Good day, and thank you for standing by. Welcome to the Grand Canyon Education second quarter 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, Sarah Collins, General Counsel. Please go ahead.

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 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. With that, I'll turn the call over to Brian.

Good afternoon, and thank you for joining Grand Canyon Education's Second Quarter 2025 Conference Call. GCE had another strong quarter, producing online enrollment growth of 10.1% and hybrid growth, excluding the closed sites and those in teach-out, of 15.4%. 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 in the mid-teens in the second quarter of 2025, which exceeded our expectations, and total enrollment growth was 10.1%, which significantly exceeds GCU's long-term objectives. In the past, I have highlighted 4 reasons for the growth. They include continuing to roll out 20-plus new programs on an annual basis, working with over 5,500 employers directly to address workforce shortages, increased retention levels again in the second quarter and holding the line on tuition to maintain GCU's competitive pricing position. A fifth reason and one growing in significance is the number of students between 18 and 25 years old that are choosing to do college online. There are very few universities that have 303 programs delivered fully online. The online campus growth is benefiting from the growing trend of high school graduates that are doing their total program online as well as students attending the campus that go back and forth between living on campus and using the flexibility of online to engage in other life experiences. Given the trends I just discussed, we believe the momentum that exists in the second quarter will continue into the second half. Comps in the second half are more difficult, but we are still projecting new start growth will be in the mid- to high single digits. Second, the GCU ground campus for traditional students. As has been previously discussed, new and total traditional campus enrollments were…

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 June 30, 2025 and 2024. The non-GAAP amounts exclude the tax-affected amount of the amortization of intangible assets of $2.1 million in the second quarters of both 2025 and 2024 and the tax-affected amount of $1.1 million in severance costs recorded in the second quarter of 2024 related to an executive that resigned. 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 June 30, 2025 and 2024 is $1.53 and $1.27, respectively. Service revenue was higher than our expectations in the second quarter of 2025 primarily due to higher-than-expected enrollments in all 3 pillars. As we expected, revenue per student decreased slightly between years, as Brian discussed earlier. The second quarter operating margin was positively impacted on a year-over-year basis by the higher revenue, the contract modifications and the $1.1 million in severance costs recorded in the second quarter of 2024 related to an executive that resigned effective June 30, 2024, partially offset by additional spend for 2025 partner initiatives, but also due to the continued impact of significantly higher-than- expected benefit costs as a result of an increase in the number of high-cost claims. Our effective tax rate for the second quarter of 2025 was 24.5% compared to 25.5% in the second quarter of 2024 and our guidance of 24.9%. The effective tax rate decreased year-over-year primarily due to changes in state income taxes. As I will discuss in a minute, the second half effective tax rate will be impacted by the contributions made in lieu of state…

[Operator Instructions] Our first question comes from Jeff Silber with BMO Capital Markets.

Wanted to focus on the accelerating enrollment growth in the quarter. Brian, in your remarks, you highlighted a number of areas that drove that, but we really saw a pickup between 1Q and 2Q. Are maybe 1 or 2 of those can you highlight specifically for that acceleration?

Well, some of the things that we're doing, especially around teacher education, nursing and health care programs, are really kicking in. The growth of our other programs are pretty much as we expect. The lead generation and what we're getting from converting those leads into starts into our programs are pretty much what we expect. But what we're doing in teacher education with paraprofessionals is really adding significantly to that increase. We've got -- we just keep signing contracts with public schools that want us to help them produce teachers. And one of the big targets is the paraprofessionals. And so we're getting above average increases in that. That's one. Number two, the prereq courses. Those courses that students are taking in order to get ready academically for the health care program or health care career, specifically nursing, those things are coming at us in a higher rate than expected. And then thirdly, and I referred to this a number of times in -- but the number of students in the country that are wanting to go to college post high school graduation, but are content to do it from home. And that number is really increasing now our online enrollments. We're one of the few universities that have fully online programs. We have over 300 of them. And so if you want to be an accountant, for example, and you earned 30 or 40 college credits through dual enrollment or other means while you were in high school, 2 and 2.5 years, you can complete a baccalaureate in accounting, incur very little debt. And students are starting to wake up to that opportunity. There are students who are staying home and entering our teacher ed program, our other business programs. And so it's -- I would say it's those -- it's the prereq courses in the science area, it's the paraprofessional growth in producing teachers and then it's the uptick of students that graduated in the spring and are deciding to do college from home that have really helped boost that -- those online enrollments.

