Q3 2020 Grand Canyon Education Inc Earnings Call

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Ladies and gentlemen, PC I mean on your line your think border tiny plenty Grand Canyon Education incorporated earnings conference call well begin momentarily. Thank.

Thank you for your patience.

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<unk> care programs and they want to do more.

The combination of institutions looking for additional revenue streams and our ability to help them launched programs locally that prepare students are in demand occupations is creating rapid.

Partnership growth and a very bright future for GCE, let me explain how GCE as in a great position to support the three main pillars or platforms of our business.

The first pillar Grand Canyon University online has 90418 students as of September 30th 2020, and the end of the quarter just completed new students grew comparable start basis in the mid single digits. While total students grew seven 5% year over year.

The total number of GCU online students continues to exceed.

R.

Our expectations driven by very strong start growth in the second quarter and higher than expected retention rates during the second and third quarters of 2020.

Year over year, new student growth in the third quarter was down sequentially from the second quarter as we expected and discuss on our last quarter's called into a much higher year over year cough and the fact that we had one last pastures degrees start date in the third quarter of 2020 that in the third quarter of 2019.

We continue to see strong interest in GCU online programs and the percentage of students that are attendee at the graduate level continues to go up which is why retention rates are so high GCE continues to work with GCU to ensure that student growth takes place at levels and in programs that will produce high quality outcomes.

For him to our businesses the GCU traditional campus as many of you know GCU shifted start date for the fall semester ports.

August 24th to September eight.

And they shifted the move in date for residential students move in date for residential students to September 21 2020.

Approximately 4900.

Of Gpus traditional campus students elected to attend the fall semester entirely in the online modality, which was higher than expected at the time of our last conference call, resulting in approximately 11500 residential students compared to bed capacity of approximately 14500.

Although this resulted in less room and board revenue in the fall semester. The number of students electing to take all of their classes online had the effect of increasing our capacity, allowing the university to exceed its enrollment expectation by roughly 600 students to a total of 22363.

This is in Stark contrast to what many universities in the country are experiencing.

Round enrollments in the spring 2021 semester looks strong and at this time, we have a large number of traditional students that stayed home during the fall semester, telling us they plan to return to campus in the spring.

We expect 750, new enrollments and approximately 2600 that stayed home in the fall to return.

That would bring the spring enrollment to 20250 and residential students to 13000.

This would represent approximately 10% growth in ground traditional students year over year, and approximately 9% growth in residential students year over year.

Jeeze used traditional campus was in a very strong position and is becoming a bigger part of the strategy everyday.

Goal is now to have 40000 students on this traditional campus in West Phoenix and they are once again exploring developing a second campus in the East Valley.

The pandemic has made it abundantly clear to 18 year old students desire to have a campus experience as much now as they ever have it just needs to be affordable.

The combination of GCU and GE in building out to traditional campus has many strategic advantages one Phoenix is a destination cities in Arizona is a destination state to GCU has invested $1.5 billion in educational infrastructure and the campus is currently ranked 19th in the country.

Ooh hasn't raised Jewish in 12 years and their students take out less debt than the average state universities to fourth.

Fourth GCU now has nine colleges that have over 270 academic programs emphasis and certificates.

Five GCU is adding more than 20, new programs per year targeted at growing occupational areas.

60 University will invest 500 million additional dollars in the next four years with the planned growing out its campus to accommodate 40000 students.

Gcs almost 200 people involved in the recruiting process.

GC GC GC as a state of the art marketing and advertising agency to develop efficient and productive campaigns.

I want to correct that number seven gcs almost 200 people involved in the recruiting process.

He has a state of the our marketing and advertising agency to develop efficient and productive campaigns Nineg has invested heavily in building out virtual tours of campus and lied lab classrooms demos to expose current high school students to GCU during the pandemic when travel is limited.

Gcs Christian pre marketing market positioning makes it attractive to a large national audience with very few affordable scalable options.

The third pillar or platform of the business is Grand Canyon education, Slash Orbis going forward. We are combining how we talk about what we used to refer to as the third and fourth pillars in order to simplify and better explain our strategy.

Our goal is to continue the rapid expansion of partners some of which will have both health care programs and non health care programs.

He bought Orbis 20 months ago since that time, we have expanded to 25 partners and 30 locations. The goal is to have over 40 locations by the end of 2022.

50 locations by the end of 2023, and eventually to grow to 80 locations.

This was a huge national platform in which to enroll students GE now has.

