Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 Grand Canyon Education Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand over to your speaker, 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 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. With that, I'll turn the call over to Brian.

Good afternoon, and thank you for joining Grand Canyon Education's Fourth Quarter 2025 Conference Call. GCE had another strong quarter, producing online enrollment growth of 8.7% and hybrid growth, excluding the closed sites and those in teach-out of 18.7%. Grand Canyon Education, Grand Canyon University and now 19 additional partners have produced remarkably consistent positive results over the last 17 years in spite of significant changes in the macro environments of education and the workplace. Most significantly, GCU has gone from the brink of bankruptcy to now being the largest private university in America. In addition to over 107,000 students studying online, GCU now has 25,000 students in an on-campus environment and has more students living in university-owned housing on its campus than any other university in the country. Recently, GCE and its partners have built 47 hybrid campuses throughout the country to address severe shortages in the health care fields. More recently, GCE has assisted GCU in building a Workforce Development Center to produce professionals in the rapidly growing construction and manufacturing fields where there are also severe shortages. The growth and success that has taken place is because GCE and its partners have built a model that is extremely flexible, is able to respond with great speed and has used advanced technologies to produce tremendous scale. The current dissatisfaction with higher education is because faculty governance models at many universities are very inflexible, move very slowly and can't scale to meet demands. There's a lot of talk about how AI will produce winners and losers by industry type. The real discussion should be about winners and losers within industries. Higher education as an industry will continue to exist. Institutions that are flexible, fast and that can scale will be able to use AI to flourish to even greater…

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 December 31, 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 3 months ended December 31, 2025 and 2024 is $3.21 and $2.95, respectively. Service revenue was higher than our expectations in the fourth quarter of 2025, primarily due to higher-than-expected enrollments and revenue per student, partially offset by the impact of the government shutdown. The fourth quarter operating margin was positively impacted on a year-over-year basis by the higher revenue and the contract modifications, partially offset by additional spend for 2026 partner initiatives. Our effective tax rate for the fourth quarter of 2025 was 22.4% compared to 21.2% in the fourth quarter of 2024 and our guidance of 22.8%. The lower-than-expected effective tax rate is primarily due to state income taxes. We repurchased 605,730 shares of our common stock in the fourth quarter of 2025 at a cost of approximately $100 million and another 352,051 shares were repurchased since December 31, 2025. We have $284.6 million remaining available as of today under our share repurchase authorization. The Board and the company intend to continue using a significant portion of its cash flow from operations to repurchase its shares. Turning to the balance sheet and cash flows. Total unrestricted cash and cash equivalents and investments as of December 31, 2025, were $300.1 million. GCE CapEx in the fourth quarter of 2025, including CapEx for new off-campus classroom and laboratory sites was approximately $7.6 million or 2.5% of service revenue. We anticipate CapEx for 2026 will be between $30 million…

[Operator Instructions] Our first question will come from the line of Alex Paris from Barrington Research.

First question related to fourth quarter results. Revenue of $308.1 million was above our estimate and consensus, up 5.3% year-over-year. You had talked or kind of telegraphed some impact from the government shutdown on military tuition assistance of about $3 million. Is that where it landed? Was that the impact, about $3 million? Or is it different than that?

I think it was a little bit lower than that, but that's still probably a fairly good estimate. It probably was in the $2.5 million to $3 million range.

Got you. And then on operating income and operating margin in the fourth quarter, at the low end of the guided range, but still within the range. I just wonder what additional color you could provide there.

Yes. Brian can expand on it a little bit, but we did make some significant investments primarily related to the ground campus in the fourth quarter -- kind of the end of the third quarter and all of the fourth quarter.

Yes, we -- if you look at what we've done to grow this ground campus from 900 students to 25,000 students, there was a heavy investment in people that work in high schools all over the country. And that's a pretty typical way that universities go about recruiting students under their college campus. We didn't spend nearly as much advertising, especially in the social media areas as we have done from an online standpoint. We experimented in the fall in September and October, spending a significant amount of money and got great results. Students are -- they're watching our videos, and they're watching our videos to completion, and they're making a decision that they're interested apart from somebody's impact in their high school. And they're raising their hand and the conversion rate of those students into registrations is up significantly over where it was at the same time last year. And so we have -- we absolutely believe that we are -- that the awareness levels of the value proposition that this ground campus offers is hugely under -- it's just not known to the level that it should be. We're going to make a major investment -- another investment in -- that won't be material in terms of its impact upon the financials, but in the growth of our Honors College. Our Honors College at the ground campus has really taken off. It's up to 3,000 students now. The average incoming GPAs are above 4.0 from a weighted perspective, which is higher than most honors colleges in the country. And so we're forming a council, we're rebuilding a building, and we're going to make a huge effort to recruit the very best high school students throughout the country to come to our Honors College in Phoenix, Arizona. And a…

