Q1 2023 Grand Canyon Education Inc Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the Q1 2023 earnings conference call for Grand Canyon Education, Inc. 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 will then hear an automated message advising your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Chief Financial Officer, Dan back.
Please go ahead.
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.
Factors that 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 a financial position in GCE.
And with that I'll turn the call over to Brian .
Thank you for joining Grand Canyon, Education's first quarter fiscal year 2023 conference call.
He had a very good quarter.
Enrollment expectations.
Versus consensus revenue estimates at the midpoint.
$6 million of produce a or b.
Adjusted.
Diluted earnings per share.
Given how most of higher education coming out for years. These are excellent results. Most importantly, GCU online produced significant new enrollment growth for the third consecutive quarter over prior year and Apple.
We continue.
Quarter of 2023.
I wanted to begin again, but taking a step back and explain why this is happening and briefly overview of what has happened since then.
GCE GCU transaction took place almost five years ago.
Instead, it is attached small elite higher education, especially in areas like U S News World report rankings in the future. It will be institutions, who are large scalable and flexible in how we offer higher education.
The impact of adults across the lifespan using technology to build platforms that take into account the life situation of the students and the nature of the market and the skills that needs to be learned.
CES, we guess at approximately $300 million producing its own learning management and administrative system.
The allowance as partners to manage over 7000.
The universe.
12600 students.
320, academic programs and certificates across or delivery platforms.
And this automated processes as quickly as Michigan's transferred collection and evaluation scheduled building financial aid process.
Got it.
The assignment and payroll.
Acquisition adjusted outcomes student teacher placement bouncing in social work entered shifts and the list goes on.
Ministry of capability of the system.
Introduced to focus on the learning, which is still a small group instructor led process. It is highly either personal collaborative focused on writing critical thinking and problem solving and produces outstanding outcomes.
GCE currently employs approximately four 4000 full time professionals and approximately 1500 student workers as it continues to build its capabilities to grow property students programs and delivery platform Sports University partners.
Leveraging this infrastructure, there's a lot of gce's partner stores and programs that are critical to the economy.
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.
And you're almost five years since GCE has become a service provider. It is helping us partners accomplish the following.
<unk> got Grand Canyon University graduate of 130276 fields.
<unk> 5815 in education, including 16537 first time teachers at time of teacher shortage is accretive and national crisis.
37685 in nursing and health care professionals, including seven 767 pre licensure.
Yes.
44863 to college of Humanities, and social sciences, including thousands and calculated social work, where there are also huge shortages.
Intelligent business has become one of the largest business schools in America has produced 22151 graduates.
College of Science Engineering, and technology has grown by 183% and provided 4539 graduates.
Industrial colleagues honors College and college of Theology also continued to grow.
The numbers that I just cited all happens.
Most five years since GCU has become.
That property institution, and GCE has become an education services provider.
Our partnership with GCU has given us the ability to invest 576 million additional dollars in academic residential life infrastructure towards ground traditional campus, bringing the total investment to almost $2 billion currently that Kansas is ranked 16th in the country by niche Dot com.
Importantly, GCE as assistant GCU and opening of 138, new academic programs and certificates during the almost five years.
One 9% of the new students enrolled in the first quarter enrolled in these new programs.
During this time <unk> 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 students.
GCU students takeout only 50% in parent loan amounts compared to students at our three state universities.
GCU students have a one 5% cohort default rate on student loans compared to the almost recently released national average at two 3% and has a 90 10 calculation of 66, 2%.
Gcu's harvest financials.
In addition, CTO has accumulated over $400 million in cash and investment reserves, while going through with annual salary increases every year for all faculty and staff.
Care to the declining enrollments and negative financial trends in higher Ed across the country that accelerated during Covid. This model has produced significant results results with GCU the state of Arizona in our country.
Grand Canyon University was also ranked as the third best employer in Arizona, and the 2022 Forbes America's Best employers by State report.
During this same time period GCE has established 2000 traditional university partnerships.
These partnerships along with our partners ship with GCU have created 36 locations to reduce health care professionals, especially baccalaureate prepared message. This is extremely important work because the country is expected to need one 3 million additional nurses in the next five years alone.
There are existing new.
Existing and new partners will eventually lead to 80 locations across the country.
Since January 2000, 1990, 318 students have graduated from our other University partners Avs, Ben or Otas programs.
Wanted to include this brief summary, because there is currently a lot of discussion about the future of higher education.
