Grand Canyon Education, Inc.

Good day and thank you for standing by. Welcome to the Q3 2024 Grand Canyon Education Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Dan Backus, CFO. Please go ahead.

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 8K. 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 position in GCE. And with that, I will turn the call over to Brian.

Good afternoon, and thank you for joining Grand Canyon Education's third quarter 2004 conference call. GCE had another solid quarter, producing online enrollment growth of 5.8% and hybrid growth excluding the closed site, and those in teach-out of 12.6%. Although we are disappointed that ground enrollment is down slightly year over year, this was not unexpected given the widely reported challenges faced industry-wide. We also continue to produce strong retention rates while investing heavily in initiatives for our university partners. The investment GCE and its 22 partner institutions are making are based on the belief that there is a vast amount of untapped potential in today's workforce. Many recent high school graduates did not go to college this year because of exorbitant tuition rates, potentially exorbitant debt levels, and difficulty managing the FAFSA site. Many older students who could benefit from higher education are not attending because of the lack of creative delivery models that do not take into account their life situations. Grand Canyon education will continue to grow at our stated goals over the long run because we are addressing those challenges in ways that work for students and employers. With that, I would like to review the results of the four delivery platforms at GCE. First, the online campus at Grand Canyon University. New starts were up again in the third quarter of 2024, and total enrollment growth met our long-term objectives, up 5.8% over the prior year. The new start growth rate in the low single digits in the third quarter was slightly lower than we had expected, but as we have discussed previously, the year Over year comp was extremely tough given growth in the third quarter of 2023 significantly exceeded our long-term objectives and which was made more difficult given the third quarter is the largest start quarter of the year. We still anticipate starts for the fourth quarter to be up in the mid single digits, even with what continues to be challenging comps. There are many reasons for this, but I want to highlight four. One, we continue to stay hyper-focused on opportunities that exist in today's labor market. And since the beginning of the pandemic, GCU has rolled out 148 new programs, emphases and certificates across the 10 colleges. These programs are tied directly to labor market opportunities for students. One of the responses of universities to the declining enrollments during the pandemic was to reduce the number of programs they offered. Two, we continue to work with employers directly to address their workforce shortages. This effort is focused on the industries of education, healthcare, technology, public safety and the military. In the third quarter, New starts from this work increased 7.5% year over year. Number three, the retention of students in the third quarter remains strong, which we believe continues because of the relevancy of the programs the students are entering and their direct tie to the students' career aspirations. And four, GCU has resisted responding to the slower growth during the pandemic by raising tuition significantly, which many institutions have done. Online net tuition increases since 2018 have averaged approximately 1% per year. The reason Grand Canyon Education and its largest partner, Grand Canyon University, has produced consistent results over the last 16 years is that we stay focused on programs that are of real benefit to students and employers. I want to reiterate that the low single digit new online start number was due to the above average growth rates one year ago. Again, we will continue to stay focused on our stated growth plan and believe New Start growth will return to mid single digits rates in the fourth quarter and continue at that level into next year. Second, the GCU ground campus for traditional students. New and total traditional campus enrollment was down slightly year over year. Although this is a disappointing result, this is equal to or better than what is occurring nationwide. Department of Education's FAFSA issues in which processing problems and glitches caused major delays in universities receiving the FAFSA data from eligible students, and once they did, millions of forms were found to have errors and needed to be reprocessed, forcing a lot of universities to push back deadlines. As a result of these delays, the number of FAFSA completions among high school seniors is down significantly, including at GCU. According to preliminary data released recently by the National Student Clearinghouse Research Center, freshman enrollment dropped more than 5% from last year at colleges and universities, and that at both public and private four-year schools that admit the largest share of students receiving Pell Grants, freshman enrollment dropped by more than 10% from 2023 levels. Our percentage of ground traditional students that receive Pell Grants is comparable to state universities. GCU ended its recruiting cycle up year over year, as was expected in applications and registrations, with students that did not complete a FAFSA. what was down in applications and registrations with students that completed the FAFSA. GCU will be able to re-accelerate growth on the ground campus because of GCU's significant advantages, including a very low price point, very low average debt levels, percent of students completing in less than four years, and the relevancy of GCU academic programs. We anticipate that GCU will benefit from both trends. We will continue to focus on meeting GCU's growth goals for traditional students attending on GCU's campus with GCU's goal still being 50,000 and focus on traditional age students across the country who want to do their academic work from home. It is our understanding that the Department of Education continues to work on fixes to the FAFSA issues and that the initial results have been positive. We believe that this, along with a number of strategy changes, To address this specific challenge for 2025-26 that we have made will help us meet the university's new enrollment growth goals of a 15% increase in new enrollments over 2024-25. Third, Grand Canyon Education's hybrid campus had an increase in enrollment year