Good day, ladies and gentlemen, and welcome to the Q3 2018 Grand Canyon Education Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference call, Mr. Dan Bachus, Chief Financial Officer. You may begin.

Thank you. 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 welcome to Grand Canyon Education's third quarter fiscal year 2018 conference call. For those of you that are new to this story or missed last quarter's conference call, on July 1, 2018, GCE consummated an Asset Purchase Agreement with GCU, formerly known as Gazelle University. Prior to the transaction GCE owned and operated the university. As a result of the transaction, GCE transferred to GCU the real property and improvements comprising the university campus, as well as tangible and intangible academic and related operations and assets related to the university. And GCU assumed liabilities related to the transferred assets. Accordingly, GCU now owns and operates the university. In connection with the closing, GCE and GCU entered into a long-term Master Services Agreement, pursuant to which GCE provides identified technology and academic services, counseling services and support, marketing and communication services, and several back office services to GCU in return for 60% of GCU's tuition and fee revenue. Accordingly, the results of operations discussed on this call reflect GCE's operations since July 1, 2018, as a service technology provider with currently one client, GCU. During the third quarter of 2018 enrollment at Grand Canyon University grew at 8.2%. New working adult students attending GCU's online campus grew in the high-single digits year-over-year, which exceeded expectations. New ground traditional enrollment also increased in high-single digits year-over-year, which also exceeded our expectations. To give you an idea of the size and scope of services GCE offered to GCU in the third quarter and could offer to other universities in the future, I am providing the following summary. First from the curriculum development area, four new programs were released to the university for implementation. I want to remind you that GCU is responsible to select all new programs. It is responsible…

Thanks, Brian. At first, I'd like to spend a few minutes talking about the impact of the transaction on our just-filed financial statement. The transaction is described in detail in footnote 2 to our financial statement. However, I'd like to highlight some items that you might notice on the balance sheet, income statement and statement of cash flows. From a balance sheet perspective, we transferred the education-related assets and liabilities, including restricted cash, student's accounts receivable, certain other assets, property and equipment including the university campus and furniture and equipment used by university employees, certain accrued liabilities, student deposits and deferred revenue to the university. The company received a secured note for these transferred assets in the amount of $870.1 million that earns interest at 6% payable monthly. The company also transferred cash equal to $43.7 million, representing a working capital adjustment as part of the closing. Except for identified liabilities assumed by GCU, GCE retained responsibility for all liabilities of the business arising from pre-closing operation. In connection with the transaction closing, our credit agreement was amended such that the lenders released the collateral securing the company's obligation under the credit agreement and modified certain financial and regulatory covenants to reflect the fact that company no longer operates a regulated educational institution, and we provided to the administrative agent cash collateral securing our remaining obligations under the credit agreement until such time as the transaction has been approved by the U.S. Department of Education and agreed to collaterally assign our rights under the Asset Purchase Agreement, the secured note, and the Master Services Agreement. The amount that is considered cash collateral is included as restricted cash on the consolidated balance. From an income statement perspective, during the three months ended September 30, 2018, the company's net income was reduced…

As President of GCU, I would like to say a few words on behalf of the university. Our traditional campus new incoming class was approximately 7,100 students. The average incoming GPAs of the new class was over 3.5. Our Honors College is now about 2,000 students with average incoming GPAs of over 4.1. We now have 11 advisory boards with over 200 companies, hospitals and school districts represented on those boards. There are now over 3,000 students involved in internships in the current school year. Our nine colleges now offer 239 programs, certificates and emphasis areas. We are now up to 117 student clubs, have 547 students involved in theater, music and dance, have approximately 20 students involved in intercollegiate debate competition and anticipate over 10,000 students in intramural sports, which includes over 1,000 students in club sports. Our 21 division won athletic programs, won a Directors' Cup in the Western Athletic Conference last year, and we expect to win again this year. We are currently at capacity in our residence halls. To support the growth on a traditional campus for the next year, we are building three new apartment style residence halls, a new parking garage and a new student life building. Our traditional total (25:50) enrollment approximated our expectations, however, it is important to note that enrollment growth is being pressured by significant year-over-year increases in graduations. This is being caused not only by the recent growth in total enrollment, but also due to the high percentage of our students that are graduating in under four years. This is the result of our expansive dual credit program with high schools across the country and students taking online courses during the summer. This is another reason that students and parents are attracted to the university. As we have discussed…

Our first question comes from Jeff Silber with BMO Capital Markets.