Regardless of political or ideological positions discussion should focus on where the economy is going and where the new jobs and careers are going to be.
Levels that can scale and offer opportunities for access to all socioeconomic classes of Americans have no expense to the taxpayer should be supportive.
Critics point to the revenue share model is bad for universities. The past two years have proven him wrong and we expect into next year. This will become even more apparent.
Inflationary periods like the one we are currently experiencing or when demand declines as it has GCE as a service provider absorbed the majority of the financial risks and our expertise technology and processes have a large university partners to continue to benefit during these challenging times.
Now I'll review the fourth pillar for delivery platform as Grand Canyon Education first Gcu's traditional campus saw an increase of eight 9% in new students in the fall 2022 over prior year, an increase of 8% and total ground traditional enrollment and an increase of 10, 5% in residential and.
<unk>.
Approximately 70% for ground traditional students live on campus.
The average incoming gpas of the 2022 23 class growth to three six in the prestigious honors Valley's case growth eight 3% year over year with average incoming gpas of $4 one.
Additional campus bring enrollment was slightly better than expected due to better than expected fall to spring retention.
These are remarkable results given the fact that undergraduate enrollment declined by four 2% nationally became all 2020 and fall 2022 were during the same period of Gcu's ground traditional enrollment increased by 18, 3%.
We expect all of 2023, new enrollments to be between 10 and 11.
Quality and relevancy of Gcu's academic programs, the low class sizes and supported this fact, we didn't slip a 6% turnover rate the quality of counseling services of 28 Advisory board with over 500 companies represented.
We're creating internships employment opportunities for GCU students in a very affordable tuition, which hasn't been raising 15 years are all important contributing factors.
And also what I've mentioned I'd like to National trend over 2690 300, all through 2022, new students this year, where first Gen College students.
Average incoming gpas of these first institutes is 355 are almost identical to the incoming class overall.
These students are largely from lower socioeconomic strata, but their enrollment at the university because of very affordable tuition rate is going directly against the national trend is a very positive part of the GCU GCE story.
As I've said before the fall of 2023, we are anticipating between tenant and 11000, new students were under construction of 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 competitive environment given the trends we have discussed previously.
School graduates and thus graduates directly go into colleagues.
Pillar two working adult students attending GCU online.
Traditional students attending universities across the country to invest in 'twenty, one saw a downturn in working adult students attending online.
Lifeboat traditional students attending GCU campus, we experienced a downturn in online students as well.
He has worked with <unk> 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 for this post COVID-19 period.
Supply and demand at least in the short run for educated Labour has flipped since the country has reopened we are working with over 26850 industry partner locations and Jay.
12 education healthcare.
<unk> services, social service agencies technology, and engineering companies to illustrate basis et cetera.
<unk> strategic initiatives that are helping organizations grow their talent on that side.
The number of new students that started through these strategies grew 24% over the prior year in the first quarter.
Number two GCE continues to work with GCU to roll out new and relevant programs.
The transition of almost five years ago TCU is rolled out 138, new programs emphases insignificant 12, 9% of new students enrolled in these programs and the latest in this latest quarter.
This has resulted in first quarter, new online enrollments growing in the low teens over the prior year and we are.
Currently projecting new enrollment growth in the second quarter of 2023 to be similar high single digit to low teens.
Based on these trends we returned to total online growth this quarter.
It is important to note that this return to positive growth has been accomplished with no loss of spreads and the quality of your Skus online student body and as a result, no degradation of our quality metrics, including good graduation rates low cohort default rates and continued low debt among students.
We anticipate new enrollment growth to again be in the high single digit low teens in the second quarter and then we'll begin to return to our long term objective of mid single digit growth in the back half.
Half of the year as comps get tougher.
This should allow us to grow total enrollment on a year over year basis in the low to mid single digits.
Of the year.
So I would like to discuss Gce's third pillar healthcare partnerships short term Covid has had a negative impact hospitals were extremely busy preoccupied with COVID-19 patients and many clinical placement opportunities for cancer. Despite these very significant challenges many instructional assignments requiring one on one clinical interaction in the hospital where.
We replaced by Stimulations.
Some of our University partners requested that we reduce the cohort sizes due to concerns about the lack of clinical capacity.
Some of the new sites that we hope to open, especially in large markets have been pushed back to the fall.
2023 or 'twenty four.
Although positive signs are emerging on this from the tight labor market has had a significant impact on the type of students interested in recurring into nursing.
