Q4 2021 Grand Canyon Education Inc Earnings Call
Ladies and gentlemen, your conference calls could you just talk momentarily. Please continue to standby and thank you for your patience.
[music].
Good day, ladies and gentlemen, thank you for standing by and welcome to the fourth quarter of 2021 Grand Canyon Education 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 will need to press. The Star then the one key touchtone telephone.
Please be advised for today's conference maybe recorded if you would call operator. Please press Star then zero.
I would now like to turn the conference over to your Speaker host Mr. Dan Packers with CFO . 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 involve risks and uncertainties.
These factors could cause our actual results to be materially different from any future results expressed or implied by such statements. These factors are discussed in our SEC filings, including our annual report on Form 10-K quarterly reports on Form 10-Q , and current reports on form 8-K, we undertake no obligation to provide updates with regard to the forward looking statements made during the call and.
We recommend that all investors review these reports thoroughly before taking a financial position in GCE and with that I'll turn the call over to Brian .
Good afternoon, and thank you for joining Grand Canyon Education's fourth quarter fiscal year 2021 conference call 2021 has been a difficult year in higher education Grand Canyon Education came through this year amazingly well as compared to the rest of the higher Ed.
More important the overall trends predicted for 2022 in this sector continued downward while Grand Canyon education will resume its remarkably consistent upward trend for 14 years and is positioned to do very well. The next 10 years.
Cobalt has had a negative short term impact on all three of our pillars. However, long term the negative impacts on the rest of the sector have turned into positives for GCE because of how it is positioned itself, especially the last three years I will explain as I talk about each pillar individually.
The GCU traditional campus.
Both the number of high school graduates per year and the percentage of them going to college has declined recently and that has resulted in lower enrollments at many universities and community colleges.
Gcu's traditional campus actually saw an increase of six 2% in new students year.
Year over over the prior year, an increase of nine 5% in total enrollment and an increase of 36, 1% in residential enrollment.
The average incoming GPA of this year's class rose to three six in the prestigious honors College grew eight 4% to almost 2800 students with average incoming gpas of $4 one.
A remarkable results given the overall trends.
The quality and especially the relevant relevancy of Gcu's academic programs, the low class sizes and supportive its faculty who have less than a 2% turnover rate the quality of counseling services, a new very modern campus. It is ranked 18th in the country by niche Dot com to 'twenty advisory boards with over five.
Companies represented who are creating internships and employment opportunities for GCU students and Phoenix as a destination city are all contributing factors.
Having a very successful year compared to the majority of this sector. We still however are not performing to our full potential for the following reasons number one GCU continues to gain visibility across the country. However, it's extremely significant value proposition is still relatively unknown.
GCU relies heavily on a process called discover GCU, we fly in our expense thousands of students for one or two day campus visit and house them at our residence Hall designed for that purpose.
Many students had selected other universities prior to the visit.
In the 2020 school year because of Covid, we were down 46% from our campus visit goal yet still produced good results. This year as the company is a country is reopening campus visits are up significantly over the prior year.
Number two I didn't list. This previously in Gcu's list of advantages because I wanted to call. It out separately due to how important it is according to research produced by John Marcus and the Hechinger report college costs outpaced inflation by 28% and public institutions and 19% at private non.
Profit once in a decade preceding the pandemic. According to the National Center for Education Statistics.
But those relentless higher than inflation tuition hikes came to a halt in the fall when the college boards reported at tuition rose at less than the consumer price index.
However, he finishes report by listing all the universities, who have already announced tuition room board and fee increases due to inflationary pressures for next year.
In contrast, GCU has already announced for the 14th straight year no tuition increase.
This has resulted in GCU students taking out less debt in the highly subsidized state universities and Gcu's parent loan amounts parent plus loan amounts are 50% of the three Arizona state universities.
Number three the city of Phoenix and the state of Arizona is economic outlook is very bright.
<unk> companies are moving here, especially from California, and we estimate right now that approximately 80% of Gcu's traditional graduate state in Arizona Post graduation.
Partly because the career opportunities are so significant.
