Q2 2020 Grand Canyon Education Inc Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.
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Gentlemen, thank you for standing by and welcome to the second quarter 2020 Grand Canyon Education Earnings Conference call. At this time, all participants' lines are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session you'll need to press star one on your telephone.
Please be advised that today's conference is being recorded if you acquire any further assistance press star zero.
I'd now like turn the conference over to your Speaker today Mr. Dan back as CFO. Please go ahead Sir.
Thank you joining me on today's call is our chairman and CEO, Brian Miller. 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 they.
These factors are discussed in our assay filings, including our annual report on 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 should review. These reports thoroughly before taking a financial position and you see.
And with that I'll turn the call over to Brian.
Good afternoon, and welcome to Greg can you just occasions second quarter Conference call. We're now 24 months into our existence as an education services company I want to do three things on this call first continue to emphasize how we think GC he should be positioned with respect to the future of higher education second reviewed the results that have been produced by each of the four pillars of our.
Business in the second quarter of 2023rd talk about each pillar going forward in the context of the pandemic.
I want to continue to emphasize that it is GC east goal to create models that address the real issues, which in higher education that are going to be even greater challenges given the impact of the pandemic. The challenges are one the out of control rising cost of University education to the increasing student debt levels that were seriously injured.
Graduates as they've been getting their adult life three that's tuition level goes up diversity on college campuses goes down.
For bachelor's degree should not take 46 years to complete five programs and delivery models.
The creativity necessary to address critical shortages in some industries six there are inadequate counseling and support services, especially for first generation students for those study at a distance.
We're very excited about GC east direction relative to the challenges facing students families and he industries, we are serving.
2020, GC Eve 25 partner institutions projected produce over 30000 graduates over 11000 health care professionals 7700 education professionals 4600 into business World 3600 in behavioral health 2500 in public service of social Science and theology.
Okay, and 600 in engineering and computer science.
These students will graduate with less title for debt than the average state in private University students in this country. They will have less than a 6% cohort default rate on student alone.
Graduate from programs to pass the previous debt to income, earning ratios that were part of the gainful employment rules and less than 75%. Other revenues that are generated will be from title for programs.
Now I would like to review the four pillars in GBS business Grand Canyon University online at 87959 online students as of June Thirtyth 2020, and in the quarter just completed new students grew in the high teens, while total students grew 8.2 per.
<unk> year over year.
We have definitely seen an acceleration of working adult students enrolling in our programs online.
For the expanded 150 basis points in calendar year 2019, with a net tuition increase at average less than 1% at GCU online. This is important for three reasons Gcs online tuition remains affordable and represents good value for our students relative to the positive impact it will have on their careers.
Two it will allow GC to continue to invest in advance learning counseling and administrative technologies as well as rollout at least 20, new academic programs per year.
Three a major factor contributing to GE success in the midst of this pandemic is that we had previously set up over 95% of our staff to be able to work from home.
Initially this was put in place as a benefit of working at GE.
This represents part of the $250 million, we have invested in technology and automation in the last 10 years.
In the case with a pandemic, we could easily transition almost everybody to a work from home environment and this is expected to continue for the foreseeable future.
All the work done previously from a campus Flash office setting continues from a home study in every case productivity levels has gone up.
In the second quarter applications, where process at 117.9% of the prior year.
28268 transcripts were evaluated which is up 17.1%. There are now $2 million 123000, 69 million courses in our transcript evaluation system, which is up 33.2%.
Let me Rededicate. There are now 2 million 123069 courses in our transcript evaluation system, which is up 33.2%.
There are now courses from 4406 academic institutions in that system, which is up 163.4%.
There were 221689 financial aid files touched at a 97.2% compliance quality ratings.
There were 569351 counsellor activities performed on behalf of students, which is up 27.6%.
There were 75987 field experience counsellor activities performed for students in licensure programs, which is up 32 point, 29%.
There were 227460 electronic signature documents executed which was up 16%.
Staff morale levels are high working from home not only insurers their continued employment, but allows many of them to be home with their children. While they are out of school.
Not only have they're not been layoffs or salary decreases, but we were able to provide annual salary increases, which our staff are very grateful for.
The new enrollment trends will most likely normalize to mid to high single digit growth in the third quarter.
