Good day and thank you for standing by. Welcome to the Q4 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 turn the conference over to your speaker for today, 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 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 over the call to Brian.

Good afternoon and thank you for joining Grand Canyon Education's fourth quarter 2024 conference call. GCE had another solid quarter producing online enrollment growth of 7.1% in hybrid growth excluding the closed site and those in teach-out of 14.9%. We also continued to produce strong retention rates while at the same time investing heavily in initiatives for our university partners. The investments GCE and its 22-partner institutions are making are based on the belief that there is a vast amount of untapped potential in today's workforce. Many recent high school graduates did not go to college this year because of exorbitant tuition rates, potentially exorbitant debt levels, and difficulty managing the FAFSA website. Many working adults who could benefit from higher education are not attending because of the lack of creative delivery models that do not take into account their life situations. Grand Canyon Education will continue to grow at our stated goals over the long run because we are addressing those challenges in ways that work for students and employers. With that, I would like to review the results of the four delivery platforms at Grand Canyon Education. First, the online campus at Grand Canyon University, new starts were up in mid-single digits in the fourth quarter of 2024 on a difficult year-over-year comp in total enrollment growth was 7.1% which slightly exceeds our long-term objectives. We anticipate starts for the first quarter to be up in the mid-to-high single digits. There are many reasons for this, but I want to highlight four; one, we have stayed focused on opportunities that exist in today's labor market and since the beginning of the pandemic, GCU has rolled out 148 new programs, emphases and certificates across the 10 colleges. These programs are tied directly to labor market opportunities for students. One…

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 December 31, 2024 and 2023. The non-GAAP amounts exclude the tax effective amount of the amortization of intangible assets of $2.1 million in the fourth quarters of both 2024 and 2023, the tax affected amount of impairment and other of $1.9 million for the three months ended December 31, 2024, and the tax affected amount of the losses on fixed asset disposals of $0.2 million for the three months ended December 31, 2023. 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 December 31, 2024 and 2023 is $2.95 and $2.77 respectively. Service revenue was higher than our expectations in the fourth quarter of 2024, primarily due to higher than expected revenue per student and slightly higher than expected enrollments. Revenue per student continued to grow on a year-over-year basis primarily due to 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're in accelerated programs. We also recognize slightly higher than expected revenue due to one hybrid partner electing to convert its contract from a revenue share to a cost plus agreement. As a result, we will see minimal revenue from this partner in the future. As was expected, revenue per student was negatively impacted in the fourth quarter of 2024 due…

Thank you. [Operator Instructions] And our first question is going to come from the line of Jeff Meuler of Baird. Your line is open.

Yes, thank you. Good afternoon. You commented on being ahead of last year on new student registrations for the fall 2025 ground campus intake. Can you just broaden out that discussion since you have some pretty lofty growth goals and it's against kind of a depressed level? Just anything else you can say on demand, inquiries, Discover GCU visits just conversion initiatives to give us confidence in those growth goals.

Yes, great question. A couple things. One, we did make an adjustment to our Discover GCU process. We were pretty open with that last year and the number of Discover GCU students went up significantly. We really tightened that up. We are asking students to get their transcript to us. We want those transcripts evaluated and then we want to have a one-on-one meeting with them and their parents via Zoom before we have them visit campus. And so, the number of Discover GCU visits as a result is down, but the conversion rates is up. And so, our registrations are fairly significantly ahead of where they were at the same time last year. The second thing that's really important is that we have some workaround strategies with regards to students that are Pell eligible or we think will be Pell eligible. And those workaround strategies, we think are going really well. We're able to provide students with information that's important to them, and as a result, they're making decisions to register at the university, which includes a down payment, and then also register for a room if they're out of state students. And so we set a very aggressive goal, which was 15% increase over new students last year. But early indications are that that's going very well. And so we obviously it's early and we got to keep working at this, but at this point, we feel very good about it.

Excellent. And then you gave us some metrics on kind of ABSN or hybrid academic outcomes. Was that for all ABSN students or was that specific to the advanced standing students or can you comment on the academic outcomes you're seeing for the advanced standing students or your partners are seeing, I guess, relative to the Heritage Career Changer degree model?