When we acquired August 2019 year partnership we're predominantly focused on post baccalaureate students built that had already completed a bachelor's program and having completed Bachelor degree was a requirement to start.
SA program.
Students that did not have a bachelors degree with Germany way today.
Today, the majority of the students interested in recurring into nursing have not completed a bachelor's degree.
We have been working with our partners Interstate nursing boards to adjust these programs to allow students with 60 plus college credits to gain admittance into the BSN program.
In addition, the partnership with GCU, we accretive much less expensive and more efficient way for these students.
Our students did not have a bachelors degree.
Have the science Prereqs to complete the course work necessary to start in the ABS and program.
These challenges have in the short run costs some of our mature locations and we're at capacity just shrink in some of our newer locations did not grow as fast as we would have expected while other mature locations remain at or near capacity and.
And some newer locations are meeting our new enrollment expectations.
We believe that these strategies will reaccelerate growth.
As we work through this we will much more selective in the new locations that we opened.
We plan to open two new sites with GCU in the Phoenix area in the fall 2023.
And are hopeful that we will be opening a new site with a new partner in southern California in the fall.
As well, although for many permitting issues continue to all of our ability to start construction on that site.
We also plan to open a couple of smaller sites with new partners. It was committed to previously.
I am very pleased to announce that the GCU locations grew 27, 2% year over year from 283 to 360 students.
This extremely important because you would ultimately like 40 of our 80 locations to be GCU locations.
This relationship is good financially for GCU, but results in liquid GCE, Covid gcu's national footprint and brand recognition.
A it's nursing program and its proven ability to scale.
As with Gcu's traditional campus. The long term environment is very positive for these GCE healthcare partnerships for the following reasons number one our country need one 3 million additional versus the next five years alone.
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 a locations and number three in addition to the runway of any locations up from 36 locations currently our enrollment budget for the coming years, only 50% of the excellence that exist today.
50% shortfall is largely due to the lack of efficient and highly supportive prerequisite course environments regulatory issues, creating slowdowns in opening plant locations and the lack of clinical placements due to COVID-19 issues.
Importantly, there are now over 100 students in Gcu's accelerated online science courses.
Impairing their earn spot in one of our 36 locations.
These are eight week courses taught mainly by full time faculty members and provide tremendous academic support services. There are multiple start opportunities on an every month basis.
We expect that 100 number to continue to grow and be a leading indicator of our ability to reestablish growth on the hybrid campuses.
TCE is working hard and investing in new enrollment simulation virtual reality and pre requisite strategies could be future fill all the slots that are available.
This is a transitional year for the health care partnerships.
There is a 10 year runway that is very promising it creates a winning scenario for students that want into a promising career healthcare providers desperately needy professional nurses and universities want a low risk way to help solve the nursing shortage, while at the same time, creating additional revenue streams.
Last we continue to see good results in our fourth pillar certificate programs.
We're extremely excited because these programs are desperately needed in higher education to date.
This past September we launched a specific program in partnership with Gcs really cost Institute for workforce development.
This certificate is referring students for a professional electricians apprenticeship program.
This is a 16 credit hour west semester program heavily focus on the mathematical concepts necessary to prepare for a career as an electrician.
This program has been designed with a major industry partner, who is offering and friendships as students successfully completing this program.
As part of neat about electricians for their business in Arizona alone.
This partner also indicates that the country is short the minimum of 100000 electricians necessary to complete the building projects currently underway.
Last fall 300 students apply for this program, we accepted 40 into the program 39 or 40 students for vast completed their program successfully and the feedback we have received from our industry partners has been very positive.
The additional 200 submitted applications for the spring semester, and we accepted another 40 in the script 35 of those students completed their program successfully.
Once the concept is proven there is the potential to scale. This program in a significant way we.
We have had many additional industry partners, who have expressed interest in participating.
Service revenue was $250 1 million for the first quarter of 2023, an increase of $6 million or two 5% as compared to $244 1 million for the first quarter of 2022.
The increase year over year service revenue was primarily due to an increase in gcu's traditional campus enrollments and an increase in revenue per student year over year, partially offset by a decrease in hybrid enrollments primarily students in our universities partners occupational therapy assistance program.
Operating income for the three months ended March 31, 2023 was $74 5 million a decrease of $3 million as compared to $77 5 million for the same period of 2022, as we continue to invest to meet our clients' enrollment goals.
