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

Thank you for joining us to discuss Grand Canyon's 2016 fourth quarter results. Speaking on today's call are Chairman, President and CEO, Brian Mueller; our CFO, Dan Bachus. Our call is scheduled to last one hour, and we will try to answer all of your questions during the Q&A period at the end of the call. So we apologize in advance if there are questions that we are unable to address due to time constraints. Please note that many of our comments today will contain forward-looking statements that involve risks and uncertainties. Various factors 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 most recent annual report on Form 10-K and our current report on Form 8-K. We recommend that all investors review these reports thoroughly before taking up financial position in Grand Canyon. We undertake no obligation to provide updates with regard to the forward-looking statements made during this call. And with that, I'll turn the call over to Brian.

Good afternoon, and thank you for joining Grand Canyon University's fourth quarter of fiscal year 2016 conference call. In the fourth quarter of 2016, enrollments grew by 9.9% and revenues grew by 13.3%. New enrollments grew in the low double-digits year-over-year. Operating margins are at 31.3%. We had another great quarter. I again want to thank our faculty and staff for their hard work and the incredible results they are producing. As many of you know, our long-term goals are to grow the university's enrollment by 6 percentage points to 8 percentage points per year, grow revenues by 8% to 9% per year, and grow margins by 20 basis points on an annual basis without raising tuition. Enrollment growth is a combination of online enrollments growing at 6 percentage points to 7 percentage points and our traditional campus enrollments growing by 8% to 10%. Revenue growth will happen as a result of continued increases in retention levels and ground enrollments becoming a larger percentage of total enrollment. Ground revenue per student is larger because of other ground revenue including room and board revenue as well as the increasing revenues of 24 restaurants, a hotel, golf course, coffee company, and the six GCU stores selling our merchandise, as well as additional retail outlets like Walmart. As you know, we accomplished our enrollment goal on a traditional campus this fall, with approximately 17,500 students on campus. The average incoming GPAs are about 3.5 and our Honors College has grown to 1,200 with average incoming GPAs of about 4.1. Applications for next year are now north of 22,000 and are significantly ahead of prior year at the same point. We expect about 7,000 new students with 550 of those students being in our Honors College. We are currently building a new apartment-style residence…

Thanks, Brian. Revenue per student increased between years, primarily due to our residential traditional campus enrollment growing at a rate higher than our working adult enrollment. When factoring in room, board and fees, the revenue per student is higher for ground students than for our online students. In addition, as we have previously discussed, the fall semester began five days later in August in 2016 than in 2015, which had the effect of moving $4.9 million of revenue from the third quarter to the fourth quarter. Online revenue per student was down slightly year-over-year, primarily due to the timing of the holiday break, mix changes and the fact that we did not raise tuition levels during 2016. Scholarships as a percentage of revenue increased slightly from 18.6% in Q4 2015 to 18.7% in Q4 2016 due primarily to growth in our ground traditional student base, partially offset by a decrease in the traditional scholarship rate year-over-year as a percentage of total revenue and due to an increasing ancillary revenues. Online scholarship as a percentage of related revenue were up slightly year-over-year. Bad debt expense as a percentage of revenue stayed flat at 2.4% year-over-year. Our effective tax rate for the fourth quarter 2016 was 37.2% as compared to 38.6% in the fourth quarter of 2015. The variance in the effective tax rate year-over-year is primarily due to the university making higher contributions in lieu of state income taxes to school sponsoring organizations in 2016. As a reminder, in Q3 2016, we contributed $4 million, an increase of $1.2 million over the $2.8 million contributed in Q3 2015. As you might recall, these payments are included in G&A expenses in the third quarter of each year, and these payments reduce dollar for dollar our state income taxes. Three quarters of the…

And our first question comes from the line of Peter Appert with Piper Jaffray. Your line is now open. Peter P. Appert - Piper Jaffray & Co.: Thank you. So, Brian, could you spend a second talking about the areas where you're seeing strength from a programmatic standpoint in terms of the online business? I'm asking this in the context of trying to understand better given how strong the numbers have been, and I understand the comps get tougher, but why you're maybe not a little more confident in terms of the sustainability of the recent improvements you see?