Which given the large comps that exist in the third quarter is still significant growth, but because of the quality of the incoming students persistence rates, we anticipate a year over year total enrollment growth trends should continue through the quarter.
The second pillar as that GCU traditional campus as many of you know GCU ground students finished the last four weeks of the spring semester in an online learning environment.
All round faculty and students were on the system and using it to some extent before the transition.
As a result, the transition was very seamless and student satisfaction levels with that experience were high.
All students received a grade for each of their classes as we did not have to resort to pass fails system.
This encouraged 6650 students to continue in the online learning environment to complete summer classes by taking summer school courses and also because of our large dual credit program for high school students over 40% of our graduates complete their degree in less than four years, many additional students could graduate and less.
In four years, however, they choose to add a second major.
Or work on a graduate degree.
It is important to note to gcs traditional campus was profitable without raising tuition in 12 years and as invested over $1.5 billion in academic and other campus infrastructure.
The campus currently ranks as the 19th Best College campus in the nation, According to niche Dot com.
It will be an additional 500 million dollar investment in the next four years, which GCU is able to accomplish with this cash reserves.
New and continuing enrollments looks strong for the fall semester.
Universities goal for a new on ground students was 8000 and that goal will be exceeded.
The university's goal for total enrollment will also be exceeded as result of increased spring to fall retention.
This is in Stark contrast to with many universities in the country are experiencing.
On July 17th GCU announced his plans for the fall. Those plans include moving back to start of instruction for the fall semester from August 24th to set up to September seven.
This semester will begin with three weeks of online instruction for all students.
We used faculty is very confident that given their considerable experience with their robust online learning system. They can get students off to a very strong start academically.
Residential students will move in during the week of September 20 year, beginning face to face instruction on September 28.
Some holiday breaks will be eliminated and there will be additional weaken instruction in December.
The change in the start date for GC use ground traditional students will have the effect of moving to wish in revenue for all GCU traditional students and certain ancillary revenue for residential students from the third quarter of 2022, the fourth quarter 2020.
And the change in the move in date for good use residential students will reduce fall semester room and board revenue for the University by three weeks.
The University made these changes for two reasons, one Arizona has become a hotspot for the Corona virus and we wanted to see what are the state to flatten the curve and become a safer destination for students.
To the later a rival on campus puts the majority of the intensity in Arizona behind Us and allows us to conduct many activities in an outdoor environment.
The goal is to create the same vibrant academic and community experience within the context of safety precautions that will be necessary because of the pandemic.
Students that are not comfortable returning cash to register to take all their classes online in the fall.
At this point a little over 3000 students will remain home and take to fall semester classes online.
We anticipate that number will grow as we get closer to the start of the semester.
We believe this is a very positive trends since these students are not dropping to attend local universities or taking GAAP years. The our stayed with the university and progressing towards graduation.
Their room reservation will be held for them. So they can come on campus in the spring if they feel more comfortable.
There has been a lot of talk about students not wanting to pay private or out of state tuition to go to college online.
Given GCU slow ground campus tuition that has not been raised as an issue.
Ground enrollment trends for the fall 2021.
Our very strong.
At this point in time the ground campus is running 81% ahead of last year's application rate.
There were some observers who predicted that the GC GCU partnership would produce good financial results for GE, but would not work financially for GCU.
They were very wrong.
The University has now completed its second year as a standalone nonprofit University. The University publicly made available its financial statements for the year ended June Thirtyth 2019 that show the University head over 325 million in cash on its balance sheet and had net assets over of over 387 million at June.
32019, and its cash flows from operations for the year ended June 32019 were over 123 million.
The positive results for the University continued in the year ended June Thirtyth 2020 based on preliminary financial statements provided to us by GCU, and which GCU as authorized us to discuss the university's cash balance at June Thirtyth 2020 was approximately 308 million. It nets its net assets grew to.
Almost 410 million.
It generated $116 million in cash flows from operations during the year ended June 32020.
University plans to continue using its excess cash to fund this continued growth in pay downs debt.
This was all done without tuition increases on the ground campus and are less than 1% increase in net tuition on his online campus.
It should also be noted that the pandemic is not having a negative financial impact on the university given the structure of the MSA with GE.
The third pillar of the GE strategy is orbis.
This purchase greatly accelerated GE as an education services company and it addresses issues that have hurt many of the other lpms.