Number four a growing segment of University enrollments in the country are first generation College students.
Of the approximately 9000, new students at GCU. This year approximately 3600 were first generation students.
The first Gen College students. This year had an average incoming GPA of three five times almost identical to the three six of the overall class.
Next year, we expect 4000 or <unk> 10000, new students to be first generation.
The 76 Hundred's first gen students at GCU in two years alone is a societal transforming number and a great reason to invest in GCE and donate to GCU.
The quality and relevance of our programs the quality of Gcu's campus facilities, the intense amount of faculty and counseling support the number of campus jobs available to students the percent of students graduating in three years and especially the low price point all contribute to the success.
Number five GCE was able and prepared financially to build the campus out to 50000 students creating opportunity for GCE in this pillar for the next 10 years.
We are targeting over 10000, new students in 2022 and are making investments now to significantly increase that number in 2023.
Next I would like to discuss Gce's health care partnerships.
Short term, mainly 2021 Covid had a negative impact hospitals were extremely busy and preoccupied with COVID-19 patients and many clinical placement opportunities were canceled.
In spite of these very significant challenges many instructional assignments requiring one on one clinical interaction in the hospital were replaced by Stimulations.
Against significant odds, both the new and total enrollment numbers were hit for the year.
I would call 2021, a successful year for this pillar given the challenges.
With Gcu's traditional campus. The long term environment is very positive for these GCE healthcare partnerships for the following reasons.
One the country needs, one 3 million additional nurses the next five years alone.
Nursing programs are very expensive to operate and given the financial pressures faced in many universities they will be unable to invest the dollars it will take to scale the programs themselves.
Number two GCE has the capital to invest in the continued build out to eventually 80 locations.
Number three.
In addition to the runway of locations up from current 31 locations our enrollment budget for this coming year is only 50% of the actual spots that should be available currently.
The 50% shortfall is due to the lack of efficient and highly supportive prerequisite course environments regulatory issues, creating slowdowns in opening planned locations and the lack of clinical placements due to COVID-19 issues.
<unk> is working hard and investing in new enrollment stimulation virtual reality and pre requisite strategies to be too in the future feel a higher percentage of the current spots that are available.
This is a transitional year coming out of Covid for the health care partnerships. However, there is a 10 year runway that is very promising that creates a winning scenario for students that want into a promising career.
Health care providers desperately needy professional nurses and universities, who want a risk free way to help solve the nursing shortage, while at the same time, creating additional revenue streams.
As all of this is taking place we will also be adding health care and non health care programs to some of the existing locations.
Pillar three working adult online students.
When Covid first hit there wasn't an initial surge of working adult students returning to college as online students or re entering if they were temporarily out GCU benefit online benefited from that search as.
As the pandemic progressed, some potential students began questing the ultimate value in investing in higher education.
Also talk of REIT community College, and State University education by the New administration.
In addition, many adult students that pursued high volume programs like the RN to BSN program. We're busy at work taking care of Covid patients are uncertain about the future and putting off starting school.
2021 definitely saw it turned downturn and working adults attended university's online and we experienced that as well.
However, as this market has become increasingly crowded the last five years. We ended invested in <unk> strategies that are well timed for this Pope post COVID-19 period.
The supply and demand for educated labor has flipped.
We are working on a daily basis with over 8000 partners in K 12 education healthcare financial services, Social service agencies technology, and engineering companies military basis et cetera, developing strategies that will help them grow their talent from inside.
We are also building out state specific programs in certain licensure areas and creating pre test prep options that can help employees gain licensure and progress up in their organizations.
This is all very innovative and hard work that most universities and Oems are not capable of providing.
This requires investment during 2022, but will set us up to get back to positive growth towards the end of the year and then sustain it for years to come.
Both COVID-19 and other market forces put some strain on 2021 results. Following 14 years of incredibly consistent upward performance.
That said, we still outperformed both the higher Ed and OPM sectors at large in the <unk>.
