Grand Canyon Education, Inc.

Please continue to stand by and thank you for your patience. Thank you. Thank you. Thank you. Thank you. Thank you. Good day, ladies and gentlemen. Thank you for standing by. And welcome to the fourth quarter 2021 Grand Canyon Education and Earnings Conference call. At this time, all participants are on a listen-only mode. After this week's presentation, there will be a question and answer session. To ask a question during the session, you will need to press the star, then the one key, when you're touched on telephone. Please be advised that today's conference may be recorded. If you recall operating systems, please press star, then zero. I would now like to send the conference over to your speaker host, Mr. Dan Backers of CFO. Please go ahead, sir.

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 risks 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 the 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, and thank you for joining Grand Canyon Education's fourth quarter fiscal year 2021 conference call. 2021 has been a difficult year in higher education. Grand Canyon Education came through this year amazingly well as compared to the rest of the higher eds. More important, the overall trends predicted for 2022 in the sector continued downward, while Grand Canyon education will resume its remarkably consistent upward trend for 14 years and is positioned to do very well the next 10 years. COVID has had a negative short-term impact on all three of our pillars. However, long-term, the negative impacts on the rest of the sector have turned into positives for GCE because of how it has positioned itself, especially the last three years. I will explain as I talk about each pillar individually. First, the GCU traditional campus. Both the number of high school graduates per year and the percentage of them going to college has declined recently, and that has resulted in lower enrollments at many universities and community colleges. GCU's traditional campus actually saw an increase of 6.2% in new students over the prior year. an increase of 9.5% in total enrollment, and an increase of 36.1% in residential enrollment. The average incoming GPA of this year's class rose to 3.6, and the prestigious Honors College grew 8.4% to almost 2,800 students with average incoming GPAs of 4.1. These are remarkable results given the overall trends. The quality and especially the relevancy of GCU's academic programs the low class sizes in support of its faculty who have less than a 2% turnover rate, the quality of counseling services, a new, very modern campus that is ranked 18th in the country by Niche.com, the 20 advisory boards with over 500 companies represented who are creating internships and employment opportunities for GCU students, and Phoenix as a destination city are all contributing factors. Having a very successful year compared to the majority of the sector, We still, however, are not performing to our full potential for the following reasons. Number one, GCU continues to gain visibility across the country. However, its extremely significant value proposition is still relatively unknown. GCU relies heavily on a process called Discover GCU. We fly in, at our expense, thousands of students for a one- or two-day campus visit and house them at a residence hall designed for that purpose. Many students had selected other universities prior to the visit. In the 2020 school year, because of COVID, we were down 46% from our campus visit goal, yet still produced good results. This year, as the country is reopening, campus visits are up significantly over the prior year. Number two, I didn't list this previously in GCU's list of advantages because I wanted to call it out separately due to how important it is. According to research produced by John Marcus and the Hechinger Report, college costs outpaced inflation by 28% at public institutions and 19% at private nonprofit ones in the decade preceding the pandemic, according to the National Center for Education Statistics. But those relentless higher-than-inflation tuition hikes came to a halt in the fall when the college boards reported that tuition rose at less than the Consumer Price Index. However, he finishes the report by listing all the universities who have already announced tuition, room, board, and fee increases due to inflationary pressures for next year. In contrast, GCU has already announced for the 14th straight year no tuition increased. This has resulted in GCU students taking out less debt than the highly subsidized state universities, and GCU's parent loan amounts, parent plus loan amounts, are 50%. of the three Arizona state universities. Number three, the city of Phoenix and the state of Arizona's economic outlook is very bright. Hundreds of companies are moving here, especially from California, and we estimate right now that approximately 80% of GCU's traditional graduates stay in Arizona post-graduation, partly because the career opportunities are so significant. Number four, a growing segment of university enrollments in the country are first-generation college students. Of the approximately 9,000 new students at GCU this year, approximately 3,600 were first-generation students. The first-gen college students this year had an average incoming GPA of 3.55, almost identical to the 3.6 of the overall class. Next year we expect 4,000 of GCU's 10,000 new students to be first-generation. The 