Good day, and thank you for standing by. Welcome to the Q1 2024 Grand Canyon Education, Inc. Earnings 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 Executive Officer. Please go ahead.

We've got a promotion. 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 Mueller, our Chief Executive Officer.

Good afternoon, and thank you for joining Grand Canyon Education's First Quarter 2024 Conference Call. GCE had another strong quarter, exceeding enrollment expectations by producing online new starts that were in the high single digits over the prior year and also continuing to produce strong retention rates, exceeding revenue guidance estimates at midpoint by $2.4 million, producing a $0.13 beat in adjusted diluted earnings per share to consensus while continuing to invest heavily in initiatives for our university partners. Judging by these results and the current organic lead flow, there has never been greater interest in what is happening at Grand Canyon Education and its 23 partner institutions. There's a lot being said and written about Grand Canyon Education and its largest partner, Grand Canyon University with regards to its growing enrollments in the midst of declining enrollments at many universities across the country. I want to start by reviewing the real reasons that this is happening. There's a vast amount of untapped potential in the American labor force today. There are still universities that chase after U.S. News and World Report rankings. Unfortunately, the criteria for attaining those rankings have nothing to do with tapping into that unmet potential. For example, the fact that there are nursing, teacher, technology and engineering shortages, just to name a few is a direct result of misplaced university priorities. Our success is the result of trying to understand the life situations of students and the nature of what it is they need to learn. The combination of creative delivery models and relevant programs is driving the interest in what we are doing. We currently deliver our 300-plus academic programs across 5 creative delivery platforms. Number one, GCU's traditional ground campus is designed around the needs of 18-year-old high school graduates who are able…

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, '24 and '23. 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 2024 and 2023 and the tax-affected amount of the losses on fixed asset disposals of $0.1 million for the 3 months ended March 31, 2023. 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, 2024, and 2023 is $2.35 and $2, respectively. Service revenue was higher than our expectations in the first quarter of 2024 primarily due to higher-than-expected revenue per student and slightly better-than-expected enrollments. Revenue per student continues to grow on a year-over-year basis, primarily due to the service revenue impact of the increased room board and other ancillary revenues at the GCU traditional campus between years. Service revenue per student is also positively impacted by the growth in hybrid ABSN students as these students generate 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 by the timing of the spring semester for the GCU ground traditional campus. The spring semester started one day earlier in 2024 than in 2023 which had the effect of shifting $2.1 million in service revenue from the second quarter of 2024…

[Operator Instructions] Our first question comes from the line of Jeff Silber of BMO Capital Markets.

We've been hearing and seeing a lot about the potential impact on college fall enrollment because of the fiasco in the FAFSA applications. Can you talk a little bit about what you're seeing, if anything? And then a broader question, if, for some reason, there is some delay in students enrolling this fall, are you doing anything to potentially get them in maybe next January, so they don't know have to wait a whole another year before enrolling?

Well, we put a big focus on bringing high school seniors really good students from around the country to campus this year, and the result was overwhelming. We're up 50% in terms of high school seniors that are visiting campus. And so the FAFSA delays, with the FAFSA delays, we were still experiencing the kind of application numbers and the kind of registration numbers that we expected to hit our enrollment targets for new students on campus in the fall. Just recently, with the FAFSA site becoming operational, we have implemented a plan to contact all those students who weren't able to receive an offer from us previously. That number was in the thousands. And so we have got right now a pretty massive operation in place to contact those students who had expressed some interest, and filled out the FAFSA, but we weren't able to give them an idea as to what their costs were going to be. And so we're trying to make up now in the months of May, June and July, what we weren't able to do in the months of January, February and March. And so it will be interesting to see how much of that ground we can make up. Early indications are that some students have already made their mind up to sit out this year because they just couldn't get any information. But there are still a lot that are open. And so I think 2 things. Number one, there will be low-income students. There will be less low-income students go to 4-year colleges this fall that have gone in the past. I don't think there's any question about that, and we'll experience some of that. I think that will be offset by the fact that we had brought so many students to campus that were not eligible kinds of students. And so I think we'll make up for that shortage with those students. And I think we'll also make up more than most institutions with those Pell-eligible students because of the effort that we're going to make in the summer months. But the way it will all come out at the end is still a little bit unknown. The unfortunate thing is that the fact that the FAFSA site was not operational, impacted first-generation low-income students by far the most since -- but -- and so that's too bad, but that's what's happened. Bottom line is I believe we'll hit our new enrollment target on the traditional ground campus because we have made up for it with the other campus visitations and because we'll make up more than most institutions will with those Pell-eligible students.

