Grand Canyon Education, Inc.

Good day, and thank you for standing by. Welcome to the Q4 2024 Grand Canyon Education Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Dan Backus, Chief Financial Officer. 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 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 over the call to Brian.

Good afternoon, and thank you for joining Grand Canyon Education's fourth quarter 2024 conference call. GCE had another solid quarter. producing online enrollment growth of 7.1% in hybrid growth, excluding the closed site and those in teach-out of 14.9%. We also continue to produce strong retention rates while at the same time investing heavily in initiatives for our university partners. The investments 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 website. Many working adults 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 Grand Canyon Education. First, The online campus at Grand Canyon University. New starts were up in mid single digits in the fourth quarter of 2024 on a difficult year over year comp and total enrollment growth was 7.1%, which slightly exceeds our long-term objectives. We anticipate starts for the first quarter to be up in the mid to high single digits. There are many reasons for this, but I wanna highlight four. One, we have stayed 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 declining enrollments is to reduce the number of programs they offer. 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 military. In the fourth quarter, new starts from this work increased 12.5% year over year. Number three, the retention of students in the fourth 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. Four, GCU has resisted responding to the slower growth by raising tuition significantly, which many institutions have done. Online net tuition increases since 2018 have averaged approximately 1% per year. We believe new start growth will remain in the mid to high single digit rates in the first quarter of 2025 and continue at that level during the rest of 2025. Second, the GCU ground campus for traditional students. As has been previously discussed, new and total traditional campus enrollments were down slightly year over year. in the fall of 2024 for the reasons discussed on previous calls. We believe GCU will re-accelerate growth on the ground campus because of its significant advantages, including the very low price point, very low average debt levels, percent of students completing in less than four years, and the relevancy of GCU's academic programs. GCU still plans to grow its traditional campus out to 50,000 students. 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. Although the spring intake is much less than the fall, we did see an increase in new students starting at GCU in spring 2025 as compared to spring 2024. We also are ahead of last year in new student registrations for the fall of 2025. So although it is early in the recruitment cycle, the current trends are positive. Third, Grand Canyon Education's hybrid campus had an increase in enrollment year over year of 9.8% in the fourth quarter. Excluding the closed sites and those that are on teach-out, enrollment increased by 14.9% year over year. We expect the new enrollment growth rate to be up in the low to mid-teens during spring 2025 and the rest of 2025. There are two main reasons for this continued growth. 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 those 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, which provides students 24-7 access to tutoring. Since implementing these courses, we have already enrolled approximately 12,412 students. We have a waterfall report that allows us to know how students are progressing through their prerequisite 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 programs 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 has 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 change needed to serve the advanced standing students. Our goal is still to 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 had 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 had 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's 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, GCE has helped Grand Canyon University graduate 183,632 students, 50,016 in education, including 24,000 first-time teachers, at a time when teacher shortages have created a national crisis. 49,320 in nursing and healthcare professions, including 2,834 pre-licensure nurses at a time when there is a huge shortage of nurses. 37,119 in the College of Humanities and Social Sciences, including thousands in counseling and social work where there are also huge shortages. The College of Business has become one of the largest business schools in America and has produced 31,986 graduates. The College of Science, Engineering and Technology has grown by 216% and provided 4,575 graduates. The Doctoral College, Honors College and College of Theology also continue to grow. In addition, GCE has helped its other partner institutions 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 GCU-GCE transaction and since GCE has become an education services provider. Service revenue was $292.6 million for the fourth quarter of 2024. an increase of $143 million, or 5.1%, as compared to the $278.3 million for the fourth quarter of 2023. The increase year-over-year in service revenue is primarily due to an increase in GCU enrollments of 5%, an increase in university partner enrollments at our off-campus classroom and laboratory sites of 9.8%, and an increase in revenue per student year-over-year. Operating income and operating margin for the three months ended December 31st, 2024 was $100 million and 34.2% respectively. As Dan will discuss in more detail in a moment, we booked $1.9 million in impairment and other charges in the fourth quarter. Excluding those charges, operating income for the three months ended December 31st, 2024 was $101.9 million, an increase of $4.1 million as compared to 97.8 million for the same period in 2023. The operating margin for the three months ended December 31st, 2024 excluding those charges was 34.8% as compared to 35.1% for the three months that ended December 31st, 2023. Net income increased 1.4% to 81.9 million for the fourth quarter of 2024 compared to 80.7 million for the same period in 2023. GAAP diluted income per share for the three months ended December 31st, 2024 is $2.84. As adjusted non-GAAP diluted income per share for the three months ended December 31st, 2023 is $2.95, which is two cents above consensus estimates. With that, I would like to turn it over to Dan Backus, our CFO, to give a little more color on our 2024 fourth quarter, talk about changes in the income statements, balance sheet and other items, as well as to discuss the 2025 guidance.