Orbis fits in the GCP strategic plan because it originated as a result of a huge marketplace need.
Yes, we'll need 1 million additional nurses in the next five years alone as well as thousands of nurse practitioners and occupational therapists and as using a very innovative delivery model.
Orvis like GCU online and GCU ground will be profitable the profits will be reinvested into orbit to create more opportunities both in terms of locations and adding programs to current locations.
Self sustaining economic models.
I don't rely on tax payer subsidies in down lets or other philanthropic donations are a huge benefit to the economy and state budgets.
Orbis was growth has been greatly accelerated as a result of gcs considerable support.
Since we bought Orvis seven University partners have been added and as of today. We are up to 25 total University partners, including our first University partner for a new Medical Science Lab Science program and what will be our first pre licensure program in California.
At the date of the acquisition, we had 18 sites opened among 11 of Orbis Educations University partners.
As of today, we have expanded to 23 site locations opened at 14 of Orbis Education's University partners.
Additionally, we plan to open 11 sites slash locations in the next 12 months seven in the fall 2020, and four in the spring of 2021, which would put us at 34 locations in the spring semester of 2021.
By the end of 2021, we expect to have approximately 40 locations opened.
The creative delivery model, which combines on ground laboratory work with online delivery.
Of the of course content is producing tremendous outcomes for students to healthcare community and University partners.
Thousands of Americans will be able to pursue their dream of becoming health care professionals, making tremendous contributions to the healthcare industry because of these partnerships.
GE will continue to support or bus with capital marketing in operation support including advanced technologies.
In terms of metrics. The graduation rates are approximately 90% in first time pass rates on the and collect exam or consistently over 90%.
GC use nursing program the last four quarters produced 95% or higher first time pass rates.
Orbis revenues grew 24.2% kind of year over year basis for the three months ended June Thirtyth 2020.
Enrollments have grown 12.2% year over year.
As of June Thirtyth, 2020, with accelerated pre licensure nursing enrollments growing 18%.
Every new location open represents an opportunity for GE that has greater potential.
In most other opium contracts in the space.
Each location open requires less than a 3 million dollar investment and we'll turn profitable in its second year of operation eventually producing greater than 30% margins, which can be reinvested into adding more programs at the site and opening more sites.
The goal is to be in 70 locations in the next seven years.
To summarize we are very focused on this orbis opportunity for five reasons, one the huge need the country has for health care professionals, especially baccalaureate prepared nurses to the opportunity to grow into 70 potential locations.
Three locations will become profitable in just their second year of operation.
For the relatively small amount of investment needed to get locations up and running.
Fifth these orbis programs are tremendously beneficial to the financial well being of the University partners.
All of the Orbis partners have moved to students through their individual university programs during the summer term.
At this time, we have confirmed that all of our partner programs intend to continue delivering quality healthcare education in the fall and beyond.
The academic delivery in the current environment has been challenging and the Orbis team has been working with our University partners to find successful operational modifications to continued success with the student population that will become essential professionals within our communities.
The Orbis team has been involved in several developments within various programs, including but not limited to virtual simulation.
Lab modifications logistic and operation support for curriculum timing adjustments within it term.
Alternatives testing.
Some of these developments may become standards within programs as they improve the educational experience and efficiently deliver content to students.
Even with all of the successes Orbison, our University partners have recently achieved there will still be some short term impact on a summer and fall terms.
A number of students that plan to start in the summer term that were relocating out of state chose to defer their stark until the fall decreasing the new start amount in the summer by approximately 20% over.
Overall demand for the programs has increased as more potential students c. healthcare as a solid option form collect.
In a number of locations demand to start in the fall is greater than the initial plan fall intake size, but a number of our university or healthcare partners have chosen not to increase the call forward size to make up for the summer start shortfall due to concerns about clinical availability, therefore to peers at Orbis fall enrollment will be lower than ours.
Funnel expectations, although due to higher retention rates and slightly higher expected new starts we expect to make up some of the summer new start shortfall.
The interest level from potential University partners has also increased the demand to be a future orbitz partner is strong.
Gcs fourth pillar is defined three or four partners interested in a more comprehensive a range since the pandemic began there has been an increase in university inquiries for possible partnerships, both with universities asking for assistance with improving the quality of what they're doing online with their traditional students and growing their working adult programs.
