Q4 2022 Grand Canyon Education Inc Earnings Call
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
[music].
Hello, and thank you for standing by welcome to Grand Canyon Education, Inc. Fourth quarter 2022 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 star one one on your telephone you would then your automated message advising your hand is raised to withdraw your question. Please press star one again.
Be advised that today's conference is being recorded.
I would now like to hand, the conference over to CFO , Dan Beck. This Sir you may begin.
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 various factors could cause our actual results to be materially different from any future results expressed or implied by such statements. These.
These factors are discussed in our SEC filings, including our annual report on form <unk> 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 forward looking statements made during this call and we recommend that all investors review. These reports thoroughly before taking a financial position in D C.
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 2022 conference call GCE had a very good quarter exceeding enrollment expectations exceeding revenue guidance at midpoint by $2 $7 million and producing an 11 b.
Diluted earnings per share to consensus given how most of higher education is coming out of the Covid years. These are excellent results. Most importantly, GCU online new enrollment growth for the second consecutive quarter in the mid teens over fourth quarter prior year and that momentum is expected to continue into the first quarter of 2020.
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I wanted to begin by again by taking a step back and explaining why this is happening in Brazil briefly review what has happened since the GCE GCU transaction took place four and a half years ago.
I have said often in the past small and ALLETE has won the day in higher education, especially in areas like U S News and World report rankings in the future. It will be institutions, who are large scalable and flexible in how they offer higher education, we expect to impact young people and adults across the lifespan using technology to.
Build platforms that take into account the life situations of the students and the nature of the content and skills that need to be learned.
GCE has invested approximately $300 million producing its own learning management and administrative system that allows it and its partners to manage over 7000, fulltime and adjunct faculty 113000 students and over 315 academic programs emphases in certificates across all delivery platforms.
This system is automated processes included admissions transcript collection and evaluation schedule building financial aid processing factory recruitment badly assignment in payroll content acquisition assessing learning outcomes student teacher placement counseling and social work internships and the list goes on administrative.
Administrative capability of the system allows faculty and students to focus on the learning which is still in a small group instructor led process. It is highly inter personal collaborative focused on writing critical thinking and problem solving and produces outstanding outcomes.
He currently employs approximately 4000 full time professionals and approximately 1500 student workers as it continues to build out its capabilities to grow faculty students programs and delivery platforms Forest University partners.
Leveraging this infrastructure has allowed gce's partners to expand programs that are critical to the economy maintained tuition levels in a period of rapid tuition increases across the country and make access to higher education affordable to all socioeconomic classes of Americans without any burden on the taxpayer.
In a four and a half years since GCE has become a service provider has helped US partners accomplish the following in that time Gce's helped Grand Canyon University graduate 125654 students 34709 in education, including 16287 first time teachers at a time when teachers.
Shortages have created a national crisis.
<unk> 6292 in nursing and health care professionals, including 1767 pre licensure nurses at a time when there was a huge shortage of nurses.
28836 in the college of Humanities, and social sciences, including thousands and counseling and social work, where there are also huge shortages.
The college of business has become one of the largest business schools in America and has produced 21370 graduates.
Our college of Science Engineering, and technology has grown by 200% and provided 4000 and 401 graduates.
Doctoral College honors College and college of Theology also continue to grow the numbers that I have just cited have all happened in the last four and a half years since GCU has become a nonprofit institution and GCE has become an education service provider.
Our partnership with GCU has given us the ability to invest 544 million additional dollars in academic and residential life infrastructure for its ground traditional campus, bringing the total investment to almost $2 billion. Currently the campuses ranked 17th in the country by niche Dot com.
Importantly, GCE has assisted GCU and opening of 144, new academic programs emphasis in certificates during the last four and a half years.
13, 7% of the new students enrolled in the fourth quarter enrolled in those new programs.
During this time GCU has not raised tuition on its ground traditional campus with only nominal increases in certain programs online.
As a result, GCU students take out less debt than the average state University student GCU students take out only 50% in parent loan amounts compared to students at our three state universities.
<unk> students have a 1.5% cohort default rate on student loans compared to the most recently released national average of two 3% and has a 90 10 calculation of 66, 2% for Gcu's audited financials.
In addition, GCU has accumulated over $400 million in cash and investment reserves, while going through with annual salary increases every year for all faculty and staff.
Compared to the declining enrollments and negative financial trends and higher read across the country that accelerated during Covid. This model has produced significant results for GCU the state of Arizona in the country.
