Good afternoon, and thank you for standing by. Welcome to the Grand Canyon Education's Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advise that today's conference is being recorded. And I would now like to hand the conference over to your first speaker today, Dan Bachus, Chief Financial Officer at Grand Canyon Education. Go ahead, Dan.

Good afternoon. 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 any 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 third quarter fiscal year 2022 conference call. GCE had a very good quarter, exceeding enrollment expectations, exceeding revenue guidance at midpoint by $420,000 and producing a $0.15 beat on its adjusted diluted earnings per share guidance at midpoint. Given how most of higher education is coming out of the COVID years, these are excellent results. Most importantly, GCU online produced new enrollment growth in the mid-teens over third quarter prior year, and that momentum is expected to continue in the fourth quarter. I want to begin by taking a step back to explain why this is happening in briefly, review what has happened since the GCU transaction took place four years ago. I have often said that in the past, small and elite has won the day in higher education and especially in areas like U.S. News and World Report rankings. But in the future, it will be large, scalable, flexible, offering education across the adult lifespan and using technology to build as many delivery models as is necessary given the nature of the content and skills that need to be learned. GCE has invested approximately $300 million producing its own learning management and administrative system that allows it and its partners to manage over 5600 full time and adjunct faculty, 116,000 students and over 300 academic programs emphases and certificates across four delivery platforms. This system has automated processes, including admissions, transcript collection and evaluation, schedule building, financially processing faculty recruitment, faculty assignment and payroll content, acquisition, assessing learning outcomes, teacher placement, counseling, and social work internships and the list goes on. The administrative capability of the system allows faculty and students to focus on the learning, which is still in a small group instructor led process that is…

Thanks, Brian. Included in our Form-8K filed with the SEC, we have included non-GAAP net income and non-GAAP diluted income per share for the three months ended September 30, 2022 and 2021. The non-GAAP amounts exclude the tax affected amount of the amortization of intangible assets of $2.1 million and the third quarters of both 2022 and 2021. And the tax affected amount of the loss on fixed asset disposal of $0.5 million for the three months ended September 30, 2022. We believe the non-GAAP financial information allows investors to develop a more meaningful understanding of the company's performance over time. As Brian just mentioned, as adjusted non-GAAP diluted income per share for the three months ended September 30, 2022, and 2021 is $1.02 and $1.11, respectively. Service revenue was slightly higher than our expectations in the third quarter of 2022 is period and online enrollments exceeded our projections due to the higher than expected new students starts in August and September partially offset by slightly lower revenue per student than expected due to mix. Hybrid revenues were in line with our expectations. The hybrid enrollment growth rate is being impacted on a year over year basis due to the timing of site openings at 22.7% year-over-year decline in OTA enrollments, the closing of sites and a decline year-over-year in the enrollment at some of the mature sites through the challenges previously discussed. Excluding enrollments from close sites, ABSN enrollments grew 7.5% year-over-year, which includes the campus enrollments for our New York City of Park. Revenue per student continues to grow on a year-over-year basis primarily due to increase room board and other ancillary revenues from GCU's traditional grounds students as compared to the prior year period and the growth in the enrollment for ABSN hybrid students. Service revenue per…

Thank you very much. At this time we'll conduct the question and answer session. [Operator Instructions] Our first question comes from the line of Jeffrey Silber with BMO Capital Markets. Jeffrey, your line is open now.

Thanks so much. Dan, I just got a quick question for you. Why the change in the format for the guidance, GAAP EPS versus adjusted diluted EPS?

We did get an SEC comment letter this last quarter. It actually fortunately for us, but not surprisingly, I guess was -- there was only one comment. And that comment was that they did not like the format that we were previously providing. They wanted us to provide GAAP even in the guidance section. And so they're fine with the reconciliation process that we use. But I thought doing a reconciliation within the guidance section was going to given the range that we provide in revenue and margin would just make it fairly messy. So instead, what we agreed with the SEC is we would provide GAAP numbers with the components necessary for you to reconcile it to as adjusted.

Okay. I appreciate that. That's the only thing they found that's actually pretty good. Let's move on operations. I know you talked about enrollment advisor, hiring still below plan. Is it just the tight labor market? Is there anything else going on? And if it's the tight labor market are you finding it easing a little bit?

A little bit? Yes. And that is the only reason is the tight labor market. And I think in the next four or five months, we'll get back to close to where we should be. But we're not in a unbelievable rush to hire people who are really not qualified. Things are going so well right now. And the morale is so high. We just went through those two years where our outside people were essentially inside not able to do much. And so our lead acquisition amounts were spread over almost double the number. And right now, our lead purchases are applying to just those inside people. And so, they're doing extremely well. And our outside people now have been back out for a year. And we're just finding solutions for school district, for example, I mean, we're just doing contracts for paraprofessionals within school districts so that they can become licensed teachers. School districts are extremely happy. We're doing similar things with nursing. On military bases, we are assembling talent that can do masters in baccalaureate programs in cybersecurity, because they can't get people that - because it can't compete with outside salaries. And so, the combination of those things, in addition to really, really importantly. We compete mainly against institutions that have a handful of programs. And it's the rapid expansion of programs that that are current in terms of content that allows them to access jobs and careers that are developing and growing. All those things have just combined to -- we're really back on track now. Our ground campuses is right now, at this time last year, we had about 14,000 applications. This year, we have 17,000 applications for our ground campus. And so that's going tremendously well. We had tremendous success in August and September. And that's continuing in October, with our online campus. And that allows us to spend a little bit more time to get our hybrid campus exactly where we need it. But so, we'll eventually be where we need to be from a headcount standpoint, but we're not going to hire a bunch of people, they aren't really qualified to do this work. Because things are going so well. I want to say in addition, that one of the things that people are most worried about is faculty. And we are having very few issues that way. We have less than a 5% turnover rate with our faculty both full and part time. We have a little bit, I mean, on our campus with engineering, and a little bit in some of the hard sciences, we have a little bit of an issue. But other than that, things are just going really well.

