Good afternoon. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter earnings conference call for Grand Canyon Education. [Operator Instructions] I would now like to turn the conference over to Brian Roberts, General Counsel. Please go ahead.

Thank you, operator. Good afternoon, and thank you for joining us today on this conference call to discuss Grand Canyon's 2013 second 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 1 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. I would 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 addressed in GCU's SEC filings, including our annual report on Form 10-K for the fiscal year ended December 31, 2012, our quarterly reports on Form 10-Q and our current report 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 forward-looking statements made during this conference call. And with that, I'll turn the call over to Brian.

Good afternoon. Thank you for joining Grand Canyon University's Second Quarter Fiscal Year 2013 Conference Call. In the second quarter of 2013, enrollments grew by 15.2% and revenues by 18.6%. Pre-tax margins are at 22%, and new enrollments were up in the high-single digits year-over-year. We had another very successful quarter, and I want to thank our faculty and staff for their continued high level of commitment to our students. Those students and families continue to choose GCU because of the strong, caring community; the faculty's commitment to excellent teaching; the small, intimate classroom setting; the tremendous service levels of our various counseling teams; the very low tuition rates; and a dry campus with extremely good crime statistics. I want to give you a few updates on our traditional campus. In the fall of 2012, we had approximately 6,500 students, and we'll begin the fall 2013 semester with approximately 8,500 students. The average incoming GPAs of our roughly 4,000 new students will be around 3.5. 50% of the students will be studying in the Sciences. We estimate our retention rate from the spring to fall semester will be 87%. The graduation rate of traditional students, because of the very strong retention rates of the classes of 2010, '11 and '12, is going to be very strong. More than 70% of our traditional students are from Arizona. The word is spreading about the strong, caring culture; the attention to individual needs of students; and the small class sizes. We are planning for over 5,000 new traditional students for the fall of 2014, which will bring total enrollment to approximately 10,500. New land is being acquired, and in 2013 we are adding 2 residence halls; a general-use classroom building; a major, new turf practice field for our soccer, lacrosse and intramural programs;…

Thanks, Brian. Scholarships as a percentage of revenue decreased from 14.5% in Q2 2012 to 13.1% in Q2 2013, due primarily to a decrease in scholarships for online students between years. As Brian mentioned earlier, although bad debt expense as a percentage of revenue increased slightly to 3.2% in Q2 2013 as compared to 3.1% in Q2 2012, this result was significantly better than we anticipated as in Q2 2012, we collected a higher-than-normal amount of previously written-off receivables. Our effective tax rate for the second quarter of 2013 was 38.7% as compared to 38.5% in the second quarter of 2012. Our effective tax rates in both periods were lower than expected due to certain non-recurring tax items. We still anticipate our effective tax rate for the second half of 2013 will be 40.5%. We repurchased 102,500 shares of our common stock during the second quarter of 2013 at a cost of $2.4 million and have $28.3 million available under our share repurchase authorization as of June 30, 2013. Turning to the balance sheet and cash flows, total cash unrestricted and restricted and short-term investments at June 30, 2013 was $190.8 million. Accounts receivable, net of the allowance for doubtful accounts, is $8.6 million at June 30, 2013, which represents 5.7 day sales outstanding compared to $8.4 million, or 6.7 day sales outstanding, at the end of the second quarter of 2012. CapEx in the second quarter of 2013, excluding the development of the off-site administrative office, was approximately $23.3 million, or 16.5% of net revenue. CapEx is somewhat seasonal as much of our construction needed to be completed before our fall starts for our ground students is done during the spring and summer months. Thus, CapEx as a percentage of revenue is generally higher in the second and third…

[Operator Instructions] Your first question comes from the line of Bob Craig with Stifel. Robert L. Craig - Stifel, Nicolaus & Co., Inc., Research Division: I was wondering if you could run down what the cost associated with that is going to be, and the timing of those expenses?

We will begin building out there in 2014, probably in the spring of 2014. And we'll probably complete the first phase of the campus in around July -- June or July of 2015, and we'll be prepared at that point for opening the ground campus in September. The guess -- the estimate at this point is probably about $15 million of CapEx expense, which would be the initial classroom buildings, laboratories, student union, library, some athletic fields. And then it'll go from there. 2016, '17, '18, we'll probably spend in the vicinity of another $40 million or so per year. The total investment will be about $150 million to get the 100-acre campus up to speed, where it can house 7,000 to 8,000 students. And then we have an option to purchase an additional 60 acres to build it out from there. Robert L. Craig - Stifel, Nicolaus & Co., Inc., Research Division: Okay. So this is a grassroots facility that you're building from the ground up then, I take?