7,600 first-gen students at GCU in two years alone is a societal transforming number and a great reason to invest in GCE and donate to GCU. The quality and relevance of our programs, the quality of GCU's campus facilities, the intense amount of faculty and counseling support, the number of campus jobs available to students, the percent of students graduating in three years, and especially the low price point all contribute to the success. Number five, GCE was able and prepared financially to build the campus out to 50,000 students, creating opportunity for GCE in this pillar for the next 10 years. We are targeting over 10,000 new students in 2022 and are making investments now to significantly increase that number in 2023. Next, I would like to discuss GCE's healthcare partnerships. Short-term, mainly 2021, COVID had a negative impact. Hospitals were extremely busy and preoccupied with COVID patients, and many clinical placement opportunities were canceled. In spite of these very significant challenges, many instructional assignments requiring one-on-one clinical interaction in the hospital were replaced by simulations. Against significant odds, both the new and total enrollment numbers were hit for the year. I would call 2021 a successful year for this pillar given the challenges. As with GCU's traditional campus, the long-term environment is very positive for these GCE healthcare partnerships for the following reasons. Number one, the country needs 1.3 million additional nurses the next five years alone. Nursing programs are very expensive to operate, and given the financial pressures facing many universities, they will be unable to invest the dollars it will take to scale the programs themselves. Number two, GCE has the capital to invest in a continued build-out to eventually 80 locations. Number three, in addition to the runway of 80 locations up from current 31 locations, our enrollment budget for this coming year is only 50% of the actual spots that should be available currently. The 50% shortfall is due to the lack of efficient and highly supportive prerequisite course environments and regulatory issues creating slowdowns in opening planned locations, and the lack of clinical placements due to COVID issues. GCE is working hard and investing in new enrollment, stimulation, virtual reality, and prerequisite strategies to, in the future, fill a higher percentage of the current spots that are available. This is a transitional year coming out of COVID for the healthcare partnerships. However, there is a 10-year runway that is very promising that creates a winning scenario for students that want into a promising career, healthcare providers desperately needing professional nurses, and universities who want a risk-free way to help solve the nursing shortage while at the same time creating additional revenue streams. As all this is taking place, we will also be adding healthcare and non-healthcare programs to some of the existing locations. Pillar three, working adult online students. When COVID first hit, there was an initial surge of working adult students returning to college as online students or reentering if they were temporarily out. GCU Online benefited from that surge. As the pandemic progressed, some potential students began questioning the ultimate value in investing in higher education and There was also talk of free community college and state university education by the new administration. In addition, many adult students that pursued high-volume programs like the RN-BSM program were busy at work taking care of COVID patients or uncertain about the future and putting off starting school. 2021 definitely saw a downturn in working adults attending universities online, and we experienced that as well. However, as this market has become increasingly crowded the last five years, we have invested in B2B strategies that are well-timed for this post-COVID period. The supply and demand for the educated labor has flipped. We are working on a daily basis with over 8,000 partners in K-12 education, health care, financial services, social service agencies, technology and engineering companies, military bases, et cetera, developing strategies that will help them grow their talent from inside. We are also building out state-specific programs in certain licensure areas and creating free test prep options that can help employees gain licensure and progress up in their organizations. This is all very innovative and hard work that most universities and OPMs are not capable of providing. This requires investment during 2022, but will set us up to get back to positive growth towards the end of the year and then sustain it for years to come. Both COVID and other market forces put some strain on 2021 results following 14 years of incredibly consistent upward performance. That said, we still outperformed both the higher ed and OPM sectors at large. In the post-COVID era, we are set up for another impressive run because in all three pillars, we are tied very tightly to where the economy is going, where the huge talent deficits are, and can provide relevant, efficient, and cost-effective paths for students across the adult lifespan to get there. With that, I would like to turn it over to Dan Backus, our CFO, to give a little more color on 2021 fourth quarter, talk about changes in the income statement, balance sheet, and other items, as well as provide 2022 guidance.