Okay, great. I'll jump back in the queue. Thanks so much.

Thank you.

Okay. [Operator Instructions] Our - one moment. Our next call comes from Jeffrey Mueler with Baird. Jeffrey. Your line is open.

Yes., thank you. So I get the optimism on increasing enrollment advisor headcount over the next four to five months. And it's, I mean, trends are going great right now. So just curious as to like, how close to a pressing issue? Is it just based upon current enrollment advisor capacity and productivity? How much runway is there to continue to deliver strong growth versus at what point does like, at what point in the future would it become much more dependent upon needing to have the head conditions?

Yes. I think things look very good going into the first half of next year, obviously, total enrollment, trails behind new enrollments, but the new enrollment growth has been so significant that we expect in the first half, we will be back to positive total enrollment growth. And then by that time, we need to make sure we're closer to full capacity from a hiring standpoint. And that just -- that includes all areas, all counseling areas, faculty, et cetera. So, you're looking at eight months or so that we have to make sure we're hiring, not just the right number of people, but make sure we're hiring the right people. And so, we've got plenty of runway there, we think.

Got it. So, and then Brian want to make sure I'm understanding what's going on in terms of addressing the pre-req challenges for hybrid. So are there two separate pathways that you're standing up for solving for? One is what you talked about on the call where you have 400 and some students that are coming out of high school and going through the GCU, I guess, apprenticeship theater [ph] type programs for the first 60 and then they could potentially end up at a hybrid campus of GCU or one of your other partners. And then, in addition to that program, you're also working on addressing the prereq challenges for the career changers that have an existing bachelor's degree that could also feed into the various hybrid location. Am I correct? There's two different things going on? And can you say anything further if so, on the second piece of that?

No, I think you're real close there. The one of the things we're learning is that the demand to get in the nursing profession, and the frustration, of really qualified students not being given an opportunity has led to students being open to be mobile. And so, first of all, we bring students from all over the country into our pre nursing program here on our campus. And those students go through two years and attempt to qualify to be in a nursing program on campus, if they can't get in there, there's such an over producing of high qualified students that we put an overflow of them into our GCU ABSN programs. What we're also finding is that there are a lot of really good high school students who are willing to stay home and earn their first 60 credit hours while at home, saving money on transportation room board, et cetera. And they have lots of opportunities, given it eventually, we'll have 80 locations to come out of those first two years, with the necessary science courses and other Gen Ed Courses, so they can apply to one of our ad sites. But then we've got the 26 partners. And there's not a lot of good options for people that have earned degrees in other areas, who want to re-career into nursing. Most of the options are community college options. And while the community colleges do a good job in some areas, if you tell a student, go take a look at what they offer in the first semester and then think about what they offer in the say, it can be a two or three year process, which is most people are not our way too impatient for that. And so, what we've created is online prereq…

And Jeff one thing to clarify on the 421 students, that's a mixture of those two groups that Brian talked about. They're not all in -- those are not all directly out of high school.

Got it. Thanks for clarification. And then just last. Are you seeing differences in the employer behavior and employer conversation? I hear you have on the electrician, apprenticeship program that you're standing up, it sounds like the channels generally doing better, which makes sense, coming out of COVID and in a tight labor market. But is there -- are employers asking for more tailoring of programs? Are employers doing more in terms of financial contribution to the education, just anywhere that the conversation or behavior is changing?

It's both, but it's more the first than the second. I think the second is going to trail, but the first is really strong. I mean, traditionally, in higher Ed people build a campus created programs and you had to come and do it their way, or there was no other way to do it. And where it's going in higher Ed is you better -- IBM has their own university now. You better be able to, in our opinion, understand what the changing needs of the workforce in the economy are, and be able to go to school districts, hospitals, businesses, technology firms, and number one, understand what their human resource needs are going to be over the next five to 10 years and then be able to respond to it in a way that they can grow their own talent. Talent is just at such a premium now. I mean, the Arizona is especially feeling it, because this place is going to explode the next 10 years, with all the companies that are moving from California, Illinois, and New York. And so for us to be able to -- we have a giant Taiwanese chip factory being built here right now. And then we talked to them once a week and they want every electrical engineer we can produce. But for every electrical engineer, they hire, they need 100 electricians. School districts are especially excited when we can come in and take their paraprofessionals and move them from part time people to full time licensed teachers, because there's such a serious teacher shortage. Doing the same thing in nursing. I think I mentioned military bases. They can't compete for cybersecurity specialists. And so, we've got over 400 people out there now that are offering tailored solutions to meet the human resource needs they're going to have. And they're opening their doors to us in a way that's kind of unprecedented, because of the labor shortage that exists. And so, it's just a really, really high quality way, in my opinion for a university to operate. Because what we're doing is taking people and asking them to invest time and money into an academic program, but the guarantees of employment are very significant. They know exactly where they're going when they graduate. And so, that's been a big part of the rejuvenation of this area for us.

That's also a great validation of your big part of the solution. That's it for me. Thanks. Congrats.

Thanks.

We have reached the end of our third quarter conference call. We appreciate your time and interest in Grand Canyon education. If you still have questions, please contact myself Dan Backus. Thank you.

Okay. Thank you for your participation. This concludes the program and you may now disconnect.