Grand Canyon Education, Inc. Aktie

Good day, and welcome to the Grand Canyon Education Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Dan Bachus, Chief Financial Officer. 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 that 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. These factors 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.

Good afternoon, and thank you for joining Grand Canyon Education's second quarter 2026 conference call. There has been major disappointment from investors with regard to Grand Canyon Education's stock performance over the last 12 months. This is true in spite of the fact that GCE's financial performance continues to be remarkably consistent as it has been for 18 years. I'm going to start this call with the reason I believe this is happening. The following quote from a recent Wall Street Journal article summarizes what I believe. Major industry shakeups occur when structural shifts such as technological breakthroughs, regulatory changes or economic pressures, allow agile, fast-moving companies to displace legacy incumbents and seize market leadership.

In the current economic landscape, market leadership is transitioning at a record pace due to chaos, fatigue and rapid AI adoption. "legacy corporations are frequently losing ground to leaner technology native competitors." I believe it is taking the investment community time to understand the new environment that emerges when major structural changes take place in what has been an industry that is very slow to change. This is true across industries like artificial intelligence, software, cybersecurity, energy, power, legal services, aerospace, defense, et cetera. But it's especially true in higher education. Small private universities have been closing for decades, but closures are going to happen at an increasing rate going forward.

Last week, this momentum went to another level when WASC announced 4 prominent universities were put on warning status due to extreme financial instability. Grand Canyon Education and its largest partner, Grand Canyon University as well as its 19 other partners represent a good example of an organization that has responded to technology breakthroughs, regulatory changes and economic pressures. It is an agile, fast-moving company that is displacing legacy incumbents with all the headwinds in the higher ed landscape and the very difficult second quarter comps, GCE delivered another great quarter that included a $0.14 earnings beat over consensus estimates.

But as you will see, the changes we continue to make to respond to the opportunities that exist in this volatile environment are going to come at an increasing rate and make it difficult for many legacy incumbents to keep pace. But will allow us to continue to produce extremely positive results. Now I want to review the 3 major platforms at Grand Canyon Education. Platform one, the online campus at Grand Canyon University. New online enrollments grew in the low single digits in the second quarter against very tough comps and total enrollment grew at just under 8%. GCU's long-term goals are to grow new enrollments in the mid-single digits and grow total enrollments like 6% to 7% on an annual basis.

There's a lot that goes into this, but I want to focus on 2 things that differentiate our strategy and continue to produce consistent results. Number one is our outside development team that works directly with over 6,000 organizations across the country to develop their talent from inside. From school districts to hospitals, counseling centers, social work organizations, military bases, et cetera, over 32% of GCU students are generated through this activity, and it continues to grow. Number two, over 70% of online students, GCU's online students are pursuing degrees in areas where licensure is required. We believe that some students pursuing business or technology, for example, careers will look for shorter, more direct path to get started.

This is continuing to impact enrollments at many institutions. GCU will offer certificate programs as well as degree options for those students. However, the bulk of degree growth on our online campuses happening in education, health care, counseling, social work, et cetera, areas where -- areas that require accredited degree programs that lead to licensure. These degree and licensure requirements are not going to change. There are huge shortages in those areas and very few options offered at a distance because of student teaching, observation hours, internships, clinicals, et cetera, that are required and difficult for universities to provide. We have developed a $300 million proprietary administrative system that allows us to serve those students at a distance.

We have been moving in this direction for years and have developed a strong brand with employers and built tremendous momentum as a result. Platform 2, the traditional ground campus at Grand Canyon University. GCU started with under 1,000 students 18 years ago and now has just under 25,000 students. This is unprecedented growth. GCU now has more students living on campus and university-owned housing than any university in the country. The average incoming GPAs are over 3.5. GCU has invested over $2 billion in the campus, and it is currently ranked the 20th best campus in the country. GCU has 22 advisory boards and over 800 organizations in Arizona that are represented. GCU hasn't raised tuition in 17 years, and the average student takes out less debt than the average state university student.

As universities continue to raise tuition and more universities close, our advantages will continue to grow. However, in addition to those advantages, GCU is adding 3 important new tracks that will increase student enrollment opportunities to grow the ground campus to 50,000 students. Number one, the Sheila and Mike Ingram Honors College. The honors college will grow from 3,000 to 3,500 students this fall. The goal is to grow to 7,000 students by 2030. The average incoming GPAs are over 4.1 weighted and the students come from all 50 states. GCU is building a 55,000 square foot 3-story building to house the college that will be a state-of-the-art facility.

GCU is building an Honors College Council that will be a who's who of successful Arizonans and many other Americans who will provide guidance to the college and its students. This will be one of the largest honors colleges in the country. GCU currently has some of the best high school students turning down Ivy League scholarships in order to attend the Ingram Honors College. The fact that the college sits in one of the fastest growing cities and economies in the country will provide the graduates with incredible employment opportunities.

Number two, GCU is opening an 11th college that will be called the College of Construction and Industrial Technologies. It is opening with 2 bachelor's programs and 11 1-year certificate programs to grow America's manufacturing and construction labor force. There are huge shortages in these areas, and the first goal is to add thousands of students in this college in the first full year of operation, which starts in September. This will add significantly to the revenue performance of both GCU and GCE going forward. GCU now has 13 fully built-out programs, 2 baccalaureate programs and 11 certificate programs in advanced manufacturing, construction and microchip technology.

Currently, 20% of students studying in these areas live on campus. And some of the certificate students are going to stay and apply to GCU's engineering bachelor's program when they have completed the year. These programs have high retention rates and are very profitable. Number three, GCU's 12th college is also starting in the upcoming year and will be a law school. GCU intends to make it one of the largest law schools in the country. There is a severe shortage of attorneys in Arizona and the greater Southwest. GCU is working closely with the Arizona Supreme Court. They have been very encouraging in plan -- and we plan to open in the fall of 2027. GCU has written a curriculum for the program and is in the process of hiring a Dean.

GCU anticipates offering a 3 plus 2 and a 3+3 program, which will boost our prelaw undergraduate enrollment numbers and supply admission ready candidates for the law school. GCU students have been asking for this opportunity for years. GCU believes a majority of the students will live on campus. With the addition of these 3 new tracks, the path to 50,000 students on the ground campus is becoming clearer. Number three, the hybrid campuses. Grand Canyon Education's hybrid campuses had an increase in enrollment year-over-year of 18.5% in the second quarter, excluding the closed sites and those that are in teach-out, which exceeded our expectations. We have turned the corner with this platform and the future is very bright.

We currently have 47 locations that are slightly above 60% capacity. The goal is to have 80 locations with about 300 nursing students per location and an additional 300 students in other health care-related programs. We opened a new site in the 6 months ending June 30, 2026 and closed one site, so the total number of sites remains at 47. We plan to open one new site in the fall of 2026 and 3 to 5 new sites in 2027.

Additional program offerings are being added including a graduate nursing program with specializations at Northeastern University, which started this past fall. A hybrid occupational therapy bridge to master's program to the already successful St. Catherine's Occupational Therapy Assistant hybrid program beginning in the fall of 2026. In online health science degree with Utica University and GCU launched a Bachelor of Science in Occupational Therapy Assistance program and a Speech Language Pathology program in 2025 at its Phoenix West Valley location. GCU is also adding a Bachelor of Science in Medical Lab Sciences program in the fall 2026.

We currently have almost 6,000 students attending our hybrid campuses. The revenue per student of these students is more than 3x that of an online student. When we have 80 locations built out with approximately 600 students per location, the capacity will be just under 50,000 students. The prerequisite business that supports this growth continues to take off, the general education science courses that are designed to get students academically prepared for the ABSN program has enrolled over 25,000 students to date and has tremendous room for additional growth. We believe the investment community is missing the major industry shakeup that occurs when structural shifts such as technology breakthroughs, regulatory changes or economic pressures allow agile, fast-moving companies to displace legacy incumbents and seize market leadership.

This is happening right now with Grand Canyon Education in the higher education industry. The online campus will continue to grow at 6 to 7 percentage points. The ground campus, which has been flat, is reignited with the future growth of the honors college, the huge potential of the college of Construction and Industrial Technologies and the start of what will be a very large law school. We expect the hybrid campus business to continue to grow in the teens or greater in the future.

Service revenue was $264 million for the second quarter of 2026, an increase of $16.5 million or 6.7% as compared to $247.5 million for the second quarter of 2025. The increase year-over-year in service revenue was primarily due to an increase in university partner enrollments of 7.6%, including an increase in GCU online enrollments of 7.8% and university partner enrollments at the off-campus classroom and laboratory sites excluding sites in teach-out or close of 18.5% partially offset by one less day of ground traditional revenue at GCU of $1 million in the quarter as a result of the shift of one day of revenue from the second quarter to the first quarter as compared to last year's spring start date.

And a slight decrease in revenue per student year-over-year, partially due to the contract modifications with some of our university partners in which our revenue share percentage was reduced in exchange for us no longer reimbursing the partner for certain faculty costs which had the effect of reducing revenue per student and a slight decline year-over-year in revenue per student for online students due to the continued mix shift to students that have a slightly lower net tuition rate and a slight decline year-over-year in ground students, which generate a higher revenue per student than online students.

Operating income and operating margin for the 3 months ended June 30, 2026, was $58.2 million and 22%, respectively as compared to $51.8 million and 20.9%, respectively, for the same period in 2025. Net revenue was $45.9 million for the second quarter of 2026. GAAP diluted income per share for the 3 months ended June 30, 2026 is $1.75. As adjusted, non-GAAP diluted income per share for the 3 months ended June 30, 2026, is $1.81, which is $0.14 above consensus estimates. With that, I'd like to turn it over to Dan Bachus, our CFO, to give a little more color on 2026 2nd quarter, talk about changes in the income statements and balance sheet and other items as well as to discuss 2026 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 3 months ended June 30, 2026 and 2025. 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 3 months ended June 30, 2026 and 2025 is $1.81 and $1.53, respectively. In addition, included in our Form 10-Q filed today is the announcement that on July 29, 2026, we entered into an amended and restated master services agreement with GCU. The terms of the amended MSA are generally consistent with the letter of intent that was previously announced.

The amended MSA is effective as of July 1, 2026, has an initial term of 15 years running through June 30, 2041, and unless notice of nonrenewals given at least 18 months in advance of the end of the initial term or any renewal term, will automatically renew up to 3 additional 5-year renewal terms. The amended MSA eliminates GCU's ability to terminate for convenience while also eliminating any related or early termination fees owed by GCU prior to the end of the term. Restructures of service fees such that going forward, service fees are calculated as 60% of tuition and academic related fees only. Ancillary fees and other revenue are for the sole benefit of GCU and a reimbursement payment that the university had been making to GCU in respect of certain academic related costs is eliminated.

And last, in lieu of the prior nonrenewal fee that was due -- if GCU did not renew the MSA at the end of the term, the company would continue to provide services to and receive service fees from GCU for an 18-month period following termination. As previously disclosed, the company estimates that under the amended MSA, its service revenue will be reduced by approximately $20 million annually, but that its operating income will decline by an immaterial amount that should not exceed $1 million per quarter due to the elimination of the academic reimbursement payment.

Service revenue was higher than our expectations in the second quarter of 2026 primarily due to higher-than-expected hybrid and traditional campus summer school enrollments. Online enrollments approximated our expectations. In addition, approximately $1 million of revenue that we had planned to be recognized in the third quarter of 2026 was recognized in the second quarter. The second quarter operating margin was positively impacted on a year-over-year basis by the higher revenue, the contract modifications and lower general and administrative expenses, partially offset by additional spend for 2026 partner initiatives.