The places where we are gaining in terms of programmatic development are mainly niche areas. And so, when you look at our education program, for example, a program like (24:26) and it's really growing. We started about a year and a half ago in computer science and information technology, those programs aren't growing as rapidly as we had hoped, but they're growing, and we're making tweaks to them. And we expect to get that figured out more finely in the next year or so. And so, we are confident but we are also conservative. We went through a period of time when we tweaked our advertising strategy, and it was just so productive that it really took us to some extent by surprise. The other thing that is very interesting is the number of adult students that want to attend the campus in the evening. The history of this, Peter, when we first got started way back with Phoenix, students would come to classrooms that were in office complexes by convenient freeway locations. We're happy to do that (25:33). And then as online took hold, people say I'm not interested in going to that kind of a facility one night in evening (25:43). And so everybody went online. This campus has become such a focal point of activity for the entire valley of 4 million people. That the number of people wanting to come here in the evening, one night a week is growing again. And so in addition to the new program, that was a catalyst for this acceleration that we weren't expecting. We didn't increase enrollment counselors. We didn't increase advertising spend really as a percent of revenue. But the increased brand of the institution and some of the new programs just took off more sharply than we anticipated. And so what we're doing right now is being conservative. And if there's a lot of unknowns in this whole thing right now, the amount of new entrants into this space, and so we're optimistic. We feel good about where we're going but we're being a little bit cautious. Peter P. Appert - Piper Jaffray & Co.: Okay, fair enough. And then just to clarify, the adult students who are coming on campus at night, does that count in the ground traditional enrollment numbers?

Yeah. Campus-based students, yes. Peter P. Appert - Piper Jaffray & Co.: Okay. Got it. And then a different topic. Obviously, given the reduced cash flow and the success you've had in driving revenue growth and profitability, we're going to see presumably dramatic improvements in the free cash flow here in 2017. I'm wondering, if you could just remind us how you're thinking about the priorities for the use of that cash and how comfortable you are just accumulating large cash balances?

Well, the first is to continue to look at ways that we can invest in the ground campus – classrooms, laboratories, residence halls, those things. One of the little – when we announced that we're going into the next two years, we know that there's a huge need and desire for students that want to go into electrical, mechanical, biomedical engineering, computer science, information technology. Our program is growing but not at an accelerated rate as we think may happen in the future because we're not ABET accredited. So we're going to reserve cash in order to pump it into those programs. If we see – once we get close to ABET accreditation, that, that would really pay off for us. Second thing is – interesting thing that's happening now is on our ground campus, we're starting to attract students, more out-of-state students. Housing is going at a very rapid rate. And so California is growing, but we're really starting to grow in the Midwest. Arizona State and University of Arizona always did well in the Midwest because kids wanted to get out of the winter. But what happened over the course of the last 5 to 10 years is their tuition rates have become exorbitant. And now the word is getting out that you can get out of the winter and get into Arizona at very low tuition rates and stay in brand-new residence halls and study at brand-new campus. So that's starting to grow. So if our total student body that wants to stay on campus – as a percent of the total student body goes up, we want to reserve the cash to build additional dormitories because there's not a better investment that we can make than to build more residence halls. That being said, the cash is going to pile up, and we certainly will continue to develop new programs but we will also take a look at repurchasing stock when there is weakness. And so that will be the third part of our strategy. Peter P. Appert - Piper Jaffray & Co.: So not ready, basically, to commit to some sort of more methodical share repurchase program at this point?

Not in the first six months. We're going to take a really close look at how this moves. And in the next six months, we're going to take a really close look at how we're going to end up with our enrollment on ground this fall and see both in terms of residence halls and additional classroom buildings and how much we might need for the following year. Peter P. Appert - Piper Jaffray & Co.: Understood. Okay. Thanks very much.

Thank you.

Thank you. And our next question comes from the line of Jeff Silber with BMO. Your line is now open.

Hey. Good afternoon, guys. It's Henry Chien calling for Jeff. I just had a...