<unk> Cobot era, we are set up for another impressive run because in all three pillars. We are tied very tightly to where the economy is going where the huge talent deficits are and can provide relative relevant efficient and cost effective path for students across the adult lifespan to get there.
With that I would like to turn it over to Dan <unk>, our CFO to give a little more color on 2021 fourth quarter talk about changes in the income statement balance sheet and other items as well as provide 2022 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.
<unk> ended December 31, 2021 and 2012.
The non-GAAP amounts exclude the tax affected amount of the amortization of intangible assets of $2 1 million in both the fourth quarters of 2021 and 2020, the reversal of the credit loss reserve of $5 million in the fourth quarter of 2021, and the write off of deferred loan costs of $1 1 million in the fourth quarter of 2021.
As a result of the credit facility payout as you recall, all but $2 5 million of the reversal of the credit Reserve was included in our fourth quarter guidance as at that time, only 50% of the secured note had been repaid.
We believe the non-GAAP financial information allows investors to develop a more meaningful understanding of the company's performance over time.
As adjusted non-GAAP diluted income per share for the three months ended December 31, 2021, and 2020 is $2 11, and $1 89, respectively.
Service revenue was generally in line with our expectations in the fourth quarter of 2021.
As expected the GCU online enrollment growth rate slowed in the quarter due to the items we have discussed previously.
Also measure traditional enrollments in hybrid enrollments were in line or exceeded our expectations.
Revenue per student continues to grow on a year over year basis, primarily due to increased room board and other ancillary revenues from traditional students as compared to the prior year and the growth in the enrollment for hybrid students.
Service revenue per student for hybrid students generates a significantly higher revenue per student than we earn on the other students as these agreements generally provide us with a higher revenue share percentage the partners have higher tuition rates than GCU and the majority of their students take more credits on average per semester as they are an accelerator program.
Included in both our 8-K and 10-Q filed today is a detailed explanation of the actual and anticipated impact of COVID-19 on all our University partners.
Our effective tax rate for the fourth quarter of 2021 was 21, 8% compared to 22, 1% in the fourth quarter of 2020, and our guidance of 21, 2%.
Our fourth quarter rate was slightly higher than we expected due to the impact of the continued growth in revenues outside the state of Arizona as a result of the growth in hybrid students.
GCU repaid $500 million of the secured note on October 29, 2021, and the remaining balance of the secured note of $469 9 million was repaid on December nine 2021. This is eliminated the interest income earned by US other than a small amount earned on our excess cash balances.
As a result of this repayment of $5 million loss reserve was reversed in the fourth quarter.
I was also the refinancing our credit agreement, which consists of a term loan facility and our revolving credit facility was terminated in the remaining term loan balance of $83 7 million along with the 30 million that was out saying our line of credit credit was repaid in early November we wrote off $1 1 million of deferred financing costs at the time the credit agreement was cancelled.
We repurchased 5.326 million 447 shares of our common stock in the fourth quarter of 2021 at a cost of approximately 44, $443 7 million and another $2 million 685744 shares at a cost of $225 5 million subsequent to December .
31, 2021, we have $369 9 million remaining available as of today.
In January 2022, the board of directors increased the authorization under our stock repurchase program by $175 million, reflecting an aggregate authorization for share repurchases since the initiation of our program of $1 6 billion.
Once again committed to using a substantial portion of our projected net cash flows to purchase stock.
We estimate that we will use the rest of the proceeds from the repayment of the secured note by mid to late March and the remaining $175 million will be purchased over the rest of 2022.
Turning to the balance sheet cash flows total unrestricted cash and short term investments at December 31, 2021 were 600 $600 9 million.
<unk> capex in the fourth quarter of 2021, including Capex for new off campus classroom and laboratory sites was approximately $7 5 million or 3% of net revenue, bringing the total for 2021% to $28 9 million. This was less than the $30 million to $35 million that we had predicted primarily due to delays in spend on new sites.
We hope to open in 2022, we anticipate Capex for 2022 will be between 30% and $35 million.
Next I'd like to provide color on the guidance. We have provided for 2022. The guidance that 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.