Our effective tax rate for the second quarter of 2026 was 24.7% compared to 24.5% in the second quarter of 2025 and our guidance of 24.9%. The effective tax rate increased over the prior year, primarily due to state income taxes. We did make contributions in lieu of state income taxes this month that will increase general and administrative expenses in the third quarter while reducing income tax expense in an equal amount, 3 quarters of which will be in the third quarter and one quarter in the fourth quarter.

Turning to the balance sheet and cash flows. Total unrestricted cash and cash equivalents and investments as of June 30, 2026, were $274.5 million. GCE CapEx in the second quarter of 2026, including CapEx for new off-campus classroom and laboratory sites was approximately $10.7 million or 4.1% of service revenue. We anticipate CapEx for 2026 will be between $30 million and $35 million. We repurchased 471,489 shares of our common stock in the second quarter of 2026 at a cost of approximately $75.3 million and another 169,106 shares were repurchased since June 30, 2026. We have $124.1 million of remaining available as of today under our share repurchase authorization.

The Board and the company intend to continue using its cash flow from operations to repurchase this share. We are also currently working with our primary banking partner on a line of credit that we hope will be in place by the middle of August, that will allow us to continue buying back stock at current or higher levels. Given that the size of the line has not yet been finalized, the interest expense and the impact of any accelerated stock purchases are not included in the guidance below. We will file an 8-K with further details when it is finalized. Last, I'd like to provide color on the guidance we have provided in our 8-K filed today.

As a reminder, the guidance that we have provided in the outlook section of our 8-K filed today is GAAP net income and diluted income per share with the components to adjust GAAP amounts to non-GAAP as adjusted net income and non-GAAP as adjusted diluted income per share. We have updated full year 2026 guidance to include the second quarter revenue and earnings piece. We have made adjustments to second half revenue and operating income guidance previously provided to reflect the impact of the amended MSA and the approximately $1 million in revenue that was recognized in Q2 that had been forecasted to be recognized in the third quarter of 2026.

We have also narrowed the range in both the third and fourth quarters to reflect current trends. We have also reflected the $5 million in contributions made in lieu of state income taxes that will be paid in the third quarter and higher G&A expenses and lower income tax expense and decreased income -- interest income and decreased the weighted average share as we have purchased and plan to continue to repurchase more stock than was originally forecasted.

I realize that all of these changes need to be pushed through your model, but the result should be adjusted EPS that is $0.03 above consensus estimates in the second half of 2026, when the impact of the $1 million of revenue that was recognized in the second quarter instead of the third is considered and $0.14 above consensus estimates for the full year 2026. On a more detailed basis, including current trends, revenue is expected to decrease by $4 million and $6 million in the third and fourth quarters of 2026, respectively, due to the amended and restated MSA while structural costs and services will be reduced by $3 million and $5 million in the third and fourth quarters of 2026, respectively, as we will no longer be making a certain academic reimbursement to GCU. $1 million of revenue was accelerated from the third quarter of 2026 for the second quarter and recognizing the financials we reported today.

The year-over-year changes in the start and end dates of the semesters for GCU's ground traditional campus will move $8.3 million in revenue from the third quarter to the fourth quarter in comparison to last year. The change between the third and fourth quarter is more significant this year than in past years as GCU's fall semester for its ground traditional campus begins and ends 6 days later this year than last year. We continue to anticipate that new online enrollments will be up year-over-year in the mid- to high single digits during the second half of 2026. The second quarter 2026 new start growth rate was expected given that in the prior year, new starts were up in the mid-teens and the second quarter is not a traditional back-to-school time.

Total online enrollment growth continues to be pressured by increasing graduations and a continued decline in reentries, students returning to school after break due to the high retention rates. We continue to anticipate online revenue per student will be slightly down year-over-year due to mix shift to programs that have slightly lower net tuition rates. The revenue range continues to assume that GCU's ground enrollment will be approximately 25,000 in the fall. The reported ground number continues to include GCU hybrid, which continues to grow and professional study students, which we expect to be slightly down on a year-over-year basis.

Total ground enrollment continues to be impacted by the lower fall 2024 new start and the growing number of graduates year-over-year as a significant number of ground traditional students continue to graduate in less than 4 years. We continue to expect total enrollment growth rate for the hybrid pillar to remain in the teens during the second half of 2026. As has been discussed previously, the hybrid growth rate is currently being impacted by the fact that we now have 14 locations that are at or near capacity and thus, we have little to no growth year-over-year in total enrollment at those locations.

And from a new enrollment perspective, 22 locations will not have year-over-year growth in new enrollments on a year-over-year basis in the fall as although 8 locations are not at state authorized capacity, we started the maximum number of students allowed during fall of 2025. The higher-than-expected new starts in spring 2026 will also have an impact on new start growth rates at a few locations in the fall due to capacity constraints. But total enrollment should continue to meet or exceed our expectations. We remain hopeful that some of these locations will get local regulatory approval to grow in the future as they currently have wait list, and we still have a lot of opportunities at the other locations.

On the expense side, we continue to make investments to support our university partners' growth, but continue to anticipate margin expansion in 2026. As has been previously discussed, the online programs, primarily those that lead to licensure in which GCU is growing at an accelerated rate, either cost us more to service than the traditional online programs are at lower net tuition rates which is putting some pressure on margins. We also continue to absorb significant increases in technology services and benefit costs. We have some pressure on margins in the third quarter as the GCU traditional campus start and end dates moved back this year but that reverses in the fourth quarter.

As it relates to the hybrid pillar, we will incur additional costs for the new hybrid locations that have opened in the last year or will open in late 2026, early 2027, but we are experiencing increased site level profitability due to the increasing enrollments. Projected general and administrative expenses have increased our guidance in the third quarter of 2026 by the contributions in lieu of state income taxes of $5 million, approximately 75% of this is recognized as a reduction in income tax expense in the third quarter of 2026, with the remaining recognized as a reduction in income tax in the fourth quarter. This is consistent with the prior year. We are estimating that interest income will decline year-over-year in 2026 due to the declining cash balances due to more aggressive stock buybacks and a declining interest rate environment. The effective tax rates for the remaining 2 quarters of 2026 have been reduced due to the contributions in lieu of state income taxes to 20.8% and 23.2% in the third and fourth quarters, respectively, with a full year tax rate of 23.2%.

Had the contributions not been made, we estimate our effective tax rate would have been 24.7% and 24.4% in the third and fourth quarters, respectively. These effective tax rates continue to be impacted by higher state income taxes as we continue to add new sites in states outside of Arizona, which have higher state tax rates and other factors, including the decrease year-over-year in the excess tax benefit due to a decline in our stock price. Our weighted average shares guidance takes into account the significant amount of stock we have or plan to purchase. We anticipate continuing to use our excess cash to repurchase shares as the Board believes the stock is materially undervalued based on the metrics that it uses to evaluate this, including the ratio of enterprise value to adjusted EBITDA and free cash flow yield in comparison to the other S&P 500 companies. I will now turn the call over to the moderator so that we can answer questions.

[Operator Instructions] Our first question will come from the line of Jasper Bibb with Truist Securities.

Really nice online enrollment figures. Obviously, kind of one of the big topics around the space has been a potential impact of consumer adoption of GenAI on customer acquisition and enrollment. Just kind of curious, hoping maybe you could share what your experience has been with inquiry volumes, this kind of AI theme and how you're reacting to the kind of broader consumer shift there?

Yes. We have listened to other calls. And so we've heard that too. The way we're getting over 30% of our starts, and I think it's going to grow to 40% of our starts has nothing to do with generating leads. It has to do with meeting needs of organizations throughout the country. It's just such a high-quality way to -- for a university to serve the needs of the economy. And so we are shielded from some of the growth that is that causes the decline in the efficiency of marketing spend. We are impacted in the same way others are from the standpoint of web leads being down. But we're not as impacted because we don't have to get our growth from increased lead amounts like other people do.

AI is absolutely the future and positioning ourselves so that the best stories come out when people go to AI to check on Grand Canyon University is going to be the future of this whole -- of the whole market. And we are working very hard to position the best things about GCU, especially but other partners as well so that they'll come up when people look for us. The Honors College. The opening of the law school, the tremendous contribution to what it has to be a rebuilding of the labor force in construction, industrial technologies, our relationship, our growing relationship with TSMC, which is the largest chip manufacturer in the world that sits 20 minutes from here. And we're doing -- we're opening incredible partnerships with that company with Amkor.

And so everybody is impacted to some extent by the shift away from searches to AI, we're not as impacted by it, and we expect our growth rates that we talked about today, not to be impacted by any of that. And I think it will only get better for us as we go forward. I can't underemphasize the other structural change that's taken place. And thank you for picking up coverage for us, but for 4 or 5 years, we were just fighting the negative PR that came from the attack -- that was placed on us by the Biden administration. That's all done. That's all gone. People aren't even talking about that. People are talking about our honors college. They're talking about our new law school. They're talking about those kinds of things, which has changed everything for us.

And so -- that's kind of a long-winded answer to your question, but we're not -- we're just not as impacted by those changes like people who are more dependent on those things are.

Right. No, that makes sense. And thanks for all the detail there. It sounds like a lot of exciting things going on. Maybe just last one for me. On the new student loan rules that took effect on July 1, I know it's early, you probably only had a couple of weeks of experience with this. But could you just walk us through maybe how you're managing that through transition, there are some new processes, new borrowing caps for different programs. Just any detail on how that's going so far would be great.

But I assume you're talking about the master's degree program limitations on loans?

Yes. I think there's some just different operational processes of how that has to be handled on your and things like that. So.

Yes, I'll talk about that one because I think that's the big one. We've been encouraging the Department of Ed to do that for years. When the rules around loan amounts for master's degree students, graduate-level students were put in place, it was when most graduate students were students who graduated from baccalaureate program and entered a master's degree program and spent 2 years doing that. And sometimes they would be married with kids, and they needed living expense money. That's all changed in the last 30 years. 90% plus of students that are now in graduate programs are doing it online. And they are mid-career professionals. And they have salaries and they have benefits, and they don't need that living expense money.

But since they could get it, they would take it. And then when loans didn't have to be paid back, they didn't get paid back. And we told the Department of Ed for years, adjustments should be made to reflect who graduate students are today versus who they used to be. We had a thing called responsible -- we have a thing responsible borrowing. And we would show students, if you're going to borrow money to do your program and you borrow the amount to cover the direct costs, this would be your payments. And then if you borrow the full amount including living expense, this will be your payments. And we were actually criticized for doing that by the previous administration because we weren't being -- we were trying to preclude -- to keep people from over borrowing. And that was just -- it was just found to lead to loan defaults. And so that major change has taken place. We are fully behind, and it's not impacted any of our programs. Our tuitions are way under what the amount the students can borrow. And so we're not impacted by it at all. In fact, we think it's a really good thing.

[Operator Instructions] One moment for our next question, and that will come from the line of Jeff Silber with BMO Capital Markets.

This is Ryan on for Jeff. I was just curious if you think your competitors are intentionally shifting their degree mix to more licensure programs in the wake of the perceived AI risk on some of those certain degrees. And do you think we could see a larger tuition differential between different majors and programs in coming years?

No, good question. To the first question, it's just the opposite. I won't name names, but there are a number of -- we're pretty strong players in the counseling area, and there's a huge shortage of counselors in America that because of CACREP accreditation requirements drop their programs. They just didn't have the technology and the resources to provide services to students at a distance that allow them to completely -- to successfully complete clinical hours and observation hours and internship hours and all those things. And so it's just the opposite. We see more people dropping out of those programs that are getting into them. And so we think going forward, we will be the major player in providing teachers, counselors, social workers, nurses, other health care fields accounting, where you got to sit for the CPA. We openly embrace and we're excited about the law school from that standpoint because of board pass rates.