No, it helps a lot, and I appreciate you spending a lot of time on it. So you did talk about this on the third quarter, the experiment that you were conducting, you did forecast that you might spend more in January and February. Are you going to continue to spend more there? And then you also mentioned on the Q3 call that it's not a significant impact on the P&L because it's really just shifting dollars from salaries of high school reps to marketing.

Yes. It's interesting because we've got the other process that's very unique to us is what we call Discover GCU. We will probably bring north of 13,000 to 14,000 very highly qualified high school graduates to GCU to visit. And so connecting with students via social media with extremely engaging, informative videos, having them raise their hand and then getting them qualified to come and visit the campus, I think, is a process improvement that will move money from counselor salaries to this other area, and it could reinvigorate this thing from a ground campus standpoint. And you have to remember that in terms of revenue per student, ground campus is huge because of the impact of housing and board and other fees associated with being on the campus. And so...

To answer the question about going forward, we will continue to spend. At some point, the spend will transition from fall of '26 to fall of '27. We are projecting that marketing as a percentage of revenue will be fairly flat year-over-year. So although we'll continue to spend, our hope is that our spend is very effective and thus, you will not see a significant increase in marketing costs as a percentage of revenue.

The interesting thing is that the January and February spend is probably still 90% students who are seniors and have not made a decision where they're going to college. Students are increasingly putting that decision off because leverage has flipped. They know that the supply and demand is different, and they can put off making that decision because they're kind of in the driver's seat, more so than they have been in previous decades. But that's kind of playing into our favor because January, February spend is not -- probably 10% for 2027 fall and still 90% for fall 2026. And so we'll see how it plays out.

Great. And then -- so what does that do to the high school enrollment counselor count? Orders of magnitude, where were you and where are you now given the...

We're probably down 10%. We're probably -- we're down 10% from a counselor standpoint, where we were the previous year.

Okay. Great. That's great color on the ground campus, and it sounds like those investments are paying off in terms of higher -- significantly higher applications for the fall...

Go ahead.

I was just going to say, are there any offsets? Do we have -- are we expecting an increasing number of graduates like overall you have been experiencing?

Yes. I mean that will continue.

It will continue as it is. I mean we're -- at every graduation now for our ground campus, I ask how many of you have graduated in the last 4 years. And the majority of the hands go up. And then I ask how many parents in the audience are happy that their students graduating in less than 4 years and a roar goes up in the audience. And so what we have to do a better job of is making sure that people know that. The bet we're making is that we can grow to 50,000 students because of that, or partially because of that. And so we're giving up a fourth year of revenue in some ways, but we think we'll make up for it in increased enrollments on the front end.

Great. And then my last question is just -- I thought I'd ask to get an update on corporate programs in general. I know you have 5,500 employers that you work with, and I believe roughly 1/3 of GCU starts come as a result of working directly with these companies and organizations. How does that work? Or what sort of color can you share with us about the process within these corporate relationships, adding new corporations, adding new -- are there -- is there discounting that goes on as a result?

Yes, there's a little bit of discounting that goes on with that, and that's why you've seen revenue per student from an online standpoint go down some. But that activity is not even close to reaching its pinnacle. That activity is continuing. We're signing agreements with school districts all over the country, and it continues on a daily basis. Schools are really stuck with having a shortage of teachers, counselors and social workers. And there's nobody -- even in some states, we are producing more teachers than their in-state institutions are producing. And so that continues in a very robust way, but we're applying that principle to health care areas and to social work areas and to counseling areas. Now we're just getting started in counseling and social work, but there's a huge shortage of those people in this country, and companies -- organizations are very interested in taking their people that are operating at lower levels, putting them in programs and getting them baccalaureate and master's degrees so they can operate at higher levels. And so the success we've had in the education and nursing area, we're now applying to counseling and to social work. We're applying it in terms of military bases in the cybersecurity area. And we are developing a really strong relationship with the Taiwanese chip manufacturing company, which is exploding here in Arizona. They want every electrical or mechanical engineer that we can produce, but they're growing so fast that they need technicians. And we've developed a program that they're ecstatic about. I was out there and went through the whole process of walking through their fab. They've got one fab up -- they're building five more fabs. They've only been in operation for a year, and they've already been told because of the shift…

That's very, very helpful. Do you disclose what percentage of GCU total enrollment is employer related?