Consistent with the prior year, we have provided ranges for revenue operating margin and earnings per share for each of the four quarters of 2022, we do this because our financial results our season.
High end of our revenue range assumes the following GCU ground enrollment will grow to 21304 in the spring $65 60 in the summer and 25 $5 51 in the fall. This includes gcu's hybrid students the ground enrollment growth rate continues to be pressured by a significant decline year over year in professional study students working adults.
To take courses on ground, primarily hcc's traditional campus as we did not have entry points for these students for over 18 months due to COVID-19 .
Residential students are projected to grow to 14500 in the spring and 16700 in the fall. We are hopeful that new online enrollments will be down only slightly year over year in the first quarter compared to a very tough comp at the high end of our guidance assumes we will return to new enrollment growth in the second quarter of <unk>.
2022, thus.
Thus, we are hopeful total online enrollment, which began the year down five 5%, we will return to positive year over year growth in the second half of 2022.
High end of our guidance assumes that the accelerated bachelors of nursing revenue at off campus classroom and laboratory sites will grow in the mid teens year over year, while occupational therapy enrollment will stabilize in the second half of 2022, such that it will be roughly flat year over year by the end of the year.
Revenue and enrollment in 2022 will be slightly impacted by the planned closing of two sides of the two sites in Florida. This was a joint decision with Utica College to allow them to focus their resources closer to their home location in New York.
Pending regulatory approvals, we will be opening a new location with them in the Albany market and we will consider other partnership opportunities in Florida.
The low end of the revenue range is generally the same enrollment assumptions for traditional campus enrollments, but assumes lower online enrollments at the recruitment challenges caused by Covid closures remain and if we are required to lower hybrid enrollment further due to clinical capacity issues at both new and existing sites as a result of the nursing shortages.
On the expense side as Brian discussed, we are making significant investments in 2022 for expected future growth and that along with year over year changes in the timing of spend will have a negative impact on margins, we have restarted hiring in which head count has mostly been flat since March 2020 for expected future growth, which.
Will drive increased compensation costs, and technology and academic services and counseling services and support costs. We are also budgeting for a significant year over year increase in travel and employee benefits as those amounts were significantly lower than pre COVID-19 levels in the prior year. We are also budgeting for increased clinical costs at our site locations.
Due to the nursing shortage and a year over year difference in the timing of new site openings all new sites. In 2021 were opened in the first half of the year, whereas nearly all new sites opened in 2022 will be in the second half we will have a negative impact on both revenue and expense.
We do not plan to have any material interest income or expense.
We believe the effective tax rate for the fourth quarters of 2022 will be 25, 3% 24, 8% 24, 8% and 24, 4%.
The effective tax rate will be higher in 2022, then in 2021, because rather than having a significant excess tax benefit deduction in the fourth quarter like we have historically given the current price of the stock.
And thus what the restricted stock granted in previous years will most likely best that we will incur expense in the first quarter 'twenty two on.
On the investing not a deduction in.
In addition, as revenues continue to grow at the Offsite locations outside of Arizona, our tax rate increases.
These estimates also do not assume a contribution live state income taxes, but if one has made that will increase G&A expense in the first quarter and decreased the effective tax rate in the second half of the year at our effective tax rate our guidance at 21, 8%, which is where consensus estimates for our effective tax rate is it would have increased our guidance by 24.
As I mentioned earlier, our weighted average shares guidance assumes that we complete buying back the roughly $1 2 billion in stock previously committed by mid to late March and that we repurchased $175 million authorized by our board evenly over the rest of the year.
Last on behalf of the board I'd like to address their thinking about our current stock buyback program the.
The primary reason the board is being so aggressive in its stock buyback activity is that it believes the stock is considerably undervalued.
A couple of the key metrics that the board looks too to make this determination is the ratio of enterprise value to adjusted EBITDA and the free cash flow yield rather than multiples of other education companies as although we can be viewed as being in the same sector. There are few if any appropriate comps.
On an enterprise value to adjusted EBITDA basis. The stock is currently trading at roughly eight which is approximately half of the recent S&P average.