Hi, Henry.

Hey, guys. Just a question on your capacity. Just if you could show us what's your current capacity and just how you're thinking about expanding this with the new residence halls and any upcoming constructions, just curious your thoughts on that?

Yeah, in the fall, with the new dorm going up, it's going to be about 11,000 beds. And what I said we were going to be at capacity, we expect it to be out in front. But the request for living on campus is really going up this year as compared to last and so we're going to watch how that goes for the rest of the spring. And if it goes as it is, we're going to be at capacity and maybe have to transfer students away. And so the 11,000 of the 19,000 is a little bit above the percentage we thought but the way things are going now, that's going to probably go up in the next coming years which for us would be a good thing because the revenue for students just goes up when we have the additional students stay on campus.

Got it. And this is including the new residence hall that's going to open at the end of this year?

Yes.

Okay. Got it. Thanks. And just wonder if you could comment on just the political environment there in Arizona and how supportive it is for Grand Canyon or any thoughts there?

Well, that's why I did go through that kind of lengthy explanation of that press conference because with the new administration, and we've got some contacts, but we hope that people are willing to take a fresh look at this thing. And after eight years of just being beat down nationally, I think this is becoming kind of a model that can be replicated, and we can reinvigorate this for profit, publicly traded education company concept. It's overwhelming in Arizona right now. We had the governor. And it was a sea of 3,000 people in purple shirts out there at an outdoors press conference, but we had the governor, we had the mayor of the sixth largest city in the country, we had Jerry Colangelo who's a nationally respected businessman. And they made glowing comments about the university, its contribution to the economy, its contribution to city revitalization. And so, there's just this whole – this thing, we have a very pro-business governor, extremely pro-business governor. He's also extremely pro-school choice, and he wants to give people as many options from pre-schools through higher ed as he can, and he thinks competition is good. And so, obviously, we have a slight detractor in terms of the presence (33:05) of Arizona State University but other than that, there's overwhelming support for what's going on here which is good, and I think it can be easily replicated. I just think this thing can be turned to some extent in the next few years.

Got it. Okay. Sounds promising. Thanks.

Thanks.

Thank you. And our next question comes from the line of Jeff Meuler with Baird. Your line is now open. Jeff P. Meuler - Robert W. Baird & Co., Inc.: Yes. Thank you. Brian, I think you just said you're not planning on being methodical with share repurchase in the first half. You're saying, you think the model can be replicated if state and real estate taxes become more economically equitable, is there a change in thought on the potential to do another standalone campus?

Possibly. We certainly have a lot of people who would like us to – people are looking at the model, the increasing inefficiencies of the state university model. And how this has been such an economic catalyst in the state. People are certainly looking at this. And so we have people in different states approaching us on a consistent basis. And so it's something that we're going to continue to evaluate and consider. It's not something that we plan on doing in the next two years. We believe that we can build this thing out to 30,000 students over the next five or six years and the dollar we invest in this thing will return far more than starting something new. But we're not going to hold it – there is a potential that we will do something eventually. Jeff P. Meuler - Robert W. Baird & Co., Inc.: Okay. And then I just want to understand the comment on the online new enrollment outlook. I understand the tougher comps as the year unfolds, but is the message that that's the guidance assumption or if – would you instead if new enrollment growth is running hot, would you pull back on marketing expense or, in other ways, try to govern it lower?

