Good day, and thank you for standing by. Welcome to the Grand Canyon Education Third Quarter 2023 Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Dan Bachus, Chief Financial Officer. 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. Thank you for joining Grand Canyon Education's third quarter fiscal year 2023 conference call. GCE had a remarkable quarter, exceeding enrollment expectations by producing online new starts that were approximately 20% over prior year, in our largest start period of the year, and also producing greater than expected retention numbers, exceeding revenue guidance estimates at midpoint by $2.4 million, and producing an $0.18 beat in adjusted diluted earnings per share to consensus. Judging by these results and the lead flow for the month of September, October, and November. There has never been greater interest in what is happening at Grand Canyon Education and its partner Grand Canyon University as well as the other 24 partners. An article that recently appeared in Fortune magazine titled, The Labor Shortage is Pushing American Colleges into Crisis, with the plunge in enrollment, the worst ever recorded. Author Colin Bentley says the following, nationwide undergraduate college enrollments dropped 8% from 2019 to 2022, with declines even after returning to in-person classes, according to data from the National Student Clearing House. The slide in the college going rate since 2018 is the steepest on a record, according to the US Bureau of Labor Statistics. Economists say the impact could be dire. Fewer college graduates could worsen labor shortages and fields from healthcare to information technology. The trend has continued into 2023. According to the Chronicle of Higher Education, with freshmen enrollment dropping 6.9% at public four-year institutions and 4.7% at private non-profit institutions. Grand Canyon Education and its 25 university partners are experiencing significant growth in spite of declines in the overall market. And I believe that growth will continue for the reasons I will explain as I review the four platforms, we use to deliver higher education. First, the online campus at Grand…

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 September 30, 2023 and 2022. The non-GAAP amounts exclude the tax-affected amount of the amortization of intangible assets of $2.1 million for the third quarters of both 2023 and 2022. And the tax-affected amount of the losses on fixed asset disposals of $0.4 million and $0.5 million for the three months ended September 30, 2023 and 2022 respectively. We believe that 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 September 30th, 2023 and ‘22 is $1.26 and $1.02 respectively. Service revenue was higher than our expectations in the third quarter of 2023 due to the higher than expected enrollments at GCU and some of our other university partners. 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 enrollments between years 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 sites. Service revenue per share for hybrid ABSN students generates a significantly higher revenue per student than we earn on the other students as these agreements generally provide us with a higher revenue share percentage, the partners have higher tuition rates and the majority of their students take more credits on average per semester as they are in accelerated programs. The increase in revenue per student was also positively impacted in the third quarter of 2023 by year-over-year differences in the timing of the GCU traditional campus' fall semester,…

[Operator Instructions] Our first question comes from Jeff Meuler with Baird.

Thanks so much. Wanted to focus first on GCU online enrollment, really impressive numbers in terms of the accelerated growth layer. Can you just give us a little bit more color what drove that and how sustainable that is going forward?

Yes, a couple of things drove it. One, the work that we're doing with school districts, hospitals, counseling centers, military bases, people are really, really focused on giving opportunities to their employees that are operating at lower levels in the organization. And so that was up 33% this quarter over the same quarter of the prior year. That work is having a major impact for organizations and the word is spreading that we have the capability to do that. And so that is a major driver. As you know, that work was all shut down for the time during COVID, but we didn't let those people off. And when the country opened back up, we were poised to really play a significant role for a lot of school districts, hospitals, et cetera. So that's part of it. Secondly, in the months of September and October especially, well even prior to that we saw the efficiency of our marketing spend go up, a lot of people at universities as we were entering the summer started to predict that their enrollment number was not going to hit and that their revenues were going to be down significantly. And people stopped spending in terms of advertising if you're not making any money, or not successful in the in the few programs that you're delivering online. We just saw withdrawal, people started to get out and so I think the combination of all the new programs we opened there's so much interest in the new programs. The work that we're doing directly with companies to help give people opportunities to move up a pair of professionals becoming teachers and people moving up in the nursing profession, cybersecurity specialists on military basis. It was that plus the efficiency of the marketing spend that drove the increase and at this point we absolutely think it's sustainable. The months of September, October and November from a lead post standpoint just the amount of interest and so much of it is really, really high quality stuff. People doing their own searches, looking for opportunities and there just isn't anybody out there that has the breadth of programmatic offerings that we do. So does that help?

Yes, no, that's actually very helpful. Maybe if you switch over to the hybrid program, you cited the strong new fall enrollment growth and your expectations for spring to be even higher. What are you seeing that's giving you that confidence?

Oh man, it's primarily the university's adjusting, our university partners adjusting to the fact that the market changed and there's a significant amount of interest in people becoming nurses but it's really for people who are younger and that have partially completed degrees. It's not mainly for people who have completed degrees and are looking to re-career in nursing. There's still some of that but there's a huge growth is in people that are at community colleges that have 20, 30, 40 college credits. They haven't accumulated much debt and they're very interested in a nursing career and so that adjustment and then the prerequisite course offerings. I mean that was just a huge challenge because there was no efficient way that was affordable for people to get into those courses, especially the science courses. other Gen Ed courses as well, but especially the science courses. And GCU put together really 10 courses are the big part of it, but there are some additional ones. Put a lot of time and energy into those courses, hiring full-time faculty to teach them, providing tremendous levels of academic support, and we've already had over 5,000 students take those courses. And so now, no matter where you are in the country, you can enroll in those courses within a week or two. And one of the things that surprised us is that there are a lot of 20, 21-year-olds that are only part-time employed that aren't taking one of those courses at a time. They're taking multiple courses at a time because most of them are only working part-time jobs. But it's the clear path from getting that science course work completed, getting into an ABSN program to do the 60 credits at the upper division level, that clear path has really changed this thing tremendously. If you're in a market and somebody tells you to go to the community college and see what they have to offer or that's just a long difficult, arduous process that incense people. And so we think now we've got a great solution to, the first obstacle was the clinical placements and we fixed a lot of that in the last couple years. And now this second obstacle was that science prerequisites of coursework. We believe we've impacted that significantly and so we're excited now about the next couple years.

Our next question comes from the line of Gabriel Dietrich with Baird.

Sure. Thank you for the call today. I actually work in a different department than Jeff, but I really appreciate the comments and was just curious on your thoughts regarding the recent fine with the Department of Education. Any thoughts on impacts for the organization and just how that communication and dialogue is going for the company.

Yes, it's, we've been dealing with the department for five years. And so we'll continue to deal with it. It's a -- we knew that there was -- the fine was coming, and so we got out in front of it and made sure that we told our part of the story. None of what's going on makes any sense from a logic perspective. We went through a very lawful process to return to a nonprofit institution. That went really, really well. The department for some reason denied our nonprofit status. We don't know what the reason is. They don't tell us. And then for four years, we tried to fix it. Eventually, I had to file a complaint. And as a result of that the retaliation started. And so it's something we have to deal with, but it's not going to stop what we're doing. Things are going unbelievably well here. The desire for what we have, which is four very, very creative platforms where we can deliver education to students based on what their living situation is, their life situation based upon what the nature of it is they need to learn. We can deliver it extremely efficiently. We can do it without major tuition increases, without huge debt levels. We can just do it in an extremely high quality way. And the focus on free speech at a Christian University is very, very attractive to Americans throughout this country. And so we're in a great spot and we're going to continue to focus on delivering to students, delivering to organizations, making sure that people are in a position to get a great return on their investment of time, energy, and money. And so it's something we have to deal with, but it's not something that's going to slow this thing down at all.

Thank you.

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 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.