Good day, ladies and gentlemen. And welcome to the Grand Canyon Education’s First Quarter Earnings Call. At this time all participants are in a listen-only mode. Later there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder today’s call is being recorded. I would now like to turn the conference over to Brian Roberts, General Counsel. Sir, you may begin.

Thank you, operator. Good afternoon and thank you for joining us today on this conference call to discuss Grand Canyon’s 2015 First Quarter Results. Speaking on today’s call is our President and CEO, Brian Mueller; and our CFO, Dan Bachus. This call is scheduled to last one hour. During the Q&A period, we will try to answer all of your questions, and we apologize in advance if there are questions that we are unable to address due to time constraints. We’d like to remind you that many of our comments today will contain forward-looking statements with respect to GCU’s future performance that involve risks and uncertainties. Various factors could cause GCU’s actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in GCU’s SEC filings, including our annual report on Form 10-K for the fiscal year ended December 31, 2014, our quarterly reports on Form 10-Q and our current reports on Form 8-K. We recommend that all investors thoroughly review these reports before taking a financial position in GCU, and we do not undertake any obligation to update anyone with regard to the forward-looking statements made during this conference call. And with that I’ll turn the call over Brian.

Good afternoon and thank you for joining Grand Canyon University’s first quarter fiscal year 2015 conference call. In the first quarter of 2015, enrollments grew by 12.9% and net revenues grew by 15.9%. New enrollments grew in the mid-single digits and operating margins are at 28.8% for quarter one 2015. Continuing to produce these results requires expertise, hard work and especially teamwork. I want to thank our executive management team, our faculty and our staff for working in a multitude across functional ways, across many colleges and departments to provide our students with world-class educational experience. The 2014/15 traditional school year, officially ended this past Saturday with a Sixth and Final Commencement Ceremony. Going forward there are two numbers that will become increasingly important to the development of the traditional campus. First, we start to follow 2014 with approximately 11,000 campus students. After subtracting the students who graduated, approximately 85% of the total, remain in our registered return this coming fall. That means that we are now on track to graduate approximately 60% of our traditional campus students. In the case of GCU, I think [ph] it doesn’t accurately portray the future with regards to graduation debt rates. The deal [ph] was back six years to 2008 and only includes first time full time students with GCU had less than 100 of those students. Between 2004 and 2009, traditional campus student body had deteriorated in terms of quantity and quality. In fact, in 2008 there were less than 900 students on campus and the overall quality of the students was not good. Beginning in 2010, the traditional campus student body began to grow in both quality and quantity of students. Since 2010, each class has been stronger. The average income in, GPAs keep getting higher, retention rates continue to improve…

Thanks Brian. Revenue and income from operations exceeded our expectations in the first quarter, primarily due to higher enrollments. Revenue per student was up year-over-year due to our residential traditional campus enrollment growing at a rate higher than our working adult enrollment. When factoring in room boarding fees, the revenue per student is higher for these students than for our working adult students. Online revenue per student was down slightly due to students taking more breaks in the previous year and a mix-shift of programs that are in less revenue per student per day. We believe this trend of slightly lower online revenue per student will continue. Scholarships as a percentage of revenue increased from 18.4% in Q1 2014 to 19.3% in Q1 2015 due primarily to the growth in our ground traditional student enrollment between years. Online scholarships as a percentage of related revenue was flat year-over-year. Bad debt expense as a percentage of revenue decreased to 2% in Q1 2015 as compared to 2.3% in Q1 2014. This decrease is primarily the result of continued improvements in processes and the quality of our student body as well as the change in accounting for withdrawing students made in the third quarter of 2014 which has had the effect of reducing our bad debt expense and revenue. Our effective tax rate for the first quarter of 2015 was 38.8% as compared to 38.9% in the first quarter of 2014. We did not repurchase any shares of our common stock during the first quarter of 2015. We have $25.9 million available under our share repurchase authorization as of March 31, 2015. Turning to the balance sheet and cash flows, total cash unrestricted, restricted and short-term investments at March 31, 2015 was $245 million. Accounts receivable, net of the allowance for doubtful…

[Operator Instructions]. Our first question is from Adrienne Colby with Deutsche Bank. You may begin.

