Grand Canyon Education, Inc.

Good day and thank you for standing by. Welcome to the Grand Canyon Education Third Quarter 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 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, Sarah Collins, General Counselor. Please go ahead.

Joining me on today's call is our Chairman and CEO, Brian Mueller, and our CFO, Dan Backus. 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. With that, I'll turn the call over to Brian.

Good afternoon, and thank you for joining Grand Canyon Education's third quarter 2025 conference call. GCE had another strong quarter, producing online enrollment growth of 9.6% in hybrid growth, excluding the closed sites and those in teach-out of 19.3%. New ground traditional enrollment grew in the high single digits year over year. 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 the mid single digits in the third quarter of 2025, which was in line with our expectations, and total enrollment growth was 9.6%, which significantly sees GCU's long-term objectives. The new online enrollment growth rate was an expected deceleration from the previous quarter growth rates, but it's a strong result given that the third quarter is the largest start quarter of the year, and thus the prior year comp is large. In the past, I've highlighted four reasons for the growth. They include continuing to roll out 20-plus new programs on an annual basis, working with over 5,500 employers directly to address workforce shortages, strong retention levels, and holding the line on tuition to maintain GCU's competitive pricing position. A fifth reason and one growing in significance is the number of students between 18 and 25 years old that are choosing to go to college online. There are very few universities that have 310 programs delivered fully online. The online campus growth is benefiting from the growing trend of recent high school graduates that are doing their total program online as well as students attending the campus that go back and forth between living on campus and using the flexibility of online to engage in other life experiences. Given the trends I just discussed, we believe the momentum that exists will continue. Second, the GCU ground campus for traditional students. New traditional campus enrollments were up in the high single digits and total traditional campus enrollments were down slightly year over year. in the fall of 2025 while total GCU ground enrollment was flat year over year. The slight decline year over year in total traditional student enrollment was in line with our expectations given last year's decline in new enrollments caused primarily by the FAFSA site issues and more recently the higher than expected summer school graduations. We believe GCU will continue to experience new student growth on the ground campus because of the significant advantages including the very low price point, very low average debt levels, percent of students completing in less than four years, the relevancy of GCU's academic programs to a fast changing and modern economy, and having a 20th ranked campus in the country. As we move forward, there are three trends that are impacting traditional college campuses throughout the country. Number one, the number of high school graduates on an annual basis continues to decline. Number two, the percent of high school graduates that are choosing the four or five year baccalaureate path continues to go down. while the number of students choosing shorter certificate or trade programs is going up. Three, the number of high school graduates choosing a baccalaureate path but doing it fully online also continues to go up. We're in a very strong position given these trends. We have a high quality affordable offering on the GCU ground campus, but have even greater program choices for students that want to go fully online or to move back and forth between ground and online. In last quarter's earnings call, we discussed the potential to change the categories that we report student enrollments in so that we most accurately reflect the flexibility that GCU provides to students across the lifespan, but have decided to report them consistently with what we have reported in prior years as we continue to analyze these trends. We have made some changes to our marketing and recruitment strategy for GCU's traditional campus, which accelerated some spend into 2025. Although it is early, Those changes to date are producing positive results as registrations for the fall 2026 school year are ahead of last year. Third, Grand Canyon Education's hybrid campus had an increase in enrollment year over year of 17.4% in the third quarter. Excluding the closed sites and those that are on teach out, enrollment increased 19.3% year over year. This exceeded our expectations and is the result of a higher than expected number of new students starting in the fall. 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 that 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 is 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 19,410 students. In the summer of 2025 term, 66% of matriculated hybrid students at non-GCU sites took at least one of these courses, and of these students, they took five courses on average. 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. Graduation rate of students who successfully enter the ABSN programs is in the mid-80s. and the first time pass rate on the NCLEX examination 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, but 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 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 the locations being gcu locations in 2025 we opened up a total of five additional sites including a second location in the boston area in the fall another site in new york city and three gcu sites in 2025. one in Albuquerque, New Mexico, which was opened in the first quarter of 2025, one in Lake Mary, Florida, near Orlando, which was opened in the second quarter of 2025, and one in Inglewood, Colorado, south of Denver, which was opened in the third quarter. The addition of GCU's three new site openings brought its ABSN location total to 11. We are also expanding our programmatic offerings with our hybrid partners by adding a graduate nursing program with seven specializations with Northeastern University, which started this fall. a hybrid occupational therapy bridge to master's program to the already successful St. Kate's Occupational Therapy Assistant hybrid program, which will begin in the fall of 2026. An online health science degree with Utica University, NGCU launched a BS in Occupational Therapy Assistance program and a speech-language pathology program