I'm also pleased to announce that Grand Canyon University was ranked as the number three best employer in Arizona, and a 2022 Forbes America's best employers by State report.
During this time period GCE has established 26 additional university partnerships. These partnerships along with our partnership with GCU have created 35 locations to produce health care professionals, especially baccalaureate prepared nurses.
This is extremely important work since the country is expected to need one 3 million additional nurses in the next five years alone.
The number of existing and new partners will eventually need to 80 locations across the country.
Since January 2019, 9182 students have graduated from our University partners, a b S. N R O ta programs.
I want to include this brief summary, because there is currently a lot of discussion about the future of higher education.
Heartless, a political or ideological positions good discussions should focus on where the economy is going and where the new jobs and careers are going to be models.
Models that can scale and offer opportunities for access to all socioeconomic classes of Americans at no expense to the taxpayer should be supported.
Critics point to the revenue share model is bad for universities.
Last two years have proven them wrong and we expect in the next year this will become even more apparent.
Jerry periods like the one we are currently experiencing or when demand declines as it has G. C. E. S. S. At the service provider absorbed the majority of the financial risk and our expertise technology and processes have allowed our university partners to continue to benefit during these challenging times.
Now I want to review the four pillars of our delivery platforms of Grand Canyon Education first Gcu's traditional campus saw an increase of eight 9% in new students in the fall of 2022 over prior year, an increase of 8% in total ground traditional enrollment and an increase of 10, 5% in residential enrollment.
Approximately 69, 9% of ground traditional students live on campus.
Average incoming gpas of the 2022 23 class rose to 3.6 and the prestigious honors College has grown eight 3% year over year with average incoming gpas of 4.1.
The retention of returning students. This fall was better than expected with a larger percentage of those students choosing to remain on campus, resulting in the university, having to turn away at least 200, new students due to lack of beds.
This in spite of the fact that the University built two new residence halls, and repurposed a residence hall that was used to house prospective students. So in essence added three residence halls.
These are remarkable results given the fact that undergraduate enrollment declined by four 2% nationally between the fall of 2020 in fall of 2022.
During this same period gcu's ground traditional enrollment increased by 18, 3%.
In the spring semester that recently started in January GCU started 670, new students, bringing the total ground enrollment to approximately 22500 above what was budgeted.
We expect fall new enrollments to be between 10011 thousand.
The quality and relevancy of Gcu's.
Academic programs, the low class sizes in support of its factory that has less than a 5% turnover rate the quality of counseling services. The 20 advisory boards with over 500 companies represented who are creating internships and employment opportunities for GCU students in a very affordable tuition, which hasn't been raised in 15 years.
Our all important contributing factors.
I also want to mention unlike the national trend over 2600 of the 9300, all 2022, new students this year, where first Gen College students.
The average incoming gpas of these first Gen. Students is 3.55 are almost identical to the incoming class overall east.
These students are largely from the lower socioeconomic strata, but their enrollment at the university because of the very affordable tuition rate is going directly against the national trend and it's a very positive part of the GCU Slash Gce's story.
As I said before in the fall of 2023, we are anticipating between 10000 10000 11000, new students.
We are under construction on two new residence halls that will increase the number of beds on campus by 1500.
The number of new students will ultimately depend on the retention of continuing students and their desire to remain on campus and the very competitive environment. Given the trends. We have discussed previously less high school graduates less graduate is going directly to college.
Pillar two working adult students attending GCU online as with traditional students attending universities across the country 2021 saw a downturn in working adult students attending online.
Unlike with the traditional students attending Gcu's campus, we experienced a downturn in online as well.
<unk> has worked with GCU on two main strategies to combat the downturn and we are now seeing positive growth again.
Number one we have invested in <unk> strategies that are well timed this post COVID-19 period.
The supply and demand at least in the short run for educated Labour has flipped since the country has reopened we are working with over 25700 industry partners in K 12 Education Health care financial services, Social service agencies technology, and engineering companies military bases et cetera.
Eloping custom strategic initiatives that are helping organizations grow their talent from inside.
The number of new students that started through these strategies grew 27% over the prior year in the fourth quarter.
Number two GCE continues to work with GCU to roll out new and relevant programs since the transition in four and a half years ago. GCU has rolled out 144, new programs emphases in certificates 13, 7% of new students enrolled in these programs in this latest quarter.
