Grand Canyon Education, Inc.

Good day and welcome to the Grand Canyon Education second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker 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, 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 speaker, Mr. Dan Bachus, 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 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. And with that, I'll turn the call over to Brian.

Good afternoon, and thank you for joining Grand Canyon Education's second quarter 2026 conference call. There's been major disappointment from investors with regard to Grand Canyon Education's stock performance over the last 12 months. This is true in spite of the fact that GCE's financial performance continues to be remarkably consistent as it has been for 18 years. I'm going to start this call with the reason I believe this is happening. The following quote from a recent Wall Street Journal article summarizes what I believe. Major industry shakeups occur when structural shifts such as technological breakthroughs, regulatory changes, or economic pressures allow agile, fast-moving companies to displace legacy incumbents and C's market leadership. In the current economic landscape, market leadership is transitioning at a record pace due to chaos fatigue and rapid AI adoption. Legacy corporations are frequently losing ground to leaner technology native competitors, close quote. I believe it is taking the investment community time to understand the new environment that emerges when major structural changes take place in what has been an industry that is very slow to change. This is true across industries like artificial intelligence, software, cybersecurity, energy, power, legal services, aerospace, defense, etc. But it's especially true in higher education. Small private universities have been closing for decades, but closures are going to happen at an increasing rate going forward. Last week, this momentum went to another level when WASC announced four prominent universities were put on warning status due to extreme financial instability. Grand Canyon Education and its largest partner, Grand Canyon University, as well as its 19 other partners, represent a good example of an organization that has responded to technology breakthroughs, regulatory changes, and economic pressures. It is an agile, fast-moving company that is displacing legacy incumbents. With all the headwinds in the higher ed landscape and the very difficult second quarter comps, GCE delivered another great quarter. that included a 14 cent earnings beat over consensus estimates. But as you will see, the changes we continue to make to respond to the opportunities that exist in this volatile environment are going to come at an increasing rate and make it difficult for many legacy incumbents to keep pace, but will allow us to continue to produce extremely positive results. Now I want to review the three major platforms at Grand Canyon Education. Platform one. the online campus at Grand Canyon University. New online enrollments grew in the low single digits in the second quarter against very tough comps. And total enrollment grew at just under 8%. GCU's long-term goals are to grow new enrollments in the mid single digits and grow total enrollments like 6% to 7% on an annual basis. There's a lot that goes into this, but I want to focus on two things that differentiate our strategy and continue to produce consistent results. Number one is our outside development team that works directly with over 6,000 organizations across the country to develop their talent from inside. From school districts to hospitals, counseling centers, social work organizations, military bases, et cetera, over 32% of GCU students are generated through this activity and it continues to grow. Number two, over 70% of online students GCU's online students are pursuing degrees in areas where licensure is required. We believe that some students pursuing business or technology, for example, careers, will look for shorter, more direct paths to get started. This is continuing to impact enrollments at many institutions. GCU will offer certificate programs as well as degree options for those students. However, the bulk of degree growth on our online campuses happening in education, healthcare, counseling, social work, et cetera, areas that require accredited degree programs that lead to licensure. These degree and licensure requirements are not going to change. There are huge shortages in those areas and very few options offered at a distance because of student teaching, observation hours, internships, clinicals, et cetera, that are required and difficult for universities to provide. We have developed a $300 million proprietary administrative system that allows us to serve those students at a distance. We have been moving in this direction for years and have developed a strong brand with employers and built tremendous momentum as a result. Platform two, the traditional ground campus at Grand Canyon University. GCU started with under 1,000 students 18 years ago and now has just under 25,000 students. This is unprecedented growth. GCU now has more students living on campus in university-owned housing than any university in the country. The average incoming GPAs are over 3.5. GCU has invested over $2 billion in the campus and is currently ranked the 20th best campus in the country. GCU has 22 advisory boards and over 800 organizations in Arizona that are represented. GCU hasn't raised tuition in 17 years and the average student takes out less debt than the average state university student. As universities continue to raise tuition and more universities close, our advantages will continue to grow. However, in addition to those advantages, GCU is adding three important new tracks that will increase student enrollment opportunities to grow the ground campus to 50,000 students. Number one, the Sheila and Mike Ingram Honors College. The Honors College will grow from 3,000 to 3,500 students this fall. The goal is to grow to 7,000 students by 2030. The average incoming GPAs are over 4.1 weighted and the students come from all 50 states. GCU is building a 55,000 square foot three-story building to house the college that will be a state-of-the-art facility. GCU is building an Honors College Council that will be a who's who of successful Arizonans and many other Americans who will provide guidance to the college and its students. This will be one of the largest honors colleges in the country. GCU currently has some of the best high school students turning down Ivy