Good day, and thank you for standing by. Welcome to the Q2 2024 Grand Canyon Education 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 advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Dan Bachus, Chief Financial Officer. Please go ahead.

Hello. 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 a financial position in GCE. And with that, I will turn the call over to Brian.

Good afternoon, and thank you for joining Grand Canyon Education's second quarter 2024 conference call. GCE had another strong quarter, producing online enrollment growth of 7.5% and hybrid growth of 12.1% and also continuing to produce strong retention rates, exceeding revenue guidance estimates at midpoint by $4.5 million, producing a $0.17 beat in adjusted diluted earnings per share to consensus while continuing to invest heavily in initiatives for our university partners. Grand Canyon Education and its largest partner, Grand Canyon University as well as GCE's 21 other partners continue to grow enrollments in the midst of declining enrollments at many universities across the country. I want to start by reviewing the reasons that this is happening. There is a vast amount of untapped potential in the American labor force today. The lack of created delivery models by universities is the reason for the untapped potential. The best examples are the huge shortages that exist in nursing, teaching, technology, engineering and cyber security, just to name a few. Expecting every student who has potential in these areas to attend an on-campus setting seriously reduces the size of the potential market. Our success is the result of understanding that people across the lifespan, have unique living situations and the nature of what it is they need to learn varies by academic area. The combination of creative delivery models and relevant programs is driving the interest in what we are doing. We currently deliver 340-plus academic programs, emphases and certificates across five creative delivery platforms. Number one, GCU's traditional ground campus is designed around the needs of 18-year-old high school graduates, who are able to spend three or four years on a college campus, preparing for life and work as adults. Their learning is primarily in physical brick-and-mortar classrooms, in other on-campus venues…

Thanks, Brian. Included in our Form 8-K filed with the SEC, we have included non-GAAP net income and non-GAAP diluted income per share for the three months ended June 30, 2024, and 2023. The non-GAAP amounts exclude the tax-affected amount of the amortization of intangible assets of $2.1 million in the second quarters of both 2024 and 2023. The tax-affected amount of the losses on fixed asset disposals of $0.1 million for the six months ended June 30, 2023, and the tax-affected amount of $1.1 million in severance costs recorded in the quarter related to Dan Briggs' departure. We believe the non-GAAP financial information allows investors to develop a more meaningful understanding of the company's performance over time. As adjusted, non-GAAP diluted income per share for the three months ended June 30, 2024, and 2023 is $1.27 and $1.01, respectively. Service revenue was higher than our expectations in the second quarter of 2024, primarily due to higher-than-expected revenue per student. Revenue per student continues to grow on a year-over-year basis, primarily due to the service revenue impact of the increased room board and other ancillary revenues at the GCU traditional campus enrollments between years. Service revenue per student is also positively impacted by the growth in hybrid ABSN students as these students generate a significantly higher revenue per student than we earn on the other students as these agreements generally provide us with a higher revenue share percentage, the partners have higher tuition rates and the majority of their students take more credits on average per semester as they are in accelerated programs. The increase in revenue per student was less and somewhat by the timing of the spring semester for the ground traditional campus. The spring semester started one day earlier in 2024 than in 2023, which had the…

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Steven Pawlak from Baird. Please go ahead.

I would like to start with the June online new enrollment. You said it was softer there. Just any color around what that was? And then it sounds like things were back on track in July. So just any sort of commentary around the outlook as well? Thanks.

No, not really. We continue to do better than expected with online enrollments. Lead flow is good. The outside activity is just -- continues to go very, very well. It's becoming an increasing bigger percentage of our starts on a monthly basis. And that work is not as totally predictable as the work that gets done inside with people responding to lead. So no, July is good, and we expect to have two good quarters in the third and fourth quarter.

And then I'm sorry, you said June was softer in the prepared remarks. Any commentary there?

June is a little...

June was a little softer. It's -- it was predicted. I mean, we knew that there was 1 less Monday start, which is our undergraduate start, which is growing faster than the graduate start during this quarter as compared to last year. And so we knew the second quarter -- the other thing is the second quarter is by far our slowest start quarter of the year. And so we're not talking significant enrollment numbers. And that's, as Brian said, we're generally on our target.

Okay. And then on the FAFSA delays, I hear you there as far as the things needed to be sort of resubmitted even after the delays sort of got corrected. But you had talked last quarter about sort of actions you were taking to sort of be more proactive with students that were interested. So I just how did -- I guess, some of the actions there maybe contribute to FAFSA not being as that is otherwise?

Well, we had to -- there were a tremendous amount of overtime that needed to be worked. There was a lot of manual work that had to be done that typically didn't have to be done. And so in addition to the delays that we experienced in the first part of the process, the second part of the process, involve delays as well because the information wasn't accurate and we had to do a lot of manual calculations in order to get the work done. And so that just kept pushing back dates. And when you are in a low-income family or even a lower middle-income family, the uncertainty of what I was going to get and -- or what I was not going to get created a lot of anxiety and people just decided to stay home, attended junior college and make a new decision in the next year. And so that impacted people all over the country. For us, to be nearly where we were last year is a huge gain, because if you look at the marketplace at a 40,000 foot view, there are fewer high school graduates, and there are -- there's a smaller percentage of those graduates going to college. And for us to maintain our -- where we -- were this year is a big win. Now as we look forward to next year, we've already established a goal that's over 15% higher than where we were this year, because we expect the FAFSA site to be fixed. We expect to be -- there's some -- be some moderation of inflation. But you have to -- it's the FAFSA, but it's also inflation. You have to understand that for middle-class families $1,000 or $2,000 can impact their decision one way or the other. But we think both of those things will be -- the first one will get fixed, the second one will be moderated, and we'll be in a very, very strong position and expect a big year next year.

All right. Thank you.

We have reached the end of our second quarter conference call. We appreciate your time and interest in Grand Canyon Education. If you still have questions, please contact myself, Dan Bachus. Thank you very much.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.