This has resulted in fourth quarter, new online enrollments growing in the mid teens over the prior year and we are currently projecting new enrollment growth in the first quarter of 2023 to be similar high single digit to low teens.
Based on these trends, we will return to total online growth this quarter, which is quicker than we thought.
It is important to note that this return to positive growth has been accomplished with no loss of strength and the quality of Gcu's online student body and as a result, no degradation of the quality metrics, including good graduation rates low cohort default rates and content and continued low student debt levels.
We anticipate new enrollment growth to again be in the high single digits low teens in the second quarter.
And then it will begin to return to our long term objective of mid single digit growth in the back half of the year as the comps get much tougher.
This should allow us to grow total enrollment on a year over year basis in the low to mid single digits by the end of the year.
Next I would like to discuss Gce's third pillar as health care partnerships.
Short term Covid had a negative impact hospitals were extremely busy and preoccupied with COVID-19 patients and many clinical placement opportunities were canceled.
Despite these very significant challenge as many instructional assignments, we cry in one on one clinical interaction in the hospital or replaced by simulations.
Some of our University partners requested that we reduced the cohort sizes due to concerns about the lack of clinical capacity and some of the new sites that we hope to open, especially in large markets have been pushed back to the fall 23 of 2024.
Although positive signs are emerging on this front the tight labor market. It has has had a significant impact on the type of students interested in recurring into nursing.
When we acquired Orbis education in 2019, there partnerships, we're predominantly focused on post baccalaureate students those that had already completed a bachelor's program.
And having it completed bachelors degree was a requirement to start in the a b a friend program.
Students that did not have a bachelors degree were turned away.
Today, the majority of the students interested in recurring into nursing have not completed a bachelor's degree.
Thus, we have been working with our partners and their state nursing boards to adjust these programs to allow students with 60 plus college credits to gain admittance into the a b S N program.
In addition, as I will discuss in more detail below in partnership with GCU, we have created a much less expensive and more efficient way for these students or students that do that do have a bachelors degree, but don't have the science prerequisites to complete the course work necessary to start in the a b S N program.
These challenges these challenges have in the short run caused some of our mature locations that we're at capacity to shrink in some of our newer locations to not grow as fast as we would have expected while other mature locations remain at or near capacity and some newer locations are meeting our new enrollment expectations.
We are hopeful that these strategies will reaccelerate growth beginning in the fall of 2023.
As we work through this we will be much more selective in our new locations that we opened we plan to open a new site with a new partner in southern California, and to new sites with GCU and the Phoenix area in the fall of 2023.
We also plan to open a couple of smaller sites with new partners that were committed to previously.
I am very pleased to announce that G. C. You locations grew 19% year over year from 269 students to 320 and their first 71 graduate passed the M. Flex examination with a 100% first time pass rate.
This is extremely important because <unk> you would ultimately like 60 40 of our 80 sites to be GCU locations.
This relationship is good financially for GCU, but it is also good for GCE, given gcu's national footprint and brand recognition the excellence of its nursing program and its proven ability to scale.
As with Gcu's traditional campus the long term environment is very.
Positive for these GCE health care partnerships for the following reasons number one the country needs one 3 million additional nurses in the next five years alone nursing programs are very expensive to operate and given the financial pressures facing many universities they will be unable to invest the dollars. It will take the scale of the programs.
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 80 locations up from 35 locations currently our enrollment budget for this coming year, it's only 50% of the actual spots that exists today.
50% shortfall is partly due to the lack of efficient and highly supportive prerequisite course environments.
Regulatory issues, creating slowdowns in opening that plant locations and a lack of clinical placements due to COVID-19 issues.
However, there are now over 800 students in Gcu's accelerated online science courses preparing their earn spots in one of our 35 locations.
We expect that number to grow and be a leading indicator of our ability to reestablish growth in the hybrid campuses.
GCE is working hard and investing in new enrollment simulation virtual reality in prerequisite strategies to in the future feel all the spots that are available.
This was a transitional year for the health care partnerships. However, there is a 10 year run way that is very promising it creates a winning scenario for students that want into a promising career health care providers desperately needing professional nurses and universities, who want a low risk way to help solve the nursing shortage, while at the same time, creating <unk>.
Additional revenue streams.
Last as we discussed on last quarter's call. We continued to work on a new pillar. We are extremely excited because he is desperately needed in higher Ed to date in collaboration with our largest partner GCU. We are developing accelerated certificate programs. Two of the certificate programs are for students, who want an efficient way to get into nursing school.
