Good day, and thank you for standing by. Welcome to the Q3 2024 Grand Canyon Education 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, CFO. 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 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 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 Third Quarter 2024 Conference Call. GCE had another solid quarter, producing online enrollment growth of 5.8%, and hybrid growth excluding the closed site and those in teach-out, 12.6%. Although we are disappointed that ground enrollment is down slightly year-over-year, this was not unexpected given the widely reported challenges faced industry-wide. We also continue to produce strong retention rates, while investing heavily in initiatives for our university partners. The investment GCE and its 22 partner institutions are making are based on the belief that there is a vast amount of untapped potential in today's workforce. Many recent high school graduates did not go to college this year because of exorbitant tuition rates, potentially exorbitant debt levels and difficulty managing the fastest site. Many older students who could benefit from higher education are not attending because of the lack of creative delivery models that do not take into account their life situations. Grand Canyon Education will continue to grow at our stated goals over the long run. Because we are addressing those challenges in ways that work for students and employers. With that, I would like to review the results of the 4 delivery platforms at GCE. First, the online campus at Grand Canyon University. New starts were up again in the third quarter of 2024, and total enrollment growth met our long objectives, up 5.8% over the prior year. The new start growth rate in the low single digits in the third quarter was slightly lower than we had expected. But as we have discussed previously, the year-over-year comp was extremely tough, given growth in the third quarter of 2023, significantly exceeded our long-term objectives and which was made more difficult given the third quarter is the largest start quarter of…

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 September 30, 2024, and 2023. The non-GAAP amounts exclude the tax-affected amount of the amortization of intangible assets of $2.1 million in the third quarters of both 2024 and 2023, and the tax-affected amount of the losses on fixed asset disposals of $0.4 million for the three months ended September 30, 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 three months ended September 30, 2024, and 2023 is $1.48 and $1.26, respectively. Service revenue was slightly lower than our expectations in the third quarter of 2024, primarily due to lower-than-expected revenue per student and slightly lower than expected enrollments. As Brian discussed earlier, online and ground traditional enrollments were slightly less than expected, while hybrid was slightly higher than we expected. We continue to see a decline in professional study students, working adult students attending GCUs, ground traditional campus in the evening. These enrollments are included in the ground enrollment number reported in our filings. Although revenue per student continues to grow on a year-over-year basis, primarily due to 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 growth was slightly less than we expected in the third quarter for two primary reasons. First, the net tuition rate…

[Operator Instructions] Our first question comes from the line of Ryan Griffin with BMO Capital Markets.

It's actually Jeff Silber with BMO. Had a few questions. In your prepared remarks, you talked about the lower student spend. I think it was at the ground that is specifically because of higher inflation. Can we get a little bit more color on that, is that something new? I mean, inflation has been around for a few years. I'm just curious why it's impacting you now?

It's -- inflation is probably it was a little bit of a delay there because higher education is such a big picture item, and there was such a -- there was such a strong mandate to go to college, if you're going to be successful in the world. I think it took people a while to catch up to the fact that there were some very hard realities that middle-class families had to face. But we think we're through that. We're very excited about what's going to happen in our ground campus just next year for three reasons. One, we've got plans in place to deal with the FAFSA problem. We've got some strategies that we believe are going to be very successful, and there are a lot of schools in the state that are very successful -- are very excited about what we're able to provide for students. Even if there are delays from the FAFSA's perspective. So we're prepared for that now and our [percent] those students are going to go up. Secondly, the middle class students, who -- we lost some of those because parents got just very nervous about sending them away from campus and incurring debt. We're thinking -- we're watching, if some of that is subsiding. All of our -- probably 90% of our programs now students can graduate in three years? And so the word about the ability to come here, graduate in three years, graduate with a minimum amount of debt, is starting to circulate in a way that we think is going to increase the number of out-of-state students that are willing to come because of the low debt levels that students are accumulating here. And so the -- we think that -- the third thing that we're watching is that…

The only thing I'd add to that, Jeff, and Brian did a great job of explaining it, is we benefit -- if you go back and listen to our calls, for the last few years, we benefited from the fact that GCU's ancillary revenues grew at a faster pace than overall revenues. And just surprisingly, this year, reasons, like Brian just explained, ancillary revenues actually grew at a slightly low pace than other revenues. And so it was just kind of a weird anomaly that we believe, as Brian said, had to do with inflationary pressures that families are having.