We intend to inject the same kind of student support services around and the academic support services that we do with programs in education, where there are content tests that are necessary. Nursing where the NCLEX examination is necessary. We look forward to producing extremely high first-time board pass rates. Those things are challenges to us. It's more difficult, but the difficulty of it once you've made the investment and it separates you from the rest of the pack, the people who just aren't willing to do those things. And so the answer to your first question is it's -- no, we don't expect to see that. In fact, we're seeing the opposite. The second question.

Differentiated tuition rates by program.

Yes. I think we'll see some of that. I think the thing that we're going to see more than anything is what's been true for 4 or 5 years, which is the way to grow margins in this business is to decrease the cost to acquire a student. And the stronger the brand that you have, the less amount of money it cost to acquire a student and the more you can freeze tuition, which we've done in our ground campus for 18 years. And pretty much most online programs for over a decade. So I don't see a tremendous need to differentiate more than we already are other than the ABSN program is a premium price program.

It's very expensive to operate, but the value that it offers to students in terms of the salaries that they make and the jobs that they can get more than make up for that premium price. And the law school will be a premium price program as compared to others but the payout is the same thing. And so we're excited about that from the standpoint of the number of students we think we can have, the revenue per student is going to be very high, and the margins are going to be significant as long as we can produce the results.

The other thing that's going to happen is that we think that we can really increase our ground enrollment in our pre-law program because students will be able to stay right here and hopefully do the whole thing in 5 years. So no, we don't -- I don't think -- other than the ABSN program, maybe programs like occupational therapy law, certainly, there will be some differentiation there. But other than that, not more than there is today.

And just to add on that, GCU has always had differentiated tuition rates. If you look at, for example, bachelor's programs, not all bachelor's programs are the same rate and same at the master's level. So I think GCU has been doing that for as long as I can remember. And so if others are doing that probably makes sense.

I appreciate it. And then just on the hybrid programs. I heard the commentary on the long-term growth. I was just curious if you can update us on where those programs stand from a profitability standpoint today? And then where do you think the margins could go as you really scale that up?

Yes. They're profitable. This year, they'll be profitable. How much? I would say we don't really measure it on a stand-alone basis. But it will be profitable. Those programs will be profitable. And where they could go, I mean, again, we don't allocate costs and whatever. But I think on a site basis, if you just look at all those locations on a site basis, I think it could be 20-plus percent margins on a site basis perspective.

We reached the end of our second 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 for your time.

This concludes today's program. Thank you all for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to Q1 2026 Grand Canyon Education Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Sarah Collins, General Counsel. Please go ahead.

Joining me on today's call is our Chairman and CEO, Brian Mueller; and our CFO, Dan Bachus. Please note that many of our comments today will contain forward-looking statements that 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. These factors 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.

With that, I'll turn the call over to Brian.

Good afternoon, and thank you for joining Grand Canyon Education's First Quarter 2026 Conference Call. GCE had another strong quarter, producing online enrollment growth of 8.8% in hybrid growth, excluding the closed sites and those that are in teach-out of 20.3%. And Grand Canyon Education, Grand Canyon University and now 19 additional partners have produced remarkably consistent positive results over the last 17-plus years in spite of significant change in the macro environment of education and the workplace. Most significantly, GCU has got from the brink of bankruptcy to now being the largest private university in America. In addition to over 110,000 students studying online, GCU now has 25,000 students in an on-campus environment and has more students living and university-owned housing on its campus than any university in the country.

Recently, GCE and its partners have built 47 hybrid campuses throughout the country to address severe shortages in the health care fields. More recently, GCE as assisted GCU and building a workforce development center to produce professionals in the rapidly growing construction and manufacturing fields where there are also severe shortages. The growth and success that has taken place is because GCE and its partners have built a model that is extremely flexible is able to respond with great speed and has used advanced technologies to produce tremendous scale. The current satisfaction with higher education is because factory governance models are very inflexible, move very slowly and can't scale to meet demands. Excellence and higher education is going to be defined in very different terms going forward.

There's a lot of talk about how AI will produce winners and losers by industry types. The real discussion should be about winners and losers within industries. Higher education as an industry will continue to exist. Institutions that are flexible, fast and that can scale will be able to use AI to flourish to even greater levels in the next 10 years. Higher Education will be more important than ever if we can educate the next generation of workers to use AI in 3 important ways: one, to use AI to produce products to increase levels of human productivity. Two, to quickly allow workers whose jobs have been eliminated to re-career and the educated generation of workers for jobs that don't exist today but will exist in the future. It's important that universities don't teach just AI but are able to model it in a way it runs its business.

GCE and GCU has dozens of AI products and products in development across 10 colleges over 375 academic programs, emphases and certificates and across every operational area. Students are learning with increasing levels of excellence and efficiency. Score is currently produced by GCU students in exit and licensure exams in the areas of health care, education, accounting, et cetera, are reaching all-time highs while scaling to huge numbers. This is especially important for important for GCU since it has rapidly expanded into academic areas requiring licensure. Programmatic areas like nursing, education, social work, counseling, et cetera, will benefit from AI implementation, but employment in those areas will always require formal higher education, the completion of degrees and licensure.

Project work produced by business, engineering and technology students are at increasing levels of sophistication, GCU's innovation center is producing new student businesses that are thriving to succeed in the future, universities must produce these real-world opportunities for students and they must graduate in less time for less money and for lower debt levels.

Our AI products are making curriculum more targeted, factly, more effective and efficient and allowing operators to produce greater levels of student support. I believe AI will make our current advantages even greater, which makes me even more confident we will continue to meet or exceed our long-term objectives.

With that, I would like to review the first quarter results. First, the online campus at Grand Canyon University. New starts were up in the high single digits in the first quarter of 2026, which was slightly above our expectations and total enrollment growth was 8.8% and which significantly exceeds GCU's long-term objectives. In the past, I have highlighted 4 reasons for the growth. They include continuing to roll out 20-plus new programs on an annual basis, working with over 5,500 employers directly to address workforce shortages, strong retention levels and holding the line on tuition to main GCU's competitive pricing position. Working with over 5,500 employers directly to address workforce shortages puts us in a very strong position with regard to online enrollment growth. We are now getting approximately 30% of our new starts by directly working with employers.

The lead generation environment is definitely being impacted by the increasing numbers of people using artificial intelligence rather than an organization's website to gather information that they will use to make important purchases and life decisions. Our ability to respond to those changes is greater than the competition because of our unique ability to generate a high percentage of our students without using the typical lead generation strategies. The students we are generating by working directly with employers tend to be very purpose-driven and have high retention and graduation rates. Our marketing team continues to roll out AI strategies to showcase the strong brands and outcomes of our partners. We believe in the long term, this will be very positive for us.

Second, the GCU ground campus for traditional students. Total traditional campus enrollments were down slightly year-over-year in the spring of 2026 as expected. Spring total enrollments have historically been less in fall enrollments as spring new enrollments is a small percentage of overall traditional campus new enrollments as they are mostly made up of transfers of students that deferred a semester and total enrollment is impacted by the growing number of students that are graduating in less than 4 years. We believe GC will continue to experience annual new student growth on the ground campus each fall. Despite this increasing number of graduates because of the significant advantages, including the very low price point, very low average debt levels, percent of students completing in less than 4 years, the relevancy of GCU's academic programs be a fast-changing and modern economy and having the 20th ranked campus in the country.

As we discussed on last quarter's earnings call, we have made some changes to our marketing and recruitment strategy for GCU's traditional campus, which accelerated some spend into 2025 in the first half of 2026. Those changes to date are producing positive results as registrations for fall of 2026 remain ahead of last year. Even with the macro trends I discussed earlier and the tougher year-over-year comps, we believe we can grow new enrollments significantly year-over-year, which should get residential students back to growth. 2 weeks ago, GCU made a major announcement as part of its 25,000 student traditional campus, GCU is 1 of the fastest-growing honors colleges in the country. Like Ingram, 1 of Arizona's most prolific land developers has made a long-term commitment to the future of the college and has been named the Sheila and Mike Ingram Honors College.

GCU expects to have over 3,000 students in the fall with average weighted incoming GPAs of over 4.1. This was 1 of the highest in the country. The students are coming from all 50 states and are studying across all 10 of GCU's colleges. Students are getting internships and eventually jobs at many of America's top companies, health care organizations, school districts, counseling centers, engineering firms, et cetera. GSU plans to more than double the student population making it 1 of the largest and most impactful ones colleges in the country. Mr. Ingram is leading an effort to build a very prestigious honors college counsel, which will be comprised of highly successful pre professionals from the worlds of business entertainment, politics, education, health care and sports.

A 55,000 square foot building is under construction to open in the fall that will be a state-of-the-art facility, containing lecture halls, collaboration spaces, maker spaces and gathering areas for many of America's best students. We believe the University's academic brand will continue to accelerate upwards as the Honors College grows, which is another reason we remain optimistic about the future growth of GCU's traditional campus.

Third, Grand Canyon Education's hybrid campus had an increase in enrollment year-over-year of 18.3% in the first quarter. Excluding the closed sites and those that are in teach-out, enrollment increased 20.3% year-over-year. Hybrid campus new starts in the first quarter, excluding those in teach-outs, were up 20% over the prior year, which exceeded our expectations. There are 2 main reasons for this continued growth. One, almost all of our active ABSN partners have responded to the younger students interested in ABSN programs by admitting advanced standing students are in the process of making that change. Students with partially completed degrees, haven't accumulated a great deal of debt and are very interested in nursing careers but didn't have an efficient way to earn the pre-repositscience coursework.

GCU created the science courses and some other gen-ed courses so that they could be delivered online in 8 weeks. Students can access these courses from anywhere in the world. There are start opportunities almost every week -- these courses have been made very affordable are taught by experienced faculty, class sizes are low, and there's a tremendous amount of academic support, including artificial intelligence project, which provides students 24/7 access to tutoring. Since implementing these courses, we have already enrolled 23,104 students. We have a waterfall report, which allows us to know how students are progressing through their prereq courses and when they will be eligible to start at 1 of our ABS in sites. Graduation rate of students who successfully entered the ABSN program is in the mid-80s and the first-time pass rate on the NPLX exam is approximately 90%.

Nearly all our partners have responded positively to the change needed to serve the advanced standing students. Our goal is to still have 80 locations with our partners with 40 of the locations being GCU locations. We opened 5 new sites in the year ended December 31, 2025, closed 2 sites in which we stopped recruiting new students in 2024 and merged 2 sites that were located in the same market, bringing the total number of these sites to 47 as of December 31, 2025. Three of the 5 new sites were GCUs bringing their ABSN location total 2 to 11. We plan to open 1 to 2 additional sites in the second half of 2026 while we mutually agreed with 1 partner to stop the recruiting of new students and begin to teach out at 3 of its sites during the first quarter of 2026.

A couple of sites that were planned to open in the fall of 2026 are more likely to open in the early 2027, as we have previously discussed. We are being more selective on new site openings with a focus on the scalability of the market. We are also expanding our programmatic offerings with our hybrid partners by adding a graduate nursing program with 7 specializations with Northeastern University, which started this past fall. A hybrid occupational therapy bridge to master's program to the already successful St. Cates occupational therapy assisted hybrid program, which will begin in the fall of 2026. In online health science degree with Utica University and GCU launched a BS in occupational therapy assistance program and a speech language pathology program in 2025 at its Phenex West Valley location.

GCU also plans to add a Bachelor Science and Medical Lab Sciences program in 2026. Adding additional programs at our hybrid locations is an important component to our business plan. We anticipate this momentum will continue, although with the lower number of new site openings and more of our locations getting to capacity, hybrid enrollment growth will slow a bit, while the profitability of this pillar will continue to improve.