Free cash flow yield for the S&P 500 rose from one 2% in the third quarter of 2020 to one 9% in the fourth quarter of 2021, whereas the company's free cash flow yield is approximately 9%.
Another reason the board is moving forward aggressively with the buyback program is because this management team has a 30 year 30, plus year track record of being ahead of the curve and the education industry innovating in an environment of constant change and consistently delivering for our University partners and their students, resulting in strong outcomes for all stakeholders.
The board is confident that this team will continue to tackle the short term challenges to our business that has been caused by COVID-19 .
In the 19 nineties. This management team successfully pioneered high quality education online and they have continued to strengthen the quality and quantity of programs that it's University partners offer in 2008, the steam had the vision to invest heavily in a struggling traditional campus in west Phoenix that is believed.
I didn't believe could serve all those seeking an affordable Christian education and today <unk> University is a thriving institution that impressed us all of this stuff put on its campus. We are proud of what <unk> has become our happy it could return to its roots as a financially viable nonprofit universities.
Prior to the onset of Covid, we had a track record of over 40 consecutive quarters of exceeding expectations.
Unfortunately, COVID-19 has impacted our business for longer than a ways, we did not accurately forecast and thus we understand that there is some uncertainty about near term results. However, the difference between the top and bottom of our range is fairly small the company will continue to grow revenues and remains highly profitable and we are confident in the long term strategy that Brian has laid out.
<unk> plans to achieve those goals, including the investments so that will be made to reaccelerate. Our growth. So the board is committed to continuing to use a substantial portion of our annual free cash flow to buy back stock as long as it believes the stock is undervalued.
I'll now turn the call over to the moderator so that we can answer questions.
Ladies and.
Gentlemen, we would like to ask a question at this time you will need to press. The Star then the one key on your Touchtone telephone.
To withdraw your question you May press the pound key.
Please standby, while we compile the Q&A roster.
I'm showing we have a question coming from the line of Jeff Mueller with Baird. Your line is open.
Yes. Thanks apologize if you gave it but I didn't catch it what was the online new enrollment growth in Q4, and can you talk through digital versus partner channel trends and assuming that the Q1 outlook I guess at the high end for only down slightly reflects improvement from that just what are you see.
King.
If that is improvement too.
Those comments thanks.
Yes.
Fourth quarter was just a little bit worse than third quarter.
In terms of new enrollments.
But January .
It looks good.
As we anticipated.
We anticipate that we will be down it gives us.
A tough comp but.
Far less.
Then we have been in the third and fourth quarters.
And we also expect that to be true for the entire first quarter.
From a digital perspective.
We are doing well, we are not seeing an increase in <unk>.
Lead costs.
As you compare what we do to other players in the industry. We just have so many academic programs and we're able to that are delivered online and we're able to.
Move.
Money around depending upon where we can get the most efficient leads.
And in order to get new enrollment growth, we haven't had to add cigna.
Significantly to our online spend because we've transitioned more to.
Working with the 8000 partner institutions.
Right now we're trending in January for our outside people to be delivering a little over 70%.
What they did at their historical highs before COVID-19 .
Which is a extremely positive trend from our perspective.
The company is not a country is not completely reopened although it is reopening.
Faster than it had been and so that 70% number is a good number for us extremely encouraging.
It was below 50% during the worst parts of Covid and so it's our digital our digital online lead.
Sure.
System is doing well, we're not seeing the increase in cost per lead that others are because of our abilities to spread our spend across such a large array of programs.
And we're very happy with what's going on on the outside.
And it's particularly encouraging because we're so well received.
Everybody is having a significant talent shortage. This thing has really flipped.
Hi.
And hospitals can't get professionals school districts can't get teachers.
Military basis can't get cyber security experts because they can't compete.
Social service agencies can't get social workers.
And our abilities to take people that are operating at a lower level in all of those organizations get them in cohort groups and get them moving towards licensure.
Is going to be.
As Andy is going to continue to be a very successful <unk> strategy, that's differentiated us and it's very difficult to replicate because of the investment that you have to make in the people.