Hi, thanks for taking my question. I was wondering if you could update us with how many students have registered for fall 2015, and remind us if you require deposit and maybe what percent of your incoming class could actually be from Arizona and California?

Yes, we don’t give those registration numbers out, although we are on track to hit the 14,500 number and are on track probably to exceed the 7,000 new-student number. And so, we feel very good about where we’re going from that standpoint. And secondly, we feel very good about the average income in GPAs, last year it was right at 3.5, this year it will exceed that for fully admissible students. We’re very excited about that. The third thing is, we will have approximately 1,000 students studying in computer science, information technology, and our three engineering programs, mechanical, biomedical and electrical engineering. And so we’re very excited about the incoming class from that standpoint, 50% of the students will still be studying in the natural sciences, many of them in all of the biology programs that we have. Our placement rate continues to almost double the national average for placement rate into medical school, we’re excited about that. And then from Arizona, we will probably have somewhere between - around 55% of the new students will be from Arizona, 20% to 25% will be from California. That number recently is really starting to go up, as we’re experiencing - we’re getting their award letters. And they’re looking at what they’re going to have to pay after scholarships tuition, room and board. They’re comparing it and they’re really very surprised that they can study in the natural sciences engineering and technology for those tuition rates. And so, California is really growing. And then the other 15% or so percent will come from mainly the Southwest, although we are starting to roll a little bit in the Midwest now.

Okay. And as a follow-up could you just update us on your expectations for summer school enrollment?

Yes. Yes, I think it will be pretty comparable to last year. We’re not seeing a big jump year-over-year in like we saw last year. So, it will be just under 3,000.

Great. Thank you.

Thank you. Our next question comes from Sara Gubins with Merrill Lynch. You may begin.

Hi, this is David Chu for Sara. So, can you just I guess speak a little bit more about the non-profit conversion and I guess you mentioned that the initial structure is not likely to happen. Can you just elaborate on that?

I think the four or five largest investors that we have are looking at our models and saying, at 10% or 15% premium is way below what they would expect given the performance of the university. And so, that’s probably the major reason, if not, that would have been required if not, it just didn’t fit with what we were willing to do from a debt standpoint. So, but we do, we are continuing to pursue other avenues, we don’t want to talk about any of the details of that but there are some things out there that have some amount of potential and we’re going to keep going down those roads. We hoped it will have more information or more detail to share about that in the second quarter conference call but we don’t want to really say any details at this point.

Okay. And so, just a follow-up on that. So, in terms of like the 10% to 15% like premium, I mean, is that the kind of maximum leverage that you could have taken on?

No Dave, once we got all the information from the rating agencies, I think we would have had a difficult time raising even the amount of debt to give even a slight premium over the existing stock price. And that, given what we believe the value of the company as a whole and what we heard from our investors as Brian said, we just couldn’t get to the debt levels that would be required to do that.

Although we do want to keep emphasizing that many of you have expressed dissatisfaction with the performance of the stock and we agree given the performance of the university or the company. It continues to be a problem of overhang with the rest of the industry. And so, that 10% or 15% we believed that would have been really best, it could have been best for our shareholders, but we respectfully will honor their devaluation if that’s not good enough. And we’d agree with them if something could get done about the overhang and the rest of the industry, that’s the problem.

Got it, okay. And just one last question, in terms of scholarships what is, your expectations for the year?

I think similar to what we talked about at the year-end so you’ll see an overall increase in scholarships as a percentage of revenue. But that is, if you split it out flat year-over-year from an online perspective and flat year-over-year from a ground perspective, but when you combine the two of them together given that the ground is growing at a faster pace in online, you’ll see an increase in scholarships as a percentage of revenue.

Got it, okay. Thank you very much.

Thank you. Our next question is from Peter Appert with Piper Jaffray. You may begin.

Thanks. So, Brian, the momentum you guys have had in the online business has been really extraordinary relative to your peers. Can you call out any program offerings that you’re driving or other factors that you think are particularly critical to the performance? And then talk about how you think about the sustainability of that growth as the enrollments have gone larger?

