Q4 2020 Grand Canyon Education Inc Earnings Call
[music].
And Candy and Education, Inc. Earnings Conference call at this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you'll need to press star one on your telephone as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Mr Day.
And back as Chief Financial Officer. Please go ahead Sir.
Joining me on today's call is our chairman and CEO, Brian Mueller. 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 statement. These.
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 up and financial position and D. C.
And with that I'll turn the call over to Brian.
Good afternoon, and welcome to Grand Canyon Education fourth quarter Conference call GCE continues to gain real momentum and educational services provider. We are building three unique and differentiated platforms that will provide significant growth from GCE and make a major impact from this country and the next 10 years.
In 2021, GCE will assist us as partners and producing over 40 35000, new graduates and he was a bachelors and masters and doctoral level.
Pandemic has been a serious challenge for universities and many are experiencing financial problems. In addition, recent college graduates who are new to the job market.
Having a difficult time and.
And then you have degrees that arent, serving them well and the current economy. It is being gce's goal to create educational models and address the real issues within higher education. I believe these issues are the following one the out of control rising cost of University education from the early 19 eighties to the late 2000 and tans.
The price of college increased eight times the increase in wages.
And number two increasing student debt levels net will seriously undergraduates and if you'd be getting their adult lives.
Three as tuition levels go public universities diversity on college campuses go down goes down.
And for Bachelors degree should not take 46 years to complete five programs and delivery models and lack of creativity and the flexibility necessary to address critical shortages in some industries.
Six there are inadequate counseling and support services, especially for first generation students who are those studying at a distance seven.
Three fifths of college graduates would change their majors, if they were starting over.
Eight prior to the pandemic, 43% of college graduates, who are underemployed and their first job.
Two thirds remained in jobs that don't require college degrees five years later.
Nine most professors have no formal training and teaching and learning more of course design.
Grand Canyon Education, and Theres, a large organization over 4600 staff is and a very strong financial position and Ken and best in education and infrastructure to help institutions address some significant challenges and opportunities and your appointment marketplace.
One of our partner institutions now the rise 13% of their total revenues from GCE Slash Forbis health care programs, and we want to do more.
The combination of institutions looking for additional revenue streams and our ability to help them launch programs locally that prepare students for in demand occupations is creating rapid partnership growth and a very bright future for TCE.
Explain how GCE is in a great position to support the three main pillars or platforms of our business.
The first pillar Grand Canyon University online has 89000 and 439 students.
And as of December 31, 2020, and in the quarter just completed new students grew on a comparable start basis and a high single digits. While total students grew eight 3% year over year.
Total number of GCU online students continues to exceed our expectations driven by very strong start growth and continued strong retention rates.
We continue to see strong interest and GCU online programs and a number of students that are attending at the graduate level continues to go up which is why retention and graduation rates are so high.
<unk> continues to work with GCU to ensure its student growth takes place at levels and in programs that will produce high quality outcomes.
The universities cohort default rate is five 8%, which is well below the national average, which is almost 10%.
However, this was the pillar of our business debt is the most competitive I have spoken previously about our strength and new program development.
Understanding where the economy is growing where the jobs are going to be and creating programs that helps students get those jobs is a differentiating factor for us.
Most opm's can't create new academic programs and near the rate and Gce's last piece you can build them.
A second differentiating factor is offering programs that lead to professional licensure.
Programs and education counseling, healthcare et cetera that lead to licensure tend to have more clearly defined career paths and higher retention and graduation rates and those programs are far more difficult to offer because its difficult to manage and scale and at a distance that many details and requirements that are often state specific.
Most opioids are equipped to assist their partner institutions on the operational details of those programs, which are very important to students.
GCE has invested heavily in personnel and technology and automation that allows GCU to offer those programs and to ensure that students meet all state specific requirements.
And <unk> 89004 hundred online students approximately 38000 are in those programs.
The second pillar of our platform to our business is the GCU traditional campus.
As many of you know GCU shifted it start date for the fall semester for its ground students from August 24, 2020 to September eight 2020, which resulted in five more revenue producing days in 2000, and 'twenty as compared to the fourth quarter in 2019.
Approximately 4900 and <unk>.
Gcu's traditional campus students selected to attend the fall semester entirely in the online modality.
And and approximately 11005 hundred residential students compared to bed capacity of approximately 14005 hundred.
Although this resulted in less room and board revenue in the fall semester at GCU, and thus impacted our service revenue and number of students electing to take all of their classes online and had the effect of increasing total capacity, allowing and university to exceed its enrollment expectation by roughly 600 students to a total of.