The operating margin for the three months ended March 31, 2023 was 49, 8% compared to 31, 7% for the same period of 2022.
Net income increased two 6%.
$59 6 million for the first quarter of 2023 compared to $58 1 million for the same period in 2022.
GAAP diluted income per share for the three months ended March 31, 2023, and $1 94.
As adjusted non-GAAP diluted income per share for the three months ended March 31, 2023 is $2 four or SaaS over consensus at the consensus estimates.
I'd like to turn it over to add back as our CFO to give a little more color on 2023 first quarter talk about changes in the income statement balance sheet and other items as well as to discuss the updated 2023 guidance. Thanks, Brian included in our form 8-K filed with the SEC. We have included non-GAAP net income and non-GAAP diluted income per share for.
The three months ended March 31, 2023, and 2022 and non-GAAP amounts exclude the tax affected amount of the amortization of intangible assets of $2 1 million in the first quarters of both 2023, and 2022 and the tax affected amount of the losses on fixed asset disposal of <unk> 1 million and <unk> 7 million.
For the three months ended March 31, 2023, and 22, respectively.
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 at March 31, 2023, and 2020 to $2 and $1 72, respectively.
Service revenue was higher than our expectations in the first quarter of 2023 due to the higher than expected ancillary revenues at <unk> and higher than expected number of students in the nursing prerequisite courses other.
Online and hybrid revenues are in line with our expectations.
In ground enrollment growth rate continues to be impacted by a decline in professional studies.
<unk> enrollment growth rate is being impacted on a year over year basis due to the timing of site opening a 19, 9% year over year decline and occupational therapy assistant enrollment and a decline year over year and the enrollment at some of the mature sites due to the challenges previously discussed.
Pursuing continues to grow on a year over year basis, primarily due to the service revenue impact of the <unk>.
Growth in the GCU traditional campus enrollments between years, which has a higher revenue per student due to room board and other ancillary revenue and higher revenue per student at off campus classroom and laboratory site.
Service revenue per student for hybrid AVM students generates a significantly higher revenue per student and we earn on the other as these agreements generally provide us with a higher revenue share percentage partners have higher tuition rates and the majority of these.
Their students take more credits on average per semester is there an accelerated program, but the increase in revenue per student was negatively impacted by year over year differences in the timing of the Gcu's traditional campus strengthened lessor, that's a $4 5 million shifted from the first quarter to the second quarter as compared to last year.
Our operating margin was higher than our expectations, primarily due to the higher than expected revenue.
As I discussed on prior quarter earnings calls, we have been aggressively hiring and which head count at mostly been flat since March 2020 to meet our partners' expected future growth, which is driving increased compensation cost and technology and academic services and counseling services and support cost.
We also plan for a significant increase year over year in travel and employee benefit as those amounts were significantly lower than pre COVID-19 levels in the prior year.
We also plan for increased clinical costs at off campus classroom and laboratory sites due to the nursing shortage.
The spending is generally remained in line with our expectations are.
Our effective tax rate for the first quarter of 2023 was 22, 3% compared to 25, 2% in the first quarter of 2022, and our guidance of 22, 3%. The decrease in the effective tax rate year over year is due to excess tax benefits of <unk> 9 million in the first quarter of 2023 as compared to 0.1 million.
In the first quarter of 2022.
2022 effective tax rate was also unfavorably impacted by higher state income taxes and in 2003 the effect of <unk>.
The tax rate was favorably impacted by state tax refund.
We repurchased 309978 shares of our common stock in the first quarter of 2023 at a cost of approximately $34 9 million.
And another 96547 shares since March 31, 2023 of the purchase.
We have $149 7 million remaining available as of today under our share repurchase authorization.
The board of the company intends to continue using a significant portion of its cash flows from operations to repurchase shares or 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 the secured notes during the past few years.
Turning to the balance sheet and cash flows total unrestricted cash and short term investments at March 31, 2023 were $194 5 million.
<unk> capex in the first quarter of 2023, including Capex for new off campus classroom and laboratory side.
Approximately $8 6 million or three 4% of service revenue.
We expect Capex for 2023 to be similar to 2020 at between 30 and $35 million.
Like to provide.
Color on the updated guidance, we have provided in our 8-K filed today.
As a reminder of the guidance that we have provided in the outlook section of our 8-K filed today.
GAAP net income and diluted income per share with component to adjusted GAAP amounts with non-GAAP as adjusted net income and non-GAAP as adjusted diluted income per share.