And that’s the best question always to ask. And I’ve been saying that now for three or four years. I mean, if we can continue the online growth at this pace, well, it’s eventually going to go down, we’ve talked about that. But if we can continue to grow the online campus, the variance that we have in the ground past campus perspective continues to grow. And going past 25,000 students with high graduation rates, four year revenue streams and plus factor-in what we’re experiencing from a room and board standpoint, that part of it is really kind of insured. It’s the online part of it. The programs, the doctoral program is growing at a very fast clip. And that is really helpful to us because the tuition rate is relatively is higher. The students have good retention rate. And there are four year revenue streams. And so, every time you recruit a doctoral student that stays in the program that counts for a lot compared to students in other programs at other levels, so doctoral program is growing fast. We continue to do well in education and in nursing at both the Bachelorette and the Masters degree level although we are adding a minimum of 20 Masters degree programs on an annual basis. And so what we’re starting to do is we’re starting to leverage additional programs that we’re adding. In fact, today we have eight colleges and 160 programs by the end of this calendar year we’ll have over 200 programs. And so, programmatic expansion is really helpful to us both in those core verticals but then in others as well. One of the areas that is doing well for us is counseling and psychology. When I say psychology, I really mean in the areas of counseling, addition counseling, those areas are growing because there is an increase in each of that in a lot of different facets of society.

That’s very helpful. Thank you. And one related question Dan, do you have an estimate of what the cap spending is going to be for ‘15 and preliminary thoughts on what it could be in ‘16?

We’re leading our expectation of ‘15 the same so that in the mid $190 million range. We haven’t come out with a 2016 estimate yet I think we’re still finalizing exactly what needs to be done for 2016. I know we’re going to build at least 2,000 new beds from a residential standpoint. But in terms of classroom, needs and other needs, we haven’t finalized that. So we haven’t come out with an estimate yet for ‘16 CapEx.

But probably not meaningfully lower than ‘15 then it sounds like?

It will be lower but not, it won’t be meaningfully lower I don’t think.

Got it. And can I ask one other thing, Brian, any comments on the competitive dynamic with ASU and what you’re seeing there?

It’s really competitive. And I think in a very good way. We’ve got 4 million people that live in the valley and if you go to a city like Chicago or Philadelphia, you’ve got six division one institutions, in a City like Chicago you spend there hasn’t been anything meaningful here except ASU. And so, we’ve lost thousands of students on an annual basis to California especially to private universities, especially private Christian universities. We’re now keeping those students home and there are a lot of students that are attracted giving the private university education for very close to the same kind of tuition, room and board rates especially because our campus is very safe. And there is a, community feel here that is really attractive to families and to students. And so, I think it’s absolutely a good thing for Arizona that we’ve got another prominent player in the valley that we’ve got reason for people to stay here versus going out of state. And it’s really helpful from an economic standpoint for us to be growing like we are in California. Those students are coming to Arizona with tuition dollars, room and board dollars other expenses. And if we can get them graduated in areas like engineering and keep them here, that’s all good for Arizona. So, it is very competitive. It is very competitive, I think the competition is very good.

Great. Thank you.

Thank you. Our next question is from Phil Stiller of Citi. You may begin.

Hi guys, thanks for taking my questions. Can you talk about the mix of online growth geographically how that’s coming in?

Yes, we continue to grow in Arizona and in California primarily. Those are the biggest areas of growth. We still have pockets where we’re very effective in the Northeast and the Southeast, not as much in Texas, there is a lot of competition in Texas. But it’s first in Arizona, second in California and then the other Southwestern states are going out, Colorado, Nevada and New Mexico. Interestingly enough, the retention rates of students are impacted the closer that you get to the home campus, the more people are familiar with our brand, the better students that we getting to hire retention and graduation rates we get. But our national advertising campaign is having a significant impact I know there are some research going on Google Searches. And some people are alarmed because they appear to be going down. What’s happening with our branded TV advertising is that people are going directly to our website in increasing numbers. And so, they don’t need to use the search engine to find us. And so the Google Searches have gone down but our overall contacts are going up. And because of that branded advertising which is effective even nationally.