Thank you so much. I'm just wondering, post this transaction, if I'm either a student at GCU or an employee at GCU have things changed at all for me?

If you're a student at GCU, no. The students on our ground campus if you would have asked them before, the transaction, if we were for-profit or not-for-profit they probably couldn't have told you, and don't really care. And absolutely nothing has changed for them post the transaction. The same thing would be true for online students. The things that they're happiest with are the high quality of the programs, the tremendous amount of support that they get around the programs, the quality of the facilities, the classrooms, the laboratories, the electronic classroom, all those things, and the fact that we haven't raised their tuition and made it very affordable. If you're an employee, there were some slight changes dealing with technology, e-mail addresses, things like that. There were some reporting changes, but in terms of the work that we're doing on behalf of students, the Master Services Agreements clearly outlines that we keep the level of service up to our previous standards and we are doing that, and so not much about their job has changed. As we move into becoming more aggressive in serving other universities, there will be some significant changes, but in terms of what's going on in the last 90 days, not a lot.

Okay. Great. And let me just take a segue from that last comment. I know you said, you'll give us more color on potential partnerships over the next few months, but I'm just curious in terms of your initial discussions, where are you getting most traction and most interest in the type of services you offer? Is it providing online programs like traditional OPM, is it providing some of the other services that a company like yours can provide?

It's definitely providing online services. Universities wanting to get into that adult market and wanting to deliver their programs in an online format. The thing that attracts them a little bit more to us is the fact that, a lot of universities, a lot of the OPM's shy away from the back office services. We consider those to be very, very vital. The counseling services around scheduling, around schedule changes, around program selection, the processing of the financial aid work, the processing of the transcripts, building of schedules. Those are all back office functions that we have automated and can do very efficiently, which doesn't put the pressure on their internal systems that are not built to be able to handle that kind of scale. And so, as we've said before, we'll see how this all goes going forward. We're taking our time. We're very pleased with what we're getting out of Grand Canyon. I know a lot of you are interested in this. There are going to be a tailwind because of our not-for-profit status. We've seen a little bit of that in October – in August, September and October, we're not making any predictions going forward except that we have seen a little bit of that which is why we're taking our time and making sure that we find the right partners and one that we can build long standing relationships with and that are mutually beneficial. Other than that...

I'm sorry.

Go ahead.

Just one more quick question, in terms of GCU enrollment, are you no longer disclosing online versus campus?

Right. We think it's probably more helpful going forward just to produce one number and keep that number, yeah.

Okay, fair enough. Thanks so much.

You bet. Thanks.

Our next question comes from Jeff Meuler with Baird. Jeffrey P. Meuler - Robert W. Baird & Co., Inc.: Yeah. Thank you. So, obviously, a high class problem in terms of the increasing graduations. But I guess are you just calling out the success that the university is having? Or are you trying to signal to us that there's a headwind building as it relates to enrollment growth at GCU online in 2019 that we should be cognizant of? And can you give us any just sizing of how big the step up in graduations is if that's what you're trying to call out?

No. Jeff, I don't think there's anything to be hugely concerned with. I think we are a little bit surprised by how far graduations were over our original estimates for the year. We look at where we think students – when students will graduate and use that to budget graduations, and as I mentioned for the first half of the year we were pretty much right on, in the second half of the year especially the last two month, November, what we've seen so far in November-October, and a little bit in September, we've seen it really start to spike. So, I think those large start groups – cohorts started in the second quarter of 2016 on – had really kicked in for graduations now. So, no, I don't think we're signaling any big shift in our long-term objectives for growth other than just to make sure everyone remembers about those large cohorts and factors that appropriated in their model as they look at enrollment growth for next year. Jeffrey P. Meuler - Robert W. Baird & Co., Inc.: Okay.

