Good afternoon, ladies and gentlemen. And welcome to the Grand Canyon Education Second Quarter 2021 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. Thank you. I would now like to turn the conference over to your host today, Mr. Dan Bachus, Chief Financial Officer. Sir, the floor is yours.

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’ll turn the call over to Brian.

Good afternoon. And welcome to Grand Canyon Education’s second quarter fiscal year 2021 conference call. GCE had another successful quarter and long-term, the future is very bright. We continue to experience some short-term issues due to the pandemic, which I detailed on the first quarter call and I will provide an update in a minute. However, long-term, we are building three unique and differentiated platforms that will provide significant and impactful growth. The pandemic has been a serious challenge for universities and many are experiencing significant enrollment and financial issues. It continues to be GCE’s goal to create educational models that address the real issues within higher education. I believe those issues continue to be, one, the out of control rising costs of the university education. From the early 1980s to the late 2010s, the price of college increased 8 times the increase in wages, number two, the increasing debt levels that will seriously hinder graduates as they begin their adult lives, three, as tuition level goes up, diversity on college campuses goes down, four, Bachelor’s degree should not take four to six years to complete, five, programs and delivery models lack the creativity and flexibility necessary to address critical shortages in some very important industries, six, there are inadequate counseling and support services, especially for first-generation students or those studying at a distance, seven, three-fifths of college graduates would change majors if they were starting over, 30% for better job opportunities, eight, prior to the pandemic, 43% of college graduates were underemployed in their first job, two-thirds remain in jobs that don’t require college degrees five years later. Grand Canyon Education is a large organization, is in a very strong financial position and can invest in educational infrastructure to help institutions grow their student enrollments. For example, GCE just…

Thanks, Brian. Included in our Form 8-K filed with the SEC, we have included non-GAAP net income and non-GAAP diluted income per share for the three months ended June 30, 2021 and 2020. The non-GAAP amounts exclude the tax-affected amount of the amortization of intangible assets. The amortizable intangible assets acquired in the Orbis acquisition totaled $210.3 million and amortization expense in both the second quarters of 2021 and 2020 was $2.1 million. We believe the non-GAAP financial information allows investors to develop a more meaningful understanding of the company’s performance over time. As adjusted, non-GAAP diluted income per share for the three months ended June 30, 2021, and 2020 is $1.12 and $1.03, respectively. Service revenue was in line with our expectations in the second quarter of 2021. As expected, the GCU online enrollment growth rate slowed in the quarter due to the items Brian mentioned earlier. Ground summer school enrollments and Orbis enrollments approximated our expectations. Revenue per student continues to grow on a year-over-year basis, primarily due to increased room board fee and other ancillary revenues at GCU as compared to the prior-year period and the growth in the enrollment for students at off-campus classroom and laboratory sites. These increases were partially offset by a one-day shift in timing for the spring campus semester resulting in one day moving into the first quarter of 2021 from the second quarter of 2021. Service revenue per student for off-campus classroom and laboratory sites generates a significantly higher revenue per student than we earn under our agreement with GCU, as these agreements generally provide us with a higher revenue share percentage, the partners have higher tuition rates than GCU and the majority of their students take more credits on average per semester as they are in accelerated programs. Included in…

Thank you. Your first question is from the line of Jeff Silber from BMO Capital Markets. Your line is open.

Thank you so much. I wanted to focus first on the new enrollment trends at Grand Canyon University online. You were very thorough in identifying the areas that you think caused this. But if we step back, do you think there may be more of a secular issue in terms of specifically new competition, there’s tons of schools that are out there really expanding in graduate programs online, I am wondering if you’re seeing any impact of that?

If you look at the data with regards to searches and other marketing data, you are seeing a lot of institutions decline in the return that they’re getting. We are not seeing that. But we’ve moved away a lot more than other people from that and so greater than a third now of the new students that start at the University are starting as a result of that direct work we’re doing inside of school districts, hospitals and those kinds of places. And so I agree that there’s more competition. I agree that there’s more competition for the best students, which are graduate students. But we get a big percentage of our graduate students from that work that we do directly inside hospitals, school districts, companies, counseling centers. And so we always talk about the 50% of our students being grad students and we slipped 2 percentage points during this pandemic off the high number. But we still believe -- and we’re seeing evidence of it, because the -- as schools are opening up, hospitals are opening up, we are reengaging and we see information meetings filling up and there’s going to be potentially something -- even pent-up demand there. So I understand that that would be a trend you would see if you’re just looking at this thing, with results you can get from certain places. But we still believe that we -- because of our strategy, we will be back to normal fairly soon and won’t be impacted the way others are.

Okay. That’s very helpful. Obviously, the lead story in the news or one of the lead stories is the ramping up of the Delta variant. Are you seeing any impact of that maybe in terms of students on the ground reluctant to come back to school because of this?