We will continue to provide both GAAP net income and diluted income per share and our non-GAAP GAAP non-GAAP amounts with a reconciliation between the two when we report actual results.
We have updated full year 2023 guidance to include the first quarter revenue and earnings and are reaffirming the second third and fourth quarters previously provided guidance our COO.
Couple of reminders timing differences in the start and end of the traditional campus semester, plus $4 5 million for Q1 2023 for Q2 2023 in comparison to 2022 and $1 3 million from Q4 2023 to Q3 2023 in comparison to 2020.
We anticipate that new online enrollments will be up year over year in the high single digits to low teens in the second quarter.
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 in the third and fourth quarters of 2022, that's our guidance provides a wide range of potential outcomes in the second half of between low and high single digit growth.
Given that our long term objectives started to grow new enrollments in the mid single digits. The midpoint of this range would meet our long term objectives.
Based on this we anticipate that total online enrollment will end the year with a low to mid single digit year over year growth.
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 start to see some acceleration began the bulk method due to new site openings and the impact of the prerequisite initiative on the number of eligible students and can start in our partners' programs.
We estimate the effective tax rate in the third the last three quarters of 2023 will be 24, 9% 24, 9% and 24%.
The effective tax rate will be higher in 2003, when in 2022 because of the impact of state income taxes as revenues continue to grow at the Offsite locations outside of Arizona, driving our tax rate increase.
These estimates do not assume a contribution a little state income taxes, but if one has made that will increased G&A expense in the third quarter and decreased the effective tax rate in the second half of the year.
Assuming that a contribution of $5 million is made in July of 2002.
2023 as was made in July of 2022. This was decreased net income by $1 3 million in third quarter of 2023 and increased net income by $1 3 million.
In the fourth quarter of 2020, but again no decision has been made yet on this contribution.
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 stock authorized the repurchase of shares as it leaves 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 the multiples of other education companies as although we can be viewed as being in the same sector. There are few if any appropriate comp.
On an enterprise value to adjusted EBITDA basis. The stock is currently trading at trading at roughly $12 five which is less than the recent S&P averaged $16 for the average free cash flow yield for the S&P 500 up to eight whereas the company's free cash flow yield is approximately five 5%.
The guidance. We've provided does not include any reduction in revenue or expense associated with the Dear colleague letter issued last year that I have discussed on previous calls.
It is likely that a number of our University partners contracts will be adjusted prior to the fall term such that we will no longer reimburse them for certain costs, and thus will be reducing our revenue share.
As a result, we do anticipate all term revenue and expense will be reduced but cannot currently quantify these amount is.
It is important to note that these changes made will not have a material impact on revenues and operating profit as the Dear colleague letter does not impact our relationship with GCU GCE provides all family for their course.
With them and receive little or no reimbursement from us or any other outside sources for the faculty cost and because of the contract modifications are being made to make both parties.
Lastly, as I get this question often I wanted to highlight that the named executive officers has signed extensions of their employment agreement.
And agreement has been extended through June 2020.
I'll now turn the call over to moderator, so that we can answer questions.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Okay.
Our first question comes from the line of Jeff Mueller with Baird. Your line is now open.
Yes, thank you for the hybrid Prereq initiatives.
I guess have you had any students graduate from that program at this point.
When do they apply for the ABS.
Experience.
<unk>.
Just like how much of a lag between completing the prereqs and enrolling in ABS on would you expect.
Well.
We when they expressed interest in our program and we determined they need prerequisite courses. How many there are that they need to take we immediately begin a schedule in terms of how they will transition to the <unk> program.
So depending upon how many courses they need to take we will determine the schedule will determine when they finish their last course, and then for most of them. They will begin very soon after that attending one of those sites that they've selected even before they start their pre racks.
And so for many of the students.
They will be lucky to site very near their home for some bill actually select the site that they will move to.
But all of that work is done upfront.
The evaluation of their transcripts is done and then we did turnover courses they need.
Core schedule is built.
We don't we have a lot of students completing courses, they're completing courses at a very very high rate, but one that we're very satisfied with.
We haven't had as students complete them all and go into the.
And then maybe a fifth program, yet, but we're very close to that happening.
And so.
Yes.
Preliminary.
Results have been very good.
Underestimate how important that is.
When you apply.
To get into a nursing program.
And.
It's determined you don't have the prerequisite as necessary.