No, that's for all students. That's for all ABSN students. And we are so excited about where this thing is now going for a number of reasons. Number one, we've identified the type of student who can best benefit from becoming a nurse, and it's that student who has earned some college credit, does not have a completed degree hasn't gone into a serious amount of debt. The whole concept of going after students that were near the completion of their program had already incurred a lot of debt, and then encouraged them to take on more debt to do prerequisite courses. And then eventually the ABSN program just didn't make any sense. We've identified the right kind of student now for the program that we're offering. The second thing we did was we had to put in place the science courses in a way that students could access them and complete them at high rates and that thing has just exploded. So we've got students that are 30 or 40 college credits maybe into their degree. They haven't incurred a lot of debt, but they've shown that they can do college coursework. They're now converting to taking these online courses, which we priced very low so that they wouldn't have to take on debt to take them. And they're passing them at an 80% rate with a grade of B or better, which allows them then to use those credits to get into our ABSN program. Once we get students to the door of our ABSN program, whether it's through GCU or whether it's through one of our other partners, our success rate is 88% or 89%. And then our first time pass rate on the NCLEX examination is about 90%. And so the sky's the limit now as far as where we're going with this thing. We anticipate 80 locations and we anticipate at least 300 nursing students per location, which would bring it total to 24,000. Today we're a little over 6,000. And so the fact that there's this huge nursing shortage and the fact that we figured out a scalable way to produce these with very high quality outcomes is really exciting.

Excellent. And then just one for you, Dan, if you what's the -- what are your current thoughts on the ongoing margin target financial model? Like if you exit 2025 at the targeted enrollment and revenue growth rates, would you expect that you're back to consistent margin expansion from there or do we need to consider the hybrid, I guess, mix shift?

Yes, I think all of the above. I think that you always need to focus on the hybrid mix shift for that part of our business. It'll never have the margins that the GCU contract will have, but we believe that the long-term margins could be 20%. And again, we don't do segment reporting. We don't look at financials that way, but to give you kind of a sense of how we think about it. But I think that you have to factor that in on the GCU contract, I think we're, there's, as I mentioned earlier, there's a little bit of pressure on margins the first half of the year because of the ground traditional campus of GCU being down slightly. You know, if we can get back to growth. Consistent growth for the GCU contract, I'm sorry, for the GCU ground traditional campus, we think, you know, we'll see continued, slight margin expansion on the GCU contract like we historically had.

Got it. Thank you.

Thank you. One moment for the next question. And our next question will be coming from the line of Jeff Silber of BMO Capital Markets. Your line is open.

Great. Thanks so much. Dan, you mentioned the GCU contract and if I remember correctly, the Master Services Agreement with GCU expires in July. Can we talk about what's going on in terms of re-upping that? And any color would be great.

It doesn't expire in July. There was an early out that begins in July which the university has not exercised. So it continues. It's a 15-year contract. We're six and a half years or so into that. So the expectation is for it to continue to go. There has been some conversation between GCE and GCU about extending the contract early, given that it seems to be working out really well for both parties. So that could be something that comes. But we still have a number of years left under the contract.

All right, my mistake. I really appreciate you clarifying that. Maybe I can switch over to discussing the hybrid program. Can you remind us how many locations you have now what the ramp up is? I know you've got a goal for 80, but I'm just curious, what the ramp up is going to be to get there.

Yes, we have 45 sites open now and the goal is to get to 80 and we're probably going to be opening six to eight per year. And so you can do the math in terms of how long it'll take us to get to 80, but things are going well.

Okay, great. And then you had mentioned some of the headwinds that the programs are facing. Is there anything you can do from your end to mitigate those headwinds?

Well, that, I mean, it's a regulatory thing. So, we just continue to produce good outcomes through our partners and the hope is that they will eventually allow us to increase above the current capacity constraints. They have an example of that recent example, and we're very hopeful is the West Phoenix location for GCU grew to that maximum 300 students very, very quickly. And they are currently having conversations with the state of Arizona about going above that 300, so for that location and so you produce good outcomes. I think the state is and you can commit to delivering the clinicals, I think that gives the state comfort that you could go above those amounts.

I can tell you the discussions we're having with some fairly large states are so positive. Florida specifically, we have such a track record now of producing really stellar outcomes in terms of completion rates and first time pass rates on the NCLEX examination, which people were worried about because of our scale. But we consistently are producing those results. And so the conversations are just getting more and more positive because in every state there's a shortage of nurses. And so the model is, the outcomes of the model are so strong that we think from a regulatory standpoint, this is just going to get easier and easier for us as we move forward.

All right, that's great to hear. If I could just finish up with one, and you mentioned regulatory. With all the noise coming out of Washington, D.C. has there been any impact in terms of receiving funds, program approvals, anything else going on that we should be aware of?

