Grand Canyon Education, Inc.

panic out there with universities. And they're making incredible, they're offering students incredible deals. Deals that, unless they can significantly change their cost structure, expense structure, they're not going to be able to give those deals out again a second and third and fourth year. And so it's going to be interesting to see what happens about halfway through the second semester of next year when students find out the deal they got their freshman year, they're not going to get their second year. We didn't fall into that temptation. We're very transparent. We offer the student a deal that's very specific to what their grade point average is. And so as a result of that, we may have missed out on some students that otherwise we would have gotten. So how long is that going to last? I don't know. This is such an attractive place to be. for a lot of reasons. Arizona's economy is growing so fast. Our programs are extremely relevant. 50% of our students almost are graduating in three years. They're graduating with less debt. And so when we get through this period of time where this panic has gone on, we'll see how things level out next year. The good thing for us is that we are uniquely positioned, if this continues the way it is, we can continue being very successful offering students an opportunity to do this from home. How will this impact what we do on our campus? We've been building two residence halls a year. We'll start the construction of one next year, which will be finished the following year. And so we'll construct one instead of two. And then we'll just see how this thing goes. The important thing is that we have land to build this thing out to somewhere close to 50,000 students. And we can build just in time. We've been doing this for a decade now. And so we're out in front from a classroom and laboratory standpoint. We're a little bit out front now from a residence hall perspective. This will take some pressure off the CapEx expense of GCU and allow them to accumulate even more cash, which is a very good thing. And so regardless of which way this trend goes going forward, I think we're really positioned to respond to it. In addition, and I just can't overestimate how excited we are about the turn that's going on with our hybrid campuses. We created those courses very specifically, those prereq courses, rolled them out approximately a year ago, and we've already got 3,000 students in those courses. We're only at 50% capacity in terms of filling the spots we have in our current 35 locations. And as those numbers continue to grow, those prereq students continue to grow, we're going to have a real solid look into how quickly we're going to be able to fill all the spots in our 35 locations. And of course we're going to continue to add locations. And so, uh, since those students are in such, those graduates are in such dire need, uh, because they're going to be starting really good careers. And because we have a 90% success rate, once they get there, um, the revenue per student on those students is significantly higher than either our online students, uh, or our ground campus students. And so, um, We think we're extremely well positioned regardless of how this thing goes in the next couple years.

And on the hybrid, is the expected acceleration in starts this fall and next spring entirely about the prereq program? I don't think that was the same store sales number, so do the new campus launches play into that as well? and any sort of change in trends in the traditional career changer student demand?

It's really three things. Number one, it took a while for our partners to understand that the market changed. The unemployment is so low that students that have completed degrees, the decision to leave a $60,000 or $70,000 a year job to spend 50 or 60,000 to make a little bit more money is a lot of people backed away from that. But the number of students and the excitement of younger students who are just graduated from high school or have some community college experience, the opportunity for them now to have a clear path into an ABSN program, our partner institutions now know that that's where the market is. And there are really good students available in that area. And so the fact that we now have only one partner who's resisting what we call those advanced standards students, that's been part of the increase that you're going to see in third and fourth quarter. So that's one thing. The second thing is definitely the prerequisites. That was a major bottleneck. Students would come and they would ask for advice and people would send them to a community college or a state university where they could start maybe in the fall semester, which was still three months away, or the spring semester, which was four months or five months away, and then you had no look into how things were going for them. The fact that we now have these courses specifically designed around what a nurse needs to know about biology, chemistry, anatomy, physiology, et cetera, they're eight-week courses, They're priced very affordable, and you can access them from anywhere in the world. That's completely changed the picture for students, because they're not borrowing money to complete those. Most of them are not borrowing money to complete those first courses, not knowing whether they can get into the program. And so it's a much better deal for them. Once they see they're going to be able to complete the courses and finish them, the decision to borrow the money because they're now only 12 to 16 months away from their Bachelor of Science in Nursing program is really easy to make, given the job openings, the pay, and all of that. And so I think we've eliminated a major, I know we have, eliminated a major bottleneck. Our counselors out there are very excited because when they refer students to these courses, They have a look into how they're doing all the way through. So they know that student X has five courses to take. They've completed three. They've got two to go, which means they're going to be eligible, for example, for the fall semester at one of our partner institutions. And so that's the second major reason that we now have a much brighter picture and things should accelerate from here and get back to where we thought they would be when we first