Yes, it is. It's going to look very, very similar to the facility that we have here in West Phoenix. The look and feel of the architecture, the look and feel of the campus will be very similar. Everything is going to be brand new. We are going to move our administrative center, which currently houses about 1,000 employees in Tempe. We're going to move that out there and it will be on that campus as well. So it's going to be a very, very interesting, new and very unique community. Robert L. Craig - Stifel, Nicolaus & Co., Inc., Research Division: And, Brian, are you still looking for another location? You mentioned Tucson before. Or is this one going to keep you busy for a while?

Tucson is very, very interested, as is Albuquerque and Las Vegas. And so once we get this kind of off and running, then we will reengage with discussions with those 3 places. I don't really know at this point where that's going to go, but they have very strong interest. They stay in contact with us and announce new properties that they've uncovered. And so we'll begin discussions with them again once we get this underway. Robert L. Craig - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And last one from me and I'll turn it over. How do you expect total enrollment growth to slow down as much as you're estimating going from 15% to 11% in the third quarter despite the ground campus being a greater contributor to the total, and that's growing faster? Maybe you can reconcile that for us?

I mean, we're being somewhat conservative there, but we keep pushing the online campus to a 6% or 7% enrollment growth rate. We're exceeding that currently. But even as we exceed that, we keep pushing more and more students into graduate school. And so we have been exceeding what we've been saying. We might exceed just a little bit, but it really -- the reason we're doing this is that long term, our online campus is going to be primarily a graduate school, and our traditional ground campus will be primarily an undergraduate school. That is the ultimate goal, and that's why we're kind of purposely moving it down to -- and again, the question is could we grow faster than that right now? We absolutely could grow faster than that right now but we're -- long term, we've got a pretty definitive picture in our minds of what we want this to look like.

The other thing I would just add is that our retention gains, as I mentioned in my prepared remarks, have been really significant year-over-year gains for about the last 18 months. And at some point, we believe that though -- you'll still probably see some retention gains, but you won't see the year-over-year retention gains. And so, again, when you're talking about year-over-year growth rates, we've really gotten a lot of tailwind from those retention gains that we think will start to level off now that we're in kind of the 90% level on a -- from a sequential quarter basis from a retention standpoint.

Your next question comes from the line of Sara Gubins with Bank of America Merrill Lynch.

It's just a follow-up on that. Could you talk about what you saw in terms of new student start trends in online in the second quarter?

They were high-single digits, and so a little bit above what we were predicting, but the ratios of the students that are coming in are the correct ratios, so we are okay with it.

And then on marketing, could you talk about how student acquisition costs have been trending?

Well, they're going down because the advertising expense is fairly steady and consistent, and enrollment counts or costs have gone down some. So we -- that's a positive trend, from our perspective.

Great. And then just last question about Division I status. I know there's been a good amount of press around it recently. Could you -- is there anything that's worse reporting or any delays that you think you might face, given some of the opposition?

No, not at all. We're invited by the Western Athletic Conference. In fact, we just went through an orientation period today. We were invited. We accepted. It became official on July 1, and so now we've begin the process. Our schedules are all fully built out and we start in a couple of weeks here. So there was a little bit -- there has been some discussion about this, driven mainly by Arizona State University and we think in response to the competitive environment that exists now for students in this marketplace. But that discussion aside, no, we are firmly in a good position, and we start in a couple of weeks.

Your next question comes from the line of Jeff Volshteyn with JPMorgan. Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division: Brian or Dan, are there any notable changes in the mix of lead sources, changes in conversion rates perhaps by geography or by type of students?

Not as opposed to what we've been reporting. The big growth for the university right now is in Arizona, with both traditional and non-traditional students. It is in California, New Mexico, Nevada and starting to grow more rapidly in Colorado. So it's very much a regional approach and more and more of both our ground and -- our ground traditional and online students are from that area. That's where we're seeing the biggest or best return for every dime and dollar spent. We're not seeing any serious decline in outlying areas, but we are seeing the improvement in the Southwest, especially Arizona. Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division: Okay. And then on CapEx for 2014, outside of the new campus, what should we think about when we think about CapEx?