Even at many universities are concerned about their financial future.
We continue to work at this pillar, but we'll be could we will continue to be selective the model of many partners. Many low as many as low enrolled programs at very high price points is not interesting to us because the model doesnt fundamentally address the real challenges identified earlier in higher education.
We believe we can add tremendous value to University partners in the Midwest and northeast our dialogue with a number that.
Most of them have had partnerships in the past that have not been successful.
We are willing to help universities improved the front and academic experience for their traditional students.
But our strategy of front end services combined with robust back in services is clearly a differentiated approach that can help universities looking to scaled and working adult programs.
The model, we are suggesting is proven on a very large scale.
Hybrid campus, having large student bodies in both major markets leveraging a common infrastructure.
Has been successful in unprecedented ways.
Hi quality students producing great outcomes at great value combined with making huge investments to constantly upgrade infrastructure is a matter of fact out opinion.
Everybody that visits to GCU campus goes away very impressed.
The other three core pillars are performing well have great potential and energy as a result, we have the ability to be selective.
If we find the right comprehensive partner, we will sign an agreement.
If you look at the strategy of other lpms in the space.
Those contracts would most likely be dilutive rather than accretive to our current plan.
In addition, the huge upfront investments of these arrangements with placed significant risk into our current business.
With that it would like to turn it over to Dan back as our CFO to give a little more color one or 2022nd quarter talk about changes in the income statement balance sheet and other items as well as to provide 2020 guidance.
Thanks, Brian included in our form 8-K filed with the FCC. We have included non-GAAP net income and non-GAAP diluted income per share for the three months ended June Thirtyth 2020 in 2019.
The non-GAAP amounts exclude the tax effected amount of the amortization of intangible assets. The last loss on transaction amounts and the impact of a large state tax refund received in the first quarter of 2019 related taxes paid in previous years.
They are amortizable intangible assets acquired in the Orbis acquisition totaled 210.3 million and amortization expense in the second quarter of 2020 in 2019 was 2.1 million and 2.2 million respectively.
We believe the non-GAAP financial information allows investors to develop a more meaningful understanding of the company's performance overtime.
As adjusted non-GAAP diluted income per share for the three months ended June Thirtyth 2020 in 2019 is a dollar three in a dollar nine respectively.
Service revenue significantly exceeded our expectations in the second quarter of 2020, primarily due to the acceleration NGC use online enrollments during the second quarter.
In addition to the high teens, new enrollment growth drops were down 6.1% year over year, which more than offset the year over year increase in graduations.
As was anticipated we realized a decrease in ancillary revenues between years at our primary University partner GCU.
Do you see moved all summer semester classes to an online environment in the last week in March and limited residential students remain on campus during the summer semester. Most doctoral residencies were cancelled through June and ancillary businesses operated by GCU such as the hotel in merchandise shops were closed due to the cobot 19 outbreak.
We estimate the impact of all of these changes made by GCU as well as the Orbis new start shortfall reduced our revenues by 7.5 million in the second quarter.
Included in both our 8-K in the 10-Q filed today is a detailed explanation of the actual and projected cobot 19 impacts on the University spring and summer and fall semester 2020, semesters and I will discuss these in more detail in a few minutes.
Revenue per student was down year over year due to the lower ancillary revenues that GCU, excluding the cobot 19 impact on gcs ancillary revenues revenue per student grew year over year.
As we've discussed previously overall enrollment growth has been pressured over the last few quarters by an increase in the graduation of online students year over year and the fact that professional studies students and ground commuter students are flat to down year over year revenue per student continues to increase as we continued to see very encouraging growth in the areas of our focus including online.
Residential and Orbis enrollments were revenue per student is the highest.
Our effective tax rate for the second quarter of 2020 was 24.6% compared to 21.7% in the second quarter of 2019, and our guidance of 24.2%.
In the second quarter of 2020, the effective tax rate was impacted by higher state taxes, primarily due to the growth enormous and lower excess tax benefits of zero in the second quarter of 2020 as compared to 2.2 million in the same period in 2019 due to a lower stock price and lower stock option exercises in the second.
Quarter of 2012.
We repurchased 111100 shares of our common stock in the second quarter of 2020 at a cost of approximately $8.3 million and another 23800 shares at a cost of 2.1 million subsequent to June 32020.