in 2025 at its Phoenix, West Valley location. Adding programs at our hybrid locations is an important component to our business plan. Our strong hybrid results might come as a surprise to some in the investment community given recent commentary. I believe based upon conversations over the years that investors do not always understand the difference between pre-licensure and post-licensure nursing programs. Pre-licensure nursing would probably be better referred to as licensure as these students are studying to become licensed as first-time nurses. These students need to take pre-med type science courses such as anatomy, physiology, microbiology, chemistry, and biology before being qualified to enter the program and then specialized nursing courses that includes hands-on practice in a lab setting and a real-world experience in patient care during the nursing core. Students can take the pre-med science courses completely online through GCU's prerequisite courses. They then can become eligible to enter GCU or one of our other partner ABSN programs. The growth of students in both the prerequisite online courses and the ABSN program continues to be very strong. Post-licensure nursing programs today are generally delivered completely online and include the RN to BSN, the Masters of Nursing program, and the Doctorate of Nursing. These programs are for those that already are nurses. The RN to BSN student, for example, is someone that became a nurse by completing an associate's degree and wants to get a bachelor's degree. A master's in nursing is for someone that already has a bachelor of science in nursing and wants a graduate degree, oftentimes to get a management role. Both of these degree programs are typically management programs and have a minimum number of clinical requirements. Many universities that offer online courses offer these programs and they have become competitive. GCU offers both programs and has a large student body in both of these areas. Because of the competitive landscape and the law of large numbers, the growth of these programs has been less than our overall growth rate for a number of years. That is not concerning to us because GCU has over 300 other online programs, most of which are less competitive and are growing at a faster pace. Fourth, the Center for Workforce Development at Grand Canyon University. GCU now has four programs in the Center for Workforce Development, including the electrician's pre-apprenticeship program, the CNC machinist pathway program, the manufacturing specialist intensive pathway, and the construction general pathway. And we'll be rolling out a fifth program, the manufacturing general pathway in the fall of 2026. These programs are all built in partnership with companies that are experiencing labor shortages in that area and are excited about hiring GCU's graduates. These programs are either one semester or two semester programs. 212 students successfully completed the electrician pre-apprenticeship program in 2024-25, including 11 in the Austin, Texas hybrid location. 33 students completed the manufacturing CNC machinist pathway program in the 2024-25 fiscal year. These students attend 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. Students in GCU's growing engineering college are getting experience in this manufacturing facility, which is adding to their engineering education. I started out talking about the relevant programs and creative delivery models that GCE has implemented with its 20 partner institutions. In the seven 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 2,206,709 students, 55,808 in education, including 26,099 first-time teachers at a time when teacher shortages have created a national crisis, 54,068 in nursing and healthcare professions, including 3,383 pre-licensure nurses, at a time when there is a huge shortage of nurses. 42,820 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 36,276 graduates. The College of Science, Engineering, and Technology has grown by 220% and provided 9,029 graduates. The Doctoral College, Honors College, and College of Theology also continue to grow. In addition, GCE has helped its other partners graduate over 15,000 pre-licensure nurses and occupational therapist assistants. The numbers that I have just cited have all happened in the past seven plus years since the GCU-GCE transaction and since GCE has become an education services provider. All of this has occurred while GCE paid $612 million in federal and state taxes. While state universities and community colleges pull money out of the tax system, GCE has helped produce over 220,000 graduates while pouring millions of dollars into the system. Service revenue was $261.1 million for the third quarter of 2025, an increase of $22.8 million. or 9.6% as compared to the $238.3 million for the third quarter of 2024. The increase year-over-year in service revenue was primarily due to an increase in partner enrollments of 7.9%, including an increase in GCU online enrollments of 9.6%, university partner enrollments at the off-campus classroom and laboratory sites of 17.4%, and an additional day of ground traditional revenue at GCU of 0.9 million in the quarter as a result of the one day earlier than last year fall start date, partially offset by a decrease in revenue per student year over year, primarily due to contract modifications for some of our university partners in which the revenue share percentage was reduced in exchange for us no longer reimbursing the partner for certain faculty costs, which had the effect of reducing revenue per student and a slight decline year over year in revenue for online students due to the continued mix shift to students that have a slightly lower net tuition rate. Operating income and operating margin for the three months ended September 30th, 2025 was $18 million and 6.9% respectively. Excluding the charges described in detail in our 8 file today, adjusted operating income An adjusted operating margin for the three months ended September 30th, 2025 was $58.2 million and 22.3%, respectively, as compared to $50.3 million and 21.1%, respectively, for the same period in 2024. Net income was $16.3 million for the third quarter of 2025. GAAP diluted income per share for the three months ended September 30th, 2025 is $0.58. As adjusted, non-GAAP diluted income per share for the three months ended September 30, 2025 is $1.78, which is in line with the consensus estimates. With that, I'd like to turn it over to Dan Backus, our CFO, to give a little more color on our 2025 third quarter talk about changes in the income statements, balance sheet, and other items, as well as to discuss the 2025 guidance.