Grand Canyon Education, Inc.

Good day and thank you for standing by. Welcome to the fourth quarter 2025 Grand Canyon Education Earnings Conference call. At this time, all participants are now in listen-only mode. After the speaker's presentation, we'll open up for questions. 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 call is being recorded. I would now like to hand it over to your speaker. Sarah Collins, General Counsel, 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 10Q, 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 financial position in GCE. With that, I'll turn the call over to Brian.

Good afternoon. Thank you for joining Grand Canyon Education's fourth quarter 2025 conference call. GCE had another strong quarter, producing online enrollment growth of 8.7%, in hybrid growth excluding the closed sites and those in teach-out of 18.7%. Grand Canyon Education, Grand Canyon University, and now 19 additional partners have produced remarkably consistent positive results over the last 17 years in spite of significant changes in the macro environments of education and the workplace. Most significantly, GCU has gone from the brink of bankruptcy to now being the largest private university in America. In addition to over 107,000 students studying online, GCU now has 25,000 students in an on-campus environment and has more students living in university-owned housing on its campus than any other university in the country. Recently, GCE and its partners have built 47 hybrid campuses throughout the country to address severe shortages in the healthcare fields. More recently, GCE has assisted GCU in building a workforce development center to produce professionals in the rapidly growing construction and manufacturing fields where there are also severe shortages. The growth and success that has taken place is because GCE and its partners have built a model that is extremely flexible, is able to respond with great speed, and has used advanced technologies to produce tremendous scale. The current dissatisfaction with higher education is because faculty governance models at many universities are very inflexible, move very slowly, and can't scale to meet demands. There's a lot of talk about how AI will produce winners and losers by industry type. The real discussion should be about winners and losers within industries. Higher education as an industry will continue to exist. Institutions that are flexible, fast, and that can scale will be able to use AI to flourish to even greater levels in the next 10 years. Higher education will be more important than ever if it can educate the next generation of workers to use AI in three important ways. One, to use AI products to increase levels of human productivity. Two, to quickly allow workers whose jobs have been eliminated to re-career. And three, to educate a generation of workers for jobs that don't exist today but will exist in the near future. It is important that universities don't just teach AI but are able to model it in the way it runs its business. GCE and GCU have dozens of AI products and products in development. across 10 colleges, over 350 academic programs, and across every operational area. Students are learning with increased levels of excellence and efficiency. Scores currently produced by students in exit and licensure exams in the areas of healthcare, education, accounting, et cetera, are reaching all-time highs while scaling to huge numbers. This is especially important for GCU since it has rapidly expanded into academic areas requiring licensure. Programmatic areas like nursing, education, social work, counseling, etc. will benefit from AI implementation, but employment in those areas will always require higher education and licensure. Project work produced by business, engineering, and technology students are at increasing levels of sophistication. GCU's Innovation Center is producing new student businesses that are thriving. To succeed in the future, universities must produce those real-world opportunities for students, and they must graduate in less time, for less money, and for lower debt levels. Our AI products are making curriculum more targeted, faculty more effective and efficient, and allowing operators to produce greater levels of student support. I believe AI will make our current advantages even greater, which makes me even more confident we will continue to meet or exceed our long-term objectives. With that, I would like to review the fourth quarter results. First, the online campus at Grand Canyon University. New starts were up in the mid-single digits in the fourth quarter of 2025, which was in line with our expectations, and total enrollment growth was 8.7%, which significantly exceeds GCU's long-term objectives. 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. New start comps are extremely challenging in the first half of 2026 as new starts were up in the teens in the first and second quarters of 2025. compared to 2024 due primarily to the success of programs such as the prerequisite nursing and teacher education. Although we believe those programs have a lot of runway to continue growing, the year-over-year percentage growth is slowing due to the large numbers. But we are rolling out some new programs in the second quarter of this year that we are very excited about that we believe will allow us to continue to grow total enrollment at or slightly above our long-term objectives. Second, the GCU Grout 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 enrollments was in line with our expectations given last year's decline in new enrollments caused primarily by the FAFSA site issues and the higher than expected summer graduations. Spring new and total enrollments were in line with our expectations. Spring new enrollments is a small percentage of overall new enrollments as they are mostly made up of transfers or students that deferred a semester. And total enrollment is impacted by the growing number of students that are graduating in less than four years. We believe GCU will continue to experience new student growth on the ground campus because of its significant advantages, including very low price point, very low average debt levels, percentage of students completing in less than four years, the relevancy of GCU's academic programs to a fast changing and modern economy, and having the 20th ranked campus in the country. As we move forward, there are three trends that are impacting traditional college campuses throughout the country. One, the number of high school graduates on an annual basis continues to decline. 