A number probably that's a little lower than what we spent this year, but not significantly lower. We're going to build -- we're going to start actually in 2013, and it'll be built -- most of it in 2014, 1,000-student residential apartment-type building. We are going to be building an additional classroom, building at some point probably in '14, probably the later part of '14 for this campus to get us to build out. And then we'll obviously be spending, like we have been, a significant amount of money in IT-related costs. So I think it'll be something similar to what we're going to spend in '13, but probably slightly lower, excluding the new campus.

Your next question comes from Peter Appert with Piper Jaffray.

So, Brian, the profitability improvement has been pretty impressive, particularly pre some of these non-recurring items you've mentioned. Have you rethought at all your margin targets for the next couple of years?

No. We're still -- we value our tuition. And the higher quality our student body gets, the higher the retention and graduation gets, and our classes of '10, '11 and '12 are tracking really well. The more we can leverage the new campus and additional students across a similar infrastructure, we were really happy to be able to freeze tuition for our online students this year. We froze tuition again for our ground students. We increased scholarships. And so I think 24% is a good number, and I think we can -- if it sneaks a little bit above that, it might, but we are really focused on keeping -- holding tuition steady or lowering it.

Okay, fair enough. And then, Brian, how do we think about the operating costs associated with opening the new campus? I'm assuming you get to capitalize the costs starting out till it opens. Correct? So there'd be no impact from a P&L standpoint for a couple of years? Is that right?

No. We would have to expense general costs such as salaries, et cetera. But I don't think you'll see anything significant until the summer, maybe the spring of 2015. As Brian talked about, we might open it for -- with some level of students in 2014, but I don't think that will be a material cost. You'll see some costs sneak into the spring and summer of '15 before the campus opens, but we don't believe that, in 2015, we will run that campus a loss. So we think we'll be breakeven to profitable from the beginning.

No impact then on margin in '14 likely from this?

Yes. None in '14 and maybe a little bit in '15.

Your next question comes from Adrienne Colby with Deutsche Bank.

I was wondering if you could talk a little bit more about the new East Valley location, if there are community colleges that are nearby and what your current enrollment is like from those schools?

Well -- no. It's very exciting. it's very exciting because when you look at what we're doing here on the left side from a traditional student perspective, where -- the demography is not nearly as advantageous as it is on the east side, the socioeconomic status of the typical residence of the east side is higher. The average amount of education they've achieved is higher. And so our success here is -- I think predicts an even greater amount of success there, and there's just an absence of institutions out there to service them. Somebody asked me today, "Well, you're moving into Arizona State's territory out there." Well, It's just uncommon to have an environment like this where there's so little. I mean, UCLA sits right across the way from UFC and Pepperdine and USC, and they all coexist. And so this is going to be the same thing. We lose hundreds and hundreds of students every single year in Arizona that leave the state to go to private Christian schools. And what we're going to do now is keep those students in the state, keep them closer to home, allow them to save money, take out less debt, stay involved in their local communities, that kind of thing. And so that part of it is very exciting for us. The Science programs are going to have a huge appeal because there's lot of health care facilities out there, so they have need of what we offer on that -- from that standpoint. The community colleges are strong. Mesa Community College, Chandler-Gilbert Community College, those are strong community colleges. They'll be good feeders. And we are establishing really good relationships with the high schools, both the public schools and the Christian schools. And so we're excited about the possibility -- about the possibilities, and we've raised admission standards. You've got to have a 3.0 GPA to get into the Grand Canyon now, and our average incoming GPA is growing higher. So it all points in a positive direction, from an East Valley standpoint.

Great. And I was wondering if you could talk a little bit about your current marketing plans. Are you still advertising in Southern California? We have been hearing that schools like Azusa Pacific and Northern Arizona University have been revamping their online programs and also their recruiting efforts. University of California just talked recently about moving ahead with more online programs. Just wondering what trends or changes you're seeing from a competitive standpoint from that California and the Southwest market.