We believe there's a big opportunity here.
Getting prepared academically to apply to nursing school can be a daunting and confusing process. The first pre nursing Certificate program allows recent high school graduates to stay home and take the first 60 credits of their bachelors degree completely online.
GCU has worked with GCG designed state of the art science courses that prepare students to apply for a spot eventually one of our Gce's 80 locations.
These courses are taught mainly by full time faculty with a tremendous amount of academic support for the students.
The second Certificate program is designed for students who have completely completed a college degree and another academic area or have a partially completed the great. The.
The students taking the students take mainly the science courses necessary to produce to apply for one of our partners in one of our 80 locations.
The first certificate has a synchronous component while the second certificate is being taught completely asynchronous late.
Given that eventually GCE will have approximately 24000, a b S N slots to our partners across 80 locations, we will need more than 24000 students in certificate programs preparing for those opportunities.
As I said earlier over 800 students are taking these pre nursing courses currently.
The certain third certificate program began in September and comes out of Gcu's newly formed Institute of workforce development.
This certificate is preparing students for a professional electricians apprenticeship program.
This is a 16 credit one semester program heavily focused on the mathematical concepts necessary to prepare for a career as an electrician.
This program has been designed with a major industry partner, who will offer apprenticeships to the students successfully completing the program.
This partner needs a thousand electricians for their business in Arizona alone parcel partner also indicates that the country is short a minimum 100000 electricians necessary to complete the building projects currently underway.
This fall 300 students applied for this program and we accepted 40 into the program 39 of the 40 graduated in Irene apprenticeships, making between 50 and $65000 currently.
An additional 200 submitted applications for the spring semester, and we accepted another 40 in the spring once the concept is proven there's a potential to scale. This program in a significant way.
Service revenues revenue was $258 7 million for the fourth quarter of 2022, an increase of 7.3 million or two 9% as compared to the $251 4 million for the fourth quarter of 2021.
The increase year over year in service revenue was primarily due to an increase in GCU used traditional campus enrollments of 8% and increases in revenue per student year over year, partially offset by a decrease in online and we're almost at GCU of one 6% and to a lesser extent students in our University partners Occupational therapy assistance program.
11, 3%.
Operating income for the three months ended December 31, 2022 was $90 $7 million.
A decrease of $11 7 million as compared to the $102 4 million for the same period in 2021.
The operating margin for the three months ended December 31, 2022 was 35, 1% compared to the 47% for the same period in 2021.
The operating margin was negatively impact by the investments that are being made to grow our partners enrollments in the year over year declining online enrollments that.
Net income decreased 16, 5% to 71 million for the fourth quarter of 2022 compared to $85 1 million for the same period in 2021 decline in net income was partially due to a significant reduction in interest income between years due to GCU paying off the secured note in the fourth quarter of 2021.
GAAP diluted income per share for the three months ended December 31, 2022 is $2 30.
As adjusted non-GAAP diluted income per share for the three months ended December 31, 2022 is $2.36 11, 11 cents over consensus consensus estimates.
With that I would like to turn it over to Dan back as our CFO to give a little more color on our 2022 fourth quarter talk about changes in the income statement balance sheet and other items as well as to discuss the updated 2022 guidance. Thanks.
Thanks, Brian included in our form 8-K filed with the SEC. We have included non-GAAP net income and non-GAAP diluted income per share for the three months ended December 31, 2022, and 2021, the non-GAAP amounts exclude the tax affected amount of the amortization of intangible assets of $2 1 million in the fourth quarters of both 2012.
Two in 2021, the tax affected amount of the loss on fixed asset disposals of 0.1 million for the three months ended December 31, 2022, and both the tax affected amount of the reversal of the $5 million credit loss and the tax effect the amount of the write off of the deferred loan costs of $1 1 million upon repayment of the credit facility.
During the fourth quarter of 2021, 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 as Brian just mentioned for the three months ended December 31, 2022, and 2021 is $2 36, and $2 11, respectively.
Services revenue was higher than our expectations in the fourth quarter of 2022 is online enrollments exceeded our projections due to the higher than expected new student starts and due to higher than expected ancillary revenues at G. C.
Hybrid revenues were in line with our expectations. The hybrid enrollment growth rate is being impacted on a year over year basis due to the timing of site openings and 11, 3% year over year decline in OTI enrollments, the closing of sites and a decline year over year and their enrollment at some of the mature sites due to the challenges previously discussed excluding.