No. It’s the opposite. There is -- I am a long way away from those days, maybe even as far as you are, but there’s a fearlessness that is a little bit the opposite from a ground campus perspective. I get emails daily from parents who are saying, please don’t give into the hysteria. Our sons and daughters are expecting a fully open campus and they expect to be back and have all the experiences that GCU is known for. And so please hold the line and make sure that happens. And so if anything, we have seen an increase in that. Now we are not demanding that they have a vaccine -- that the students be vaccinated. We’re working really hard with our faculty, with our security, with our cooks, with our landscaping personnel, where there’s older people to get as close to 100% vaccination as possible. And then we have vaccinations available and very convenient and we will encourage students to use them. We also have testing procedures and we have quarantine strategies. And so we’re not taking it lightly. But on the other hand, I think we’re in this -- in the boat of -- we’ve got to learn to live with this, and we’ve got to open schools up and we’ve got to open businesses up and we’ve got to keep the economy open. And the vast, vast majority of the students that are coming here in the fall are in that category of thinking. And so we’re excited about it. We’re not taking it lightly. I am obviously nervous about it. We’ll be watching it every single day. But I really like our chances to have a very successful semester and part of that is based upon how we finished the spring semester. We finished with very, very few active positives on our campus. And so we’re optimistic about what’s going to happen and the vast, vast majority of our students and families are extremely optimistic.

All right. Great. I appreciate you calling out my age and I’ll jump back in the queue as well.

Sorry. No worries.

Your next question is from the line of Jeff Meuler from Baird. Your line is open.

Yeah. Thanks. So, Brian, I think, you just said this, but just wanted to clarify. So the two-thirds of new enrollments that typically come from the other marketing channels besides the direct counselors that partner. Is that two-thirds -- they’ve been hitting the targets year-to-date and that’s continuing recently. Is that correct?

Yes. Yeah.

Okay.

That part of our thing has not fallen off. But I think part of the reason it hasn’t fallen off is that we don’t feel a need to spend more money and get decreasing results as a result of that. If you watch, and obviously, we can watch it, but you watch the spending patterns of some of our competition and they keep spending more and getting decreased results as a result of that and we haven’t had to do that. And I think that’s the reason that we -- that part of it hasn’t diminished.

Got it. And then, so I just -- so the plan is you’re going to buy back at least $500 million of stock and that’s regardless of if there’s any refi of the debt. And then depending upon the amount of the refi of the debt, you might buy more than that. Is that correct?

That’s correct.

And can you give us an update on like, because it’s -- it sounds like it’s still potentially several months out until this would close. So where is the University with -- meeting with debt investors or just what’s the calendar for that process?

My understanding is the University continues down that process. They have received some proposals -- different proposals from different parties on ways to refinance the entire amount that’s owed to us and they’re working through those proposals with the various parties, and ultimately, we’ll move forward with one of those. And they are optimistic not only that they’ll get it done, but that they’ll be able to refinance by that October 15th date. Now could it get pushed? A little bit. I mean that’s obviously a possibility. But I think they’re very optimistic. And thus, that gave the confidence to the GCE Board to approve the share repurchase plan for the second half of the year. They think that -- a couple of things, one, that the stock is undervalued currently, number two, that they’re confident that the university will get some type of refinance done, and thus, as investors have asked, our plan is to refinance and to take the proceeds from the refinance and use it to buy back stock. And in the meantime, if that gets delayed a little bit longer than we hope, we will use our own cash reserves and our own financing opportunities to buy back stock, which they will then get paid off as soon as the refinance proceeds are received.

Yeah. I can reinforce that, Jeff. We’re at the point now where it’s evaluating between options. So there are a number of options…

Got it.

… and there’s an evaluation process taking place.

My understanding is the enthusiasm for this refinance among various debt holder -- the potential debt holders is very, very strong. And it should be, because the University has an incredible asset here with their ground campus that was recently valued at over $2 billion and so it’s a fairly low debt to asset ratio and so I think there’s a lot of enthusiasm for that.

Got it. And then just finally on Orbis, it’s 13% growth, considering that it includes the GCU students, it seems kind of low to me or below what, I guess, you aspired Orbis to grow at, at the time of acquisition. And I know we’ve been in the pandemic, there was -- so I’d love any kind of general commentary on Orbis’ growth. And you gave us nursing and then there was something about occupational therapy that I didn’t totally understand. I think there was an issue with one partner that was an OT partner, but I don’t know if that was broader than that one partner? Thanks.

Yeah. Currently, Orbis has one occupational therapy partner and that enrollment for that occupational therapy program is actually down year-over-year. The partner requested that they stop enrolling new students to allow the existing students to get through their clinical type rotations given the COVID situation and so they’re back. I think as of September, they’ll be enrolling new students again into occupational therapy. But in the meantime, you’ve seen a decline year-over-year. So if you exclude that occupational therapy program, Orbis’ nursing programs, which is the primary component, is up 19% year-over-year, which is a little bit lower than our long-term objectives and it has completely everything to do with just the timing of site openings. We’re very excited and Brian touched on this about the site openings in 2022 and the hope is that, that will accelerate their enrollment growth. Anything Brian to add to that?

Just -- yeah. Some of the driver of the success has been in the larger markets and so Chicago was a big driver. Some of the markets that were opened and recently have been in smaller markets, but there’s some very big markets coming, Houston, Dallas, Southern California, New York, which really bodes well for the next two years, three years, four years. Those markets I just mentioned, they’re going to be capable of multiple site openings as opposed to some of them that we’ve just -- that we’ve recently opened, which just aren’t in markets large enough to do that.

Got it. Thank you.

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

Thank you, speakers. Ladies and gentlemen, this concludes today’s conference call. Thank you all for joining. You may now disconnect.