Lake scholarships in order to attend the Ingram Honors College. The fact that the college sits in one of the fastest growing cities and economies in the country will provide the graduates with incredible employment opportunities. Number two, GCU is opening an 11th college. that will be called the College of Construction and Industrial Technologies. It is opening with two bachelor's programs and 11 one-year certificate programs to grow America's manufacturing and construction labor force. There are huge shortages in these areas, and the first goal is to add thousands of students in this college in the first full year of operation, which starts in September. This will add significantly to the revenue performance of both GCU and GCE going forward. GCU now has 13 fully built out programs, two baccalaureate programs, and 11 certificate programs in advanced manufacturing, construction, and microchip technology. Currently, 20% of students studying in these areas live on campus. And some of the certificate students are going to stay and apply to GCU's engineering bachelor's program when they have completed the year. These programs have high retention rates and are very profitable. Number three, GCU's 12th college is also starting in the upcoming year and will be a law school. GCU intends to make it one of the largest law schools in the country. There is a severe shortage of attorneys in Arizona and the greater southwest. GCU is working closely with the Arizona Supreme Court They have been very encouraging and we plan to open in the fall of 2027. GCU has written a curriculum for the program and is in the process of hiring a dean. GCU anticipates offering a 3 plus 2 and a 3 plus 3 program which will boost our pre-law undergraduate enrollment numbers and supply admission ready candidates for the law school. GCU students have been asking for this opportunity for years. GCU believes a majority of the students will live on campus. With the addition of these three new tracks, the path to 50,000 students on the ground campus is becoming clearer. Number three, the hybrid campuses. Grand Canyon Education's hybrid campuses had an increase in enrollment year over year of 18.5% in the second quarter, excluding the closed sites and those that are in teach out, which exceeded our expectation. We have turned the corner with this platform and the future is very bright. We currently have 47 locations that are slightly above 60% capacity. The goal is to have 80 locations with about 300 nursing students per location and an additional 300 students in other healthcare related programs. We opened a new site in the sixth month ending June 30th, 2026 and closed one site so the total number of sites remains at 47. We plan to open one new site in the fall of 2026 and three to five new sites in 2027. Additional program offerings are being added, including a graduate nursing program with specializations at Northeastern University, which started this past fall. A hybrid occupational therapy bridge to master's program to the already successful St. Catherine's occupational therapy assistant hybrid program beginning in the fall of 2026. an online health science degree with Utica University, and GCU launched a Bachelor of Science in Occupational Therapy Assistance program and a Speech-Language Pathology program in 2025 at its Phoenix, West Valley location. GCU is also adding a Bachelor of Science in Medical Lab Sciences program in the fall of 2026. We currently have almost 6,000 students attending our hybrid campuses. The revenue per student of these students is more than three times that of an online student. When we have 80 locations built out with approximately 600 students per location, the capacity will be just under 50,000 students. The prerequisite business that supports this growth continues to take off. The general education science courses that are designed to get students academically prepared for the ABSN program has enrolled over 25,000 students to date and has tremendous room for additional growth. We believe the investment community is missing the major industry shakeup that occurs when structural shifts such as technology breakthroughs, regulatory changes, or economic pressures allow agile, fast-moving companies to displace legacy incumbents and seize market leadership. This is happening right now with Grand Canyon Education in the higher education industry. The online campus will continue to grow at six to seven percentage points. The ground campus, which has been flat, is reignited with the future growth of the Honors College, the huge potential of the College of Construction and Industrial Technologies, and the start of what will be a very large law school. We expect the hybrid campus business to continue to grow in the teens or greater in the future. Service revenue was $264 million for the second quarter of 2026, an increase of $16.5 million, or 6.7%, as compared to $247.5 million for the second quarter of 2025. The increase year-over-year in service revenue was primarily due to an increase in university partner enrollments of 7.6%, including an increase in GCU online enrollments of 7.8% and university partner enrollments at the off-campus classroom and laboratory sites excluding sites in teach-out or close of 18.5%. Partially offset by one less day of ground traditional revenue at GCU of one million in the quarter as a result of the shift of one day of revenue from the second quarter to the first quarter as compared to last year's spring start date. And a slight decrease in revenue per student year over year partially due to the 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 revenue per student for online students due to the continued mix shift to students that have a slightly lower net tuition rate and a slight decline year-over-year in ground students which generate a higher revenue per student than online students. Operating income and operating margin for the three months ended June 30th, 2026 was 58.2 million and 22% respectively, as compared to 51.8 million and 20.9% respectively for the same period in 2025. Net revenue is 45.9 million for the second quarter of 2026. GAAP diluted income per share for the three months ended June 30th, 2026 is $1.75. as adjusted non-GAAP diluted income per share for the three months ended June 30th, 2026 is $1.81, which is 14 cents above consensus estimates. With that, I'd like to turn it over to Dan Bachus, our CFO, to give a little more color on 2026 second quarter, talk about changes in the income statements and balance sheet and other items as well to discuss 2026 guidance.