Excluding enrollments from closed sites, a b S. N enrollments grew three 6% year over year.
Revenue per student continues to grow on a year over year basis, primarily due to the service revenue impact of the growth in the GCU traditional campus enrollments between years, which has a higher revenue per student due to room board and other ancillary revenues and the higher revenue per student at off campus classroom and laboratory sites.
Service revenue per student for hybrid a BSN 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 and the majority of their students take more credits on average per semester as they are and it accelerated programs.
Our operating margin was higher than our expectations, primarily due to higher than expected revenue.
As I discussed on prior quarters earnings calls, we have been aggressively hiring and which head count had mostly been flat since March of 2020 to meet our partners' expected future growth, which is driving increased compensation cost and technology and academic services and counting services and support costs.
At the end of the third quarter of 2022, we remain below our head count plan, but our head count plan. Today. We also plan for a significant increase year over year in travel and employee benefits as those amounts were significantly lower than pre COVID-19 levels in the prior year. We also plan for increased clinical costs and off campus classroom and laboratory sites due to the nurse.
Insurers. This spending is generally remain in line with our expectations and the year over year difference in the timing of new site openings impacts year over year cost comparisons.
Our effective tax rate for the fourth quarter of 2022 was 22, 8% compared to 21, 8% in the fourth quarter of 2021, and our guidance of 23.0% increase year over year is due to higher state income taxes.
We repurchased 318935 shares of our common stock in the fourth quarter of 2022 at a cost of approximately $28 million and another 154000 zero hundred zero 98 shares since December 31 2022.
We have $178 4 million remaining available as of today under our share repurchase authorization.
Board and the company intends to continue using a significant portion of its free cash flows from operations to repurchase shares but share repurchases in future years will be less than in 2021 and 2022 as we have utilized all of the proceeds from the repayment of a secured note during the past two years.
Turning to the balance sheet and cash flows total unrestricted cash and short term investment vestments on December 31, 2022, or $181 7 million.
<unk> capex in the fourth quarter of 2022, including Capex for New Offsite classroom campus classroom and laboratory sites were up was approximately $8 9 million or three 5% of service revenue with total Capex for 2022 of $35 million, we expect capex for 2023 to be similar to 2022 at between 30.
And $35 million.
Lastly, I'd like to provide color on the updated guidance, we have provided in our 8-K filed today.
As a reminder, the guidance that we've provided in the outlook section of our 8-K filed today is GAAP net income and diluted income per share with components to adjust the GAAP amounts do non-GAAP as adjusted net income and non-GAAP as adjusted diluted income per share and we will continue to provide both GAAP net income and diluted income per share and the <unk>.
non-GAAP amounts with a reconciliation between the two when we report actual results.
Consistent with the prior year, we have provided ranges for revenue operating margin and earnings per share for each of the four quarters of 2023, we do this because our financial results our season.
The revenue range assumes the following.
<unk> ground enrollment will grow to 23200, and the spring 7800 in the summer and be between 26250% and 27750 in the fall the.
The ground number continues to include GCU hybrid and professional study students.
Residential students are projected to grow to 15700 in the spring and between 17000 918900 in the fall.
Timing differences in the start and end at the traditional campus semester is pushing $4 5 million from Q1 2023 to Q2 2023 in comparison to 2022 and $1.3 million from Q4, 2023% of Q3 2001, three in comparison to 2022.
We anticipate that new online enrollments will be up year over year in the high single digits to low teens in the first and second quarters. As a reminder, the comps get much more difficult in the second half as new enrollments were up year over year in the mid teens.
Both the third and fourth quarters of 2022, that's our guidance provides a wide range of potential outcomes in the second half of <unk>.
<unk> low and high single digit growth.
Given that our long term objectives are to grow new enrollments in the mid single digits. The midpoint of this range would meet our long term objective.
Based on this we anticipate that total on rate online enrollment will return to year over year growth in the first quarter of 2023 and will end the year with a low to mid single digit year over year growth rate as.
As Brian discussed earlier hybrid growth will remain below our long term objectives. During the first half of 2023, but we are hopeful that we will see acceleration beginning in the fall semester due to new site openings and the impact of the prerequisite initiative on the number of eligible students that could start in our partners' programs, our guidance assumes flat to slightly down year over year.