22185.
This is in Stark contrast, with many universities and the country are experiencing.
Round enrollments in the spring 2021 semester are also strong.
The University had its largest spring new start cohort and a better than expected retention rate, resulting in spring enrollment of approximately 20250, which includes an increase of 11, 4% and ground traditional students.
Hersey typically sees a significant decline in residential students between the fall and spring semesters due primarily to graduations, but a large number of students students return to campus in the spring increasing our residential enrollment to approximately 11006 hundred.
3500 students did not choose to attend the spring semester entirely did.
Did choose to attend to spring semester entirely in the online modality, which is higher than we had predicted at the time of the last conference call. This was primarily due to the spike in COVID-19 cases in the Phoenix area around Christmas.
Currently and Gcu's campus, there are fewer than 30 active positive COVID-19 cases.
And University recently put a message out stating that the campus, which tends to be fully up and running and the traditional manner in the fall semester of the 'twenty one 'twenty two academic year.
Gcu's traditional campus is and a very strong position is becoming a bigger part of the strategy every day.
<unk> goal is now to have 40000 students on a traditional campus and west Phoenix and.
And the pandemic has made it abundantly clear that 18 year old students desire to have a campus experience as much now as they ever have.
<unk> needs to be affordable.
The combination of GCU and GCE and building out to traditional campus has many strategic advantages one Phoenix as a destination city, Arizona is a destination states too.
To GCU and invested $1 $5 billion and educational infrastructure and our camp is current campus is currently ranked 19th and the country.
And number three GCU haven't raised tuition and 12 years and your students take out less debt than the average state University students.
In addition.
Wall Street Journal recently, released average parent plus debt come out.
<unk> parents take out approximately 50% of the debt amount taken out by the three heavily subsidized state universities in Arizona.
For GCE and now has nine colleges that have over 200 academic programs emphasis and certificates.
GCE has added more than 20, new programs per year targeted at growing occupational areas.
<unk> University will invest 500 million additional dollars and the next four years with the plan to grow out its campus to accommodate and 40000 students.
And the University is and a strong financial position and the aftermath of it split from GCE to become a nonprofit institution.
It is financing all his current capex and <unk> $317 million and cash as of December 31, 2020.
In addition, during the pandemic GCU.
Slash GCE has had no layoffs has gone through the annual increase in salaries sports faculty and staff and has hired 461 new employees.
Those debt predicted the transaction with produce financial rule and to be University, we're very very wrong.
Seven GCE has almost 200 people involved and the recruiting process eight GCE has a state of the art marketing and advertising agency to develop efficient and productive campaigns.
Nine GCE has invested heavily and building out virtual tours of campus and live lab classroom demos to expose current high school students to GCU during the pandemic when travel is limited.
10, Gcu's Christian and free market positioning.
It makes it attractive to a large national audience with very few affordable scalable options.
The third pillar of our platform of the business as Grand Canyon Education Slash Orbis.
Going forward, we are combining how we talk about what we used to refer to as a 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 want to provide both healthcare and non health care programs.
GCE block Orbis 23 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.
<unk> 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 and to produce graduates.
GCE now not TCE now not only has the largest partner and the OPM space GCU 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.
There are important health care and other technology careers that are experiencing serious shortages.
Third universities don't have the resources to scale many of those programs fourth GCE has the capital and and Knowhow to scale those programs and create opportunities for thousands of underemployed young adults, while helping universities create important additional revenue streams.
Most locations start with the ABS and program.
But most have the ability and desire to scale up to as many as 10 additional programs.
Sites will eventually accommodate between 250 to 1000 students in multiple programs.
Programs will cost between 30 and $60000 take between 12, and 24 months to complete and lead to jobs paying between 50 and $100000.
Most of the students in those programs will have already completed a bachelor's degree but consider themselves under employee.
GCE will filled many of the sites in the west from GCU will filled many of the sites and the west and we'll continue to expand into additional into additional healthcare and non healthcare academic areas.
We continue to have conversations with the operational but due to recent changes in administration. The completion of the contracts have been delayed we.
We are excited to have signed an Mou similar to the one with the operational with another University and have reached verbal agreement on the structure of the healthcare and non healthcare components, which include a revenue share arrangement for the healthcare component consistent with our other health care partners and a cost plus component to provide services for some of their graduate.
Online programs.
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 GCE.
I want to speak just for a moment on corporate and University social responsibility.
For a full description of our efforts. Please refer to the 10-K that was just put out prior to this conference call.