We had 58.3 million available under our share repurchase authorization as of June 32200.
In July 2020, the board of directors increased the share repurchase authorization to 300 million extended the authorization date to December 30, Onest 2021, which increases our available repurchases to 106.2 million as of today.
Turning to the balance sheet and cash flows total unrestricted cash and short term investments at June Thirtyth 2020 were 187.2 million.
GCB capex in the second quarter of 2020, including Capex for New Orbitz partner sites was approximately 6.1 million or 3.3% of net revenue.
We continue to anticipate Capex will be between 30 and $35 million in 2020 due to the planned opening of seven new locations, a fall 2020 and for more in the spring of 2021 as compared to the five locations that were opened in the same period in the prior year.
As a reminder to investors. The note due from GCU is secured by all of its assets.
Given this is very difficult given this is very difficult for the university to get financing for any other source that GC.
Thus, we have committed to allow them to borrow for short term cash needs and to fund capital expenditures.
It has informed us that is the ability to fund its capital expenditures going forward, but they requested and we provided 75 million of funding for short term cash flow purposes at the end of the second quarter 2020.
At the time of the borrowing GCU paid its June 2020 estimated service fee and interest do unsecured note receivable of $50 million and 4.8 million, respectively, thereby reducing the accounts receivable and interest receivable on our consolidated balance sheet as of June Thirtyth 2020.
The 75 million that was borrowed in June 2020 was repaid in July 2020, and GC returned to its practice upping the service fee and interest do unsecured note for the month in arrears.
GCU paid the estimated service fee and interest due on the note in June 2019, as well so the impact on cash flows for the change in accounts receivable and interestingly receivable between years is not material.
Lastly, I would like to provide color on the guidance we have provided for 2020.
The company initially provided guidance for fiscal 2020 by quarter and its fourth quarter and full year 2019 earnings release issued on February 19 2020.
The company provided revised guidance for the second quarter 2020, with its first quarter 2020 earnings release, which took into account our best estimate at that time of the impact of the cobot 19 outbreak on our University partners revenue and operating income for their spring and summer semesters, but withdrew his guidance for the second half of 2020 due to the.
Uncertainties of the impact of Cobot 19 on its University partners Paul semesters.
Today, we have reinstituted guidance for the third and fourth quarters at 2020 based on what we know as of today, although we caution investors that uncertainties around the fall semesters remain.
The guidance that we have provided for the second half of 2020 continues to be non-GAAP has adjusted net income and as adjusted diluted income per share as we exclude amortization of acquired intangible assets.
We've adjusted our revenue and earnings guidance for the third and fourth quarters of 2020 to take into account the items, Brian mentioned earlier the change in the fall semester calendar for Gcs ground traditional students will have the effect of moving tuition revenue for these students and certain ancillary revenue for residential students from the third quarter of 2020, the fourth quarter 2000.
Slide 20.
And the change in the move in date for Gcs residential students will reduce fall semester room and board for that for the University by three weeks.
We're also projecting lower service revenues from Gecs businesses, such as the hotel, which will be close through the end of the calendar year and low shop, which we'll see decreased operating activity.
The University will also recognized less revenue as most of the Doctor residency scheduled to be held on the University campus have been canceled through the end of July and this is likely to continue through the end of year.
Our estimates also include our best guess as of today of the number of Gcs residential students that will live on campus in the fall, which is less than originally projected has almost 3500 students have importantly university that they plan to take all of their fall semester courses online due to covert concerns.
Orbis revenues in the second half of 2020 have also been reduced due to the summer new start shortfall discussed earlier.
We estimate that the shifting revenue from the third of the fourth as a result of the shift in the start day. The GCU fall semester is 9.9 million lower revenue in the third quarter and 9.9 million higher revenue in the fourth quarter.
We estimate that the impact of the last summer and fall semester ancillary revenues as well as equal Orbis summer new start shortfall totals 20 million in the second half of the year 13.1 million in the third quarter and 6.9 million in the fourth although we anticipate that the higher than expected online and ground traditional enrollment.
You will make up for most if not all of this lost revenue.
Even if face to face construction begins in the fall as currently planned for our partners there could be an additional decrease in revenue on the GC MSA that is not included in the estimates provided of a higher percentage of students than estimated decided not to live on campus, but rather take all of their classes in the fall semester online or take the semester all all.