Total enrollment in the spring semester flat to low single digit.
<unk> growth in the summer and flat to mid single digit growth in the fall semester.
On the expense side as you'll recall, we made significant investments in 2022 for expected future growth, which given the timing of that spend will have a negative impact on margins in the first half of 2023.
Head count, which had mostly flat since March of 2020 was increased over the course of 2022 with the most significant gains being made in the fourth quarter of 2022 in early 2023.
This will drive year over year increases in compensation costs, and technology and academic services and counseling services and support costs in the first nine months a year, but that growth will slow in the fourth quarter.
We're also continuing to budget for increased clinical sites at Offsite locations.
Clinical costs it offsite locations due to the nursing shortage and new site openings will have a negative impact on expenses, we do anticipate that the hybrid pillar will continue to lose money in 2023, given that a number of mature sites are currently below pre COVID-19 counts to get back to profitability at these sites need to get back to pre COVID-19 enrollment levels and then.
Your sites need to grow out rates were similar to what we experienced pre COVID-19. We are hopeful the initiatives that Brian discussed earlier in the call. We will allow that to happen even if the job market remains tight.
We do not plan to have any material interest income or expense.
We believe the effective tax rate for the fourth quarters of 2023 will be 22, 3% 24, 9% 24, 9% and 24.0%.
The effective tax rate will be higher in 2023, then 2022 because of the impact of state taxes as revenues continue to grow at the site locations outside of Arizona, driving our tax rate increase.
These estimates do not assume a contribution Lu of state income taxes.
If one has made that will increase G&A expense in the third quarter and decreased the effective tax rate in the second half of the year.
Our weighted average shares guidance assumes that we purchased most of the remaining amount authorized by our board evenly over the rest of the year. The board continues to authorized the repurchase of shares as it believes the stock remains undervalued based on the metrics that uses to evaluate including the ratio of enterprise value to adjusted EBITDA and the free cash flow yield rather than multiple.
Those of other education companies as although we could be viewed as being in that same sector. There are few if any appropriate comps on an enterprise value to adjusted EBITDA basis. The stock is currently trading at roughly $12, two which is less than the recent S&P average of 16 point forward. The average free cash flow yield for the S&P 500 of two eight.
Whereas the company's free cash flow yield is approximately five 5%.
Last the guidance provided does not include any reduction in revenue or expenses associated with a dear colleague letter issued last year that I discussed last quarter. As a reminder, the Derrick colleague letter does not impact our relationship with GCU as GCU provides all factory for their courses pays them in receipts Lille is no reimbursement from us or.
Other outside sources for the factory cost, but we are still working with our other university partners to assess the impact of the Dear colleague letter if any of the programs we partner with them on we will provide updates to our outlook. If contractual changes are needed, but it is important to note that any changes made would have an immaterial impact on revenue and operating profit.
I will now turn the call over to the moderator so that we can answer questions.
Thank you, ladies and gentlemen, as a reminder to ask the question. Please press star one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again please.
Please stand by while we compile the Q&A roster.
Our first question comes from the line of Jeff Mueller with Baird. Your line is open.
Yes. Thank you how is demand trending lately for the hybrid programs and you gave us the number on the 800 students.
I don't know if this is too soon but can you give us any sort of metrics on.
The success those students are seeing going through the accelerated online pre rux.
Yes, the demand is.
Changing because of the.
The employment situation.
The employment situation is so strong.
There are so many jobs out there that people are people with that bachelor's degrees in their twenty's or not really willing to give up a $60000 a year job to invest 50 or $60000 to make 70 or $80000.
The.
At the same return if they're currently and so people are being more cautious about re careering.
However, the demand is still very strong and increasing for those students that are younger and have already invested in higher Ed and don't have any depth or have very little debt.
And so.
There is significant demand.
And what's very interesting and very encouraging.
Is that when we can get students to the ABS and start get them to the front door, we have a 90% success rate getting them through in a greater than 90% first time pass rate and flex exam.
The challenge is getting them so that they have the course work necessary to get into the BSN program.
People were referring them to community colleges and they wouldnt hear from them for a year or two or three if at all.
And.
In other places the programs were not delivered online or they were extremely expensive.
And so we worked very hard at creating first the science courses.
And.
Those science courses, that's what I was referring to in terms of the 800 students and growing pretty rapidly.
And we have between 75 and 80% success rate, meaning the students got of C or better in those courses.