Just to add to that, that we – that there are two separate issues. The online issue we had that the acceleration of those starts, which now we're getting a large cohort is graduating. Fortunately, that's being offset by really strong start months. So, echoing what Dan said, we don't think you can expect any significant downturn. On the ground side, it is. We have a very aggressive dual credit program with thousands of universities across the country and students are earning dual credit either through us or other universities. They're bringing that credit in, and we're becoming a very attractive place because students are finding that they can go through their program in three years, they can add a second major or they can add a minor. And so, the process that we're going through right now to counter that is to increase our new start budget for next year on the ground campus to offset that very positive thing, and it's such a strong thing to sell to parents, that not only does the average student on our campus pay $8,600 a year for tuition and $7,000 for room and board, but if you can graduate in three years, the value proposition is tremendous and the opportunity to graduate with little or no debt because you can work on campus is tremendous. And so, we just need to use that to our advantage and accelerate to new starts on the front end. Jeffrey P. Meuler - Robert W. Baird & Co., Inc.: Got it. And I'm just a little confused, I guess you don't have a defined adjusted EPS or something, so maybe that's why you're phrasing things this way, but just on this $1.06 EPS excluding certain costs. I mean I get that the loss on transaction and the university expenses, which I think are related to the stock comp vesting are one-time in nature. But just trying to, I guess, compare guidance to prior – or prior guidance to this $1.06 figure. The contribution made in lieu of state income taxes. Why is there a big net income impact in the quarter? I would think that there would be an offset on the tax rate? Or is there something from a timing perspective in terms of you have expenses this quarter, but you get the benefit in a different quarter, something along those lines?

Yeah, you might remember this, but we have to record 100% of the contribution as general administrative expense in the third quarter when we make the payment. We get a dollar for dollar credit on that contribution, although we get three quarters of that dollar for dollar credit in the third quarter and one quarter in the fourth quarter. So, it does have a slight not material, but a slight impact on EPS because you're taking 100% of the expenses in the third quarter and 75% of the reduced tax expense in the third quarter. Jeffrey P. Meuler - Robert W. Baird & Co., Inc.: What's this $1.06 assuming?

The $1.06 is assuming that the contribution wasn't made at all. And so, and again, I don't – my guess is, I wouldn't focus a lot on that because I think if you take it out or if you leave it in, I don't think it changes the $1.06 because you're talking about not a huge amount. Really, what gets you to the $1.06 from the reported EPS is the $22 million worth of transaction expenses that were recorded. But there's probably $0.005 maybe in that contribution as well. Jeffrey P. Meuler - Robert W. Baird & Co., Inc.: Okay. So, the $3.7 million that you're showing in that line or you're describing the $1.06, that's just the pre-tax amount. So, on an after tax per share basis it's $0.01 or less?

Yeah. To calculate it, $3.7 million is the expense within G&A, and then it's $2.9 million, which is the benefit that you're getting at lower tax expense. Jeffrey P. Meuler - Robert W. Baird & Co., Inc.: Okay. And then, just Brian, the comment on you're starting to see some tailwinds from marketing as a not-for-profit in recent months. Can you just go into more detail there in terms of the marketing efficiency or other benefits that you're starting to see?

