begins the day after Labor Day and currently plans are to be fully up and running in a traditional manner. GCU's traditional campus is in a very strong position as becoming a bigger part of the strategy. GCU's goal is now to have 40,000 students on its traditional campus in Phoenix. The pandemic has made it abundantly clear that 18-year-old students desire to have a campus experience as much now as they ever have, but it has to be affordable. The combination of GCU and GCE in building out the traditional campus has many strategic advantages. One, Phoenix is a destination city and Arizona is a destination state. Two, GCU has invested $1.5 billion in educational infrastructure, and the campus is currently ranked 19th in the country. Over 75% of the traditional campus students are studying in science, technology, engineering, math, and business areas, and the students are extremely impressed with the new and modern classroom and laboratories that exist across the campus. GCU hasn't raised tuition in 13 years, and their students take out less debt than the average state university student. In addition, the Wall Street Journal recently released average plus loan debt amounts. GCU parents take out approximately 50%. of the debt amount taken out by the three heavily subsidized state universities in Arizona. GCU now has nine colleges that have over 209 academic programs, emphases, and certificates. Five, GCU is adding more than 20 new programs per year targeted at growing occupational areas. Six, the university will invest 500 million additional dollars in the next four years with the plan to grow out its campus to accommodate 40,000 students. The university is in a strong financial position in the aftermath of a split from GCE to become a nonprofit institution. GCU has $307 million in cash as of June 30, 2021, and is financing all of its CapEx growth. Those that predicted the transaction would produce financial ruin to the university were very wrong. Seven, GCE has invested heavily in building out virtual tours of campus and live lab classroom demos to expose current high school students, to GCU during the pandemic when travel is limited. Eight, GCU's Christian and free market positioning makes it attractive to a large national audience with very few affordable and scalable options. Included in a GCU ground enrollment number is professional study students, working adults studying on the ground traditional campus at night. Due to COVID-19, we have started bringing adult students We have just started bringing adult students to campus in the evening after almost 18 months. As a result, the professional studies number included in the ground enrollment number has declined significantly year over year due to graduations. However, our information meetings are filling up and we expect our professional studies enrollment to begin growing again. The third pillar or platform of the business is Grand Canyon Education slash ORVIS. Our goal is to continue the rapid expansion of partners some of which want to provide both healthcare and non-healthcare programs. GCE bought Orbis 29 months ago. Since that time, we have expanded to 27 partners. University partner enrollments at our off-campus classroom and laboratory sites were 4,210, an increase of 13.2% over enrollments June 30, 2020, which includes 176 GCU students at June 30, 2021. Nursing enrollment is up 19% during that same period, offset by a decline in occupational therapy students due primarily to COVID restrictions. We opened 10 new off-campus classroom and laboratory sites since June 30, 2010, resulting in an increase of those sites to 31. We have signed contracts with new partners in the Southern California market and the New York City markets. We will open up medical lab science programs with two new partners. We are working very hard at a number of locations in the West to implement GCU's nursing and other healthcare programs. The goal is to have over 40 locations by the end of 2022, 50 locations by the end of 2023, and eventually grow to 80 locations. This is a huge national platform in which to enroll students and produce graduates. This is very important since the country is experiencing huge deficits in many healthcare professions. GCE now has not only the largest partner in the OPM space, GCU, it is also rapidly adding partners. This is happening because, first, many quality universities are experiencing financial stress and looking for options to increase their revenues. Second, there are important healthcare and other technology careers that are experiencing serious shortages. Third, universities don't have the resources to scale many of those programs. Fourth, GCE has the capital and the know-how to scale those programs and create opportunities for thousands of underemployed young adults while helping universities create important additional revenue streams. Most locations start with the ABSN program, but most have the ability and desire to add additional programs. Sites will eventually accommodate between 250 and and 1,000 students in multiple programs. Programs will take between 12 and 24 months and lead to jobs paying between $50,000 and $100,000. Many of the students in those programs will have already completed a bachelor's degree but consider themselves underemployed. GCU will fill many of the sites in the West and will continue to expand into additional healthcare and non-healthcare academic areas. We continue to work with Harding University on the rollout of multiple Orbis sites as well as a fully developed model for some of their master's degree programs. This is the first more comprehensive contract that may be replicated once it becomes successful. Grand Canyon Education has three large, well-financed, highly professional platforms to grow with in the next five years. Each platform is addressing real needs in the market and is producing high-quality outcomes for our partners and the economy. I have never been more excited about the future. of GCE. In a previous conference call, I outlined a GCE and GCU five-point plan designed to transform an inner-city neighborhood. The plan involves bringing jobs, creating safety, restoring homes, and investing in K-12 support, leading to a huge scholarship program for inner-city students that qualify. We are very proud of the ongoing equality efforts that are producing real results. In addition, GCU-GCE ran a vaccination center on campus to serve our neighborhood. That center provided a total of 116,000 vaccinations in a 10-week time frame. That very important work was provided by 3,900 volunteers who worked 31,463 volunteer hours, resulting in no cost to the taxpayer. The project was assisted by partnerships with Chicanos Por La Casa and our local Mexican embassy and provided a much-needed service to a very vulnerable population. With that, I would like to turn it over to Dan Backus, our CFO, to give a little more color on our 2021 second quarter, talk about changes in the income statement, balance sheet, and other items, as well as to provide 2021 guidance. Thanks, Brian.