I want to talk briefly about one part of these efforts our primary purpose at GCE is to work with our University partners to develop human capital to serve the economy and the culture and we live in and to maximize <unk> tomb and flourish with.
We spend most of our time, describing those efforts. We also have or want to have a direct impact as organizations on the challenge of poverty and the neighborhood that GCU and GCE Lindsay.
And as an area comprised of many immigrant populations. There are over 40 languages spoken within five square miles from GCU and GCE and.
And the last eight years, we have had many university administrators visit the GCU campus to learn about its efforts and an attempt to replicate them in some fashion.
We put in place what we call a five point plan eight years ago. The goal is to transform and inner city neighborhood and do a thriving middleclass community.
First point was to grow the University, and GCE, and this community, creating jobs and providing and economic catalyst.
Together GCU GCE now have 14000 jobs between full time and adjunct faculty staff and students workers and we are hiring many in the neighborhood into entry level positions, where they can a salary.
Benefits and your children and go to college for free if they make the admissions requirements and this can change the long term trajectory of our family living in poverty.
Second point is to spin as many new businesses off of this one as possible and <unk>.
And GCU have started 10, new businesses that employ now over 500 people many of whom live in and in this immediate neighborhood. Those jobs also provides families with the salary and benefits and the opportunity for the children to attend college.
The third point is safety and the students were having trouble getting to school.
K 12 students were having trouble getting to school and back home and their parents were having trouble getting to work safely.
Together, we continue to invest and a major partnership with the city of Phoenix police to eliminate getting activity prostitution and drug dealing.
Over $2 million have been invested in this initiative. It has produced remarkable results as just this year Violet and property crime are down 20% over the prior year.
Fourth point is homes and real estate values together, we formed a partnership with habitat for humanity seven years ago and it worked on improving over 300 homes since that time.
We have raised over $4 million to support this effort and 26000 hours of volunteer health have been provided by our faculty staff and students.
Housing values are up in this core area more than 300%, which is more than in any other zip code area and the greater Phoenix Metropolitan area.
Fifth seven years ago, we started a free two day program that now impacts K 12 students in the city and over 300 different schools.
<unk> has over 1200 students volunteering between $3 eight PM Monday through Friday and.
And non Covid time, and between <unk> and six PM on Saturday.
And of this program has grown and scholarship effort that we now have reached over $4 million to support <unk>.
<unk> was awarded 360 full tuition scholarships to students that have come out of this tutoring program and achieved a minimum $3 five GPA and high school.
100% of the scholarships have gone to students living below the poverty line of which 95% of our students of color.
These efforts are continuing to gain real momentum and producing measurable results as I said earlier for a full description of the social responsibility efforts coming out of GCE and all of our partners refer to the 10-K that has been recently released.
With that I would like to turn it over to Dan <unk>, our CFO to give a little more color and our 2024th quarter and talk about changes and the income statement balance sheet and other items as well to provide 2021 guidance. Thanks, Brian and included in our form 8-K filed with the SEC and we have included non-GAAP net income and non-GAAP diluted income per share.
For the three months and year ended December 31, 2020, and 2019 and non-GAAP amounts exclude the tax affected amount of the amortization of intangible assets and the loss from transaction amount and the impact of a large state tax refund received in the first quarter of 2019 related to taxes paid in previous years.
We amortize the intangible assets acquired and the Orbis acquisition totaled $210 3 million and amortization expense and the fourth quarter of 2020, and 19 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 over time.
And as adjusted non-GAAP diluted income per share for the three months ended December 31, 2020, and 2019 is $1 89, and $1 63, respectively.
Service revenue exceeded our expectations and the fourth quarter of 2020, primarily due to higher than expected enrollments at our University Partners Inc.
Kris and revenue per share revenue per student year over year was expected and is primarily the result of GC moving back the start of its ground traditional balsa Mercer such that there were five more revenue producing days and the fourth quarter of 2020 as compared to the fourth quarter of 2019, which increased the service revenue we earn.
Additionally, our revenue is growing faster and our other University partners and then at GCU and we generally generate a higher revenue per sitting on those services agreements and our service agreement with GCU and these agreements generally provide us a higher revenue share percentage and the partners have higher tuition rates and GCU and the majority of their students take on average more credits person.
Or is there and accelerated programs.
These increases and revenue per student were partially offset by the approximately 4900 gcu's traditional campus students electing to attend the fall semester entirely and the online modality and due to COVID-19 concerns as a result, 2020 fall semester fees room and board and other ancillary revenues for the fourth quarter of 2020 at Juicy, where lower than and the <unk>.
Apparel period, and the prior which reduced the service revenue we are.