No, not really. Other than the thing that we like the most is that there's so much talk about outcomes, whether it's at the K-12 level or at the higher Ed level. There's so much talk about outcomes and what we're producing from a GCE perspective with our 22 partners are stellar outcomes. Higher education has serious issues, and I think this administration is showing signs that they recognize them and want to do something different. Tuitions are too high, tax subsidies are. The requirement from state tax subsidies are too high, the debt levels are too high, programs aren't tied directly enough to where the new job opportunities in the labor market. Every time tuition goes up, diversity goes down. And we accomplish in higher education the exact opposite of what we're trying to accomplish. And so, we believe that this administration is going to be extremely excited about the model we have and what we're accomplishing because we're helping solve problems. There's a tremendous teacher shortage, and this model is producing new teachers at an unbelievable rate. There's a tremendous nursing shortage. There's a tremendous shortage in the areas of counseling and social work. And those are licensure programs that are very difficult to offer at a distance. But we're doing it, and we're doing it successfully with our partner institutions, and we're doing it without excessive debt levels and without raising tuition. And so I think that this administration is going to be very excited about the outcomes we're producing because they're so in line with what they talk about in terms of how they're thinking about the future of education in our country.

All right, it's great to hear. Thanks so much.

Thank you. One moment for the next question. And our next question will be coming from the line of Alex Paris of Barrington Research. Your line is open.

Hi, guys. Thanks for taking my question. I just have a couple here at the end. First of all, just kind of continuing the conversation about regulatory. Linda McMahon has been confirmed as the Education Secretary. Nicholas Kent has been nominated as the undersecretary. The thought is Linda McMahon's going to work her way out of a job in time. The elimination of the Department of Education, whether that's likely or not, I'd be interested in hearing your thoughts about the changes going on in the Department of Education and how that could potentially affect or not, Grand Canyon University and your other partner institutions?

I'm going to just repeat a little bit of what I said in the previous answer. There's just all of the talk coming out of Washington D.C. with regards to education, whether the K-12 level or the higher Ed level is focused on outcomes. People are very, very disappointed with the outcomes we're producing in terms of student achievement in the K-12 world and people are very disappointed about the outcomes that are being produced on college campuses. There is a lower percentage of or there's fewer high school graduates in the last two years, but there's a fewer lower percentage of them going to college, which is not good long term for the country. And when we talk, the reason we talk so much about graduates is that university’s ability to offer programs and delivery platforms that allow them to produce graduates, especially in licensure areas that are very difficult to do is going to be a very desired asset. And our model GCE as a service provider, that model is producing tremendous results for our partner institutions. And, we did end one contract, but almost everybody else, GCU and all 21 other partners want to do more with us, not less. Want to produce more, not less. And so, the infrastructure that we have at GCE, the $300 billion administrative system, the ability to do things at a distance and to take into account the person's lifestyle and what they're. Those things are all things that I believe this administration is going to be very interested in. There's a tremendous amount of untapped potential in the workforce today. There's a nursing shortage, which is ridiculous and it's only because we can't deliver creatively to people who want to become nurses and can become nurses. The same thing is true for teaching. The same thing is true for counseling and social work. The same thing is true in cybersecurity and I could name other areas. And so I think we'll do our best to become a part of what needs to be solution oriented strategies. And we think that this administration is going to be extremely excited about supporting the things that we're doing because we're producing results, we're producing the kind of outcomes I think they think are going to be exciting.

Great, that's helpful. I appreciate that additional color. Also, during the fourth quarter you had a big win in the courts. The ninth Circuit ruled resoundingly in favor of your appeal regarding the not-for-profit decision and remanded it back to the Department of Education. I think this happened a couple days after your last conference call. I was wondering if there are any updates there in terms of expected timeline and so on for the Department of Education, to make some comment?

No. I mean, that was GCU and obviously GCU is elated because it was made clear that we said all along what GCU said all along was true, which is that it went through a completely legitimate process to regain its nonprofit status. It was approved by the IRS who has the authority to make that approval? They've got the expertise and the authority to do it. GCU has been operating successfully as a nonprofit for six years. And so for an objective court to vote unanimously that the department was outside their scope of authority in making that ruling was completely appropriate and it's now been remanded back to the department. We don't know anything further other than, we're going to have a new Secretary of Education, I think, soon and we'll see how that impacts what the remand, how that turns out. But we're very GCU was very hopeful that this was a major milestone in the whole attack that has taken place in the last four years and GCU, I know, is very hopeful that this will be behind it soon. But that was a major, major important ruling from an objective court that ruled unanimously in GCU's favor, which is extremely positive result.

Yes, that's great news and obviously long overdue. Last question and maybe this one is for Dan. Given your expectations, which are in keeping with previous commentary on the hybrid pillar up low to mid-teens in the spring and for the rest of 2025, based on those expectations for enrollment, is it still your expectation that hybrid as a taken together will cross back to profitability in 2025?

Yes, again, we don't really monitor that from a financial perspective anymore. We don't. We've centralized so many services at the GCE level that we just don't look at it that way. But given where the site -- I talked about this earlier, but where the site margins are for all of the locations, I think that's an appropriate expectation.

Great, thank you very much.

We've reached the end of our fourth 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 for your time.