Fourth, the Center for Workforce Development at Grand Canyon University GCU now 4 programs in the center for Workforce Development, including the electricians pre-apprenticeship program, the CNC machines pathway program, the manufacturing specialist intensive pathway and a construction general pathway, and we'll be rolling out a fifth program, the Manufacturing general pathway in the fall of 2026. These programs are all built in partnership with companies that are experiencing labor shortages in that area and are excited about hiring GCU's graduates. These programs are either 1 semester or 2 semester programs, 116 students successfully completed the electrician pre-apprenticeship program in the fall of 2025 with 5 in the Austin, Texas hybrid location.

15 students completed the manufacturing CNC machines pathway program in the fall of 2025 cohort and 29 students completed the manufacturing specialist intensive program. These students attend school for 20 hours a week and work in the facilities have paid employees for 20 hours. At the end of the semester, they receive the manufacturing certificate and become eligible for employment in Arizona's fast-growing manufacturing industry. Students in GCUs growing engineering college are getting experience in this manufacturing facility, which is adding to their engineering education.

I started out talking about the relevant programs and creative delivery models that GCU is implemented with its 20 partner institutions. In the 7-plus years since GCE has become a service provider has helped its partners accomplish the following: -- in that time, GC has helped Grand Canyon University regulate 221,436 students. 59,659 in education, including 27,601 first-time teachers at a time when teacher shortages have created a national crisis. 57,412 in nursing and health care professions including 3,723 pre-licensure nurses and a plan when there is a huge shortage of nurses. 46,520 in colloge of humanities and social sciences, including thousands and counseling and social work, where there are also huge shortages.

The College of Business has become 1 of the largest business schools in America has produced 38,823 graduates. The College of Science, Engineering and Technology has grown by 22% and provided 9,739 graduates. The Doctoral College, ones College and College of Theology also continued to grow. In addition, GCE has helped its partner to graduate over its other partners graduate over 15,000 pre-licensure nurses and occupational therapists assistance. The numbers that I've cited have all happened in the past 7 years since the GCU GCE transaction and since GCE has become an education services provider. This is a great example of a futuristic educational model that is flexible, moves fast and is capable of great scale. All of this has occurred while GCE paid $627 million in federal and state taxes, while state universities and community colleges pull money out of the tax system. GCE has helped produce over 235,000 graduates while pouring millions of dollars into the system.

Services revenues was $308.8 million for the first quarter of 2026, an increase of $19.5 million or 6.7% as compared to $289.3 million for the first quarter of 2025 -- the increase year-over-year in service revenue was primarily due to an increase in university partner enrollments of 7.1%, including an increase in GCU online enrollments of 8.8% and university partner enrollments at the off-campus classroom and laboratory sites of 18.3% and 1 additional day of ground traditional revenue at GCU of $1 million in the quarter as a result of the shift a 1 day of revenue from the second quarter to the first quarter as compared to last year's spring start date, partially offset by a slight decrease in revenue per start year-over-year, primarily due to contract modifications with some of our university partners in which our revenue share percentage was reduced in exchange for us no longer reimbursing new partner for certain costs, which had the effect of reducing revenue per student and a slight decline year-over-year in revenue per student for online students due to the continued mix shift to students that have a slightly lower net tuition rate and a slight decline year-over-year in ground students, which generate a higher revenue per student than online students.

Operating income and operating margin for the 3 months ended March 31, 2026, was $95.5 million and 30.9%, respectively, as compared to $88 million and 30.4%, respectively, for the same period in 2025. Net income was $75.3 million for the first quarter of 2026, GAAP diluted income per share for the 3 months ended March 31, 2026, was $2.80. As adjusted non-GAAP diluted income per share for the 3 months ended March 31, 2026, is $2.86, which is $0.08 above the consensus estimates.

With that, I would like to turn it over to Dan Bachus, our CFO, to give a little more color, 2026 1st quarter, talk about changes in the income statement, balance sheet and other items as well as to discuss the 2026 guidance.

Thanks, Brian. Included in our Form 8-K filed with the SEC, we have included non-GAAP net income and non-GAAP diluted net income per share for the 3 months ended March 31, 2026 and 2025. 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 3 months ended March 31, 2026 and 2025 is $2.86 and $2.57, respectively.

Service revenue was higher than our expectations in the first quarter of 2026, primarily due to higher-than-expected enrollments and slightly higher-than-expected revenue per student. The first quarter operating margin was positively impacted on a year-over-year basis by the higher revenue and the contract modifications, partially offset by additional spend for 2026 partner initiatives. Our effective tax rate for the first quarter of 2026 was 23.5% compared to 21.6% in the first quarter of 2025 and our guidance of 23.4%. The higher-than-expected effective tax rate is primarily due to state income taxes and a decrease in excess tax benefits of $1.4 million in the first quarter of 2026 as compared to $2.7 million in the first quarter of 2025.

We repurchased 724,408 shares of our common stock in the first quarter of 2026 at a cost of approximately $120.4 million and another 202,010 shares were repurchased since March 31, 2026. We have $189.7 million remaining available as of today under our share repurchase authorization. The Board and the company intend to continue using a significant portion of its cash flows from operations to repurchase its shares.

Turning to the balance sheet and cash flows. Total unrestricted cash and cash equivalents and investments as of March 31, 2026 were $251.7 million. GCE CapEx in the first quarter of 2026, including CapEx for new off-campus classroom and laboratory sites was approximately $8.1 million or 2.6% of service revenue. We anticipate CapEx for 2026 will be between $30 million and $35 million.

Last, I would like to provide color on the guidance we have provided in our 8-K filed today. As a reminder, the guidance that we have provided in the outlet section of our 8-K filed today is GAAP net income and diluted income per share with the components to adjust the GAAP amounts to non-GAAP as adjusted net income and non-GAAP as adjusted diluted income per share. We have updated full year 2026 guidance to include the first quarter revenue and earnings beats. We are reaffirming our revenue and operating income guidance previously provided for the rest of 2026 while slightly decreasing interest income and decrease in the weighted average share count as we purchased back more of our stock through today than it was planned. As a reminder, revenue continues to be slightly impacted in 2026 due to the modification of the contract for 1 university partner effective January 1, 2026, and which we will no longer be reimbursed in the partner for their faculty costs and due to the teach-out of 1 partner 3 locations.

We estimate that these changes will reduce revenue by $4.2 million in 2026. This slightly lowers the revenue growth rate in 2026, but both are long-term positives for the company and will positively impact margins in 2026. We continue to anticipate online revenue per student will be slightly down year-over-year due to the mix shift to programs have slightly lower net tuition rates. The year-over-year changes in the start and end dates of the semesters for GCU's ground traditional campus moved $1 million in revenue from the second quarter to the first quarter and $8.3 million in revenue from the third quarter to the fourth quarter in comparison to last year. The change between the third and the fourth quarter is more significant this year than in past years as GCU's fall semester for its ground traditional campus begins an end 6 days later this year than last. We continue to anticipate that new online enrollments will be up year-over-year in the mid- to high single digits during 2026.

As has been previously discussed new enrollment growth in the second quarter of 2025 and was up in the mid-teens over the prior year, and thus, mid-single-digit growth in the second quarter would be strong growth. Total online enrollment growth continues to be pressured by increasing graduations and a continued decline in reentries, students returning to school after break due to the high retention rates. The revenue range assumes that GCU ground enrollment will range from 8,500 to 8,800 in the summer and be between 24.9 and 25.6% in the fall. The reported ground number continues to include GCU hybrid, which continues to grow and professional study students, which we expect to be flat on a year-over-year basis.

Total ground enrollment continues to be impacted by the lower fall 2024 new start and the growing number of graduates year-over-year as a significant number of ground traditional students continue to graduate in less than 4 years. The new and total enrollment growth rate for the hybrid pillar is predicted to grow on a year-over-year basis in the high single digits to mid-teens during each of the 4 quarters of 2026. As has been previously discussed, the hybrid growth rate is being impacted by the fact that we now have 14 locations that are at or near capacity, and thus we will have little to no growth year-over-year in total enrollments at those locations. And from a new enrollment perspective, 22 locations will not have year-over-year growth in new enrollments on a year-over-year basis in the fall, although 8 locations are not at state authorized capacity we started the maximum number of students allowed during the fall of 2025.

The higher-than-expected new starts in spring 2026 could also have a small impact in new start growth rates at a few of the locations in the summer and fall due to capacity constraints. We remain hopeful that some of these locations will get local regulatory approval to grow in the future as they currently have wait list and we still have a lot of opportunities at the other locations. On the expense side, we continue to make investments to support our university partners' growth goals, but continue to anticipate margin expansion in 2026. As has been previously discussed, the online programs primarily that lead to licensure in which GCU is growing at an accelerated rate, either cost us more to service than the traditional online programs or are at a lower net tuition rates which is putting some pressure on margins. We also continue to absorb significant increases in technology services and benefit costs.

We have some pressure on margins in the first 6 months of this year as ground traditional enrollment is down year-over-year and in the third quarter as the GCU traditional campus start and end date moves back this year. As it relates to hybrid pillar, we will incur additional costs for the new hybrid locations that have opened in the last year or will open in late 2026 or early 2027, but we are experiencing increased site level profitability due to the increasing enrollment -- we are estimating that interest income will decline year-over-year in 2026 due to declining cash balances due to more aggressive stock buybacks and a declining interest rate environment. We continue to believe the effective tax rate for the remaining 3 quarters of 2026 will be 24.9%, 24.9% and 24.3% with a full year tax rate of 24.4%. The effective tax rate continues to be impacted by higher state taxes as we continue to add new sites in states outside of Arizona, which have higher state tax rates and other factors including the decrease year-over-year in the excess tax benefit deduction due to a decline in our stock price.

These estimates do not assume a contribution in lieu of state income taxes -- but if 1 is made, that will increase G&A expense in the third quarter and decrease our effective tax rate in the second half of the year. Our weighted average shares guidance takes into account the significant amount of stock we repurchased in the last few months. We anticipate continuing to use our excess cash to repurchase shares as the Board believes the stock is materially undervalued based on the metrics it uses to evaluate this, including the ratio of enterprise value to adjusted EBITDA and free cash flow yield in comparison to other S&P 500 companies.

I will now turn the call over to the moderator so that we can answer questions.

[Operator Instructions] Our first question comes from the line of Jeff Silber from BMO Capital Markets.

I want to focus on the first quarter adjusted operating margin beat. It was pretty sizable this quarter. Maybe we can get a little bit color in terms of what drove that? And was there any expense shift timing between the quarters.

No, not really expense shift timing more just the revenue beat drove that. We are still managing expenses as tight as we can and investing where management believes we need to invest. But nothing that really moved expenses between the 2 quarters. It was really just the revenue and the enrollment and thus, the revenue beat and the -- and just managing expenses.

Okay. That's helpful. And Brian, in your prepared remarks, you alluded to some issues that are going on in the industry in terms of the AI impact on lead generation in terms of where they're sourcing. And I know you don't do much of that -- but can you just talk about if it's had any impact on you at all? And what you are doing about it, if that's the case.

No, it's a very interesting time, obviously. We had long meetings in here with a lot of people, including Google, initiative Media, which is the largest media buying company in the world, which has been a partner of ours for a long time. It's just a general move by the population not to depend on an organization's website for information on the organization. I mean, AI is taking over. People would prefer to hear other people's opinions and before they make decisions versus the organization's own website.

And so we've got the largest advertising agency in the state of Arizona here at GCE. And so we've got a lot of experience and a lot of -- the huge depth of knowledge, great partners and this has been happening in the last 12. This has been -- happened in the last 12 months, especially accelerating in the last 6 months. And so the web leads, which were a huge part of what we did, highest converting leads those are shrinking in number, and we're just spending money in other places to replace those leads. You won't get as good a conversion rate with those other sources, but you get more leads, and so you can come out at the same place. You just have to understand what's happening and be able to make that adjustment.