We estimate the shift and service revenue as a result, and the change and the traditional fall start date, our GCU students from the third and fourth quarter of 2020 was $9 9 million. We estimate the reduction service revenue attributable to reduced tuition fees and ancillary revenue per University partners, resulting from COVID-19 was $7 3 million and the fourth.
<unk> 2020 include.
Included in both our 8-K and the 10-Q 10-K filed today with a detailed explanation of the actual impact and all of our University partners Spring Summer and fall 2020, semesters and our projected impacts for the spring 2021 semester.
I'll discuss these in more detail and a few minutes.
Our effective tax rate for the fourth quarter of 2020 was 22, 1% compared to 18, 7% and the fourth quarter, two 2019, and our guidance of 22, 4%.
The 2019 effective tax rate was lower due to some large onetime favorable discrete items related to state income taxes.
We repurchased 437544 shares of our common stock and the fourth quarter of 2020 at a cost of approximately $36 7 million and another 147000 shares and the cost of $13 2 million subsequent to December 31 2020.
At the January Board meeting the board approved a plan to utilize a significant amount of our 2021 cash flow from operations to repurchase shares and as and the last few months our board of directors increased the authorization under our existing stock repurchase plan by $200 million such that as of today, we have $235 1 million available under our share.
Authorization.
Turning to the balance sheet and cash flows total unrestricted cash and short term investments at December 31, 2000, and was $256 6 million or credit facility has and available line of credit of $150 million as of December 31, 2012.
GCE capex in the fourth quarter of 2020, including Capex for New Offsite classroom and laboratory sites was approximately $7 3 million or 3% of net revenue and was $29 4 million for the year, which was slightly below the 30% to $35 million. We had expected some of the capex for the new oxide campus classroom and laboratory sites that will be opened and two.
<unk> and 'twenty one.
Not incurred in 2020 as was expected but will be incurred in 2021.
We anticipate capex for 2021 to be similar to 2020.
Lastly, I'd like to provide color on the guidance. We have provided for 2021 and the guidance. We have provided continues to be non-GAAP as adjusted net income and as adjusted diluted income per share as we exclude amortization of acquired intangible assets.
You probably noticed we have again provided estimates for each quarter of 2021, we do this because our financial results, including GCU and the other partners that we service are seasonal.
Our enrollment guidance assumes GCU enrolment growth will moderate slightly over the course of the year to approximately six 7% at the end of 2021 and.
This is such and consists of total online enrollment growth rate monitoring moderating over the course of the year to 7% by year and online you enrollment growth is projected to be up mid to high single digits, depending on quarter with the exception of the second quarter, which we predict will be flat year over year due to a very difficult comp caused by <unk>.
Covid and total online enrollments will be pressured over the course of 2021, especially the fourth first quarter due to graduation year over year increases and exceed total enrollment growth as a result of acceleration and new start growth 15 to 18 months prior and lower re enters as a percentage of total enrollment and in the prior.
Higher retention rates in 2020.
Ground enrollment is projected to grow to 20200, and the spring and 23004 hundred and the fall. While we are currently anticipating summer ground enrollments will be down slightly year over year to 6400 and the.
And the ground enrollment growth rate continues to be pressured by a significant decline year over year and professional study students working adult to take courses on ground, primarily and Gcu's traditional campus as we have not had entry points for these potential students due to COVID-19.
Residential students.
And we'll be down 3% year over year to approximately 11006 hundred and the spring at 3500 students chose to take all of their courses online due to COVID-19 concerns our guidance assumes though that residential enrollment will be up 38% and the fall to approximately 15800.
Other partner enrollments will grow to 4500 4200 5800 5100 at the end of the first second third quarter and ended the year at.
And as a reminder, gcu's off campus health care students, which we anticipate will grow to over 200 by the end of 2021 are included and the GCU number and are not included and the other partner enrollment.
And year over year other partner enrollment growth rates will be impacted by the run non renewable contract, which I'll speak about and the second and accelerating one ta graduate.
These other partner estimates assume that three new sites are opened and the first half of 2021 and another four to five new sites are open and the second half of 2021 and.
And OTC program that was planned to be opened in the spring 2021 has been moved back to the fall of 2020.
We estimate that the revenue per student from our contract with GCU will be up year over year, primarily to the growth and residential students and the ultimate Sir but this will be partially offset by the impact.
The lower residential enrollment and the spring semester due to COVID-19 concerns of $5 7 million, four 5 million and the first quarter and $1 2 million and the second.