And forgive me, I missed some of the opening remarks, but were there any specific program areas where you would call out greater strength than others in the past quarter?

From an online standpoint, yes. We have a program going in our education area that is absolutely outstanding. We have contracts with school districts all over the country where we're helping care professionals achieve their baccalaureate degree and become licensed teachers. And that program was a significant part of our successful growth strategy. It's one of the most unique programs, I believe, in the country. We had 11 graduations just these last 2 weeks. And in 2 of our graduations, we had one of those people speak, one of those students speak. He actually was a police officer and a detective for 20 years in New Jersey, retired, became a care professional in New Jersey Public School District, entered our program that we delivered to New Jersey public schools, and she earned her baccalaureate degree and now she's a licensed teacher teaching math to eighth graders in a New Jersey public school. We have 7,000 students now like that preparing to be teachers in the public school system. And that was a significant contributor. Another one was the 7,000 students that we now have taking prerequisite courses, preparing to be in one of our ABSN sites. That's an amazing phenomenon that's taking place. It's not that there aren't enough people that want to be nurses. There's no efficient way to get them prepared to do it, especially in those science areas. And so opening up those courses the last couple of years to students from around the country has been another significant contributor to our online success rate.

Our next question comes from the line of Jeff Meuler of Baird.

It's Steven Pawlak on for Jeff. It sounds like in the hybrid pillar, your new starts were better than you were expecting last quarter. Is that just your partner programs now accepting the advanced standing students? Or are you seeing better demand trends in the end market? Just could understand that better.

Well, it starts with our GCU sites. Our GCU hybrid sites are just doing so well. We have -- the partnership that GCE has with GCU and the opening of those sites and they're meeting maximum capacity very early is really healthy tremendously. Our other university partners are watching how efficiently we are making that partnership work and they're becoming open to making the changes that are necessary, the primary one being to accept students that have not completed baccalaureate degrees. And typically, these are students that have been through 1 or 2 years of community college, they have 30 college credits or so and they need -- they would love to become a nurse. They have the capability of becoming a nurse. And so many of our partners weren't taking those students. When you have a person that's gone all the way through a baccalaureate program and has accumulated lots of debt, the thought of more debt to finish an ABSN program is a debilitating thought for a lot of young people. The fact that we're now taking students with 29 or 30 credits, they've attended a community colleges, they don't have debt. And now, we've made it an efficient way for them to earn those science credits and that learning is necessary in those courses in order to be successful in the ABSN program. That's just changed everything. And what's happening is those partner institutions are now sending their prospective students to GCU's prerequisite program, which is the most efficient way, best way to earn those credits. And so those are the 2 things that have really caused the reacceleration of the hybrid programs and the future is really, really bright at this point.

I mean I guess relatedly, you had mentioned that mature sites kind of sort of remained below I guess, our targeted level. Now that they're accepting advanced standing students, is it just that there needs to be time for them to return to sort of their full enrollment? Or is there other actions that need to be taken?

No, it's just time. It's time because a lot of the students, when the economy was different, when unemployment was higher, and there were baccalaureate prepared people that were interested in recareering into nursing. They had completed baccalaureate degrees. And so they needed less of a science and GenEd courses. Moving away from that target because the target just shrunk and moving to these other students is a very, very positive thing, but it takes time for those students to earn the credits necessary to get eligible. And so that's why that waterfall is so important. We can watch as the students in those prerequisite courses grow. We know each one, where each one is going to complete their prerequisites and be eligible. And so it's just a matter of time. We have a lot of confidence that we've got the right strategy now and the right methodology, but it does take time for those younger students to earn the credits and do the learning necessary to get them ready for the ABSN program. So it is just time.

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.

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