Brian, you mentioned the elections, so that's a good segue to my next question. Obviously, it should benefit or hopefully will benefit the parents as you had mentioned. But I'm just curious from you as a company, what do you think the potential change is money under a Trump administration?

Well, I think it has to do with what the future is as much as what the past has been. And when I say by -- what I mean by that is there are a lot of rules being discussed for future implementation in higher education, they are not going to be helpful to students, and they are not going to be helpful to the economy. What I said early on in my remarks is that there's a vast amount of untapped potential in today's workforce. We had six graduations, online graduations a couple of weeks ago. We had a lady that is 60 years old and attended our ABSN site, it's nursing and now it's going to make a 15 year run as a nurse in one of our hospitals. We had a lady who gave a graduation speech that's 42 years old from Newark, New Jersey that is becoming a math teacher in the Newark public school districts and this is going to have a 20-year run in the Newark public school districts. Some of the restrictions that are being discussed, like the gainful employment restriction on teachers, which is so counterproductive to what we are doing here and what is necessary to produce more teachers that we think -- and people have reached out to us -- and I believe that we're going to have a voice in what's going to happen in this next administration in terms of what the future of higher education should be. The creative delivery models that we've developed are allowing people in the workforce to re-career into very important areas that other universities because of their lack of creativity, they're not providing people those options. And I think an economic development report just came out about Grand Canyon University. We paid to have it produced. But what we're worth to the economy versus what many state institutions are pulling out of the economy. This new administration is going to be very interested in what's going on here, why it's working and why it's the anecdote to many of the challenges that exist in higher education. And so we're very bullish about -- versus being looked at by the previous administration that we were it's going to be just the opposite in this administration. And we want to be a very active voice in making sure that the creativity that institutions like us bring to the university landscape is something that's going to be appreciated and encouraged rather than in crazy ways restricted. And so we're very much looking forward to the next 4 years.

Our next question comes from the line of Steven Pawlak with Robert W. Baird.

Brian, strip softness in new online enrollment. Could you just help understand maybe what's driving that, is it labor market? Is it just demand certain programs using any detail as to some of the softness there?

No, it's not -- we're trying to grow at -- for our new online enrollments, we're trying to grow 5% to 6% per year. We're trying to grow total enrollments at 7% per year. We want to grow with really high-quality students. We want to produce great graduation rates. We want to produce -- we're up to now 24 advisory boards with over 800 companies on those advisory boards because people want access to our graduates not only in Arizona, but throughout the country. And we just want to make sure that the people that we're bringing in are going to graduate and be able to produce in the economy. And so -- in this quarter, we staffed and spent and got the same amount, but we so overly produced a year ago that it doesn't appear as if we had a good quarter. The raw numbers are very good. It's just the year-over-year comps don't look quite as good, but we're not going to be thrown off by that. We're on target for the fourth quarter to again grow in the mid-single digits from a new enrollment growth. And we were putting together a plan. We're working very hard on a plan for next year and believe it will grow at that level throughout next year. In addition to that, we're extremely excited about the fact that we've turned the corner on these hybrid programs. And the revenue per student in those program is so high and our retention rates are so strong. Our completion rates are so strong. As that thing kicks in, we're just -- we're very bullish about where we're going in the next four years.

And then Dan, just to clarify, the 225 framework. The hybrid breakeven, is that for the full year? Or is that a comment on sort of a crossover at some point during the year?

Well, again, we haven't done the budget, but the goal is to get us as close to breakeven for the full year as we can get it. But yes, I think we'll probably start out in the spring with some type of small loss, and that will improve as the year goes on. 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.