We anticipate upside healthcare partner revenues, including GCU Offsite health care locations will grow to a $136 million and 2021 due primarily to the enrollment growth partially offset by the fact that we and our former partner mutually agreed that that their service agreement would not be extended upon its termination.
This partner was one of Orbis as initial partners and it had a financial arraignment arrangement that was different and orbis as other clients.
Excluding the revenue and 2020 from that contract and this would represent 25% revenue growth year over year.
On the expense side, we anticipate expenses will accelerate and beginning in the second quarter as compared to the last nine months of 2020 as expenses, such as travel and medical benefits returned to normal.
These expenses were significantly below our expectations beginning near the end of the first quarter of 2020 through the first quarter of 2021.
We anticipate that orbis will be EBIT profitable, excluding intangible amortization of approximately $4 million.
Orbis EBIT, excluding the intangible amortization and 2020 was approximately $2 million, which was better than the EBIT breakeven that we anticipated.
This was primarily due to approximately $2 million of investment for new site openings and the first half of 2021 that we expected to be incurred in 2020 being pushed back to 2021.
In addition, orbis EBIT is impacted by the non renewal of the contract discussed earlier and the planned seven to eight new site openings in 2021, and another 1% to three and spring 2020.
And the timing of site openings is heavily dependent on the timing of regulatory approvals.
We anticipate technology and academic services counseling services and support marketing communications and general administrative expenses will be approximately 14, 9% 27, 3% 19, 5% and four 2% of net revenues and thus consolidated operating margin will be.
<unk> 34, 1% and net revenue.
Second half margins assumptions could prove to be conservative, but given the continued uncertainty caused by Covid. We believe they are appropriate.
Included in our guidance is the interest income on the note from GCU of approximately $59 million and 2021 down slightly from $59 2.002 million 20, we are aware that the university is working on refinancing part or all of that note no pay downs are factored into our guidance if the University does refinanced.
Part or all of the note. It will have the effect of lowering interest income, but we hope to offset the impact on earnings per share with lower shares outstanding.
We estimate interest expense will be approximately $3 1 million compared to $4 4.002 million 20, due to our pay downs on our outstanding loans, we anticipate very little other income due to the lower interest rate environment.
Our guidance assumes an effective tax rate, excluding potential contributions made and little state income taxes to be 21, 7% and Q1 'twenty four seven.
And 7% and both Q2, and Q3, and 24, 5% and Q4, which excluding contributions and little state income taxes made in 2020 is down slightly from 2020 due to a slightly higher estimated excess tax benefit deduction and the first quarter of 2021, and and first quarter of 2020.
As was mentioned earlier the board of Directors has approved a plan to increase the purchase repurchase of shares.
Weighted average shares outstanding amount takes into account our best estimate of the stock that will be repurchase but does not take into account any shares that we repurchase on our refinance by GCU.
I will now turn the call over to the moderator so that we can answer questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound key our first question comes from the line of Jeff Silber from BMO capital markets. Your question. Please.
Thanks, so much.
Want to first focus on the GCU ground campus I know, it's still a little early to talk about the fall and Theres still a lot of uncertainty, but any color that you can give in terms of recruiting and I'm specifically interested if the issue with the department of education has impacted recruiting at all thanks.
Yes.
And I'll answer the second one first no that has.
Not impacted our recruitment at all or.
Current students 95, 9% of them don't know anything about it and and and.
Really don't care much about it both on the ground and online side.
And so no there's been no indication that that has had any impact on gcu's recruitment.
And the metrics that we have used for the last.
Eight years to determine where we might end up in the fall obviously are all different now.
Because students and families are way behind and their campus visitations and and your decision making.
We're doing our best.
To look at reduced number of applications, but increased conversion rates to registration and those kind of numbers look very good for us.
Last year, our goal from new enrollments and the fall was 8000, and we ended up with over 8200.
And we had some difficult months and there.
This year our goal is 9000.
And.
Since the metrics are different we have to do a little bit of a guesstimate, but based upon very strong conversion rates.
Even with less applications.
We believe that we have a very good chance to hit the 9000, and we are really picking up and campus visitations.
And the first half of the year. It was a lot of the virtual tours and virtual live labs, and a lot of that interaction.
And.
And now the actual visitations are really picking up and we expect them to really pick up and.
In April and May.
The second semester of this year on our campus, we eliminated the spring break and.
And we are going to do the last two weeks of class online, which will in essence clear our campus out at the end of April.
And and.
And that is going to I'm sorry at the end of March at the end of March.
And first week of April.
That will free up our campus to be open to what we hope is mass visitations and facts, we are actually going to probably combined for a lot of students there.
