Good day, and thank you for standing by. Welcome to the Q1 2025 Grand Canyon Education Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [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, Sarah Collins, General Counsel.

Joining me on today's call is our Chairman and CEO, Brian Mueller; and our CFO, Dan Bachus. 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 regards 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. With that, I'll turn the call over to Brian.

Good afternoon, and thank you for joining Grand Canyon Education's first quarter 2025 conference call. GCE had another strong quarter, producing online enrollment growth of 7.9% and hybrid growth, excluding the closed sites and those that are on teach-out out of 16.5%. We also continue to produce strong retention rates, while at the same time investing heavily in initiatives for our university partners. The investments 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 FAFSA website. Many working adults 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 and the nature of what it is they need to learn. 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 four delivery platforms at Grand Canyon Education. First, the online campus at Grand Canyon University. New starts were up in the low-teens in the first quarter of 2025, which exceeded our expectations and total enrollment growth was 7.9%, which slightly exceeds our long-term objectives. There are many reasons for this, but I want to highlight four. Number one, we have stayed focused on opportunities that exist in today's labor market and continue to roll out at least 20 new programs per year for our university partners. Since January 1, 2023, GCU has rolled out 48 new programs, emphases and certificates across the 10…

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 March 31, '25 and '24. The non-GAAP amounts exclude the tax-effective amount of the amortization of intangible assets of $2.1 million in the first quarters of both 2025 and 2024. 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 March 31, 2025 and '24 is $2.57 and $2.35, respectively. Service revenue was higher than our expectations in the first quarter of 2025, primarily due to higher-than-expected enrollments. As we expected, revenue per student decreased slightly between years, primarily due to the additional day for leap year in 2024, which added additional service revenue of $1.5 million as compared to the current year and contract modifications for some of our university partners, in which, the revenue share percentage was reduced in exchange for us no longer reimbursing the partner for certain faculty costs, both of which had the effect of reducing revenue per student. This is partially offset by the service revenue per student for ABSN students at off-campus classroom and laboratory sites, generating 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 our partners' students take more credits on average per semester. The first quarter operating margin was negatively impacted on a year-over-year basis as we expected due to the leap year impact, additional spend for 2025 partner initiatives, but also due to significantly higher-than-expected benefit costs as a result…

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

Thank you so much. In your prepared remarks, you mentioned a few times about the better-than-expected enrollment in the first quarter. I was wondering if we can get a little bit of color where that came from? Is there any specific programs, et cetera? Anything would be great.

Yes, it's two things. One, lead flow and the interest in what we're doing here is continues to grow. I think a lot of that lead flow increase is because of new programs we're adding. Most of our competition can't compete with the number of programmatic offerings, and students increasingly, when they're going out and looking for academic programs as working adults are not trying to complete -- just complete a degree, they're looking for a specific area. And so that's one of the reasons. The second reason is, we continue to sign contracts with school districts, hospitals, military bases, just signed with three large school districts in Florida, including Miami Day, just signed a contract with a major military base in Missouri. So the work that we're doing directly with corporations, school districts, hospitals, military bases, engineering firms, others are creating a lot of opportunities for working adults to go back to school. So it's a combination of those two things that increased the online enrollments, and those things we believe will continue to experience those things.

All right. That's very helpful. My follow-up question, I know there's been a lot of noise in the media about fears of potential funding cuts coming out of Washington. From a student perspective, I'm just curious, are you seeing students or parents worried about that? And I'm specifically interested in your fall enrollment at the ground campus, if you might think that might have an impact.