It's partly on the traditional ground side, which we won't see the impact of that really until next August. But there are school districts throughout the country that just wouldn't allow our counselors in to talk to students because we had a for-profit status. And so, we expect a very strong new incoming class in August, as a result of our abilities to get places where in the past we couldn't get. In terms of online, I wouldn't say it's so much the advertising efficiency, yes, it is the conversion efficiency. We had very good start months in – we had good start months in August and September, which are difficult because they're big months, but then we came back with a very big month in October as well. We'll see if that extends for a long period of time. We just have no way of knowing. When the higher education market is fairly flat or maybe there's a slight increase, for us to grow as we have in the last 10 years is kind of amazing. So, we were able to overcome that for-profit status, which should be a positive thing, but in the minds of many, it's not. But the fact that we had these strong months recently without a huge additional extra spend is a little bit of a positive sign. And we'll see where that goes. We just have no way of knowing how many people historically just didn't pick up the phone because it was for-profit. And so, we're going to watch, obviously, November and December and see how things look in January and February before we make a final assessment of what that tailwind might be. Jeffrey P. Meuler - Robert W. Baird & Co., Inc.: Okay. Thank you.

Our next question comes from Peter Appert with Piper Jaffray. Peter P. Appert - Piper Jaffray & Co.: Thanks. So, Brian, is it possible to get any more color in terms of sort of the tone of the discussions you're having with potential new clients, and any thoughts in terms of the timing of when you might be able to sign up this first new client?

We hope that things happen in the next three or four months, so that we will be ready to start in August or September of next year. We'll see how that goes. Again, we're taking our time. Things are going well at Grand Canyon University. The tone is very interesting because you meet with well-branded institutions who have one foot in the old days, and some of the measurements that are very important to certain of their faculty members. The number of applications that you reject, what your peers say about you, which is almost those two things combined 40% of the U.S. News & World Report rankings. On the other hand, those same universities are struggling tremendously with their discount rate because people just aren't willing to spend $50,000, $60,000, $70,000 a year to private university and incur $150,000 worth of debt to go back to school. And so this model, this hybrid model that we've created has unbelievable efficiencies, which is tremendously disrupting the industry, especially for private universities. And so, where do you want to play? Do you want to play in the past? Do you want to play in the future, or do you want to play somewhere in the middle, is what they have to decide. There are so many fascinating things about what's happened the last 10 years here. If you ask our students on our campus, and we're building a really, really strong student body by virtue of average income in GPAs, by virtue of 60% studying in very difficult academic areas: engineering, computer science, information technology, biology, pre-med, et cetera. If you ask them, if it matters to them, that we have 70,000 working adults attending online, it doesn't matter to them at all that we have those students. It doesn't impact…

Yeah. As you look at the ground campus, yeah, a lifetime value of the student might be less than what we had initially thought because they're graduating sooner now. Definitely the case with dual credit, obviously, if they're taking online courses over the summer, we discount those courses – or the university, I'm sorry, the university discounts those courses. So, when you add it all together, it's not maybe as big of a difference as what you might think. But there is no doubt that dual credit does reduce the university lifetime value of the student a little bit. But the flipside is higher retention rates, higher graduation rates, which are all good. The other part to that, Peter, that is important is that people ask me all the time, why are you building all these buildings, these residence halls, these classrooms, these laboratories? Is this thing going (46:15) the way of technology moving forward? And my comment always is, for traditional students, 18-year-old kids, the experience they get in this campus is more important in our opinion, than it's ever been. It just has to be affordable. It can't be $200,000 worth of debt. And so, as we move forward, the percent of all of our students that come to the traditional campus and live on the campus, which more than doubles the amount – well, doubles the amount of revenue that we get per student, it was going to help offset that three years. And so, when students commute, we get on average $8,600 a year, but when students live on campus, it's closer to $16,000 a year. And the margins on the residence halls, even though we charge a third less, are huge. And so, that's the three years, partially offset by the amount of revenue we get for the kids who are living on campus. Peter P. Appert - Piper Jaffray & Co.: Okay. Understood. Thank you.

And I'm not showing any further questions at this time. I turn the conference back over to our hosts.

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 Dan Bachus. Thank you very much.

Ladies and gentlemen, so that concludes today's presentation. You may now disconnect and have a wonderful day.