Campus visitation with orientation.
And so our activities are limited as compared to prior years, but extremely active as compared to.
Our competition extremely active as compared to our competition. So.
Given.
And our low tuition rate all the information now that students and parents are being bombarded with in terms of.
How much less our parents are taking out in terms of parent loans, how much less our students are taking out in terms of student loans and how.
How many of our students are graduating and three and three and a half years.
All of those things, we believe will lead to very high conversion rates and we have we believe that we have a very good chance to hit our number in the fall.
Alright, Thats really helpful. Let me shift gears over to Orbis.
Appreciate the color you gave on profitability for both last year and what you are expecting this year can you just remind us when you get through that kind of ramp up in terms of new partners.
And where could Orbis go what kind of profitability should we be expecting from that business longer term. Thanks.
The mature campuses once once the campus and mature which is start to reach maturity and your threep.
We expect 30% margins on those locations.
GCE.
And.
And so and that's proven to be true.
And as campuses are maturing.
Okay.
That's helpful. I'll go back and the queue. Thanks, so much thank you.
Thank you. Our next question comes from the line of Jeff Mueller from Baird. Your question. Please.
Yeah, Thanks, Hey, Brian on the kind of changing the way youre talking about the platforms and consolidated three and four into three.
And I guess are you only open to doing non health care.
Online program management for.
Client for University clients that you're also doing the orbis.
Model for or are you still open to that as a separate service just I guess, what's the.
And what's the ideal client look like what are you willing to do in that regard.
Well yeah.
The ideal client ideal client would be one debt and <unk>.
Think about this and faces as we open up these locations, we are really focused and non U.
S and program first it's a proven model, we're going to need 1 million additional nurses and the next five years.
And the pay off of the value created for both the University and the student and GCE Slash Orbis is known and.
And we just repeat what we've what we've been doing through them for 11 years.
And second then.
We will add some new health care programs to those campuses.
And occupational therapy, the nurse practitioner program et cetera.
And that's happening and we will start to act, we will start to open GCU locations GCU slash orbis locations in the west.
And we'll start with the ABS and program, but those locations will grow.
And factor in terms of additional health care programs and potentially.
Other non health care programs.
We think that as we have as we prove that model out.
Through the GCU Orbis locations debt other universities will want to take that up as well when they have the kind of programs that we have that proved to work.
This is <unk>.
Absolutely a play on the third major market now, we believe and higher education.
There are traditional students, having a educational experience and a social experience on traditional campuses. That's our ground campus. There are students that are going back as working adults and doing their entire programs online.
And then there are <unk>.
College graduates and Theres a lot of evidence and in the last 10 years. So many of them are underemployed, we're looking for a different.
Format, one that combines delivering didactic material on line with intense laboratory work and a physical brick and mortar location.
And it's those that market and of those programs that we're going to build this third.
Our foundation.
And so you don't go and phases.
But I think it will accelerate.
And GCU opens up its campuses and there's a little bit more aggressive in terms of additional programs and additional non health care programs I think I mentioned it in the.
In the script, but.
Other universities are now.
Some of our partners progress to 13 plus percent.
Their revenue is coming from these programs.
And some of these partners haven't even been with us for a long period of time.
Given the financial stress the universities are going to be experiencing I think theyre going to be really open to this market and as we prove as we continue to prove.
The results that.
It will go fast.
And did that help.
Okay.
On the there was a comment I think from Dan not sure who is best equipped to answer this but so on the potential for GCU to refinance but counterparty loan with Chiesi.
Yeah, I think you said a possibility of a partial.
Refi can you just clarify that because I would think that with the counterparty load don't having the campus and assets of the University and securitized against it that would be chat.
Challenging so any additional color there and then am I interpreting you correctly Dan that.
On top of the significant percentage of the free cash flow that you're planning to use to repurchase stock, but if theres proceeds from debt refi that you would also use a significant part of debt debt refi proceeds to repurchase stock.
Yes, Geoff what you just said is correct.
In terms of the refinance.
And we've had conversations on and off with GCU about what they would like to do.
And we have talked to.
Our legal counsel and bankers and their legal counsel and bankers and if ultimately they come to us and.
Our request to refined finance, let's say half.
The debt, we would be open to that.
And if that's what's in their best interest so I think it will be.
A significant portion or all.
If they do complete or refinanced this year and I know, they're working really hard on it given very given the very low interest rate environment that exists.
Understood. Thank you.
Thank you. Our next question comes from line of Greg <unk> from Sidoti Your question. Please.