You know, I have been a part of some of those discussions in Washington. I won't get real specific about that, but most of the talk is around dollars that would go directly to states in the form of block grants. And so, I don't believe that there is going to be less funding for higher education. I think the funding will remain the same, might even increase. Some of it might be returned to the States. Some of the things that people are seeing now in the news have to do with research grants, more so with research grants. And they have to do with either Pell grant levels or loan levels, those kind of things. And so there are some universities that are very concerned about that. We are not in that -- we're not -- we don't play in that area a lot We do significant levels of research, especially at the graduate level, but also it's in direct relationship with companies that we're working with. And we're not relying on a lot of grant funding from the federal government. So I think some universities have reason to be nervous about some of that, those -- the grant money, the research grant money, but I'm not hearing anything in terms of Title IV programs. In fact, what I'm hearing is that the Title IV programs, even though the Department of [Veterans] being cut back significantly, will probably stay with the people operating at the Department of Veterans. So I don't think any of that's going to impact us at all.

All right. That's great to hear. Thanks so much.

Thank you. Our next question comes from the line of Alex Paris from Barrington Research. Your line is now open.

Thank you, and congrats on the strong start to the new year. I have a -- I got a couple of follow-up questions, primarily on all the enrollment, which was sort of above target and representing acceleration from the fourth quarter. You -- in your prepared comments, you talk about above the long-term target. And so I thought maybe now would be a good time to get an update on long-term targets by line item, maybe total partner enrollment, GCU online, GCU ground, Orbis. I'm looking for kind of longer-term targets for each of those pillars.

Well, we don't break them out typically, but our long-term enrollment goal is 7%. And so we're slightly above that at 7.9%. That's a combination of online enrollments, ground enrollments, some hybrid enrollments, and then we're starting to factor in our workforce development area. I can tell you that we're laying ahead in terms of new enrollments on the online site. We are running ahead in terms of hybrid enrollments. Both are very strong. And we're running ahead of registrations on grant. Now the majority of that obviously doesn't start until September, late August, early September. So we won't know ultimately whether we're ahead or behind until we get to August or September. But we -- our low guidance there and our high guidance, there's a pretty big gap there, and right now online is doing so well that if we do well from a ground standpoint, things are going to be very good. If we don't do quite as well, they're still going to be good because the other two areas are very strong, and the ground enrollment we have a lot of confidence in. There's been, as you know, high school graduates, number of high school graduates on an annual basis is going down. The percent of them that are going to college is going down. So you're absolutely seeing a mix shift in terms of selections people are making. But the areas that are growing are mid-tier public universities. More students are staying closer to home and going to mid-tier institutions that have lower tuition. And so, those institutions are gaining. And in an institution like ours, we still have students from all 50 states and students that want to travel will come to a destination city and state like Phoenix, Arizona, when you have the 21st ranked campus in the country and we haven't raised out tuition in 16 years and our average student takes out less debt than the average state university student. And so people are making different choices in terms of 18-year-olds and how they can best prepare for life and work. But we are in the sweet spot of that. We're definitely in the sweet spot of that. And so we believe that this little bit of two-year pullback, that even we experience a little bit is going to be reversed this year because of the value proposition that we represent. Does that help Alexander?

Absolutely. Thank you. I appreciate the additional color. And then sort of the same question, looking for an update on expectations for this year from an enrollment perspective. I had kind of a bad connection for the prepared comments. So if you talked about this, I apologize. But you had said with regard to GCU online starts in the mid-to-high single-digits every quarter of 2024, you know, Orbis up low-to-mid-teens rest of 2025. Do those still stand?

Yes.

Great. And then last question, a question I haven't asked in a while, maybe because it's not particularly relevant, but I'll ask anyway. Thoughts on M&A. Grand Canyon Education has made acquisitions in the past, obviously, the hybrid line. Wondering what your thoughts are with regard to M&A? Do you look at them? Is there anything that you'd like to acquire, particularly with a new administration and different rules being proposed in Washington, D.C.?