Deficient number of Orbitz education partner students decide to delay their start from the falls to the spring semester.
On the expense side, we have not changed our expense projections materially with the exception of the 5 million of contributions made in lieu of state income taxes that were made in July 2020, which I will discuss in more detail in a minute, we do anticipate lower travel and other cost during the third and fourth quarters, but we plan to utilize the majority of these costs.
And are these dollars in other ways to ensure that we meet our partners enrollment expectations.
Our net interest expectation in the third and fourth quarters, our 14.2 million and 14.4 million, respectively, which is consistent with the original estimates.
As although interest expense will be lower than originally projected so we'll interest income uninvested cash both due to lower interest rates.
We've decreased our original effective tax rates for the third and fourth quarters. In July 2020, we made 5 million of contributions made in lieu of state income taxes, which has the effect of increasing general administrative expenses and decreasing income tax expense.
The entire 5 million is recorded in DNA expense in the third quarter, while three quarters or 3.75 million is recorded as lower state income tax in the third quarter and a quarter or 1.25 million is included as lower state income tax in the fourth quarter.
This net of recent trends, which includes higher state income taxes, and a lower excess tax benefit result in our revised effected tax rate of 20.7% in Q3 and 22.4% in Q4.
We had decreased our weighted average shares outstanding amount based on stock repurchases, although we might repurchase additional shares during 2020.
Estimates do not assume repurchases other than those already made.
Ill now turn the call over to the moderator. So we can answer questions.
Thank you as a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press. The pound key again, if you would like to ask a question press the star than the one key on your touched on telephone.
Our first question comes from Jeff Silber BMO capital markets. Your line is open.
Thanks, so much quite a lot of information there.
Let me start with the.
The growth has accelerated growth in your working adult students on line very impressive in this environment can we get a little bit more color on that specifically I'm just curious.
More disproportionally graduate versus undergrad, and what is the mix between Grad an undergrad. Thanks.
Yes. It is you know we watch that very carefully thats, a big part of the GCU online strategy.
We really want to.
Keep the graduates undergraduate mix.
While at the if you think of graduate students. It's 50% then if you include RN to BSN students, which they behave a lot like graduate students in terms the outcome, it's a great deal more than 50%.
What happened as we had the high teens growth rate of new starts.
In April May and June is that the percentage weight of graduates went up.
And.
At around 2%, but the fact that it went up was very very significant because when you look at persistence rates between grad students and undergrad students.
Especially in the online environment. When you can engineer year student body that way youre going to produce really really high.
Graduation, our metrics really really good metrics.
I didn't included in our in our call, but it was interesting that are are.
This quarter our growth in graduates exceeded our growth in enrollments.
Which is a really really significant.
Number from the standpoint.
Okay.
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Of the quality that we are producing from students standpoint, and from an academic perspective.
That's great I am starting the question was.
Sure did more focused on the undergraduate side did you see the starts from undergrad go down or they just didn't go up as much as that starts congrats.
No. They didn't go down they did go down they just didn't go up as much as a gradual study I, we're talking and what now we're talking unlike students.
Right.
Okay. Good thank you for clarifying that.
Moving on to how you're setting up the campus for the fall semester. Obviously, we've seen your disclosure a number of schools are doing a number of different things.
Okay.
From a safety health and safety perspective can you give us a little bit more color. What plans you have in place if God forbid there was an outbreak on the campus.
Well, yes.
What we thought was going to produce our students want to be back here I was having student meetings.
I was having parent council meetings and.
For the coolest just our students want to be back on this campus and so given that huge.
Demand.
We thought the best thing to do was number one.
Move back to start date.
At the very time, we were making this decision Arizona was going through a.
In addition, there was an increase.
And.
We became a hot spot.
We did from the Governor did some things that we thought would work and they have been working they are working sold to the curve is starting to flatten.
And things are looking better so we thought by moving the actual moving date for the last week of September.
We would get.
Two things happen, we've got a flattening of the curve and second we would get the majority of the heat behind us. So that we could take advantage of October November December so students could be outside for all kinds of activities.
What we're doing in addition to those things is number one.
Each class will meet once on ground and in a second time synchronicity online during the course of a week.
So that in every classroom only half the classroom shares will be field.