Hey, guys just two questions I think earlier in the commentary you mentioned a bigger focus on certifications could you elaborate I mean, we know the nursing has sort of the and <unk> pass rate, but are there any particular.
Other pathways with certifications that we should be thinking that youre looking to grow your mix and.
Yes, and I was referring to is not.
And of non degree certifications, but degree programs that require that a student meet state and local.
Requirements.
So when you think about first first year teachers working adults that are recurring to become elementary and secondary school teachers.
A lot of those things require specific state requirements and and if you don't have a huge infrastructure in place to manage that force students you can't expect them to work down and out Underwhelm, There's just too many looser.
And <unk> that they won't be able to tie together and we put together technology to help them do that and the same is true for counseling programs, whether they're at the bachelors level or the master's level.
Many of those counseling programs.
Other things like that.
Like counseling require that.
Students from state to state from a state to state perspective are able to meet the local requirements.
And we are able to counsel students and.
Very specific ways about.
About how they can move through our programs and make sure. They are doing what is necessary to meet their state requirement. That's a difficult thing to manage but it's a huge advantage for us because most universities will just tell students. This was our program you figure out what I was just going to meet the requirements and your state or not but we don't do that we take care of all.
That upfront for students and then we make sure that they get their finger.
Requirements fulfilled debt they are scheduled to do their internship powers that theyre scheduled to do their observation hours.
And our scheduled to do their student teaching all of those things.
Give us a huge leg up with students are are trying to complete degrees and those programs because we have the infrastructure to support it and we don't put students out there on their own to make sure that those things happen.
So it's more debt licensure requirements specific to degree programs and it is non degree programs.
Got it got it and then just one more if I can add you gave some metrics on the Orbitz just the cost typically 30% to 60, and then starting salaries 50 to 100, K, but just given the changing and administration just kind of curious thoughts on if gainful employment were to come back given your traditional student at Orbitz, sometimes alright.
<unk> incurred four years of a traditional college debt and then if you not not that Youre a program.
Is a lot, but if they were to add that on top of their four years of undergraduate debt if that poses any sort of a risk given the way the gainful employment was under the prior administer or I should say under the Obama administration.
And it's so interesting and it is.
Such a a new and emerging market.
Students that are and their twenty's late twenties.
And they've completed academic degrees. They are underemployed. They have they are working at jobs that don't even require a degree how do you help them get re careers.
They don't want to have the experience of going back to campus with an 18 year old but the programs that they're interested in debt really pay off frequently have not only requirements to study online, but also have lab requirements associated with them.
And the ABS and program is the most obvious we're going to need 1 million additional nurses and universities arent step up to do that and so we need new and creative and very flexible models to help students do that and most of those students and our Orbis program are not taking out and title for loans.
Theyre, taking out private loans and private companies are stepping up to do that because.
There is a 90 plus percent graduation rate and students are passing the flex at 90 plus percent rate and youre stepping into jobs that pay between 60 and $80000 and so you can't you probably can't get a better loan if you're if you're a bank and that students.
And then that loan and.
So.
Eventually as GCU opens up these orbitz locations will probably implement more titled for.
At least for partial of the money that they're going to need, but we're going to stay in programs.
And where the career path is clear where the jobs are available and where the income levels are significant.
As a result of that we don't anticipate any issues there.
This is not this is a major.
New market that's emerging here.
And it's going to have a big impact on students decisions in the coming years that are 18 years old.
In terms of what degree programs are they choosing and what do they know about the investments they're going to make the career path that's going to be available to them. The income that they can make et cetera.
It's not as big a deal at GCU as it is other universities.
And because our students graduate with such little debt.
But we still are going to talk to them about EBIT. Our students at GCU ground campus, we're going to talk to them about.
Career, earning potential and those kinds of things because.
Yeah.
Universities, many universities are stock and a faculty model.
That kind of forces them into offering certain programs that have a rich history to them, but not nearly as in demand and lucrative as they used to be.
But you got tenured faculty that have those positions and those courses have to be talk and so we're in a very different place don't have nearly that kind of pressure.
And and so we can do it at GCU, but we also believe that we can help other universities do it.
Through GCE.
But no we don't anticipate.
The.
Any issue with regards to gainful employment.
That's helpful. Thanks, a lot.
Thank you. Our next question comes from the line of Brett Knoblauch from <unk>.
Capital markets. Your question please.
Hey, guys. Thanks for taking my question.
And the nursing shortage Where's the bottleneck there is that more on the university side from them not having capacity or is it maybe and the hospital side.
Maybe they don't have enough capacity to employ nurses and I guess, where is the bottleneck building up yes.