But that investment in people long haul.
Extremely significant from a profitability perspective, because you don't have to buy and lease.
And they are creating things that are very very well received by <unk>.
Businesses are in this current environment, where there is huge lack of talent.
Jeff the only thing I would.
Add on the fourth quarter, new enrollment is that.
October November December is not a typical.
Go back to school time, and so the numbers are little bit misleading, we had a really really really because of COVID-19 , a really strong fourth quarter of 2020.
So.
It's not really a great indication.
How things are trending.
First quarter, our thoughts on the first quarter of 'twenty one.
Much better example of how new enrollments are trending from an online perspective.
Got it and then on the expense base.
Hopefully you get the gist of the question, but is there a way to kind of breakout.
How much new initiatives spending there is because it sounds like there is also just some.
Need to resume hiring some normalization of TNT, but then there were some comments about.
Like what sounds like a step function in initiative spend and some of that sounds like it's in the partner channel just if if I'm characterizing that correctly, but if you can help me understand like how much is normalization how much of this is like net new initiatives spend against it.
Yeah.
I would probably stay about.
Half is.
Initiatives spend in half is getting caught up in the last few years I don't know if that's exactly how youre thinking about it but when I look at and obviously the increased spend gave.
Gave a lot of heartburn to all of us.
But when you look at it by the actual categories.
It's a.
A lot of things like benefit expenses being up significantly. It's just the trend that started in the tail half of 'twenty. One is continued through January and we expect to continue travel.
We basically cut off travel as you know for a long long time, it's starting to come back in the second half.
'twenty one but.
So a big piece of the travel is just the continuation of that but another big pieces the initiatives, Brian talked about which are new and so there's kind of a mixed bag and all of this as I mentioned before we haven't really added heads.
Across the company.
Since March of 2020.
It's time to get caught up to where we should have been had COVID-19 never happened and so.
So, it's probably about half and half.
I would just add Jeff this might be a good time to say.
We are you probably noticed that we have for a long time been talking about 40000 students on our campus.
Today, I said 50000.
Number one we're underestimating.
We're capable of.
Given the other trends in higher education with students who come here for three or four years, but we also are working on a fourth platform.
I don't want to say much about that platform right now, but it's a response that we were making to a whole bunch of companies who have come to us and said that they have got significant.
Talent needs in certain areas.
And people just arent scaling to meet those needs and would we consider doing it so.
You'll hear more about that fourth platform.
Over the course of the rest of the year.
Got it look forward to that and then just the last one for me you gave us a metric that I just didn't understand it.
I want to make sure.
That investment.
The investment community is because I think you think is important the 50%.
Spot.
In terms of like the enrollment budgeted orbitz programs just.
What exactly was that metric.
Well, if you think about what our new enrollment goal for.
The University health care partnerships.
It's around 4000 for this upcoming year.
If every single one of the locations that we were planning had been built out fully.
And if.
The.
If there were no issues with regards to clinical placements.
We could actually have put in almost 8000.
Students.
And the third thing.
That is a little bit of a wrench in that whole thing is there really is not an efficient operator from a prerequisite perspective.
There are some people out there that are.
Partners <unk>.
That.
There are students who are trying to qualify to get into the program too, but none of them come close to offering.
The quality of online instruction the level of support left.
Our level of faculty that are really necessary.
To get students successfully through.
The difficult courses that are in that Prereq.
Situations.
Scientists biology chemistry anatomy physiology.
All of those things and.
We intend to be a major player because I don't think theres anybody better and the world at doing that than we are.
And so.
If we make those improvements as we open up.
New locations.
The.
We will be concentrating on two things one hitting the optimum number in our current.
<unk>.
In our current number of locations and then opening up new locations and so we've got opportunity. The good news is that we've got considerable opportunity for growth in both those areas.
And given the revenue per student of those students.
And given the retention rate of those students once they are in the nursing program and the first time pass rates on the M Flex exams that.
And extremely exciting thing to consider.
Both because of the needs that this country has and also because of the return that's going to provide for GCE, it's going to be considerable.