And therefore, they can use them to sit to get into in a BSN program. So we're really happy.
With that success rate because studying science online is not easy our courses are rigorous.
But the.
The demand is still very strong.
And we think we're going to be in a very strong position when somewhere between six and 12 months.
Because we've I think we've figured out it doesn't matter where in a country of student is our programs are delivered online. So they can be entered into the program. We've got start times every couple of weeks.
And as opposed to once fall or just spring semester in.
What time, what was being offered in person all of those things were really difficult to navigate and so.
I think.
The most important challenge is that one and between that and we.
We think we will get some traction with high school graduates who want to stay home do the first two years of.
Pre nursing program in 18 months do it completely online.
And then qualify to be in a BSN program in one of our locations throughout the country between those two things, we're hoping to address that challenge and then reaccelerate.
The enrollments.
Got it and then.
GCU looks like it's tough to get back to growth.
On margins I understand the annualized effect of the head count ramp.
I understand.
The trade off to the benefit of the University of the current financial model and a lower demand and higher inflation environment.
But.
To the extent to which the university may be getting back to enrollment on a sustained basis and since you are caught up on head count.
Just any comment on what you would expect on a multiyear basis in terms of margins, while still probably balancing.
Not taking tuition pricing increases.
Yeah, we believe that once we can get back to mid teens total enrollment growth online that that core GC contract margins can expand on an annual basis year over year somewhere between.
30, and 100 basis points, where we were pre.
Pre COVID-19.
And we believe that because.
One we've done it in the past too.
Mid teens online enrollment and the growth of the ground campus and the revenue per student from that can.
Can help drive that that margin expansion.
And when you look at if you look at the high end of our more of our of our guidance.
If everything goes.
Perfectly as we hope this year.
You will see margin expansion and you do see margin expansion on the GCU core in the second half of the year.
If we hit the midpoint of our of our guidance. We gave today from a revenue standpoint, it would be fairly flat.
The second half of the year.
On the GCU contract from a margin standpoint so.
That that gives us confidence we can do it the other thing that impact.
Do you think that impacts that you know because you've followed this thing historically, we've gotten margin gains by cost to acquire a student going down and when we mentioned in the fourth quarter that 27% of our new enrollments are 'twenty, we were 20%, 7% higher this fourth quarter than prior year's fourth quarter.
In new enrollments that were coming from our outside people.
Those were basically.
Working with school districts, and others and we don't pay for those leads.
And so.
We're hoping that that number continues to grow.
Because that is where historically, we've gotten margin expansion is by reducing the cost to acquire a student and if that work continues to go as it does that will help.
Got it and I may not have heard correctly I think you said mid teens, you mean mid single digit growth correct.
Correct, Yes, yes, Dan is sitting next to me the Punch me he punch beyond that so yes mid <unk> mid <unk> all.
I'll take mid teens, but just making sure yes.
You are correct and then just left.
I know you talked about.
Dear colleague letter there was another dear colleague letter last night.
Regarding third party servicers entitled for when you lift up the services, Brian you talk about financial aid processing being one of them. So.
The GCE GCU contract are you already I guess subject to these types of regulations and oversight. So no impact on you and then just on the hybrid contract.
Is it a different set up and just if there's any sort of like qualification of how burden some that may or may not be for you.
Yes, youre right about the financial.
We provide GCE provides that service for <unk>, which is the bulk currently of the business and so yes, we're already subject gcu's subject toward audit as a result of doing that financial aid work in <unk>.
<unk> does really really well.
In that audit process. So we feel very good about that the other 26 partners, Yes, I think a couple of points to expand on what Brian Just said I mean, I think it's important for people to know that as part of the audit that Brian talked about they not only look at the financial processing and compliance, but they do testing payroll testing.
<unk>, including an in depth review of incentive compensation plans and payments fiscal.
<unk> physical testing, including program reconciliation bank statements contract.
Contract testing, including division of services and responsibilities so.
As it relates to GCU I think.
We're already a third party servicer and go through a full audit.
Similar to what I think the department of Ed is pushing for on the Dear colleague as it relates as Brian said to the other 26 partners.
They don't do that audit currently for those but for us to add.
At that.
Testing for our other twenty-six partners would not be a problem at all the compensation plan is is is very similar and the other controls and processes are very similar to so for us.
Not a concern at all to have that expanded to our other 26 partners.
Okay. That's it from me, Greg the CGC, you're doing so well.
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 very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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