Okay, that’s helpful. I mean, I guess, with more and more of your students still coming from your geographic areas, should that continue to have a positive impact on online retention, I guess what’s the upper limit on that?

It’s very good and very helpful to be in a state that you have 6.5 million people and is growing with not a lot of options. But it’s especially helpful to be within a one-hour flight and five-hour drive of 40 plus million people in California where the State University system is really under a lot of pressure. I was talking to a university President just a day or two ago, who said that in this year, they turned over 20,000 admissible students at one university. And that is traditional students but it’s also impacting non-traditional students because 33 and 34-year old students attend community colleges just can’t get the classes that they’re looking for. And we’re building relationships with those community colleges and they’re happy to build them with us because their first endeavor is to service the students. And if they can’t, and we can it’s a good thing.

From a retention standpoint, I know we’ve talked about this before our sequential quarter retention rate is in the low 90s. It was up again year-over-year. I think our plan is for that to continue to go up in the 50-ish basis points on a year-over-year basis. So, we hope it will continue to go up, we expect it to continue to go up, but you’re not going to see the 150 to 300-basis point year-over-year improvements we’ve seen because we are now in the low 90s on that metric.

Okay, great. One last question from me, the revenue per student outlook for this year is kind of up a little bit or it’s similar to last few years. It seems like most of the growth is just driven by mix with the ground campus growing and more students living on campus. Are there longer term plans to drive that to a higher level it seems like you have perhaps some untapped opportunity particularly in the ground? Thanks.

Yes, absolutely. I mean, it’s - we are really, there are companies that are coming up wanting to do residential housing for traditional universities especially state universities, they’re popping up everywhere and wanting to do your housing. Well, what they know is, it’s extremely profitable. And so, that’s become a big part of our plan both financially but also from a campus cultural perspective. The students that stay in our campus, their retention rates are higher, their average incoming GPAs are higher and their overall experience level is just really, really good. And so, we’re going to probably the best investment we can make is to continue to build campus housing both in the standpoint of how financially profitable it is but also from the standpoint of we are then in control. One of the things that we’re learning as we’re growing into 25,000 plus students is we’re not going to see it control over that environment to somebody else. We have a dry campus we have an alcohol-free campus. And so, our crime rates and our problems from a student behavior perspective are just really, really below. And when families come on our campus space feel that. And they come in frequently, and the friendliness of the campus, how polite our students are, how involved our students are. And I think I’ll be honest with you that that’s really - it’s important for the kids that come from Orange County and Paradise Valley and Scottsville and those areas. But it’s also important for those kids who come from first generation college goers. Because if we can get them on campus and get them involved in campus life and they meet people and they develop friendships, their likelihood of staying with this thing is a lot greater. And so, we’re going to continue down the road of making this from the standpoint of percentage of overall students living at campus is high as anybody in the country I hope.

Okay, thank you.

Yes.

Thank you. Our next question is from Jeff Mueller of Baird. You may begin.

Yes, thank you. I just wanted to ask on the ground enrollment fall 2015 guidance, I think there was a slight change. Did you used to say 7,500 new, 7,000 returning and now you’re changing it to 7,500 returning, 7,000 new? And if so, is that item that the retention rate is better than you were previously expecting?

Retention rate is definitely better than we were saying, so we’re extremely pleased and happy about that. The new enrollment, we’re going to have to turn a couple of hundred students away, maybe as many as 300 students away because we just don’t have housing. And that’s unfortunate. These are students that meet the admissions requirements to a great extent but we don’t have housing for them. And so, to come from out of state and not have housing is a difficulty, so.

Okay. And then, on the, I know you don’t want to say a lot here on details but I just want to make sure I’m understanding it correctly. On the evaluation of other ways to convert to a not-for-profit, I just wanted to verify that it’s related to looking at other potential financing mechanisms. It was still legally up to involve, you’re bringing in offer to shareholders that they would approve. Is that correct?

Jeff, again I’m not sure we want - we don’t want to get into the details of it at this point. I think give us a few months and we’ll share all those details with you.