Now not only has the largest partner in this space it.

It is also rapidly adding partners.

This is happening because first many quality universities are experiencing financial stress and looking for options to increase their revenues second there are important healthcare careers that are experiencing serious shortages serve universities don't have the resources to scale. Many of these programs fourth GCB.

The capital and the know how to scale these programs and create opportunities for thousands of underemployed young adults, while helping universities create more.

Important additional revenue streams.

Most locations start with the BSN program, but most have the ability and desire to scale up to as many as 10 additional programs sites will eventually accommodate between 250 and 1000 students in multiple programs provide.

Programs will cost between 30 and $60000 take between 12, and 24 months and lead to jobs paying between 50 and $100000.

90% of the students in these programs will have already completed a bachelor's degree but consider themselves under employed.

GCU GCU will fill many of the sites in the west and along with the operator will become the model with how to expand into additional healthcare and non healthcare academic areas.

Grand Canyon Education has three large well financed highly professional platforms to grow with in the next five years. Each platform is addressing real needs in the market and is producing high quality outcomes for our partners and the economy.

I have never been more excited about the future of GCB.

With that I would like to turn it over to Dan Bachus, our CFO.

To give a little more color on our 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 SEC. We have included non-GAAP net income and non-GAAP diluted income per share for the three months ended September thirtyth.

2020 in 2019, the non-GAAP amounts exclude the tax affected amount of the amortization of intangible assets the 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.

The Amortizable intangible assets acquired in the Orbitz acquisition totaled $210.3 million and amortization expense in the third 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 September 32020, and 2019 is $1.14 at a $1.24 respectively.

Service revenue exceeded our expectations in the third quarter of 2020, primarily due to slightly higher than expected enrollments at our University partners.

You had a greater than expected spade a number of students decide to take all of their courses online in the fall semester, but given the timing of the fall semester start. This only had a small impact on third quarter revenue. It will have a much greater impact on the fourth quarter the.

The decline in revenue growth rate in the third quarter was anticipated as we had a shift in tuition revenue from the third quarter to the fourth quarter. As a result of gcs decision to move its fall traditional start from August 24th to September Eightth, resulting in 13 less revenue producing days in the third quarter of 2020 compared to 2019 GCA.

Also shifted its move in date for residential students back to September 20, Onest, resulting in lower room and board and certain ancillary revenues in the third quarter by three weeks.

Approximately 4900 of Twosies traditional campus students elected to attend the fall semester entirely in the online modality last limited residential students remain on campus during the summer semester. Most doctoral residencies were cancelled through July and doctoral programs at August and September were held at another location with lower than normal attendance and ancillary.

This is operated by GCU, such as the hotel and merchandise shops were closed for most or all of the third quarter of 2022. The Kobe 19 outbreak we estimate the impact of all these changes made by GCU, along with a slightly lower than expected summer semester, new starts at some of our other partners resulted in reduced revenues of 22 point.

$9 million in the third quarter.

Included in both our 8-K and 10-Q filed today is a detailed explanation of the actual and projected COVID-19 impacts on the University spring and summer and fall 2020 semesters and I'll discuss these in more detail in a few minutes, excluding the COVID-19 impact on gcs ancillary revenues revenue per student grew year over year.

Our effective tax rate for the third quarter of 2020 was 20.2% compared to 20.7% in the third quarter of 2019, and our guidance at 20.7%.

And the third quarters of 2020 and 2019, the effective tax rates were impacted by contributions made in lieu of state income taxes to school sponsoring organizations $4 million in the third quarter of 2019 and $5 million in the third quarter of 2020, partially offset by lower excess tax benefits of zero point $1 million in the third quarter of 2002.

20, as compared to zero point $4 million in the third quarter of 2019 due to a lower stock price and fewer stock option exercises in the third quarter of 2020.

We repurchased 266641 shares of our common stock in the third quarter of 2020 at a cost of approximately $23.3 million and another 184486 shares at a cost of 15.1 million subsequent to September Thirtyth 2020, we had $85 million available.

Under our share repurchase authorization as of September 32020.

Turning to the balance sheet and cash flows total unrestricted cash and short term investments at September 32020 was 179.8 million.

2.4%, we have decreased are weighted average shares outstanding amount based on stock repurchases, although we might repurchase additional shares during the fourth quarter of 2020. These estimates do not assume repurchases other than those already made.

I will now turn the call over the moderators. So we can answer questions.