The only other thing, Jeff, I'd like to remind investors is that although GCU has weekly starts, we are somewhat seasonal in that the third quarter is by far the largest start quarter of the year, followed by the first quarter, with the second and fourth being about the same. And so I give that color. The second quarter was outstanding significantly over last year. But if we do mid- to low end of high single-digit starts in the third quarter, that will be a very, very strong quarter. So I don't want people to come back and be concerned about a slowdown in the third quarter if it's in that 5%, 6%, 7% year-over-year range. That is a very big raw growth year-over-year, if that happens.

The momentum is going to continue. It's just the comps change.

Got it. Yes. No, that's very helpful. Thank you for reminding us of that, Dan. Maybe I can shift gears to regulatory. I know, Brian, in your prepared remarks, you said some of the changes on the loan side should have little to no impact. But I wanted to focus a little bit more specifically on the changes on the graduate loans. I know Grand Canyon, the campus is mostly undergrad. I know you have a lot of grad students online. But more curious for your partners, are there a lot of grad students in your hybrid programs and there could -- could there be an issue where those programs might be a little bit more expensive compared to the new campus?

No, the -- 90% plus of our partner programs are at the undergraduate level. Marquette has a master's degree program that's pretty well attended. I think we have one other one that's at the master's degree level. Northeastern is opening a master's degree program at one of its locations. But no, 95% plus are at the undergraduate level earning Bachelor of Science in Nursing degrees.

Our next question comes from Steven Pawlak with Baird.

I guess maybe just jumping off from that point. Brian, you talked about the regulatory environment sort of -- or the changes from the bill affecting other providers in the industry. I guess what are you expecting or maybe things to look out for in terms of a changing competitive response? You've talked about increased scholarships, things like that in prior cycles. So any sort of comments on maybe what you're expecting from a competitive standpoint?

Yes. I mean it's interesting. I mean locally, we -- locally, I mean, in the Southwest and in the West in California, I think you're referring to really competitive offers made for traditional students coming to campus. It was in the midsummer, beginning of summer, midsummer that in the last couple of years, we saw a lot of what we thought were crazy offers made to students. And when -- not this current President at U of A, but the previous President, one of his explanations for why they had a fiscal crisis down there, and we compete against the state universities, was that there were just too many students who were going to school that weren't paying. And so we haven't seen that nearly as much this year as we have seen in prior years, which is partly why we're saying we are fairly confident that we'll be 10% up in new enrollments on our ground campus. There have been some offers, but not nearly what it's been in the last number of years. I think that thing is caught up to universities. And I'm really happy that we didn't respond to that. Our scholarship program is set in stone, and it's based upon grade point average. And we don't vary a lot from that. We've got a tremendous offering that returns a tremendous return on investment for our students. Almost 50% of our students on our campus now are graduating in 3 years, which really reduces the amount of money they have to borrow. And so I think we've stayed in the right place from that standpoint, and we're benefiting from it now.

And again, a reminder to investors that there were no material changes to bachelor's level loan limits. And so you probably won't see any significant change there. There was changes to the master's and professional. But as Brian said, most of the master's programs out there today are significantly below even the revised loan limits. It will reduce living expense distributions to students potentially but shouldn't preclude students being able to pay for graduate-level tuition.

Understood. And just -- I hear your comments from Jeff's other question about the accelerated enrollment growth and sort of the tougher comps in Q3. But Dan, you also talked about sort of potential for upside still. So maybe just in terms of balance, what are kind of maybe the upside drivers?

Well, it's just can we continue to exceed our own internal goals on new enrollments in the second half. Those are pretty aggressive goals given the tough comps, but that's where the upside would get is if we exceed our own internal goals in the third and fourth quarter from a new -- online new start perspective. We have reached the end of our second 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.