Now for us, there's a -- we don't have as much pressure because of those rapid changes because we're getting 30% of our starts now from working directly with partners across the country. We're taking lower-level people within health care organizations, within school districts, counseling centers, and we're putting them in back Laureate and Master's programs. And those students is 30% of our new starts but more than that from a total enrollment standpoint because their retention rates are so high. And so as we look forward the next 5 years, we need to start moving those numbers to 40%. They're just really good students. It puts us in a great place with employers who are benefiting from a workforce shortage perspective by being able to elevate people within their own organization.

And then when we talk about margin expansion, historically, that margin expansion has come from the fact that we've been able to reduce our cost per start. And if things go as well as we think they might go, in the next number of years, and we get margin expansion. It will come from that place. Obviously, there are no guarantees, but we think we are really well positioned one of the moves we're making with our Honors College, very honestly, is that we want that position when people go to ChatGPT in other places, we want that highly positioned because it's such a strong leading indicator of university in this case, GCU's really strong brand growth the academic credibility of what is happening and what's going to happen, we believe we're going to get everything else that we do is going to draft behind that from a quality standpoint. So that might be a lot more than you were asking for. But I hope that helps.

Our next question comes from the line of Alex Paris from Barrington Research.

Congrats on the strong quarter, and I appreciate all the detail and color. Again, just a couple of follow-ups. Starting with GCU ground, you talked a lot about the Honors College and initiatives that you are have planned for it. But last quarter, we talked a bit about -- and you touched on it in your prepared comments, the change in the marketing strategy at GCU ground, shifting some expense from reps in the high school salaries to social media and that sort of thing. So you had expected that to continue to be an investment area in the first half. Just wondering if that is -- continues to be the case and maybe just an update on the progress there.

No. Yes. Thank you for your question. We're continuing to invest dollars to a greater extent than we have in the past in advertising strategies around our ground campus. And from the standpoint of where we are, registrations are up, housing numbers are up, but it's extremely competitive. It's always been competitive, but it's never been like this. There are universities that are very honestly, struggling from a financial perspective and they're trying to hang on. And so it will be an interesting last 3 or 4 months going up to the fall start. In terms of actual students registered, we are up in terms of student housing. We are up, but we got to work hard to maintain that and depending upon where we come in August, a lot of that will depend on how we invest money in the future to grow the ground campus. You know that from a ground campus perspective, the revenue per student is very high as compared to online students.

And so the investment is worth it and the return to investors is significant if we're able to continue to make that thing grow. I think the next step in our whole plan around the ground campus is to increase the academic excellence and the visibility of that through the Honors College. And so in addition to what we're doing from an advertising standpoint, we want for that as Honors college to be extremely visible because it's right in the middle of 1 of the most dynamic economies in the country. We were on I-17 in 33 Avenue in Phoenix, which is right in the middle of 6 million people. It's a growing economy growing manufacturing -- the growing manufacturing industry from a chip manufacturing perspective because TSMC is here and everything that they're bringing to this economy. And so the come and study in Arizona, in a premier honors college and graduate in 3 years and have a chance to get employed by some of the top companies in the country is going to be, I think, an extremely strong brand builder for the university and a big part of our strategy.

So we'll keep you updated. We're running ahead, but you've got to finishing it out is we've got to finish it out over the next 3 or 4 months.

And then just to that point, while the enrollment on GCU ground was down in the first quarter, the guidance at the midpoint that Dan just outlined, calls for modest growth in the summer and in the fall.

Yes, that's correct. We're very excited about the summer trends. So that's looking really good. And as Brian said, we still have a few months to go, but we're optimistic about where fall looks at the moment.

Great. And then my 1 other question is -- really a follow-up from the third quarter conference call. I just thought it'd be a reasonable time to get an update on what's going on with nursing. We talked about it on the third quarter call because a large competitor talked about declines in post licenser nursing and said that it was really self-inflicted in execution issues. You guys said that -- well, you guys had said that is growing slower than the average of your other 350 programs. Just wondering what's going on there? Has there been any change in enrollment in post-life engineering because another thing is obviously 1 of the bigger verticals.

Actually, we've seen -- Brian can get it more details, but we've seen a reacceleration in RN-BSN rates. So it had a really good quarter. So yes, on the pre-licensure, pre-licensure continues to do very well. Post licensure, just because of the competitiveness of that market has been growing, but growing at a kind of a low single-digit rate, although that's accelerated of late is actually 1 of the reasons that we're getting a little bit of pressure on the revenue per student side.

Yes, we've made some adjustments. We have made some adjustments in both the and the BSN and MN in our product, our pricing and our placement and all of that. And that's going to be -- we're going to be very successful in that area in the next 3 or 4 years. So the growth in this quarter has been really, we expect that to continue.

Thank you. 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 any questions, please contact myself, Dan Bachus. Thank you for your time.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.

Good day, and thank you for standing by. Welcome to the Fourth Quarter 2025 Grand Canyon Education Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded.

I would now like to hand over to your speaker, Sarah Collins, General Counsel. Please go ahead.

Joining me on today's call is our Chairman and CEO, Brian Mueller; and our CFO, Dan Bachus. Please note that many of our comments today will contain forward-looking statements that 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. These factors 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.

With that, I'll turn the call over to Brian.

Good afternoon. Thank you for joining Grand Canyon Education's Fourth Quarter 2025 Conference Call. GCE had another strong quarter, producing online enrollment growth of 8.7% and hybrid growth, excluding the closed sites and those in [indiscernible] of 18.7%. Grand Canyon Education, Grand Canyon University and now 19 additional partners have produced remarkably consistent positive results over the last 17 years in spite of significant changes in the macro environments of education and the workplace. Most significantly, GCU has gone from the brink of bankruptcy to now being the largest private university in America. In addition to over 107,000 students studying online, GCU now has 25,000 students in an on-campus environment and as more students living in university-owned housing on its campus than any other university in the country.

Recently, GCE and its partners have built 47 hybrid campuses throughout the country to address severe shortages in the health care fields. More recently, GCE has assisted GCU in building a workforce development center to produce professionals in the rapidly growing construction and manufacturing fields where there are also severe shortages. The growth and success that has taken place is because GCE and its partners have built a model that is extremely flexible, is able to respond with great speed and has used advanced technologies to produce tremendous scale.

The current dissatisfaction with higher education is because faculty governance models at many universities are very inflexible, move very slowly and can't scale to meet demands. There's a lot of talk about how AI will produce winners and losers by industry type. The real discussion should be about winners and losers within industries. Higher education as an industry will continue to exist. Institutions that are flexible, fast and that can scale will be able to use AI to flourish to even greater levels in the next 10 years.

Higher education will be more important than ever, if it can educate the next generation of workers to use AI in 3 important ways: one, to use AI products to increase levels of human productivity; two, to quickly allow workers whose jobs have been eliminated to re-career; and three, to educate a generation of workers for jobs that don't exist today but will exist in the near future.

It is important that universities don't just teach AI, but are able to model it in the way it runs its business. GCE and GCU have dozens of AI products and products in development across 10 colleges over 350 academic programs and across every operational area. Students are learning with increased levels of excellence and efficiency. Scores currently produced by students in exit and licensure exams in the areas of health care, education, accounting, et cetera, are reaching all-time highs while scaling to huge numbers. This is especially important for GCU since it has rapidly expanded into academic areas requiring licensure.

Programmatic areas like nursing education, social work, counseling, et cetera, will benefit from AI implementation, but employment in those areas will always require higher education and life insurer. Project work produced by business, engineering and technology students are at increasing levels of sophistication. GCU's innovation center is producing new student businesses that are thriving.

To succeed in the future, universities must produce those real-world opportunities for students, and they must graduate in less time for less money and for lower debt levels. Our AI products are making curriculum more targeted, faculty more effective and efficient and allowing operators to produce greater levels of student support. I believe AI will make our current advantages even greater, which makes me even more confident we will continue to meet or exceed our long-term objectives.

With that, I would like to review the fourth quarter results. First, the online campus at Grand Canyon University. New starts were up in the mid-single digits in the fourth quarter of 2025, which was in line with our expectations and total enrollment growth was 8.7%, which significantly exceeds GCU's long-term objectives.

In the past, I've highlighted 4 reasons for the growth. They include continuing to roll out 20-plus new programs on an annual basis, working with over 5,500 employers directly to address workforce shortages, strong retention levels and holding the line on tuition to maintain GCU's competitive pricing position.

New start comps are extremely challenging in the first half of 2026 as new starts were up in the teens in the first and second quarters of 2025 compared to 2024 due primarily to the success of programs such as the prerequisite nursing and teacher education. Although we believe those programs have a lot of runway to continue growing, the year-over-year percentage growth is slowing due to the large numbers. But we are rolling out some new programs in the second quarter of this year that we are very excited about that we believe will allow us to continue to grow total enrollment at or slightly above our long-term objectives.

Second, the GCU ground campus for traditional students. New traditional campus enrollments were up in the high single digits and total traditional campus enrollments were down slightly year-over-year in the fall of 2025, while total GCU ground enrollment was flat year-over-year. The slight decline year-over-year in total traditional enrollments was in line with our expectations given last year's decline in new enrollments caused primarily by the faster site issues and the higher-than-expected summer graduations. Spring new and total enrollments were in line with our expectations. Spring new enrollments is a small percentage of overall new enrollments as they are mostly made up of transfers or students that have deferred a semester and total enrollment is impacted by the growing number of students that are graduating in less than 4 years.

We believe GCU will continue to experience new student growth on the ground campus because of the significant advantages, including very low price point, very low average debt levels, percentage of students completing in less than 4 years, the relevancy of GCU's academic programs to a fast-changing and modern economy and having the 20th ranked campus in the country.

As we move forward, there are 3 trends that are impacting traditional campus -- traditional college campuses throughout the country. One, the number of high school graduates on an annual basis continues to decline; two, the percent of high school graduates that are choosing the 4 or 5-year [indiscernible] path continues to go down, while the number of students choosing shorter certificate or trade programs is going up; three, the number of high school graduates choosing to [indiscernible] path, but doing it fully online also continues to go up.

We are in a very strong position given these trends. We have a high-quality affordable offering on a GCU ground campus, but have even greater program choices for students that want to go fully online or to move back and forth between ground and online.

As we discussed on last year's earnings call, we have made some changes to our marketing and recruitment strategy for GCU's traditional campus, which accelerated some spend into 2025 in the first half of '26. Although it is still very early in the cycle, those changes to date are producing positive results as registrations for fall 2026 remained significantly ahead of last year. Even with the macro trends I discussed earlier and the tougher year-over-year comps, we believe we can continue to grow new enrollment significantly year-over-year, which could get residential students back to growth.

Third, Grand Canyon Education's hybrid campus had an increase in enrollment year-over-year of 16.6% in the fourth quarter. Excluding the closed sites and those that are on teach-out, enrollment increased 18.7% year-over-year. There were no hybrid campus new starts in the fourth quarter, but we did have a higher-than-expected number of new students starting in the fall.

There are two main reasons for this continued growth. Number one, almost all of our active ABSN partners have responded to the younger students interested in ABSN programs by admitting advanced standing students or are in the process of making that change. Students with partially completed degrees, haven't accumulated a great deal of debt and are very interested in nursing careers, but didn't have an efficient way to earn the prerequisite science coursework. GCU created the science courses in some other [indiscernible] courses that could be delivered online in 8 weeks, students can access these courses from anywhere in the world. There are start opportunities almost every week. These courses have been made very affordable [indiscernible] by experienced faculty. Class sizes are low, and there's a tremendous amount of academic support, including an artificial intelligence project, which provides students 24/7 access to tutoring.

