Grand Canyon Education, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Enrollment Growth: Online enrollment up 7.9%, hybrid enrollment up 16.5% YOY.
• Program Rollouts: GCU rolled out 48 new programs since Jan 1, 2023, totaling 353 programs, emphases, and certificates tied to labor market opportunities.
• Employer Partnerships: Working directly with employers in education, healthcare, etc., new starts from this work up 18.2% YOY.
• Retention: Student retention increased due to relevance of programs to career aspirations.
• Hybrid Campus Initiatives: Adding graduate nursing programs, occupational therapy bridge to Master's, and other programs. Expanding sites and seeing positive results in ABSN programs.
• Workforce Development: Success of electricians pre-apprenticeship and manufacturing CNC Machinist Pathway programs, with growing student completions.

Segment Performance

• Online campus at Grand Canyon University: New starts in low-teens in Q1 2025, total enrollment growth 7.9%. Rolled out 48 new programs since Jan 2023, totaling 353 programs, emphases, and certificates. New starts from employer partnerships up 18.2% YOY. Retention increased due to relevant programs.
• GCU ground campus for traditional students: Slight year-over-year decline in fall 2024 enrollments, but spring intake in 2025 increased compared to 2024. Confident in reacceleration with entity advantages.
• Hybrid campus: Enrollment up 12.1% YOY (excluding closed sites and teach-outs, up 16.5% YOY). Anticipated to maintain low-to-mid-teens growth. Adding new programs, expanding sites, and seeing positive results in ABSN and other programs.
• Center for Workforce Development: Electricians pre-apprenticeship program had 212 students graduate in 2024-2025, manufacturing CNC Machinist Pathway had 33 students graduate.
• Service revenue: $289.3 million in Q1 2025, up 5.3% from Q1 2024. Operating income $88 million, operating margin 30.4%. Net income $71.6 million, up 5.3%.

Guidance

• Enrollment: New enrollments projected to be mid-to-high single-digit rates in 2025. Total online enrollments expected mid-to-high single-digit growth over prior year.
• Revenue and Margin: Service revenue higher than expected in Q1 2025. Margins may decline in Q2 due to investments but expect expansion in H2.
• Share Repurchases: Repurchased 395,426 shares in Q1 2025, with $209.4 million remaining for repurchases.
• Expenses: Anticipate increased legal fees, benefit costs, and technology services, with benefit costs exceeding expectations in Q1 and April.

Risks

• Funding Concerns: Media noise about potential funding cuts, but management doesn't see impact on higher education funding.
• Legal Risks: Anticipate increased legal fees due to ongoing lawsuits entering discovery or trial in 2025.
• Interest Income: Declining due to stock buybacks and lower interest rates.

Question and Answer

• Q: Color on better-than-expected enrollment in Q1 2025 A: Due to new programs added and contracts with school districts, hospitals, military bases, etc., creating opportunities for working adults.
• Q: Media noise about funding cuts, impact on students/ground campus enrollment A: Management doesn't see less funding for higher education, and ground campus enrollment has confidence with positive trends.
• Q: Enrollment growth targets and M&A thoughts A: Long-term enrollment goal 7%, focus on building programs vs. M&A, with confidence in growth from online and hybrid areas.
• Q: Process of converting prerequisite students to ABSN hybrid programs A: Students take accelerated prereq courses, tracked via a waterfall, with aim to fill 24,000 slots eventually.
• Q: Scaling non-ABSN hybrid programs A: Accelerating due to partner response to profitability from these programs, with more partners seeking additional programs.