Sorry to say this but if we refer you to a community college and that could literally be a two to three year timeframe before youre going to get to of course as you need.
And if you don't select that Ralph the other routes are extremely expensive and so what we realized is that you can't expect students to take out a massive loan to get the prereqs done not knowing what it is that will be successful and they will actually get into ABS program.
On the other hand, if we get students into an ABS and program if we get them to the door. There is a universal 90% completion rate and a greater than 90% first time pass rates on the <unk> and so we absolutely believe that a centralized process no matter, where you are in the country.
To enter into the correct Prereq courses one at a time to eight weeks long with lots of faculty.
Tutorials support will put us in a position to.
To create a pool of those graduates who could step into the Avs Grant program and we believe thats the key to Reaccelerate that growth.
And obviously each quarter, we will be providing updates on that.
What we're experiencing in this call to this point is that the students are doing well and of course work there.
We're getting a tremendous amount of support.
And.
I think this is this is by far the most important part of adjusting to this market change.
And.
When you go back to the changes, it's just the supply and demand on the Labor force, you've got a 60 or $70000 a year job and you've already completed your degree already taken out sizable amounts of loans to do that it's very difficult for that person to decide if theyre going to.
Quit their job invested $50 to $60000 in recurred in there. So you can make 75% or 80 pounds.
And so there is no lack of interest in people wanting to be nurses. It's just.
The market now that shifted the people who haven't already taken out massive amounts of loans to complete a degree and then our base was doing a second time.
Got it and then for the <unk>.
Fall 'twenty three ground campus enrollment.
I just want to make sure I'm interpreting your comments correctly, you gave us the new starts I feel like there was a little bit of a caveat two to three months ago about registrations tracking behind I guess has visibility on that front and trends on that front improved and then this quarter I don't know if this was a new cabinet or not but I thought.
There was a reference to like some uncertainty around.
Retention of students from spring to fall and increased competitions. So is there any reason to believe that retention could be lower this year.
No retention retention.
Retention is very good we will come in with more than we budgeted for in terms of returning students to the camp. So thats really good news.
On the other front things have changed dramatically in higher education with regards to traditional students.
This has been coming but COVID-19 accelerated it the reason were seeing between 10 and 11000 students and that's a wide range for us usually we can target a number and be much closer.
Our applications are up.
Significantly.
Our campus visitations are one on one appointments with students and parents are up.
What's lagging behind is the students commitment to register.
So theyre, not saying theyre not coming they're not committing to register.
We have had a number of institutions visit us.
Well branded.
Private universities in using us within the last couple of months.
And explore potential relationships because they're looking at their fall numbers and theyre seeing.
I'm not going to say Armageddon, but this what happened last year is.
Probably going to be worse than this year for many institutions.
Students and families know that they are in the driver's seat now.
Unlike in the past, where you tried to apply to schools you are interested in helping to get an acceptance that celebrate that.
Right now what they know is that the thing is flipped and if they hold out people are making increased offers.
In order to get them to attend their campus.
We're not doing that.
We don't think we have to do that and we're still positive about how we fit into this whole situation because of our low tuition rate.
Parents and families students are actually absolutely questioning the value of higher education, if it requires $200000 worth of debt or even a $100000. If you would tend to state University.
We think that as they get.
Letters and deals submitted by other institutions ours as they have in the past we will look very favorable in.
In addition to the fact that we've got over 40% of our students graduated in three years because of our dual credit programs and all of that so we still think we even though the trend is fewer high school graduates.
As a percent will natalie's, if you're questioning the value of higher Ed. This is a very good investment because number one youre going to graduate with very little debt.
Number two you are going to gradually unless the last years.
And so.
<unk>.
Yes.
It's a much lower risk proposition, if you're questioning that.
We are hanging in there and expect it will suit still do real well in the end as compared to others.
And just to clarify that caveat Jeff.
You might recall this we had a similar issue last year, but the University built 500, new beds and if retention rates were flat as a percentage the last year, we could recruit for them 500, additional new students or 1300, I think roughly additional new students this year than <unk>.
Last year based on current registrations for continuing students.
They are taking up the entire 500 additional beds now with that said once students go home for the summer we expect expect some attrition as we've seen in the past but.
Right now sitting here today based on current.
<unk> trend, we will have a much higher retention rate than we projected or we've had in the past and continuing students will take up some of that increase.
<unk> situation that the University Bill if that makes sense.
Mike Lawton.