It's the sacred cows that exist with and the history of higher education.
Nursing schools.
Are heavily dependent on <unk>.
First time pass rates on the uncollected Grand.
Your nursing school.
Ratings.
Is heavily dependent on those things and the surest way.
And even R&D and would admit this at GCU the surest way to make sure that you get the kind of first time pass rate on and I could ramp is to make it varies year program very small and elite.
And so and many programs you take your coming from your first two years and and.
And you take biology, and chemistry and.
Physiology, and those kinds of courses and you need to come out with a $3 nine GPA. After your first two years to get and the nursery school.
When it's very obvious to us at a three six students can absolutely get through the second two years of nursing school and and <unk>.
Become gainfully employed as a nurse.
And so part of it is the desire to for nursing school rankings on the part of the Dean.
The second part of it is debt nursing schools are very expensive to offer typically they lose money.
And the laboratory investment is significant the student to faculty ratio is very low.
And so schools don't have any incentive to to grow their nursing programs because they lose money on it.
Yeah.
And and and so the.
Infineon for it and Theyre seeing schools to take the operational risk.
And and grow to meet the demand.
And it's not there.
We have never been afraid and act.
This year 2020, I'm glad you asked this question.
And I can't be I can't tell you I am speaking on behalf of GCU now.
And as its president, but in the middle of the pandemic.
We produce far more nurses and any of the state universities that exist.
Arizona and.
And we had a 95.61st time pass rate and flex and fair.
It was a phenomenal year in the middle of a pandemic.
And and the third thing and I didn't mention about why not why can't they scale is that.
You are limited in terms of clinical placements.
And that's a very real thing, it's not the nursing schools issue. The first two out and nursing schools issue. The third one is not.
And the middle of this pandemic.
Gcu's nursing program.
Worked with our nursing board.
To put in place simulations that we invested a lot of money and to replace certain clinical hours.
And that happened in the middle of all of what was going on and with the pandemic and.
So the investments were made adjustments were made and.
And students got their clinical work done, which I just I'm extremely proud of how G.
GCU.
Bonded to that and how do you see he was supportive of all of that.
But those are the three major reasons.
The.
Orbis.
The program is going to aggressively.
A challenge or become a solution to the issues that I indicated and we really believe that the country will be.
Tremendously benefiting from what we do in terms of nursing populations, but also.
And Theres practitioners, which are there is a shortage of occupational therapists, which there is shortage of all those things, we think orbis as and a very strong position to help resolve those issues.
No perfect that helps a lot and.
And then maybe just one more question and just curious to what you're seeing from the graduate side of things.
Do you think we're gonna have a maybe a change in environment.
Coming out of Covid, where online is much more acceptable from our graduate degree perspective, and do you expect that to result, and maybe sustained growth there from the graduate online degrees, especially up yeah.
Yeah, I think in large part we've moved past.
Where did you earn and did you earn their degree on a campus or did you earn your degree on line I think we've moved past a lot of that the more appropriate question now is what area did you earn it.
The generalist kinds of degrees.
At the undergraduate level. If you go back to complete your program and business management or if you go back and computed it competed and another Liberal Arts area.
And that's not going to be nearly as impactful and necessary for people and the same is going to be true at the graduate level.
If you said to a person and right now do you think you'd benefit more baidu and MBA program or a master's degree and cyber security right now and this country. Today. There are 300000 open jobs that pay on average $92000 a year for masters degree in cyber security.
And so understanding where the economy is going where the job shortages are where the clear career paths are to good income is far more important and then did you do it online or to do it all and ground and I think that we're putting a major focus on.
Understanding where the economy is growing and growing those programs debt specifically relate to where the jobs are going to be versus is it delivered online or delivered on ground.
Now I can tell you that the exciting thing for me is.
And yes healthcare.
And even at the graduate level, but eventually.
We would like to take these students that have backed.
Baccalaureate degrees and help them or and second baccalaureate degrees and mechanical engineering and it.
Electrical engineering.
In those areas because that's going to be for a lot of people a lot better and going back to earn a master's degree in business for example.
And for everybody, but for a lot of people.
And you hear it.
And I talked about it and other people that can do things.
And as well as known things.
Are just going to be a lot more.
Desired in the marketplace.
Perfect. Thanks, so much.
We have reached the end of our fourth quarter conference call. We appreciate and time and interest and Grand Canyon Education. If you still have questions. Please contact myself Dan bachus. Thank you.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
And then.
Revenue.
And.
And then.
And the numbers.
Okay.
Yes.