I mean, I think everybody understands that the California system is under a lot of stress and that there are literally thousands and thousands of students that are good students that are looking for a place to go to school and they can't find one. We are not seeing any negative impact in terms of a response to our advertising campaigns because there's just so much need. When students and families find out what our tuition rates are, they are literally -- they are flabbergasted. And so we grew a lot this year from a traditional student perspective. But next year, I think it's going to grow a lot -- it's going to get much bigger. And so, no, we're not backing off from that effort at all because the need exists.

Your next question comes from the line of Jeff Silber with BMO Capital Markets.

I may have missed this in your prepared remarks, but the enrollment numbers were a bit higher than guidance. Are there any specific programs or areas that drove that outperformance?

No, nothing specific. I'm glad you actually asked that, Jeff, because I did want to mention. We did probably -- we had a little bit of a timing difference on graduates than what we expected. We expected those graduates to occur a little earlier than when they did, and so they ended up counting in our enrollment count number when we hadn't expected that they would. And so I think that was the only thing that was a little surprising, I think. As Brian talked, the new start growth and the retention rates were slightly higher than what we had anticipated, so that helped as well. But that graduation point was one that I meant to make, so I'm glad you asked.

No, I appreciate that. In order of magnitude of that graduation impact, roughly how many students?

About 1,000.

1,000? Okay. That's pretty sizable. All right. Thank you for pointing that out. Just a follow-up from a previous question about the move to Division I. Are you going to see -- or have you seen an increase in scholarships, specifically because of that, to attract some better athletes?

No, that's -- we were fully scholarship at a Division II level, and we haven't the increased the number of sports. We're still going to participate in 22 sports. And so that part of -- there's not a significant increase from a scholarship standpoint. There really isn't a significant increase from a facility perspective. We've invested in most of the facilities, and there's not really a significant increase from a travel perspective. There'll be some increase from a travel perspective, but we had 22 -- we prepared this time. We had -- tell them about the travel.

Yes. Travel costs should be about the same, too. Because if you recall, our PacWest conference, 1/2 of the teams were in Hawaii. And so it'll probably be similar. And I think most investors know this, but just full disclosure because there's been some confusion out there, but we do anticipate losing money in athletics. We don't anticipate making any money. We don't have the same TV contract rights that conferences like the Pac-12 do. So that is -- obviously, factored into our guidance is the loss from an athletic perspective.

Your next question comes from the line of Trace Urdan with Wells Fargo Securities.

The increases in persistence, are we looking at the tail from the move to borrower-based lending? Is that what's going on there? Or what do you attribute that strength to and the subsequent short of ebbing of that strength?

It's student body mix. It's the student body mix. As the ground students become -- as a percent of our overall students, a greater number, and as the graduate students as a percent of all students become a greater number, and as the RN to BSN students as a percent of all students becomes a greater number, the retention levels go up across the entire student body. And so that's what's caused it in the last 2 years. And so is it -- it's at a tail, I would say. It's nearing an end from an online standpoint, but we'll keep getting better just because our ground students, as a percent of the total, keep getting bigger.

It's ending from an online standpoint because the mix in the RN to BSN is starting to slow down?

A little bit.

The percentage of the total?

A little bit. Yes, although there is still room there. But yes, I would say a little bit because of that.

I think my biggest concern is, when you look at the sequential quarter retention rate, we're now approaching 90%. The question -- and where -- when we started, we were in the low-80s. Four years ago, we were in the low-80s. Now we're approaching 90%. You just wonder where that can go. I mean, these are working adult students that things cough up in their lives, and so could we get into the 91%, 92% potentially? But you won't see the 200, 300 basis point year-over-year growth that you've seen over the last couple of years.

Got it. Okay. And then I wanted to ask about marketing because it looked as though the typical seasonal decline that we see this quarter didn't happen in quite the same way. And I know you're not responsible for our models, but I wondered if there was anything that went into marketing expense -- or advertising expense, I should say, in the quarter that was more than what you had anticipated?

Yes. It's the branded television advertising. And you know how important it is that we change people's view of who we are as compared to the other for-profit institutions. We've just got to get the message out there about this growing traditional campus and its impact on the brand of the institution. And other than the funding model, which is not a tax model or not a donation model, other than that, this is a fully built-out Liberal Arts institution in the truest sense of the word. And so we didn't back off of that branded advertising because that's really starting to pay dividends for us.