over year of 8.1% in the third quarter. Excluding the closed site and those that are on teach-out, enrollment increased 12.6% year over year. New fall enrollments, excluding the closed site and those that are on Teach Out, were up approximately 10% year-over-year, which was slightly better than our projected mid to high single-digit growth year-over-year expectation. We expect a new enrollment growth rate in the spring of 2025 to show similar growth on a year-over-year basis. There are two main reasons for this continued growth. Number one, almost all of our active ABSN partners have responded to the younger students interested in ABSN programs by admitting advanced standing students or are in the process of making that change. Students with partially completed degrees haven't accumulated a great deal of debt and are very interested in nursing careers, but didn't have an efficient way to earn the prerequisite science coursework. GCU created the science courses and some other gen ed courses so they could be delivered online in eight weeks. Students can access these courses from anywhere in the world. There are start opportunities almost every week. These courses have been made very affordable, are taught by experienced faculty, class sizes are low, and there's a tremendous amount of academic support, including an artificial intelligence project that went live in October 2023, which provides students 24-7 access to tutoring. Since implementing these courses, we have already enrolled approximately 11,522 students. We have a waterfall report that allows us to know how students are progressing through their prereq courses and when they will be eligible to start at one of our ABSN sites. The success rate of students who successfully enter the ABSN program is in the high 80s, and the first-time pass rate on the NCLEX exam is approximately 90%. We now have an extremely efficient way to get students academically eligible and prepared to enter the program. These positive results we anticipate will continue. There's never been greater interest among potential students for entering the healthcare professions and specifically nursing. Because of the low unemployment rate, the interest has shifted to these younger students who haven't accumulated a great deal of debt, completing a bachelor's degree in another area and are currently underemployed. Nearly all our partners have responded positively to the changes needed to serve the advanced standing student. Our goal is to still have 80 locations with our partners, with 40 of those locations being GCU locations. Fourth, the Center for Workforce Development at Grand Canyon University. In the 2022-23 school year, we started 80 students in GCU's electrician's pre-apprenticeship program in partnership with companies that are experiencing labor shortages in that area, and are excited about hiring GCU's graduates. The program consists of four four credit courses and runs one semester. 74 students successfully completed the program in the first year. This past school year, we started 233 students in the program. 123 students completed this program in the fall and 82 in the spring of 2024. GCU has 164 students enrolled in this program in the fall of 2024, including 23 in Austin, Texas. A year ago, GCU also started 19 students in a manufacturing certificate program and has 23 students in that program this fall. GCU is running a small parts manufacturing business on campus that is doing work for some of the major companies in Arizona. These students are attending school for 20 hours a week and then work in the facility as a paid employee for 20 hours. At the end of the semester, they receive a manufacturing certificate and become eligible for employment in Arizona's fast-growing manufacturing industry. GCU is growing. Engineering College also has students assisting with this project. Once this concept has been successfully proved out, we expect to work with GCU to scale this program and then add others. I started out talking about the relevant programs and creative delivery models that GCE has implemented with its 22 partner institutions. In the six plus years since GCE has become a service provider, it has helped its partners accomplish the following. In that time, GCES helped Grand Canyon University graduate 175,209 students, 47,419 in education, including 22,492 first-time teachers at a time when teacher shortages have created a national crisis, 47,615 in nursing and healthcare professions, including 2,594 pre-licensure nurses, at a time when there is a huge shortage of nurses. 35,211 in the College of Humanities and Social Sciences, including thousands in counseling and social work, where there are also huge shortages. College of Business has become one of the largest business schools in America and has produced 30,577 graduates. The College of Science, Engineering, and Technology has grown by 218 percent. and provided 7,127 graduates. The Doctoral College, Honors College, and the College of Theology also continue to grow. In addition, GCE has helped its other partners graduate 17,644 pre-licensure nurses and occupational therapist assistants. The numbers that I have just cited have all happened in the past six plus years since the GCU-GCE transaction, and since GCE has become an education services provider. Service revenue was $238.3 million for the third quarter of 2024, an increase of $16.4 million, or 7.4%, as compared to $221.9 million for the third quarter of 2023. The increase year-over-year in service revenue was primarily due to an increase in GCU enrollments of 4%, an increase in at our off-campus classroom and laboratory sites of 8.1%, and an increase in revenue per student year over year. Operating income for the three months that ended September 30, 2024, was $48.2 million, an increase of $6.7 million as compared to $41.5 million for the same period in 2023. The operating margin for the three months ended September 30th, 2024 was 20.2% as compared to 18.7% for the three months ended 30th, 2023. Net income increased 16% to 41.5 million for the third quarter of 2024 compared to 35.7 million for the same period in 2023. GAAP diluted income per share for the three months that ended September 30th, 2024 is $1.42. As adjusted, non-GAAP diluted income per share for the three months ended September 30th, 2023 is $1.48. With that, I would like to turn it over to Dan Backus, our CFO, to give a little more color on our 2024 third quarter, talk about changes in the income statements, balance sheet, and other items, as well as to discuss the updated 2024 guidance. Thanks, Brian.