Yes.
Okay. Thank you.
Yes.
Our next question coming from the line of Jeff Silber with BMO capital. Your line is open.
Hi, Good afternoon. This is Ryan Griffin on for Jeff.
Just was wondering with the majority of students.
Campus during the quarter.
To what extent are the incremental revenues from room and board factored into the updated guidance. Thank you.
It's factored in.
It's factored in.
We are very excited about how things are progressing on the campus and how.
The.
Those type of.
Room and board primarily is.
Coming out it at at the University. There are some revenues that the university historically have that they don't currently have and currently don't have plans.
Two.
To have those revenues in the future for various university related reasons. So there has been some revenue loss.
But the vast vast majority of the revenue.
Is back and is included in the guidance.
I'm glad you brought that up because the.
The.
Trends nationally with less high school students graduate, graduating and less as a percent Arizona is one of those states that is going to college.
It's because people are.
Really really.
Questioning the value of a considerable investment in higher education with so many jobs out there.
But when you have a chance to come onto our campus like this.
Graduate high end progress with very little debt.
Many students because of dual credit and our partnerships graduated in three years.
And then the exciting employment opportunities, we just met with.
A major Taiwanese chip factory Thats building, a huge factory in north Phoenix Theyre going to need 10000 people, we are hiring our electrical engineers like crazy.
It's just there is all up for all of the reasons people are questioning.
Investing in higher Ed as an 18 year old students.
We present, an alternative that is very inviting.
And so when we say 10000, new students in 'twenty 2022, but we're really.
Trying to set ourselves up for a much higher number than that in 2023. The momentum is just so strong.
For what we have here.
That.
It's going to be a big part of the story and it's becoming a big part of the.
Economic story.
Arizona, because the first thing.
Companies want to know is what is the talent pipeline, that's coming out of universities and our growth is creating a lot of excitement for the companies that want to move here.
I want to correct one thing just going through my.
My notes about a third to jeffs question about a third of the expenses are our kind of historical catch up in about two thirds of our new initiatives. So I would say 50, 50, thats not quite correct I apologize.
Okay.
Got it and then as my follow up I was just wondering are there any incremental one time costs or expenses built into the 2022 outlook.
No I don't know I don't think Theres any what I would say onetime costs as we talked about just talked about I would say there is some some catch up costs from historical <unk>.
Respective which is about a third of the increase the rest is.
I don't know if I would call onetime costs, but the costs associated with opening new offsite locations.
As you all know that that costs about $2 million.
In Opex spend in the year that it opens and we incurred a lot of expense related to the 2021 openings in 2020.
But there was very little in 2021.
Because most of the locations are going to be opening in September there was a little bit in 'twenty, one, but not nearly what you would expect and so.
There is not a good apples and apples to apples comparison from that perspective.
And then head count increases et cetera, So I don't think theres any one time.
Costs.
Got it thank you.
Our next question coming from the line of Delek Matthews with Brian Burke Your line is open.
Hey, guys. Thanks for taking my question.
Obviously, the folks a little bit more on Orbis, what are you expecting within nursing enrollments in 2022 and I recall in the prior call you had some delays of openings in key locations are there any updates on maybe when those locations can be opened.
So we think that Orbis will have enrollments and again. This includes all are not orbis, but offsite campus locations.
Classroom and laboratory locations, we'll have around 5000 students.
By the end of the fourth quarter.
Again.
You've got.
ABS and growing at a very nice clip and you've got occupational therapy, which this year was down.
40, some percent from the previous year.
We're hoping that will level off.
By the end.
2022 so.
So you should have that in terms of new locations.
We're still working through the regulatory side.
Side of things in California.
Both in the Northern California, Southern California, and Seattle, and New York City.
We're hopeful.
That that will get.
The approval to start working towards opening those locations.
We're hopeful that those locations will open in 2023.
They are not in the 2022 guidance.
Gotcha Thats helpful.
One more from me on the cost increases I know theres some questions, but I just wanted to understand what type of hiring are you planning to do in 2023 will that be lower margin year relative to 2022 based on the comments you guys have provided so far.
