Grand Canyon Education, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Online Campus Growth: New starts up mid-teens, total enrollment growth 10.1%, driven by new programs, employer partnerships, retention, tuition pricing, and younger students choosing online.
• Ground Campus Trends: Decline in high school graduates choosing 4-5 year baccalaureate, increase in shorter certificate programs, and more students choosing fully online. GCU expects to reaccelerate new student growth on ground campus.
• Hybrid Campus Enrollment: 14% Y/Y growth, due to ABSN partners admitting advanced standing students, affordable online science courses, high graduation and NCLEX pass rates, and new site openings.
• Center for Workforce Development: Success of pre-apprenticeship and pathway programs, new programs rolling out, and social contributions.
• Regulatory Environment: Discussion on the Big Beautiful Bill, support for Workforce Pell Grant Program, loan limit changes, and institutional accountability.
• Financial Results: Service revenue $247.5M in Q2 2025, up 8.8% Y/Y; operating income $51.8M, operating margin 20.9%; net income $41.5M, up 19.1% Y/Y.

Segment Performance

• Online Campus at Grand Canyon University: New starts up mid-teens in Q2 2025, total enrollment growth 10.1%. Reasons include rolling out new programs, employer partnerships, increased retention, stable tuition, and younger students choosing online. Revenue contribution from online campus is part of overall service revenue.
• GCU Ground Campus for Traditional Students: New and total traditional campus enrollments down Y/Y in fall 2024, but spring 2025 saw increase in new students. Summer ground enrollment up 16%. Trends include decline in high school graduates choosing 4-5 year baccalaureate, increase in shorter certificate programs, and more students choosing fully online.
• Hybrid Campus: Enrollment up 14% Y/Y in Q2, excluding closed sites and teach-out, up 15.4%. Reasons include ABSN partners admitting advanced standing students, affordable online science courses, high graduation and NCLEX pass rates, and new site openings.
• Center for Workforce Development at Grand Canyon University: Electricians pre-apprenticeship and manufacturing CNC machinist pathway programs had student completions. New pathway programs rolling out, including construction and manufacturing general pathways.

Guidance

• Updated full-year 2025 guidance with increased third quarter revenue and earnings projections due to higher-than-expected enrollments.
• Anticipate new online enrollments mid- to high single digits in second half, hybrid pillar slightly raised due to higher enrollments.
• Ground traditional new enrollment expected to be upper half of original guidance, but total enrollment slightly lowered.
• Impact of stock buybacks, interest income decline, and effective tax rate adjustments: effective tax rate for last 2 quarters of 2025 lowered to 20.6% and 22.8% with full year at 22.3% due to contributions in lieu of state income taxes.

Risks

• Potential impact of legal proceedings going into discovery phase or trial in 2025, affecting general and administrative expenses.
• Continued increase in benefit costs and technology services expenses.
• Declining interest rate environment and aggressive stock buybacks affecting interest income.

Question and Answer

• Q: Focus on accelerating enrollment growth in the quarter. Any specific areas driving acceleration? A: Teacher education with paraprofessionals, prereq courses for health care, and students wanting to do college online post-high school.
• Q: Regulatory impact on graduate loans and competitive response? A: Most partner programs are undergraduate, limited impact on graduate loans, and less aggressive competitive offers seen locally.
• Q: Upside drivers for third quarter? A: Exceeding internal goals on new enrollments in second half, especially online new starts.