Every single classroom is now it's now been equipped with technology additional technology.
So that if the family member doesn't feel well and needs to zoom in or video and our lecture they can do that.
But if a classroom is equipped for 50 students there will only be 25 students in that classroom there will be social distance aimed at mass will be required and family members will be protected by with additional.
Kinds of equipment.
That's that's really really important to us and I and talking to student leaders, our student Council and I just kept emphasizing that I know that they it's not as they are not as vulnerable, but it takes the entire community run this campus.
So we have family members and we have a security and we havent maintenance we have cook.
And many of those people are in vulnerable.
Age brackets, and we just need to keep the entire community safe.
We're not changing anything with regards to residence halls, but two thirds of our students do have their own bedroom.
Because we are in apartment style living that will help we are going to put a limitation on visitors. We do have a closed campus our campus does not.
You know intertwined with the community and so it gives us a chance to control who's on campus.
And so that will help.
We are building a lot of outdoor shade areas. We are moving we've got 32 restaurants.
Seedings, all going to be outdoors, it's going to be shaded.
The intramural activities will be noncontact activities.
The chapel services, which usually put 7500 people in our chapel will put in four different locations.
And we'll.
And so we will make use of technology and four different locations to keep social distancing.
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I think thats, that's most of the things that we're going to be doing we do have.
1200 of our student leaders, who who provide leadership in that residence halls.
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Our Asian life leaders, they will be showing up three weeks earlier and nail it early and they'll be working with us in establishing the right kind of culture.
We want to kids to have a great academic experience experience one of the all progress towards their degrees.
I don't want any additional cost for them, we don't want to them to incur additional costs in order to do that but we also know that a hallmark of GCU as the communities. If you ask 10 kids why they came here if it gets they love the the closeness of the community the inclusiveness and.
And all of that and so we're going to we're going to try to create circumstances. So that they can enjoy that experience.
Okay.
Im sorry.
Now, let's say I appreciate the details I'll get back into queue. Thanks, so much okay. Thanks.
Thank you. Our next question comes from Jeff Miller with Baird. Your line is open.
Yes. Thank you good afternoon. So curious on your comments about the.
Online new enrollment growth essentially going from that really strong upper teens.
I think you said mid to high single digit in Q3, I understand the high teens likely not sustainable for.
Extended period of time, but just why would it normalize that quickly because it seems like the demand environment for the population that you serve and your execution in this environment are good.
Clear to me why that would kind of go back to the longer term trend line as quickly as Q3.
But you have to remember that the pandemics pits.
At a perfect time for that high teens to happen.
Because April May and June.
Our not as high of enrollment months as as July August and September and so the fact that there was all this demand at a time when most people couldn't answer the phone.
And we were answering the phone on the first rate.
And this is both ground and online.
Caused a lot of students to come here that maybe they were thinking about going someplace else.
And it happened at a time when enrollments are typically as high as they are in the next quarter and so.
The timing of that was just very very good.
As people went back to work.
To some extent than than things.
Normalized a little bit.
But we're still in a strong position if we get high teens growth in the third quarter, given the toughness of those comps.
That would be very good.
And thats going to be as we said thats going to be also helped by the fact that.
Persistence rates of the students that we're putting into the program are going to be high.
And so high teens, new enrollment growth will produce.
The strong total enrollment growth and.
We think put us in a strong position.
Other things I would add Jeff is obviously were very early in the quarter given that August and September are individually the largest darden months of the year. So August is the largest in September happens to be the second largest so.
We're early on.
From a Ross new start perspective, the momentum is not slowly, but when you take those huge huge year over year comps.
It's just a slightly smaller year over year increased in a similar number attached to.
The second quarter.
Number so.
We're not I don't want anyone to think that we're seeing a slowing in.
Momentum, it's just a much much much more difficult comp given that August is our largest start month of the year in September is our second largest and we tend to.
Over the years under promise.
And try to over deliver.
I've noticed.
So on.
Orbis can we just revisit that so I know that previously you talked about the typical relocation what's occurring in the summer and you're thinking that might be an opportunity for your partners to make up some of those enrollments in the fall and it sounds like maybe some of them or but there is.
Some number of partners there that.
Just are not increasing their expectations relative to what they will previously expecting to take in.
