Grand Canyon Education, Inc. Q3 FY2024 earnings call

• Online Campus: Focused on labor market opportunities, rolled out 148 new programs, worked with employers in key industries, strong retention, stable tuition with online net tuition increases averaging ~1% per year since 2018.
• Ground Campus: Impacted by FAFSA processing delays, but has advantages like low cost, low debt, and relevant programs; anticipates rebounding with fixes to FAFSA issues and strategy changes.
• Hybrid Campus: Enrollment growth due to successful ABSN programs, efficient courses with 24/7 tutoring, and positive results in completion and NCLEX pass rates.
• Workforce Development: Details of programs like electricians pre-apprenticeship and manufacturing certificate, showing growth and success.
• Financial Performance: Service revenue up, operating margin improved, net income increased, with adjustments for non-GAAP measures.

Online campus at Grand Canyon University: New starts up in Q3 2024, total enrollment growth 5.8% y-o-y. New start growth rate in low single digits but still on track for mid-single digit growth in Q4. GCU ground campus for traditional students: Enrollment down slightly y-o-y due to FAFSA processing issues, but has advantages like low price point, low debt, etc. Hybrid campus: Enrollment up 8.1% y-o-y, excluding closed sites and teach-out, up 12.6%. New fall enrollments excluding closed sites and teach-out up ~10% y-o-y. Center for Workforce Development: Details of programs like electricians pre-apprenticeship and manufacturing certificate. Service revenue for Q3 2024 was $238.3 million, up 7.4% y-o-y. Operating income was $48.2 million, up from $41.5 million in Q3 2023. Net income increased 16% to $41.5 million for Q3 2024.

• Updated 2024 guidance: Narrowed fourth quarter revenue range using actual enrollment and revenue trends, anticipates mid-single digit new online enrollments in Q4, slightly increased revenue guidance due to higher hybrid and online revenues offsetting lower ground campus revenue.
• 2025 Outlook: Contract modifications and site closings expected to lower revenue by $8.9M, but hybrid revenues expected to grow high single-digit to low teens, hopeful for hybrid pillar to come close to breakeven.

• FAFSA Issues: Delays in FAFSA processing impacted ground campus enrollment.
• Inflationary Pressures: Lower student spend due to inflation, affecting ancillary revenues.
• Hybrid Sites: Mature hybrid sites below pre-COVID enrollment levels, needing to return to pre-COVID levels for profitability.
• Regulatory Changes: Potential changes in higher education regulations affecting business operations.

Q: Can you provide more color on the lower student spend at the ground campus?

A: Due to inflationary pressures, students spent less during welcome weeks and in the bookstore, impacting ancillary revenues. However, expecting a rebound with improved confidence from election results and better financial situations for middle-class families.

Q: What is the potential impact of a Trump administration on Grand Canyon Education?

A: Bullish on creative delivery models being appreciated, as they address workforce challenges and are counterproductive to restrictive rules like gainful employment; new administration likely interested in successful models.

Q: What is driving the softness in new online enrollment?

A: Tough year-over-year comps due to above-average growth in Q3 2023, but still on track for mid-single digit growth in Q4 and beyond, focusing on high-quality students and graduation rates.

Q: When can we expect the hybrid pillar to break even?

A: Goal is to be close to breakeven for the full year, starting with a small loss in spring and improving as the year progresses.