Okay. And then, just given the comment Brian about the stock price and some frustration there as part of this evaluation, are you looking at any other strategic alternatives? Thank you.

Well, right now we’re continuing to invest heavily in the infrastructure of our ground campus because the payout for that is so great. We’ll be at some point looking at buying back more stock, couple of years down the road maybe it’s not as big a part of the plan right now because we’re continuing to invest in the infrastructure on the campus.

Okay, thank you.

Thank you. Our next question is from Jason Anderson with Stifel. You may begin.

Good evening guys. Just a question about pricing and tuition pricing, maybe you could speak to obviously it’s competitive with ASU, and in the area they’re on the ground. But you also have quite a bit of demand, you also have, I was intrigued by your comments about engineering and the price for engineering program. Do you feel you have some pricing opportunity or to take some pricing?

Absolutely, I mean, that’s in our back-pocket. And if ever we needed to use that, we could certainly do it. We have room both on the ground campus, we have room on the online campus and we have room in terms of what we call Canyon Connect, which is material science, especially materials. And so, we’re doing well without that. But if there comes a time where we needed to make very reasonable and modest tuition increases we could certainly do that and still be in a very fair place.

And then, just one other on the hospitality degree, have you talked about maybe what your plans are from an opportunity side or what that program could get to? And maybe also if, in the competition also will have on-ground hotel that you’ll be managing or if the uniqueness of that I guess if you could speak to that?

Yes, we’re really excited about that simply because Arizona has got, we’re in the valley here there are 4 million people, but 6.5 million people in hospitality is one of the big industries in Arizona. Northern Arizona has a great program, [indiscernible] likes that. And so for us to develop our own hotel, restaurant, convention center, golf course including club-house, restaurant, there is going to be lots of opportunities for the students. We think we can grow that to 1,000 students at our ground campus simply because it’s a very meaningful program for Arizona. And that industry continues to grow here. So we’re being right in the middle of it, like we are. We can use our own facilities but then we’ve got access to facilities all over the valley and high quality four and five star resort facilities that get our students involved in. And it made sense as just kind of overdo really.

Great, thanks.

Thank you. Our next question is from Jeff Silber with BMO. You may begin.

Hi, thanks a lot, its Henry Chen calling in for Jeff. I just wanted to clarify your comments on the operating margin coming about guidance for 1Q. I know you mentioned there were more students seasonally and some expenses were lower than expected. I just wanted to clarify, is that something that it’s just a one-time theme or should we expect that to maybe recur seasonally? And related to that, what are your thoughts on where margins can go in 2016 and beyond with the new campuses? Thanks.

Well, I think if you’re looking at it on a sequential quarter basis, obviously margins are going to drop significantly in the second quarter as we always predicted because you don’t, you’re only getting one month ground traditional campus revenue in that quarter. We do have summer school, but not very many students take it and they don’t - they’re not necessarily full-time. And so, we revenue drop significantly but you got a fixed cost infrastructure that’s in place, you’re still paying all those people etcetera, plus we’re hiring people to gear up for the next fall. So if you look at next year and are trying to model fall rather first quarter of ‘16, our hope would be that we could keep margins where they were or even raise them a little bit on a year-over-year basis. I don’t think there should be deterioration in the margin year-over-year if you’re talking about first quarter of ‘16 versus first quarter of ‘15. If you’re talking second quarter of ‘15 versus first quarter of ‘15, yes for the reasons I said earlier.

Got it, yes, yes, I was just looking at first quarter ‘16. And any thoughts on margin expansion for ‘16 and maybe long-term?

Well, flat to slight increase in margins year-over-year.

Got it.

But we’re really early, obviously haven’t even looked at a budget for next year but that would be the goal.

Great, all right. Thanks a lot.

Thank you. Our next question is a follow-up from Jeff Mueller of Baird. You may begin.

You there Jeff? Maybe not.

All right. So we have reached the end of our first quarter conference call. We appreciate your time and interest in Grand Canyon Education. If you still have questions please contact either myself, Dan Bachus or Bob Romantic. Thank you for your time.