No, it's a good question, but we continue to prefer building. We did make an acquisition with Orbis, and we like very much the market that they were addressing. They had a little bit of a head start. They missed on some things, and we've corrected those things, and now we're in a very good position as a result of that acquisition. But for the most part, we're addressing what we see as the real potential in higher ed by building things. And that -- there is very little chance at this point that we'll be purchasing anything, but we will be continuing to spend that CapEx to build things. What we're doing in workforce development is a very good example of that. As things come -- I do believe that manufacturing is coming back to this country. I don't believe it will come back the same way it came back after World War II because I think AI and robotics is going to have a big impact. But the reason we're working with this manufacturing facility is that we're trying to find the right intersection between engineering, technology and manufacturing. Arizona is growing up with these major Taiwanese chip manufacturing companies that are coming here and the -- their need for skilled labor, anywhere from electrical engineering students down to entry-level technicians and everything in between, including manufacturing specialists, is huge. And we're going to be a big part of that. We don't see anything out there that can accelerate that for us. We think we can move faster by working directly with companies and building things. And we'll continue to spend most of our time building things versus planning.

Fair enough. I appreciate the color. I'll get back in the queue.

Thank you.

Thank you. Our next question comes from the line of Steven Pawlak of Baird. Your line is now open.

Yes. Thank you. Just wanted to ask on the process for converting the students that are in the prerequisite program into the hybrid ABSN programs. And like I said, the question is that it's like there's 14,000 students that you've enrolled in the prerequisite program, but the ABSN enrollments sort of in that mid-teens or single-digit 1000s. So just kind of what's the process for converting, like I said, the 14,000 into the 5,000?

It's -- most students that are interested in a nursing career are people that have 30 or so college credits. They're 19, 20, 21 years old, they've gone to a community college, they are attempting to try and get into a nursing program but they can see that it's a really, really long route. Biology is offered this semester at this time, but not next semester at this time. Most of them are working part-time. We haven't accumulated a lot of debt. And so even though our courses are accelerated, they're with us anywhere between six months up to between 12 to 18 months before they finish that coursework and are eligible to get into an ABSN program. And so, with 24,000 -- when we get to 80, one way to think about it is this, I think, when we get to 80 locations, we want approximately 380 ABSN students per location. So that's 24,000 slots. Eventually, we're going to have to have more than 24,000 students taking prerequisites in order to get those 24,000 slots filled or we could have more than 24,000 students taking prereq courses in order to get those 24,000 slots filled. We think this is going to be the absolute predominant way to get prepared to get into one of those programs. Many of our partners do have prereq programs on their campuses, but they're semester-long courses and they're $800 a credit hour. And to expect people to borrow that money and to borrow the money, it's unrealistic. And so, gradually, even our non-GCU partners are sending their students into these prereq courses in order to get qualified to be in. So we have a waterfall and we can see which students are progressing and which ones are likely to be eligible because it's not 100%. The courses are difficult, but we need to build that number even above 14,000 to eventually fill 24,000 slots. Does that make sense?

No, it makes perfect sense. And then on the non-ABSN hybrid program that you referenced, how quickly can you scale those and -- to the point where they're contributing to the financial performance?

It's going to go a little quicker than maybe we even though six months ago because what's going on at places like Northeastern and what's going on at places like the GCU locations is having an impact on the thinking of our less -- our more conservative partners. Those that are a little slower to respond, I believe, are going to respond more quickly in the future because the financial pressures they're under with their normal business is not getting better. And these programs can be so profitable for them and have such an impact on their bottom line, that especially those smaller schools are going to be a lot more open to take a little risk and start these other programs before I think in the past they would want to. So we've got a lot of movement just in the last couple of months. And so I think things will accelerate over the next couple of years.

The thing I would like to add to that, I know Brian talked about this in his prepared remarks, but we're unbelievably excited about the startup of some of these additional programs with some of our other non-GCU partners. This is something we've been talking about for a few years, and it's coming to fruition this year. So I think, right to Brian's point, I think these partners are seeing the success that we're having with GCU and some of our other partners and are asking for additional programs. And some of those programs are actually starting up in 2025, which is really exciting.

Thank you very much.

We've 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 for your time.