No. We wouldn't pull back. We would not pull back on marketing expense. If the demand for what we're doing grows at an unanticipated rate, we would fill that demand but it would have to be, as it has been, with higher and higher quality of students. The reason I mentioned the 19,500 graduates that we had at Grand Canyon this year, that's a big number. And so as that goes up – that's the other thing that we are being a little conservative about because it took us a little bit by surprise. Of the students that graduate on our ground campus, 70% of them are now graduating in less than four years. And that's becoming part of the brand. It's attracting people. But in the short run, that caught us a little bit off-guard. In our models, we anticipated the average student to graduate in four years, but 70% are now graduating in less than four years. And 54% are graduating in exactly three years. It's because we've got hundreds and hundreds of agreements with high schools and we're delivering dual credit to them, so good students are coming to us with already earned 20, 30, 35 college credits in addition to the fact that our students, who may go home in the summer, will take an online class or two. And so all of a sudden, they've graduated in three years for an average tuition rate of $8,300 to $8,600 on an annual basis which, from a value proposition, is incredible. And that word is spreading and that's becoming part of our brand. So we have to monitor what kind of increase that will cause in our ground enrollment versus the amount of graduates that we'll lose before we initially anticipated. Jeff P. Meuler - Robert W. Baird & Co., Inc.: Okay. Thank you, and thanks for pointing out the forever youthful Mr. Appert's historical knowledge of the industry instead of my own.

Duly noted.

Thank you. And our next question comes from the line of Trace Urdan with Credit Suisse. Your line is now open. Trace Adair Urdan - Credit Suisse Securities (USA) LLC: Thanks. I wanted to ask about the – what was it, the ever youthful Peter Appert question. When you were talking about needing to hang on to cash for various purposes, that doesn't change your outlook for CapEx that you guys provided to us at your Investor Day, does it? Is that guidance still operative from your perspective at this point?

Yes. $80 million to $100 million. I would say it's probably going to be closer to $100 million than $80 million. Trace Adair Urdan - Credit Suisse Securities (USA) LLC: Okay. But that's within the same framework that you had outlined originally. So, when you're talking about things like more students coming from out of state and possibly needing more dorm space sooner, at this point, you haven't kind of altered your outlook for sort of the buildings you need to build over the next four years?

Not for 2017, but possibly, correct. Trace Adair Urdan - Credit Suisse Securities (USA) LLC: Okay. TBD after that. Right. I understand.

Yes. Trace Adair Urdan - Credit Suisse Securities (USA) LLC: And then I also wanted to ask about the comments that you made about the shifts in the program offerings and maybe ask for a little bit more specific color. I understand conceptually that there are some programs that are large that may be maturing and then others that are smaller and more nascent might be growing nicely but are still relatively small. Can you talk about that maybe a little bit more specifically? Like what are the programs that you guys are seeing that may be approaching maturity? I could speculate, but I'd rather have you kind of speak to that. Or have I mischaracterized the situation, is that not what you said?

No. No. You're right. When talking about maturity, RN to BSN, is just a very large program for us and so having to grow off of a very large number, that there's a little bit of maturity that we're seeing there. In terms of revenue per student, the counseling programs at both the baccalaureate and masters degree level are growing fast. And those programs from a revenue per student perspective are lower than some of our other programs but we've developed a little bit of a reputation in that area. And so those things are growing. And that's having a little bit of negative impact on the revenue per student. Trace Adair Urdan - Credit Suisse Securities (USA) LLC: Okay. And then I know you talked before about the challenges in particular for undergraduate education degrees. Have you kind of made any progress on that front? I guess it maybe sort of early to ask you whether you've had any contact in Washington, but have you had any contact in Washington.

We don't have an appointment with (40:24) at this moment. Trace Adair Urdan - Credit Suisse Securities (USA) LLC: Specifically that how the department – yeah, okay.

But we have a tremendous relationship with the staff at the Higher Learning Commission and so we are in constant contact with them. We would like to have some influence and some impact on what happens if the Higher Ed Act gets potentially reauthorized in the next two years and we think there are some very, very significant things that could be put into that new act that could be very beneficial. And so given – I did mention the support of our U.S. senators. John McCain is a huge supporter of ours, as is Jeff Flake, and they do have contacts in Washington. And if we can provide some influence around what will happen in the next couple of years, we really like to do that. I think there are some very practical common sense things that could be done that will help everybody. So we'll see. We're going to try. Trace Adair Urdan - Credit Suisse Securities (USA) LLC: Okay. Fair enough. Thank you.

Yes.

We have reached the end of our fourth conference call. We appreciate your time and interest in Grand Canyon Education. If you still have questions, please contact either Dan Bachus or Bob Romantic. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.