Good day and thank you for standing by. Welcome to the Q1 2023 Earnings Conference Call for Grand Canyon Education Inc. [Operator Instructions] Please be advised that today’s conference is being recorded. I will now like to hand the conference over to your speaker today, Chief Financial Officer, Dan Bachus. 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 the call over to Brian.

Good afternoon, and thank you for joining Grand Canyon Education’s First Quarter Fiscal Year 2023 Conference Call. GCE had a very good quarter, exceeding enrollment expectations, exceeding consensus revenue estimates at mid $0.06 producing a $0.04 beat in adjusted diluted earnings per share to consensus. Given how most of higher education is coming out of COVID years, these are excellent results. Most importantly, GCU online produced significant new enrollment growth for the third consecutive quarter over prior year, and that momentum is expected to continue into the second quarter of 2023. I want to begin again by taking a step back and explaining why this is happening and briefly over review what has happened since the GCE-GCU transaction took place almost 5 years ago. I’ve often said that the past [indiscernible] small in Elite has won a day in higher education, especially areas like U.S. News & World Report rankings. In the future, it will be institutions who are large, scalable and flexible in how they offer higher education. We expect to impact adults across the life span using technology to build platforms that take into account the life situation of the student and the nature of the content deals that need to be learned. GCE has invested approximately $300 million, producing its old learning management and administrative system that allows it and its partners to manage our 7,000 old-time and adjunct factory numbers 112,600 students and over 320 academic programs, emphases and certificates across 4 delivery platforms. This system has automated processes including admissions, transport collection and evaluation schedule building, financial aid processing at the recruit fatty assignment and payroll content acquisition, assessing learning outcomes, student teacher placement, counseling and social work internships and the list goes on. The administrative capability of the system allows a institutes to focus…

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 3 months ended March 31, 2023 and 2022. The non-GAAP amounts exclude the tax-affected amount of the amortization of intangible assets of $2.1 million in the first quarters of both 2023 and 2022 and the tax-affected amount of the losses on fixed asset disposal of $0.1 million and $0.7 million for the 3 months ended March 31, 2023 and ‘22, respectively. 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 3 months ended March 31, 2023 and 2022 is $2 and $1.72, respectively. Service revenue was higher than our expectations in the first quarter of 2023 due to the higher-than-expected ancillary revenues at GCU and a higher-than-expected number of students in the nursing prerequisite courses. Other online and hybrid revenues were in line with our expectations. The ground enrollment growth rate continues to be impacted by a decline in professional study. The hybrid enrollment growth rate is being impacted on a year-over-year basis due to the timing of site openings, a 19.9% year-over-year decline in occupational therapy assistant enrollment and a decline year-over-year in the enrollment at some of the material sites due to challenges previously discussed. Revenue per student continues to grow on a year-over-year basis, primarily due to the service revenue impact of the growth in the GCU traditional campus enrollment for seniors, which has a higher revenue per student due to room, board and other ancillary revenues and the higher revenue per student at off-campus classroom and laboratory site. Service revenue pursuant for hybrid ABS students generates significantly higher revenue per student…

Thank you. [Operator Instructions] Our first question comes from the line of Jeff Meuler with Baird. Your line is now open.

Yes. Thank you. For the hybrid pre-req initiative, I guess, have you had any students graduate from that program at this point? When do they apply for the ABSN experience, just like how much of a lag between completing the pre-reqs and enrolling an ABSN would you expect?

Well, we when they express interest in our program, and we determine they need re-referenced courses, how many there are that they need to take. We immediately begin a schedule in terms of how they’ll transition to the ABSN program. So depending upon how many courses they need to take will determine the schedule will determine when they’ll finish their last course and then for most of them, they will begin very soon after that, attending one of the sites that they selected even before they start their pre-reqs. And so for many of the students, they will be lucky to site very near their home. For some, they’ll actually select a site that they’ll move to but all that work is done upfront. The evaluation of their transcripts is done and then we determine what courses they need. Course schedule is built. We don’t – we have a lot of students completing courses. They are completing courses at a very, very high rate, the one that we’re very satisfied with. We haven’t had a student complete them all and go into the – maybe a good program yet, but we’re very close to that happen. And so the preliminary results have been very good, and I can’t underestimate how important that is. When you apply to get into a nursing program and it’s determined you don’t have the prerequisites necessary sorry to say this, but if they refer you to a community college, that could literally be a 2 or 3-year time frame before you’re going to hit the courses you need. And if you don’t select that route, the other routes are extremely expensive. And so what we realized is that you can’t expect a student to take out a massive loan to get the pre-reqs done, not…

Got it. And then for the fall ‘23 ground campus enrollment. I just want to make sure I’m interpreting the comments correctly. You gave us the new starts I feel like there was a little bit of a caveat 2 to 3 months ago about registrations tracking behind. I guess has visibility on that front and trends on that front improved. And then this quarter, I don’t know if this was a new cabin or not, but I thought there was a reference to like some uncertainty around retention of students from spring to fall and increased competition. So is there any reason to believe that retention could be lower this year?

