Grand Canyon Education, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights:

• Online enrollment growth of 7.1% in Q4 2024, hybrid growth excluding closed sites/teach-out 14.9%.
• Strong retention rates while investing in initiatives for university partners.
• Programs tied to labor market opportunities: GCU rolled out 148 new programs, emphases, and certificates across 10 colleges since pandemic.
• Worked with employers in education, healthcare, tech, public safety, military; new starts from this work increased 12.5% Y/Y in Q4 2024.
• Retention of students strong due to program relevancy to career aspirations.
• GCU resisted significant tuition hikes; online net tuition increases since 2018 averaged ~1% per year.

Segment Performance:

• Online Campus at Grand Canyon University: New starts up mid-single digits in Q4 2024, total enrollment growth 7.1% which slightly exceeds long-term objectives. Anticipates mid-to-high single digit starts in Q1 2025. Service revenue contributed to the overall $292.6 million in Q4 2024.
• GCU Ground Campus: New and total traditional campus enrollments down slightly Y/Y in fall 2024. Saw increase in new students starting in spring 2025 vs spring 2024, and ahead in fall 2025 registrations.
• Hybrid Campus: Enrollment up 9.8% Y/Y in Q4 2024, excluding closed sites/teach-outs up 14.9% Y/Y. Expects low-to-mid teens growth in spring 2025 and rest of 2025.
• Center for Workforce Development: Discussed electricians pre-apprenticeship and manufacturing certificate programs, with initiatives like a small parts manufacturing business on campus.

Guidance:

• Provided ranges for revenue, operating margin, and EPS for 2025 quarters, noting financial results are seasonal.
• Anticipates new and total online enrollments up mid-to-high single digits Y/Y each quarter in 2025.
• Expects decline in reentries growth rate and increase in graduates to pressure total enrollment growth.
• Hybrid pillar new enrollment growth expected low-to-mid teens in spring 2025 and rest of 2025.
• CapEx for 2025 expected between $30M and $40M, comparable to prior year.

Risks:

• Regulatory challenges in hybrid locations with capacity constraints and partner approvals.
• Contract modifications impacting revenue per student.
• Tax rate fluctuations due to higher state income taxes.
• Potential impact of labor market changes on enrollment and program demand.

Question and Answer: Q: Jeff Meuler asked about new student registrations for fall 2025 ground campus intake and ABSN academic outcomes.

A: Brian Mueller responded that Discover GCU process was adjusted for higher conversion rates, workaround strategies for Pell eligible students are working well; ABSN outcomes are strong with 80% pass rate for science courses and 88-89% success rate in ABSN programs with 90% first-time NCLEX pass rate.

Q: Jeff Silber inquired about GCU contract extension and hybrid program locations.

A: Daniel Bachus clarified GCU contract continues with early out not exercised, expectation to extend early; Brian Mueller stated 45 hybrid sites open, goal to reach 80 with 6-8 openings per year.

Q: Alex Paris asked about court ruling on nonprofit status and hybrid profitability.

A: Brian Mueller mentioned GCU was elated with ninth Circuit ruling remanding to DOE, no update on timeline; Daniel Bachus stated hybrid site margins are positive but not monitored from a segmented financial perspective.