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 are in a very strong position given these trends. We have a high quality affordable offering on a 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. As we discussed on last year's earnings call, we have made some changes to our marketing and recruitment strategy for GCU's traditional campus which accelerated some spend into 2025 in the first half of 26. although it is still very early in the cycle those changes to date are producing positive results as registrations for fall 2026 remain significantly ahead of last year even with the macro trends i discussed earlier and the tougher year-over-year comps we believe we can continue to grow new enrollment significantly year over year which could get residential students back to growth third Grand Canyon Education's hybrid campus had an increase in enrollment year over year of 16.6% in the fourth quarter. Excluding the closed sites and those that are on teach-out, enrollment increased 18.7% year over year. There were no hybrid campus new starts in the fourth quarter, but we did have a higher than expected number of new students starting in the fall. 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 that 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 20,536 students. In the summer of 2025 term, 66% of all 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 prerequisite courses and when they will be eligible to start at one of our ABSN sites. The graduation rate of students who successfully enter the ABSN programs is in the mid-80s, and the first-time pass rate on NCLEX exams is approximately 90%. 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 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 Englewood, 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. It is likely that we'll only open one additional site in 2026 in the Miami, Florida area. A couple of sites that were planned to open in the fall of 2026 are more likely to open in early 2027. As we have discussed previously, we are being more selective on new site openings with a focus on the scalability of the markets. 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 past fall. A hybrid occupational therapy bridge to master's program to the already successful St. Kate's occupational therapy assistant hybrid program will begin in the fall of 2026. An online health science degree with Utica University and GCU launched a BS in occupational therapy assistance program and a speech-language pathology program in 2025 at its Phoenix West Valley location. GCU also plans to add a BS in Medical Laboratory Sciences program in 2026. Adding additional programs at our hybrid locations is an important component to our business plan. We anticipate this momentum will continue, although with the lower number of new site openings and more of our locations getting to capacity, hybrid enrollment growth will slow a bit while the profitability of this pillar will continue to improve. Fourth, 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 fall of 2026. These programs are all built in partnership with companies that are experiencing labor shortages in that area and excited about hiring GCU's graduates. These programs are either one semester or two semesters. 212 students successfully completed the electrician's pre-apprenticeship program in 2024-25, including 11 in the Austin-Texas hybrid location. 33 students completed the manufacturing CNC machinist pathway programs 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 GCU 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 215,851 students, 58,497 in education, including 27,527 first-time teachers at a time when teacher shortages have created a national crisis. 55,963 in nursing and healthcare professions, including 3,723 in pre-licensure nurses at a time when there's a huge shortage of nurses. 44,976 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 37,834 graduates. The College of Science, Engineering, and Technology has grown by 220%. and provided 9,512 graduates. The Doctoral College, Honors College, and College of Theology also continue to grow. In addition, GCE has helped its other partner institutions 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 years since the GCU-GCE transaction and since GCE has become an education services provider. This is a great example of a futuristic educational model that is flexible, moves very fast, and is capable of great scale. All of this has occurred while GCE paid $619 million in federal and state taxes. While state universities and community colleges continue to pull money out of the tax system, GCE has helped produce over 230,000 graduates while pouring millions of dollars into the system. Service revenue was $308.1 million for the fourth quarter of 2025, an increase of $15.5 million, or 5.3% as compared to $292.6 million for the fourth quarter of 2024. The increase year-over-year in service revenue was primarily due to an increase in university partner enrollments of 7.1%, including an increase in GCU online enrollments of 8.7% and university partner enrollments at the off-campus classroom and laboratory sites of 16.6%, partially offset by one less day of ground traditional revenue at GCU of 0.9 million in the quarter as a result of the shift of one day of revenue from the fourth quarter to the third quarter as compared to last year's fall start date and a decrease in revenue per student year over year primarily due to contract modifications with some of our university partners in which our 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 the revenue per student for online students due to the continued mixed shift to students that have a slightly lower net tuition rate. Operating income and operating margin for the three months ended December 31st, 2025 was 108.1 million and 35.1% respectively as compared to 100 million and 34.2% respectively for the same period in 2024. Net income was 86.7 million for the fourth quarter of 2025. GAAP diluted income per share for the three months ended December 31st, 2025 is $3.14. As adjusted, non-GAAP diluted income per share for the three months ended December 31st, 2025 is $3.21, which is two cents above consensus estimates. With that, I would like to turn it over to Dan Back as our CFO to give a little more color In our 2025 fourth quarter, talk about changes in the income statements, balance sheet, and other items, as well as to discuss the 2026 guidance.