No, retention is very good. We will come in with more than we budgeted for in terms of returning students to the can. So that’s really good news. On the other front, things have changed dramatically in higher education with regards to traditional students. This has been coming, but COVID accelerated it. The reason we’re saying between 10,000 and 11,000 students, and that’s a wide range for us. Usually, we can target the number and be much closer. Our applications are up significantly. Our campus visitations, our one-on-one appointments with students and parents are up. What’s lagging behind is the student’s commitment to register. So they are not saying they are not coming, they are not committing to register. We have had a number of institutions visit us well-branded private university students within the last couple of months and explore potential relationships because they are looking at their fall numbers and their fee I’m not going to say Armageddon, but this – what happened last year is probably going to be worse than this year for many institutions. Students and families know that they are in a driver seat now. Unlike in the past where you try to apply the schools you are interested in helping to get an acceptance and celebrate that. Right now, what they know is that the thing is flipped and if they hold out, people are making increased offers in order to get them to attend their campus. We’re not doing that. We don’t think we have to do that. And we’re still positive about how we fit into this whole situation because of our low tuition rate. Parents and families students are actually absolutely questioning the value of higher education if it requires $200,000 worth of debt or even $100,000 if you would attend state university. We think that as they get letters and deals submitted by other institutions, ours as they have in the past, will look very favorable in addition to the fact that we’ve got over 40% of our students graduated in 3 years because of our dual credit programs and all of that. So we still think we – even though the trend is fewer high school graduates, fewer [indiscernible], if you’re questioning the value of higher ed, this is a very good investment because number one, you’re going to graduate with very little debt. Number two, you’re going to graduate in less years. And so it’s a much lower risk proposition if you’re questioning that. So we are hanging in there and expect that we will still do real well in the end as compared to others.

And just to clarify, the caveat, Jeff, you might recall this, we had a similar issue last year, but the university built 1,500 new beds. And if retention rates were flat as a percentage to last year, we could recruit for them 1,500 additional new students or 1,300, I think, roughly, additional new students this year than last year. Based on current registrations for continuing students, they are taking up the entire 1,500 additional beds. Now with that said, once students go home for the summer, we expect some attrition as we’ve seen in the past. But right now, sitting here today, based on current or prior trends, we will have a much higher retention rate than we projected or we’ve had in the past and continuing students will take up some of that increased Fed situation at the university build, if that makes sense.

From a total enrollment standpoint, It won’t change the total enrollment. It will just change the pieces between new and continuing.

Yes. Got it. Thank you.

Alright. [Operator instructions] Our next question comes from Jeff Silber of BMO. Your line is now open.

Thanks for sneaking me in. I apologize, I joined late. Brian, and forgive me if you mentioned this, and I’m sure you did. You talked about the hybrid business being in a transitional year this year. At a high level, can you just review why that’s the case?

Yes. The market absolutely changed because of the slip in the labor market. They are unemployment is so low that 3 or 4 years ago, most of the students where students have completed a bachelor degree, their careers were not going anywhere, and they want to career into nursing. And so their transition into the program was pretty simple, much simpler because they already completed a degree. Right now, you’ve got people making $60,000 and $70,000 a year, the first couple of years out of college. And it doesn’t make sense for any of them to put their $70,000 a year job and spend $60,000 to $80,000 it’s those careering post-tax students have kind of dried up. Now that might change again if the employment situation changes, which would like. But what’s happened is that there is still a huge interest in people becoming nurses, but it’s students that are at a community college or pretty new out of high school, they earned 30 or 40 credits, maybe 60 credits and they haven’t accumulated much debt. What we needed to do for them is create a very efficient way for them to get the science pre-req courses done so they can go to do an ABSN program. We needed to make the scheduling of those things very efficient. We need frequent start times. So we’ve built those courses at GCI. And they quickly rose to 1,200 suits in those courses. They are taking anywhere from two or three to as many as seven or eight science courses, chemistry, biology, anatomy, physiology, those courses, and they are completing at a high rate. We’ve reduced the situation significantly to most who are paying cash. And they don’t have the difficult decision of accumulated a lot of debt, not knowing if I’m going…

Okay. That’s helpful. If I could shift gears to GCU online. Can you just give us an update in terms of acquisition costs I know it’s been a competitive market. You guys are doing a great job. But I’m just curious if acquisition costs have come down or how they are tracking.

When you look at us historically, and I know you know this, if you look at the 5 or 6 years our acquisition costs, that’s where we were getting margin expansion. Now we’ve been in a position where they stayed pretty flat. It’s – we have an experience the difficulties a lot have had. And mainly because 24%, we were 24% over this first quarter of this year over first quarter of prior year and it starts that we have accumulated through our industry partnerships. That’s taken the pressure off of our marketing plan and [indiscernible] and so where other people have had to spend more marketing dollars, which as you spend more, you get deteriorating results, we’ve been able to keep our actual advertising expense pretty much the same, slight increases because we’re getting the starts out of the school rates, hospitals, counseling centers, military bases where we are putting custom programs together to help them enroll count from inside. I’ll tell you, the – we have got so many partnerships now with [indiscernible] where we’re taking care of professionals who are making $25,000 a year, putting them into back loyal programs that lead to licensure that allow them to become full-time teachers at $70,000 a year, in some of the biggest cities in America, New York, Chicago, Philadelphia and Boston. I mean those are – it’s a great story because it’s really lifting people to a middle-class job at the same time, it’s giving human resource departments within large school districts and HR plan that they can count on and give them some level of predictability and a way for us to offer programs without having to buy lease. So that’s – so we really haven’t had the issue that you probably heard from a lot of groups.

Okay. Appreciate the color. Thanks so much.

We have reached the end of our first 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 very much.

Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.