Total enrollment standpoint, it won't change the total enrollment it'll just changed the pieces between new and can take.
Yeah got it thank you.
Alright, one moment for our next question.
Yes.
Okay.
Our next question comes from Jeff Silber of BMO. Your line is now open.
Thanks.
Give me and I apologize I joined late.
Brian and forgive me if you mentioned this and I'm sure you did you talked about the hybrid business being in a transitional year. This year at a high level could you just review why that's the case.
Yes.
The market absolutely change because of the slip in the labor market.
There are.
Unemployment is so low.
That.
Three or four years ago. Most of the students were students had completed a bachelor's degree their careers, we're not going anywhere and we wanted to recurrence in nursing.
And so their transition into the program was pretty simple much simpler because we had already completed a degree.
Right now you've got people, making $60 $70000 here. The first couple of years out of college.
And it doesn't make sense for many of them to to put their $70000 year, Jonathan spend $60000 to $80000. It's those re careering postbac students and kind of dried up now that might change again.
Clement situation changes.
Mike.
Right.
What's happened is that there is still a huge interest in people, becoming nurses students that are at a community college or.
We're pretty new high school, they've earned 30 years or 40 credits maybe 60 credits.
And they have an accumulated much debt.
What we needed to do for them.
Is create a very efficient way for them to get the science Prereq courses done so they continue to win Avs been program.
He needed to make the scheduling of those things very efficient we needed we needed we needed frequent start times.
So we built those forces at GC.
And they quickly rose to 1200 students in.
In those courses.
Theyre, taking anywhere from two or three to as many as seven or eight science courses chemistry biology anatomy physiology.
Courses.
They are completing at a high rate.
We've reduced tuition significantly to where most of our pay in cash.
And you don't have the.
A difficult decision of accumulated a lot of that not knowing if I'm going to get in.
The reason, we're very bullish on this thing going forward is how quickly the enrollments grew in those courses and how well the students are doable.
The.
The decision then to spend of 50 or $60000 into it.
This program is a pretty easy one given the number of jobs in.
And theyre seeing what they pay et cetera. So.
The transition is mainly that now there was a little bit up.
Yes.
Some sites opened later because.
In certain situations in certain markets, we couldnt get the right number of.
Clinical placements. So there was a little bit of that but it mostly has to do with the uncertainty of how do I get those prerequisite.
She has done and so as that number of deals.
As students.
Identifying site do you want to go to as they get into the prerequisite is we know what we bid on schedule when the Prereqs will be completed if everything goes well and therefore with program with.
<unk> deal if and when they when they finish and so it's that transition is taking place right now.
And.
We're extremely bullish on the fact that it doesn't matter where you are in the country now.
It doesn't matter what program you're interested in of our 26 different partners.
You can come to GCU you can do the programs that you can do the courses online and you can do it very efficiently.
Okay. That's helpful. If I could shift gears to GCU online can you just give us an update in terms of acquisition costs.
It's been a competitive market and you guys are doing a great job, but I'm just curious of acquisition cost have come down or how they're tracking.
When you look at US historically I know you know this but if you look at the five or six years.
Our.
The acquisition costs, that's why we were getting margin expansion.
Now.
We have been.
And were they stayed pretty flat.
We have an experience.
The difficulties a lot have had.
And.
Mainly because 24%.
We were 24% over this first quarter of this year over first quarter prior year.
It starts that we have accumulated through our industry partnerships.
That's taken the pressure off of our marketing plan immensely.
And so where other people have had to spend more marketing dollars.
Which as you spend more you get deteriorating results, we've been able to keep our actual advertising expense pretty.
Pretty much the same slight increases because we're getting the starts out of.
The school districts hospitals cancer centers military bases, where we are putting custom programs together to help them grow their talent from insight I'll tell you.
We have got so many partnerships now with school districts, where we're taking care professionals, who are making $25000 a year, putting them into baccalaureate programs that lead to.
To ensure that allows them to become full time teachers at $70000 a year.
The biggest cities in America, New York, Chicago, Philadelphia Boston.
Those are it's a great story, because it's really lifting people to middle class job.
At the same time, it's giving human resource departments within large school districts and HR play out that they can count on and gives us some level of predictability.
And it's a way for us to offer programs without having to buy leaf so.
So we really haven't had the issue that you've probably heard from a lot of other.
Okay I appreciate the color. Thanks, so much.
We have reached the end of our first 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.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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