Since implementing these courses, we have already enrolled 20,536 students. In [ the summer of ] 2025 term, 66% of all matriculated hybrid students at non-GCU sites took at least 1 of these courses. And 1 of the -- and of these students, they took 5 courses on average. We have a waterfall report that allows us to know how students are progressing through their pre-requisite courses and when they will be eligible to start at 1 of our ABSN sites. The graduation rate of students who successfully entered the ABSN programs is in the mid-80s, and the first-time pass rate on [indiscernible] exams is approximately 90%.

Nearly all our partners have responded positively to the change needed to serve the advanced standing students. Our goal is still to have 80 locations with our partners with 40 locations being GCU locations.

In 2025, we opened up a total of 5 additional sites, including a second location in the Boston area in the fall, another site in New York City and 3 GCU sites in 2025, 1 in Albuquerque, New Mexico, which was opened in the first quarter of 2025, 1 in Lake Mary, Florida, near Orlando, which was opened in the second quarter of 2025 and 1 in Englewood, Colorado, South of Denver, which was opened in the third quarter. The addition of GCU's 3 new site openings brought in ABSN location total to 11.

It is likely that we will only open 1 additional site in 2026 in the Miami, Florida area. A couple of sites that were planned to open in the fall of 2026 are more likely to open in early 2027. And as we have discussed previously, we are being more selective on new site openings with a focus on the scalability of the market.

We are also expanding our programmatic offerings with our hybrid partners by adding a graduate nursing program with 7 specializations with Northeastern University, which started this past fall. A hybrid occupational therapy bridge to master's program to the already successful [indiscernible] case occupational therapy assistant hybrid program will begin in the fall of 2026. In online health science degree with Utica University and GCU launched a BS in occupational therapy assistance program and a speech language pathology program in 2025 at its Phoenix West Valley location. GCU also plans to add a BS in laboratory sciences program in 2026.

Adding additional programs at our hybrid locations is an important component to our business plan. We anticipate this momentum will continue, although with the lower number of new site openings and more of our locations getting to capacity, hybrid enrollment growth will slow a bit while the profitability of this pillar will continue to improve.

Fourth, Center for Workforce Development at Grand Canyon University. GCU now has 4 programs in the Center for Workforce Development, which including the electricians pre-apprenticeship program, the CNC machines pathway program, the manufacturing specialist intensive pathway and the construction general pathway, and we'll be rolling out a fifth program the manufacturing general pathway in fall of 2026.

These programs are all built in partnership with companies that are experiencing labor shortages in that area and excited about hiring GCU's graduates. These programs are either 1 semester or 2 semesters, 212 students successfully completed the electricians [indiscernible] program in 2024, '25, including 11 in the Austin, Texas hybrid location. 33 students completed the manufacturing CNC Machine pathway programs in the 2024, '25 fiscal year. These students attend school for 20 hours a week and then work in the facility as a paid employee for 20 hours. At the end of the semester they receive a manufacturing certificate, become eligible for employment in Arizona's fast-growing manufacturing industry.

Students in GCU's growing engineering colleges are getting experience in this manufacturing facility, which is adding to their engineering education. I started out talking about the relevant programs and creative delivery models that GCE has implemented with its 20 partner institutions. In the 7-plus years since GCE has become a service provider has helped its partners accomplish the following: in that time, GCE has helped Grand Canyon University to graduate 215,851 students. 58,497 in education, including 27,527 first-time teachers at a time when teacher shortages have created a national crisis. 55,963 in nursing and health care professions, including 3,723 and pre-licensure nurses at a time when there is a huge shortage of nurses. 44,496 in the college of humanities and social sciences, including thousands and counseling and social work, where there are also huge shortages. College of Business has become 1 of the largest business schools in America and has produced 37,834 graduates.

The College of Science, Engineering and Technology has grown by 220% and provided 9,512 graduates. The Doctoral College [indiscernible] also continue to grow. In addition, GCE has helped its other partner institutions graduate over 15,000 pre-licensure nurses and occupational therapists assistance. The numbers that I have just cited have all happened in the past 7 years since the GCU, GCE transaction and since GCE has become an education services provider. This is a great example of a futuristic educational model that is flexible, moves very fast and is capable of great scale.

All of this has occurred while GCE paid a $619 million in federal and state taxes. While state universities and community colleges continue to pull money out of the tax system. GCE has helped produce over 230,000 graduates while pouring millions of dollars into the system.

Service revenue was $308.1 million for the fourth quarter of 2025, an increase of $15.5 million or 5.3% as compared to $292.6 million for the fourth quarter of 2024. The increase year-over-year in service revenue was primarily due to an increase in university partner enrollments of 7.1%, including the increase in GCU online enrollments of 8.7% in university partner enrollments at the off-campus classroom and laboratory sites of 16.6%, partially offset by 1 less day of ground traditional revenue at GCU of $0.9 million in the quarter as a result of the shift of 1 day of revenue from the fourth quarter to the third quarter as compared to last year's fall start date, and a decrease in revenue per student year-over-year primarily due to contract modifications with some of our university partners, in which our revenue share percentage was reduced in exchange for us no longer reimbursing the partner for certain fatty costs, which had the effect of reducing revenue per student and a slight decline year-over-year in the revenue per student for online students due to the continued mix shift to students that have a slightly lower net tuition rate.

Operating income and operating margin for the 3 months ended December 31, 2025, was $108.1 million and 35.1%, respectively, as compared to $100 million and 34.2% and respectively, for the same period in 2024.

Net income was $86.7 million for the fourth quarter of 2025. GAAP diluted income per share for the 3 months ended December 31, 2025, is $3.14. As adjusted, non-GAAP diluted income per share for the 3 months ended December 31, 2025, was $3.21, which is $0.02 above consensus estimates.

With that, I would like to turn it over to Dan Bachus, our CFO, to give a little more color on our 2025 fourth quarter, talk about changes in the income statement, balance sheet and other items as well as to discuss the 2026 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 3 months ended December 31, 2025, and 2024. 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 3 months ended December 31, 2025, and 2024 is $3.21 and $2.95, respectively.

Service revenue was higher than our expectations in the fourth quarter of 2025, primarily due to higher-than-expected enrollments and revenue per student, partially offset by the impact of the government shutdown. The fourth quarter operating margin was positively impacted on a year-over-year basis by the higher revenue and the contract modifications, partially offset by additional spend for 2026 partner initiatives.

Our effective tax rate for the fourth quarter of 2025 was 22.4% compared to 21.2% in the fourth quarter of 2024 and our guidance of 22.8%. The lower-than-expected effective tax rate is primarily due to state income taxes.

We repurchased 605,730 shares of our common stock in the fourth quarter of 2025 at a cost of approximately $100 million. And another 352,051 shares were repurchased since December 31, 2025. We have $284.6 million remaining available as of today under our share repurchase authorization. The Board and the company intend to continue using a significant portion of its cash flow from operations to repurchase its shares.

Turning to the balance sheet and cash flows. Total unrestricted cash and cash equivalents and investments as of December 31, 2025, were $300.1 million. GCE CapEx in the fourth quarter of 2025, including CapEx for new off-campus classroom and laboratory sites was approximately $7.6 million or 2.5% of service revenue. We anticipate CapEx for 2026 will be between $30 million and $35 million.

Last, I'd like to provide color on the guidance we have provided in our 8-K filed today. As a reminder, the guidance that we have provided in the outlook section of our 8-K filed today as GAAP net income and diluted income per share with components to adjust the GAAP amounts to non-GAAP as adjusted net income and non-GAAP as adjusted diluted income per share.

2025's financial performance significantly exceeded our original estimates, beating the midpoint of the non-GAAP as adjusted diluted net income per share guidance we put out at this time last year by $0.46. In putting together our guidance for this year, I am amazed with how consistent our assumptions are to what we predicted at this time last year. Our comps are no doubt more challenging, but as Brian discussed, the trends remain strong in all 3 pillars.

Consistent with prior years, we have provided ranges for revenue, operating margin and earnings per share for each of the fourth quarters of 2026. We do this because our financial results are seasonal and the start and end dates of our partners' semesters change year-to-year.

As you probably noticed, the midpoint of the EPS guidance is above consensus estimates, primarily due to a lower projected share count. The midpoint of the revenue and operating income guidance are generally in line with consensus estimates. Revenue will be slightly impacted in 2026 due to the modification of the contract for 1 university of partner effective January 1, 2026, in which we will no longer be reimbursing the partner for their faculty costs and due to the teach-out of 1 partner's 3 locations. As I will discuss in a minute, this slightly lowers revenue in 2026, but both of these changes are long-term positive for the company and will positively impact margins in 2026.

The year-over-year changes in the start and end dates of the semesters for GCU's ground traditional campus will move $1 million in revenue from Q2 to the first quarter and $8.3 million in revenue from the third quarter to the fourth quarter in comparison to last year. The change between the third quarter and the fourth quarter is more significant this year than in past years, as GCU's fall semester for its ground traditional campus begins and ends 6 days later this year than last year.

We anticipate that new online enrollments will be up year-over-year in the mid- to high single digits during 2026. As Brian discussed, new enrollment growth in the first 2 quarters of 2025 were up in the teens over the prior year, and thus, mid-single-digit growth in the first 2 quarters would be strong growth. We do anticipate total online enrollment growth continuing to be pressured by increasing graduations and a continued decline in reentries, which as students return to school after a break due to the high retention rates. The high end of guidance assumes total enrollment growth will end 2026, up in the high single digits year-over-year, whereas the low end assumes a mid-single-digit year-over-year growth rate. And thus, the midpoint of our range assumes a year-over-year growth rate that is near the high end of our stated long-term objective of 5% to 7% annual growth.

The revenue range assumes that GCU ground enrollment will be 21,900 in the spring, will range from 8,500 to 8,800 in the summer and be between 24,900 and 25,600 in the fall. The high end of the range assumes a low teens new start year-over-year growth rate for the ground campus, while the low end of the range assumes mid-single-digit new start growth. Thus, the midpoint assumes a high single-digit increase in new ground enrollments year-over-year.

As we're currently well ahead of last year in registrations, this estimate may prove to be conservative, but we believe it is prudent given where we are at in the recruitment cycle. The reported ground number continues to include GCU hybrid, which continues to grow in professional study students, which we expect to be flat on a year-over-year basis.

Total ground enrollment continues to be impacted by the lower fall 2024 new start and the growing number of graduates year-over-year as a significant number of ground traditional students continue to graduate in less than 4 years. The new and total enrollment growth rate for a hybrid pillar is predicted to grow on a year-over-year basis in the high single digits to mid-teens during each of the 4 quarters of 2026. As has been discussed previously, the hybrid growth rate is being impacted by the fact that we now have 14 locations that are at or near capacity, and thus, we will have little to no growth year-over-year in total enrollments at those locations.

And from a new enrollment perspective, 22 locations will not have year-over-year growth in new enrollments on a year-over-year basis in the fall. As although 8 locations are not at state authorized capacity, we started the maximum number of students allowed during the fall of 2025.

We remain hopeful that some of these locations will get local regulatory approval to grow in the future as they currently have wait lists, and we still have a lot of opportunity at the other locations. We will be opening 1 new location in 2026, in fall 2026, but should be opening a number of locations in early 2027. Revenue growth rates for the hybrid pillar will be impacted by changes made to the contract of 1 university partner that beginning in January -- January 2026 is no longer being reimbursed for faculty costs and both enrollments and revenue will be impacted by the teach-out of 1 partner's 3 locations in 2026.

We estimate that these changes will reduce revenue by $4.2 million in 2026 but will positively impact operating income as the 3 locations that will be in teach-out were incurring significant losses. Excluding these impacts, we anticipate a slight increase in revenue per student year-over-year primarily due to the hybrid pillar growing at a faster rate than online or ground.