I think 2023 will be a more normal year from a margin standpoint, I mean, obviously, we're looking way out in advance here, but.
I think the investments that we're making in 2022, we expect to be.
Getting the benefits from a revenue standpoint in 2023.
Will margins as a whole increased I think that will be very dependent on the timing of new offsite campus locations openings.
And the growth of that business is.
As a comparison to the business as a whole I think the but it shouldnt be another.
Another stair step like what Youre seeing this year like we've talked about this year's expenses are partially impacted by lower expenses from the last.
Almost two years.
US feeling comfortable enough to begin the hiring began the traveling all that to reaccelerate growth.
And then some of these investments that we think will really start paying off in 2023 anything to add Brian Yes. Another way to think about that is that we're if you look at the industry.
Whats really hurting people is the cost to acquire a student everybody is talking about increased lead.
Cost.
And they're basically trying to get more out of what is a very crowded environment that has been.
The metrics have been deteriorating for years.
And I think it's been exacerbated by Covid.
What we're doing.
Been planning for this for four five years now.
And we are responding.
To employers that need to grow their talent from within that requires us to increase the hiring of those outside people to do that really important work.
And so we got to we have to hire them, we have to pay for their travel expenses.
And we are continuing to spend on the digital side, but as they get up and running and we already have evidence that this was coming back in a really strong way.
As they get up and running the cost to acquire a student from their perspective has historically been way less.
And the quality of the students.
Much.
They recruit a lot higher percentage of graduate students.
And so we think that the investments we're making there.
While we are continuing with our digital strategy.
Over the course of this year will set us up to be in a very strong place in 2023, and if you look at us historically before COVID-19 .
Our margin expansion continued month or quarter after quarter, we got margin expansion from lowering the cost to acquire a student.
And I think if you're not if you're sub.
In this industry that can't do that if you can't through programmatic expansion.
Through partnerships through specialized strategies, if you can't lower your cost to acquire a student is going to be very difficult to last in this place. So thats why I think we're in a very strong spot because I think we can do that but it's going to take a little bit of investment in 2022 for us was set that up.
One other comment I want to make real quick about orbis.
Sorry off campus location students.
<unk> students.
The anomaly of not having any starts in the fourth quarter, but having graduations.
Third the enrolment number tops out and I want to make sure everyone understands is at the end of the third quarter. We ended the third quarter, we're projecting to be just under 6000.
Students.
<unk>.
When we talk about that 5000 that might seem low, but it's the anomaly no no starts in the fourth quarter, but.
But graduations.
Operator, I think we're if we have one more question.
Our next question coming from the line of Alex Paris with Barrington Research. Your line is open.
Hey, guys I just have a quick kind of wrap up question.
Very thorough call as usual.
Just with the post licensure nursing.
In the news a lot here lately with some of the other publicly traded players pressures on enrollment due to working nurses not having the time to continue their education RN to BSN programs and so on what percentage of your interesting as soon as at GCU or <unk>.
<unk> partner programs.
Our.
Post licensure.
So if you look at online students roughly 30% of the students are in nursing or other health care programs with the <unk>.
Vas majority of them being in which Youre talking about the post <unk>.
License your programs RN to BSN Masters, and nursing et cetera.
I gotcha, Okay, so RN to BSN as well as to the graduate programs like <unk> recently seen I would say that wrong RN to BSN and masters in nursing, but also we have a doctor at the University as a doctor and nurse practitioner as well.
Which I think we would fall into that category you are referring to.
And then are the.
Hybrid programs.
Fortunately those are all pre licensure.
They are all pre licensure or otas.
And this year there'll be some medical lab sciences students.
So yes, no post.
Licensure.
Okay, Great. That's good for me thank you.
We have reached the end of our fourth quarter Conference call. We appreciate your time and interest in Grand Canyon Education. If you still have questions. Please contact myself Dan Bachus. Thank you for your time.
Yes.
Ladies and gentlemen that does the teleconference for today. Thank you for your participation you may now disconnect.
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