Ladies and gentlemen, if you have a question at this time. Please press the star and then the number one key young attached on telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

Your first question is from the line of Jeff Mohler with Big Your line is open.

Thank you Brian could you just talk to the.

The exploration of on the University side of expanding the campus to 40000.

And so we see that have pretty clearly.

In the East Valley, which is the fastest growing part of the valley and where the most money is the most industry give.

We were looking serious TCE was looking seriously at a number of years ago, and we've begun to do that they have begun to do that again and spice eight weeks, because I'm a university president.

But we think that there are some really interesting possibilities, especially around that growing group of young adults who are struggling in.

The.

The marketplace job marketplace Laskin first out.

Many consider themselves unemployed many consider themselves working area if they didn't study foreign colleagues.

And that is a.

Dirty Little secret in higher education.

There are far too many students studying in areas that aren't going to lead to productive careers.

And so we have that group of people in our target.

And some of the Orbis programs are part of that but there are other programs mainly in the same areas that we also are are watching closely.

So.

We haven't we haven't.

Closed anything yet in the East Valley, but we're we're getting closer.

Okay and then.

Apologies, if I missed it but any update on Valparaiso and moving that from.

You do a contract.

So we did mentioned Valparaiso, we've got two large markets that we have pinpointed for them in the Midwest that we expect them to fill.

The health care programs.

And then we also are in the process of finalizing the contracts. So that we eventually will will will start marketing there are other.

That's right.

Okay, and then just two questions that I continue to get us from investors fairly frequently that's my perspective, but above yours. In this forum one would be if there is a tuition free public University ops.

Option for families, making below a certain income crush hold under it's under by then the selection scenario and then the second is just the impact of.

Fingerprint being an internship same clinical placements and observation now I'm talking about.

Education health.

Health care health saline.

Even certain in certain technology areas and so that platform that weve built that is very safe specific from a requirement perspective.

Is really advantageous to us because we don't expect the student to go to enroll in our programs and then and then take care of those issues stem cells, which many universities face.

Tell them to do we have that all coverage for them.

And there's a huge investment may seem that by us in terms of personnel technology automation and.

So that still gives us a very strong positioning.

In the GCU online business.

But you can probably tell from.

I Hope you can tell from what we were saying that.

That fully ground offerings to traditional students.

Can be extremely profitable.

And a combination program of attending online and doing higher and lab work on ground.

He is also a that's a that's a tough business to enter if you don't have the capital and know how to do it which is why we're talking a lot about it.

Hey, everybody. Thanks for taking the question.

Yeah I wanted to ask I wanted to ask if you have any update on.

No I'm finding a larger.

Ah partner for I guess square for online and campus services that that you talked about before and it or or is it.

Or is it more of the priority now the University partners, a little orbit I'm, just any thoughts there would be great.

But these differentiated areas that are harder to do that much.

Less competitive I think it's exciting to us and should be for investors.

Yes got it got it that makes sense and.

Yes, and in terms of like the broader environment.

Seems like.

So we were cautious and we were conservative and 4900 stayed home.

But our experience is knock on wood going well.

Students are in classrooms, and so if you walk through our campus. During the day that campus is crowded students are out there in and out of classrooms, there in an hour laboratories, there in and out of Eden facilities.

And.

We are obviously.

Testing to do the note that positive we isolate and noted contact Tracy we put in quarantine, it's a very small number.

Compared to the 18000 students that are coming here every day now.

But the.

And what kind of prepared to operate and would that go much smoother, even if there is a third way.

The thing that will go smoother, we believe is that.

The University or University partners, now know that most of our facilities.

Adjustments that we think will serve as well if there is a third way.

Got it thanks a lot.

Thank you.

Your next question.

Is it from the lineup retinal blurb they've been bad capital Your line is open.

From our faculty to this whole thing was a key for us.

They were willing to and a lot of them.

Had a big headstart. So it wasn't like it was a big hill to climb as big a Hilda plan for us.

But the truth is that a lot of these programs can get taught very well.

We are prepared from an online perspective.

Okay got it very clear and then.

Paul because GCE, putting students in those the.

The combination of the tuition and the room.

Those students.

Very valuable students.

Say that.

But I also want to add we've been able to do that without raising tuition how soon and so.

We're we're kind of.

Everybody is winning here in the model.

Very important.

Conference call. We appreciate your time and interest in Grand Canyon Education. If you still have questions. Please contact myself Dan Baucus. Thank you.

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