Online revenue per student will be flat to slightly down year-over-year due to the mix shift to programs that have slightly lower net tuition rates. Revenue per student is also negatively impacted in the first half of the year by the slight decline year-over-year in ground traditional students.

On the expense side, we continue to make investments to support our university partners' growth goals, but do anticipate margin expansion in 2026. As has been previously discussed, the online programs primarily that lead to licensure in which GCU is growing at an accelerated rate, either cost us more to service than the traditional online programs were at lower net tuition rates, which is putting some pressure on margins. We also continue to absorb significant increases in technology services and benefit costs.

We will also have some pressure on margins in the first 6 months of the year as ground traditional enrollment is down year-over-year, and in the third quarter as the GCU traditional campus start and end date moves back this year. As it relates to the hybrid pillar, we will incur additional costs for the new hybrid locations that have opened in the last year. where we'll open in 2026 or early 2027, but we are experiencing increased site level profitability due to the increasing enrollments.

So to summarize, at midpoint, our revenue guidance would be slightly above consensus estimates if not for the contract modification and teach-out and we are hopeful, given current registrations that ground enrollment exceeds the midpoint. We should see slightly lower margins in the first half of 2026, but are optimistic that margins will expand in the second half especially if revenue is in the top half of our revenue range due to the leverage in our business model and full year margins will be up year-over-year.

We are estimating that interest income will decline year-over-year in 2026 due to declining cash balances due to more aggressive stock buybacks and a declining interest rate environment. We believe the effective tax rate for the 4 quarters of 2026 will be 23.4%, 24.9% and 4.9% and 4.3%, with a full year tax rate of 24.3%. The effective tax rate continues to be impacted by higher state taxes as we continue to add sites in states outside of Arizona, which have higher state tax rates and other factors, including an estimated decrease year-over-year in the excess tax benefit deduction due to a decline in our stock price.

These estimates do not assume a contribution in lieu of state income taxes, but if 1 is made, that will increase G&A expense in the third quarter and decrease the effective tax rate in the second half of the year.

Our weighted average shares guidance takes into account the significant amount of stock we repurchased in the last few months. We anticipate continuing to use our excess cash to repurchase shares as the Board believes the stock is materially undervalued based on the metrics it uses to evaluate this including the ratio of enterprise value to adjusted EBITDA and free cash flow yield in comparison to other S&P 500 companies.

I will now turn the call over to the moderator so we can answer questions.

[Operator Instructions] Our first question will come from the line of Alex Paris from Barrington Research.

First question related to fourth quarter results. Revenue of $308.1 million was above our estimate and consensus, up 5.3% year-over-year. You had talked or kind of telegraphed some impact from the government shutdown on military tuition assistance of about $3 million. Is that where it landed, was that the impact about $3 million? Or is it different than that?

I think it was a little bit lower than that, but that's still probably a fairly good estimate. It probably was in the $2.5 million to $3 million range.

Got you. And then on operating income and operating margin in the fourth quarter, at the low end of the guided range, but still within the range. I just wonder what additional color you could provide there.

Yes. Brian can expand on it a little bit, but we did make some significant investments primarily related to the ground campus in the fourth quarter -- kind of the end of the third quarter and all of the fourth quarter.

Yes. We -- if you look at what we've done to grow this ground campus from 900 students to 25,000 students, there was a heavy investment in people that work in high schools all over the country. And that's a pretty typical way that universities go about recruiting students into their -- under their college campus.

We didn't spend nearly as much advertising, especially in the social media areas, as we have done from an online standpoint. We experimented in the fall, in September and October, spending a significant amount of money and got great results.

Students are -- they're watching our videos, and they're watching our videos to completion, and they're making a decision that they're interested apart from somebody's impact in their high school. And they're raising their hand and the conversion rate of those students into registrations is up significantly over where it was at the same time last year.

And so we have -- we absolutely believe that we are -- that the awareness levels of the value proposition that this ground campus offers is hugely under -- it's just not known to the level that it should be. We're going to make a major investment, another investment in -- it won't be material in terms of its impact upon the financials, but in the growth of our Honors College. Our Honors College at the ground campus has really taken off. It's up to 3,000 students now. The average incoming GPAs are above 4.0 from a weighted perspective, which is higher than most [indiscernible] colleges in the country. And so we're forming a council. We're rebuilding a building, and we're going to make a huge effort to recruit the very best high school students throughout the country to come to our Honors College in Phoenix Arizona.

And a lot of it, the experience they're going to have is tied to the incredible economic boom that's happening in Arizona. We're getting those students involved in internships in their [indiscernible] year for very significant companies. Many of them are getting hired by those companies. And so the brand of the institution and leading with the excellence of Honors College and having everything draft behind that is something that we are working with our partners on because we think that we are we've got the capability of growing our ground campus from 25,000 to 50,000 students.

We believe that the value -- the value is there. And so we invested some additional dollars in January and February. And we expect that we're going to get the same return. And so as the hybrid campus is accelerating now, both in terms of enrollment growth, revenue growth and margin expansion and profitability we are expecting something similar to happen with the ground campus. And we think we're on to something and we'll see. But it's a long time. And we got until August and we see the whites of their eyes in the classroom. But right now, we're excited both about the quantity of registrations and the quality of those students and how many of them want to be housed. And so that was probably more than you wanted, but I hope that helps a little bit.

No, it helps a lot, and I appreciate you spending a lot of time on it. So you did talk about this on the third quarter, the experiment that you were conducting, you did forecast that you might spend more in January and February. Are you going to continue to spend more there?

And then you also mentioned on the Q3 call, that it's not a significant impact on the P&L because it's really just shifting dollars from salaries of high school reps to marketing.

Yes. It's interesting because we've got the other process that's very unique to us is what we call Discover GCU. We will probably bring north of 13,000 to 14,000 very highly qualified high school graduates to GCU to visit. And so connecting with students via social media with extremely engaging, informative videos, having them raise their hand and then getting them qualified to come and visit the campus, I think, is a process improvement that will move money from counsel or salaries to this other area, and it could reinvigorate this thing from a ground campus standpoint.

And you have to remember that in terms of revenue per student, the ground campus is is huge because of the impact of housing and Board and other fees associated with feet on the campus.

And so -- to answer the question about going forward, we will continue to spend. At some point, the spend will transition for fall of '26 to fall of '27. We are projecting that marketing as a percentage of revenue will be fairly flat year-over-year. So although we'll continue to spend, our hope is that our spend is very effective and thus, you will not see a significant increase in marketing costs as a percentage of revenue.

The interesting thing is that the January and February spend is probably still 90% students who are seniors and have not made a decision where they're going to college. Students are increasingly putting that decision off because leverage has flipped. They know that the supply and demand is different and they can put off making that decision because they're kind of in the driver seat, more so than they have been in previous decades. But that's kind of playing into our favor because January, February spend is not -- probably 10% for 2027 fall and still for fall of 2026. And so we'll see how it plays out.

Great. And then -- so what does that do to the high school enrollment counselor account orders of magnitude, where were you? And where are you now? .

We're probably down 20% -- probably we're down 10% from a counselor standpoint, where we were the previous year.

Okay. Great. That's great color on the ground campus, and it sounds like those investments are paying off in terms of higher significantly higher applications for the fall. I was just going to say, are there any offsets? Do we have -- are we expecting an increasing number of graduates like overall, you have been experiencing?

It will continue as it is. I mean we're at every graduation now for our ground campus, I asked how many of you have graduated in the last 4 years. And the majority of the hands go up. And then I asked how many parents in the audience are happy that their students graduating in less than 4 years and [indiscernible] goes up in the audience. And so we have to do a better job of making sure that people know that. The bet we're making is that we can grow to 50,000 students because of that. or partially because of that. And so we're giving up a fourth year of revenue in some ways, but we think we'll make up for an increased enrollment on the front end.

Great. And then my last question is just -- I thought I'd ask to get an update on corporate programs in general. I know you have 5,500 employers that you work with. And I believe roughly 1/3 of GCU starts come as a result of working directly with these companies and organizations. How does that work? What sort of color can you share with us about the process within these corporate relationships, adding new corporations, adding new -- are there -- is there discounting that goes on as a result?

Yes, there's a little bit of discounting that goes on with that, and that's why you see revenue per student from an online standpoint go down some. But that activity is not even close to reaching its pinnacle. That activity is continuing. We are signing agreements with school districts all over the country, and it continues on a daily basis.

Schools are really stuck with having a shortage of teachers, counselors and social workers. And there's nobody -- even in some states, we are producing more teachers than their in-state institutions are producing. And so that continues in a very robust way, but we're applying that principle to health care areas and to social work areas and counseling areas.

Now we're just getting started in counseling and social work, but there's a huge shortage of those people in this country and companies organizations are very interested in taking their people that are operating at lower levels, putting them in programs and getting them [indiscernible] and master's degree so they could operate at higher levels. And so the success we've had in the education and nursing area, we're now applying to counseling and the social work. We're applying it in terms of military bases in the cybersecurity area.

And we are developing a really strong relationship with the Taiwanese chip manufacturing company, which is exploding here in Arizona. They want every electrical or mechanical engineer that we can produce, but they're growing so fast that they need technicians. And we've developed a program that they're ecstatic about. I was out there and went through the whole process of walking through their fab. They've got 1 fab up. They're building 5 more fabs. They've only been in operation for a year and they've already been told because of the shift to producing chips for AI that they are expected to do 2x what they were expected to do when they started, which was just a year ago.

And so we are working with them on a multitude of levels. The people they're sending over from Taiwan need to go back periodically to get up to speed with what's going on there, and their spouses are staying here. So we're getting their spouses involved in education programs, so they have something to do while they're gone. But it's the technicians that we're producing that they're very excited about.

And so yes, we are continuing to work directly with corporations all over the country. Will we move from 1/3 of our starts to maybe 50% of our starts over the next 5 years? We'll be moving in that direction because it's a very, very high-quality way to provide higher education that is very specifically targeted to what organizations need. And as I tell our people all the time, we're in the business of helping people grow individually and we're in that business of helping organizations grow. And if we stay focused on doing those 2 things, AI is going to do nothing but enhance our potential in higher education versus people fearing that because all of this data and information is available to people, they won't need higher education. That is just not going to happen. If you're educating in the right ways and you're doing it specific to where the jobs are going to be.

That's very, very helpful. Do you disclose what percentage of GCU total enrollment is employer related?

We don't. We don't. But as Brian said, I mean, you hit the numbers. We were talking about the fact that about 1/3 of our online enrollments come from that channel, and that's growing.

Our next question will come from the line of Jeff Silber from BMO Capital Markets.

Alex really covered a lot of the operational questions. Maybe I can ask more big picture stuff. And we get questions all the time about the regulatory environment, and I know we've got some changes coming up this summer in terms of loan caps and then eventually the earnings premium accountability calculation. Can you give us some color how that may or may not impact your company?

Yes. I mean our expectation is it's going to have little to no impact. If you talk about loan caps, the tuition levels, the loan cap changes are primarily at the master's level and above. GCU's tuition rates are well below those loan caps. And so would it potentially eat into some living expense money? Maybe. But I think the total cost of attendance generally at GCU is below the loan cap. So I think there'll be very little impact of that.

There's no material changes at the bachelor's level. which is where the majority of our programs are now, including the ABSN program, that is a bachelor's program. It is not a professional program. It's never been a professional program. And so there's no changes really from the funding perspective at the bachelor's level or no material changes that we see.

So I think there'll be little to no change on that perspective. I know Brian can talk about this, but he's a proponent of these changes. We've historically seen over-borrowing especially at the master's level for living expenses. These changes help universities, help students manage their borrowing.