And so still so is that right. So still good growth, what you're just not getting kind of that catch up from the deferred summer enrollments and that are those students at this point likely lost for your University partners.
The the demand is their students want in.
But the universe and University has the capability of bringing them and they're concerned about the clinicals.
And so it's the second aspect of their education, where they don't know that they can scale.
And some are more conservative than others.
And so yes, the the opportunity for catch up is there except for the cautiousness of but we might not be able to get.
An additional number of Clinicals those things are all scheduled in advance and.
A year out and so if you want more.
Those things are usually scheduled right up to them.
What hospitals think are the maximum that was the problem.
And as I said earlier, we expect our full enrollment our new starts on in the fall enrollment for orbis to meet or exceed our our original expectations. It just won't exceed.
Enough to make up for the 20% shortfall in the in the summer start.
Because of the thing Brian just talked about yep.
Helpful competition.
And then.
So lots of moving parts and the guidance.
On the option of the GCU campus affiliated students to go online only for this semester for some.
Period of time it sounds like 3500 at this point have indicated that the preference at least for the first semester does guidance assume 3500 or does it assume a higher number because I heard you say you'd expect it to go up overtime, which also kind of called that out as a risk factor on the guy.
Yeah.
Yes, so as of today, we're not quite at 3500, but the guidance assumes 3500.
Okay got it thank you.
Thank you.
Thank you. Our next question comes from Greg Pendy with Sidoti Your line is open.
Hi, guys. Thanks for taking my question just.
Yes in terms of the mix that you're seeing towards more graduate students how should we be thinking about.
The impact if any on revenue per student that might have.
Yes.
For us Greg revenue per student is on a on a specific quarter between.
Graduate and undergraduate is pretty much the same maybe a little bit higher for graduate and undergraduate because tuition on average is a little bit higher but undergraduate students historically have taken up slightly more credits and semester.
Time period so.
There they are pretty much the same.
The big differences, Brian alluded to is just the persistence and graduation rates.
Graduate students and degree Completer undergraduate students is much higher.
Great. Thanks, and then just one more I mean have you ever seen a period in time, we're sort of the ground based students is there any.
And it doesnt seem like you're seeing any today, but is there any sort of sensitivity to the economy, you think that can work into.
Students decision to maybe go purely online.
Yes.
Yes, we think.
That there will be.
There are changes right now to how people think about going to college because of the economy.
I speak at high School, Graduations, and it's amazing when I listen to the students moving across the stage.
How many are going to community College first and then they've already been accepted for your institution two years down the line.
And so they are trying to save money.
Some students are going.
Online first on local provider and then going to a more expensive state University or private University, where we're not seeing it.
We're not seen it because the average student at GC use campus paid $8600 here for tuition and we havent changed our intuition amount.
Level for 12 years, and so like you know people say to me year, you're building out is 300 acre, which will become a 400 acre campus, you're going to put 500 more.
Million dollars in four years into buildings.
Technology.
Laboratories.
The what we've learned is that the appetite for students to go to college and have a residential community experience is greater than it's ever been it just can't be $60000 a year.
If you could provided for $8600 here another $8000 per room and board of students can graduate in three years, They love going to college, they love, having that community experienced a love spending time with our professors and office hours.
They love the network of friends that they make.
And so very honestly with all the things we shared today.
The the the number that is really incredible it will isn't going to flatten out to some extent, but right now.
For fall of 2021, our applications are 81% of where they were at the same time for 2020 last year.
And so the demand.
Which is why.
When we talk about our four pillars.
Third the second pillar GCU ground.
Historically in this country lease always been assumed that youre going to lose money on the ground campus environment that you charge tuition whatever you don't get you got a recent philanthropic donations, but you're going to lose money.
And thats not the case now it's only not the case if you have a hybrid campus, which means you are leveraging and if your infrastructure across 87000 online students and then 24000 at some point to become 35000 ground students.
But that this ground thing is hugely working.
Our favor.
And it's working in the students behavior in our favor in a huge way so.
The demand to come on campus and to have this experience as long as affordable.
It's not going away at all for US it's increased.
That's helpful. Thanks, a lot.
Yes, we've reached the end of our second quarter Conference call. We appreciate your time and interest in Grand Canyon Education. If you stop questions. Please contact myself Dan back us. Thank you very much.
Ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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