We don't. But as Brian said, I mean, you hit the numbers. We were talking about the fact that about 1/3 of our online enrollments come from that channel, and that's growing.

Our next question will come from the line of Jeff Silber from BMO Capital Markets.

Alex really covered a lot of the operational questions. Maybe I can ask more big picture stuff. And we get questions all the time about the regulatory environment. And I know we've got some changes coming up this summer in terms of loan caps and then eventually the earnings premium accountability calculation. Can you give us some color how that may or may not impact your company?

Yes. I mean our expectation is it's going to have little to no impact. If you talk about loan caps, the tuition levels, the loan cap changes are primarily at the master's level and above. GCU's tuition rates are well below those loan caps. And so would it potentially eat into some living expense money? Maybe. But I think the total cost of attendance generally at GCU is below the loan cap. So I think there'll be very little impact to that. There's no material changes at the bachelor's level, which is where the majority of our programs are now, including the ABSN program. That is a bachelor's program. It is not a professional program. It's never been a professional program. And so there's no changes really from the funding perspective at the bachelor's level or no material changes that we see. So I think there'll be little to no change on that perspective. I know Brian can talk about this, but he's a proponent of these changes. We've historically seen overborrowing, especially at the master's level for living expenses. These changes help universities help students manage their borrowing.

It's so different. The difference in how the administrations view this whole area is -- because we have said for a decade that the graduate students are different today. 50 years ago, 40 years ago, 30 years ago, students would graduate from college, and they would enter a master's or graduate degree program. And sometimes they would be married, sometimes they would have children, but they were doing -- most of them were pursuing a career in education in the academic world. And they needed help with living expenses in order to do that. That's not the case today. Most people that are pursuing master's degrees are people who are in the middle of a career. They want to enhance their capabilities in that career. They want to do it while they're raising their family and building their career. And so they don't need living expense money. But if you're going to make it available to them, they're going to take it. And so we had this process in place called responsible borrowing, where we would -- before they even started the program, say, listen, if you borrow the amount that is required for tuition, et cetera, this will be your payments. If you borrow -- if you overborrow, these will be your payments. And we were actually -- we were criticized by the previous administration for doing that. And our response to that was you're looking at this as almost a safety net kind of a thing, and that's not how we view this thing. And it shouldn't be viewed that way. And so we were actually a proponent of lowering the maximum amount people could borrow so that we would get loans paid back and we get them paid back timely. And the Title IV program was once very, very profitable for this country because universities were responsible in the amount of money they were charging, students were responsible in the amount of money they were borrowing, and they were paying the loans back. What's happened in the last 6, 7 years has just been unfortunate, and we just need to get this thing back on track, so it is what it was intended to be originally.

In terms of the second part of your question, Jeff, we're watching that very closely. In the preliminary data that was put out, I think you wrote a note on, there was one category that failed for GCU. It's the Master's of Counseling category. Looking through the data for all other universities, it appears that, that category failed for most, if not all, of the universities that provide that program to working adults. So we're working with our partner and with the administration to try to better understand why generally people that get that master's degree, which interestingly is required for licensure, make an amount that's equal to or less than those that did not have that master's. You need the master's to be licensed in that area. So it seems like it's an anomaly that has to be further researched. We have some assumptions on why that could be, but we're doing some additional analysis on it. Other than that, all the programs at all of our partners passed. And so we'll -- we've got some time to work on that one program group, and we'll continue to look at it.

A lot of people get into graduate programs for lifestyle changes. And people that go into counseling many times want to hang their own shingle. They want to work two days a week instead of five or six days a week. And so they're willing to make less money to work two days a week to build their own business. And so they're getting out of the degree what they wanted. Not everything can be measured strictly in terms of dollars made, especially at the graduate level. And the thing that makes me frustrated with that thing is when you're talking about graduate students, you're talking about people who have gone through a baccalaureate program. They understand higher education up one side and down the other. They're mature people. They're making a decision that's best for them and their life. And so kind of stay out of their way and let them do it. I understand that for an 18-year-old whose -- nobody in their family has ever gone to college, this is really new. This is very different, and they need help in understanding. And so putting some boundaries around that, I understand that. But at the graduate level, it doesn't make any sense to me.

We have reached the end of our fourth 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.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.