Okay, fair enough. And then last question. I just wondered, it looks as though the operating cash flow trend is not as robust as the net income trend. It looks like maybe for the first 6 months we saw sort of a step-up in accounts receivable. I wondered if there's anything going on there that's worth mentioning.

No. Actually, our DSO has been going down. The biggest thing, though, that you'll notice -- if you pull it apart in pieces, is there was a really significant year-over-year change in income taxes between the payable and the receivable. Just timing, payments and estimates -- estimated payments that we make. I think there was something, I can't recall exactly, that happened in the first 6 months of last year that flipped it into a pretty large payable versus a receivable. So that, and then you've got just timing of accrued expenses, et cetera. And so it's really just working capital changes. It's nothing else than that.

Your next question comes from Tim Connor with William Blair.

I think you had a number of potential spots for the East Valley campus. It sounds like you've got a pretty unique setup with the one you picked. But what kinds of tax and infrastructure benefits are you going to receive on that? And then does that potentially move the needle on either CapEx or the tax line?

I wish I could tell you they were huge incentives, but there weren't any incentives other than we got a good deal on land because we had come to a meeting in the minds in terms of us being an anchor tenant and how mutually beneficial this could be for both us and our new partners, DMB, and then the building out of that community. This is really, really exciting for us for so many reasons. We're going to build our -- move our 100,000 square-foot administrative center out there and move 1,000 employees out there. And a lot of those are going to want to take advantage of the family and friends' benefit of buying a new house and become a part of that community. We're going to use this to attract really good faculty and staff. People will be able to buy a home and be within walking distance of their work, within walking distance of high-end charter schools and have a chance to join a community that could make life very, very convenient. So it's always a little bit of a risk because it's a master-planned community and the housing has just begun. But these guys have such a strong track record of making these things work. And I think with us as an anchored tenant, it's going to be a very, very attractive and unique place. And so worth a little bit of the risk.

Other thing I would mention is Arizona has moved very aggressively over the last few years, where their incentives are really tied to job growth. And so we will be getting those incentives that are available to all companies here in Arizona that grow from a job perspective. And so -- and we've been eligible for those incentives here in the West Valley as we've grown. So there are incentives, but they're tied to job growth, and there are incentives that we've already been eligible for here on this campus.

Okay. And just a couple of more follow-ups. How big is the community going to be when it's fully ramped up? And then what is your relationship with the charter schools that you mentioned were going to be part of this development as well?

12,000 homes, 70,000 people in the community. It's roughly 5 square miles. And then the relationship -- there is no relationship at this point with the charter schools, but I think there will be a relationship. The most important thing, though, it provides high-end educational opportunities for the children of our faculty and staff.

Your next question comes from the line of Nick Nikitas with Baird. Nick Nikitas - Robert W. Baird & Co. Incorporated, Research Division: Just looking at the decision to enroll 5,000 new students in the fall of 2014. Is the plan then to enroll 5,000 new each year? And then with that -- and also acquiring some new land, are you guys potentially changing the long-term targets for the main campus from that 12,000 undergrad and 3,000 grad student mark?

Yes. We've definitely changed the targets at the West Valley campus. We're now thinking between 15,000 and 20,000 students on this campus and we're acquiring the land to do that. There's just a huge demand for private Christian education at very low cost. So, yes, the 5,000 news is based on next year, and then it would be a minimum of that for the next couple of years. I don't know for sure whether we'll go up from there, but we won't go down from there. Nick Nikitas - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then you mentioned the change in marketing strategy near term, going to TV a little bit more. At what point do you expect to maybe get some leverage on the advertising expense? We kind of think you get halo effects from the ground campus, creating a nice kind of branding effect. And are you not required as much direct advertising expense? I guess that could be more of a long term and near term. And do you expect to keep that in an elevated level?

That's very -- it's a great question. It's a million-dollar question. It's very difficult because really, nobody's done this. And so I agree with you 100%. We expect to see leverage over time. But at this point, we're not building into the budget. We're keeping it at a consistent spend level. But if, over time, we're able to accomplish our goals with less spend, obviously, we'll do it. And then we'll lower tuition.

We've reached the end of our second quarter conference call. We appreciate your time and interest in Grand Canyon. If you still have questions, please contact either Dan Bachus or Bill Jenkins. Thank you very much for your time.

Thank you. This concludes today's conference. You may now disconnect.