It's so different. The difference in how the administrations view this whole area is because we have said for a decade that the graduate students are different today. 50 years ago, 40 years ago, 30 years ago, students would graduate from college, they would enter a Masters or a graduate degree program. And sometimes they would be married, sometimes they would have children, but they were pursuing -- most of them were pursuing career in education in the academic world. And they needed help with living expenses in order to do that.

That's not the case today. Most people that are pursuing master's degrees are people who are in the middle of a career. They want to enhance their capabilities in that career. They want to do it while they're raising their family and building their career. And so they don't need living expense money, but if you're going to make it available to them, they're going to take it.

And so we had this process in place called responsible borrowing where we would -- before they even started the program, say, listen, if you borrow the amount that is required for tuition, et cetera, this will be your payments. If you overborrow, these will be your payments. And we were absolutely -- we were criticized by the previous administration. For doing that. And our response to that was -- you're looking at this as almost a safety net kind of a thing, and that's not how we view this thing. And it shouldn't be viewed that way.

And so we were actually a proponent of lowering the maximum amount people can borrow so that we would get loans paid back and we get them paid back timely and the Title IV program was once very, very profitable for this country because universities were responsible in the amount of money they were charging, students were responsible in the amount of money they were borrowing and they were paying the loans back. What's happened in the last 6, 7 years has just been unfortunate. And we just need to get this thing back on track. So it is what it was intended to be originally.

In terms of the second part of your question, Jeff, we're watching that very closely in the preliminary data that was put out, as I think you wrote a note on. There was one category that failed for GCU. It's the masters of counseling category. Looking through the data for all other universities. It appears that, that category failed for most, if not all, of the universities that provide that program to working adults.

So we'll work -- we're working with our partner and with the administration to try to better understand why generally people that get that master's degree, which interestingly is required for licensure, make an amount that's equal to or less than those that did not have that master's. You need the masters to be licensed in that area. So it seems like it's an anomaly that has to be further researched. We have some assumptions on why that could be, but we're doing some additional analysis on it.

Other than that, all the programs at all of our partners pass. And so we've got some time to work on that 1 program group and we'll continue to look at it.

A lot of people get into graduate programs for lifestyle changes. And people that go into counseling many times, want to hang their own shingle. They want to work 2 days a week instead of 5 or 6 days a week. And so they're willing to make less money to work 2 days a week to build their own business. And so they're getting out of the degree what they wanted, not everything can be measured strictly in terms of dollars made, especially at the graduate level. .

And the thing that makes me frustrated with that thing is when you're talking about graduate students, you're talking about people who have gone through a [indiscernible] program, they understand higher education up 1 [ sign ] and down the other. They're mature people. They're making a decision that's best for them in their life. And so kind of stay out of their way and let them do it.

It's -- I understand that for an 18-year-old who's nobody in their family has ever gone to college this is really new. This is very different, and they need help and understanding. And so putting some boundaries around that, I understand that. But at a graduate level, it doesn't make any sense to me.

We have reached the end of our fourth 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.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Good day, and thank you for standing by. Welcome to the Grand Canyon Education Third Quarter Earnings Conference Call.

[Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Sarah Collins, General Counselor. Please go ahead.

Joining me on today's call is our Chairman and CEO, Brian Mueller; and our CFO, Dan Bachus.

Please note that many of our comments today will contain forward-looking statements that 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. These factors 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.

With that, I'll turn the call over to Brian.

Good afternoon, and thank you for joining Grand Canyon Education's Third Quarter 2025 Conference Call.

GCE had another strong quarter, producing online enrollment growth of 9.6% in hybrid growth, excluding the closed sites and those in teach-out of 19.3%. New ground traditional enrollment grew in the high single digits year-over-year. With that, I would like to review the results of the 4 delivery platforms at Grand Canyon Education. First, the online campus at Grand Canyon University. New starts were up in the mid-single digits in the third quarter of 2025, which was in line with our expectations and total enrollment growth was 9.6%, which significantly sees GCU's long-term objectives. The new online enrollment growth rate was an expected deceleration from the previous quarter's growth rates, but is a strong result given that the third quarter is the largest start quarter of the year, and thus, the prior year comp is large.

In the past, I've highlighted 4 reasons for the growth. They include continuing to roll out 20-plus new programs on an annual basis, working with over 5,500 employers directly to address workforce shortages, strong retention levels and holding the line on tuition to maintain GCU's competitive pricing position. A fifth reason and one growing in significance is the number of students between 18 and 25 years old, they're choosing to go to college online. There are very few universities that have 310 programs delivered fully online. The online campus growth is benefiting from the growing trend of recent high school graduates that are doing their total program online as well as students attending the campus that go back and forth between living on campus and using the flexibility of online to engage in other life experiences. Given the trends I just discussed, we believe the momentum that exists will continue.

Second, the GCU ground campus for traditional students. New traditional campus enrollments were up in the high single digits and total traditional campus enrollments were down slightly year-over-year in the fall of 2025, while total GCU ground enrollment was flat year-over-year. The slight decline year-over-year in total traditional student enrollment was in line with our expectations given last year's decline in new enrollments caused primarily by the FAFSA site issues and more recently the higher-than-expected summer school graduations. We believe GCU will continue to experience new student growth on the ground campus because of the significant advantages, including the very low price point, very low average debt levels, percent of students completing in less than 4 years, the relevancy of GCU's academic programs to a fast changing and modern economy and having a 20th ranked campus in the country.

As we move forward, there are 3 trends that are impacting traditional college campuses throughout the country. Number one, a number of high school graduates on an annual basis continues to decline. Number two, the percent of high school graduates that are choosing the 4- or 5-year baccalaureate path continues to go down, while the number of students choosing shorter certificate or trade programs is going up. Three, the number of high school graduates choosing a baccalaureate path, but doing it fully online also continues to go up. We're in a very strong position given these trends. We have a high-quality affordable offering on the GCU ground campus, but have even greater program choices for students that want to go fully online or to move back and forth between ground and online.

In last quarter's earnings call, we discussed the potential to change the categories that we report student enrollments in, so that we most accurately reflect the flexibility that GCU provides to students across the life span, but have decided to report them consistently with what we have reported in prior years as we continue to analyze these trends. We have made some changes to our marketing and recruitment strategy for GCU's traditional campus which accelerated some spend into 2025. Although it is early, those changes to date are producing positive results as registrations for the fall 2026 school year are ahead of last year.

Third, Grand Canyon Education's hybrid campus had an increase in enrollment year-over-year of 17.4% in the third quarter. Excluding the closed sites and those that are on teach-out, enrollment increased 19.3% year-over-year. This exceeded our expectations and is the result of a higher-than-expected number of new students starting in the fall. There are 2 main reasons for this continued growth. One, almost all of our active ABSN partners have responded to the younger students interested in ABSN programs by admitting advanced standing students or are in the process of making that change. Students with partially completed degrees haven't accumulated a great deal of debt and are very interested in nursing careers, but didn't have an efficient way to earn the prerequisite science course work.

GCU created the science courses and some other gen ed courses so that they could be delivered online in 8 weeks. Students can access these courses from anywhere in the world. There are start opportunities almost every week. These courses have been made very affordable, are taught by experienced faculty, class sizes are low, and there is a tremendous amount of academic support, including an artificial intelligence project, which provides students 24/7 access to tutoring. Since implementing these courses, we have already enrolled 19,410 students.

In the summer of 2025 term, 66% of matriculated hybrid students at non-GCU sites took at least one of these courses and of the students, they took 5 courses on average. We have a waterfall report that allows us to know how students are progressing through their prereq courses and when they will be eligible to start at one of our ABSN sites. Graduation rate of students who successfully enter the ABSN programs is in the mid-80s, and the first-time pass rate on the NCLEX examination is approximately 90%. We now have an extremely efficient way to get students academically eligible and prepared to enter the program. These positive results will -- we anticipate will continue. There has never been greater interest among potential students for entering the health care professions and specifically nursing, but because of the low unemployment rate, the interest has shifted to these younger students who haven't accumulated a great deal of debt completing a bachelor's degree in another area and are underemployed.

Nearly all our partners have responded positively to the change needed to serve the advanced standing students. Our goal is still to have 80 locations with our partners with 40 of the locations being GCU locations. In 2025, we opened up a total of 5 additional sites, including a second location in the Boston area in the fall, another site in New York City and 3 GCU sites in 2025. One in Albuquerque, New Mexico, which was opened in the first quarter of 2025, one in Lake Mary, Florida, near Orlando, which was opened in the second quarter of 2025 and one in Englewood, Colorado, South of Denver, which was opened in the third quarter. The addition of GCU's 3 new site openings bought its ABSN location total to 11. We are also expanding our programmatic offerings with our hybrid partners by adding a graduate nursing program with 7 specializations with Northeastern University, which started this fall, a hybrid occupational therapy bridge to master's program to the already successful St. Case Occupational Therapy Assistant hybrid program, which will begin in the fall of 2026. An online health science degree with Utica University and GCU launched a BS in Occupational Therapy Assistance program and the Speech Language Pathology program in 2025 at its Phoenix West Valley location, adding programs at our hybrid locations is an important component to our business plan.

Our strong hybrid results might come as a surprise to some of the investment community given recent commentary. I believe based upon conversations over the years that investors do not always understand the difference between pre-licensure and post-licensure nursing programs. Pre-licensure nursing would probably be better referred to as licensure as these students are studying to become licensed as first-time nurses. These students need to take premed type science courses such as anatomy, physiology, microbiology, chemistry and biology before being qualified to enter the program and then specialize nursing courses that includes hands-on practice in a lab setting in a real-world experience in patient care during their nursing core.

Students can take the premed science courses completely online through GCU's prerequisite courses. They then can become eligible to enter GCU or one of our other partner ABSN programs. The growth of students in both the prerequisite online courses and the ABSN program continues to be very strong. Post-licensure nursing programs today are generally delivered completely online and include the RN-to-BSN, the Masters of Nursing program and the Doctorate of Nursing. These programs are for those that already are nurses. The RN-to-BSN student, for example, is someone that became a nurse by completing an associate's degree and wants to get a bachelor's degree. A Masters in nursing is for someone that already has a bachelor of science in nursing and wants a graduate degree, oftentimes to get a management role. Both of these degree programs are typically management programs and have a minimum number of clinical requirements. Many universities that offer online courses offer these programs and they have become competitive. GCU offers both programs and has a large student body in both of these areas.

Because of the competitive landscape in the law of large numbers, the growth of these programs has been less than our overall growth rate for a number of years. That is not concerning to us because GCU has over 300 other online programs, most of which are less competitive and are growing at a faster pace.

Fourth, the Center for Workforce Development at Grand Canyon University. GCU now has 4 programs in the Center for Workforce Development, including the electricians pre-apprenticeship program, the CNC machinists pathway program and manufacturing specialist intensive pathway and the construction general pathway, and we'll be rolling out a fifth program, the manufacturing general pathway in the fall of 2026. These programs are all built in partnership with companies that are experiencing labor shortages in that area and are excited about hiring GCU's graduates.

These programs are either 1 semester or 2 semester programs. 212 students successfully completed the electrician pre-apprenticeship program in 2024, '25, including 11 in the Austin, Texas hybrid location. 33 students completed the manufacturing CNC machinist pathway program in the 2024, '25 fiscal year. These students attend school for 20 hours a week and then work in the facility as a paid employee for 20 hours. At the end of the semester, they received a manufacturing certificate, become eligible for employment in Arizona's fast-growing manufacturing industry. Students in GCU's growing engineering college are getting experience in this manufacturing facility, which is adding to their engineering education. I started out talking about the relevant programs and creative delivery models that GCE has implemented with its 20 partner institutions. In the 7-plus years since GCE has become a service provider, it has helped its partners accomplish the following: in that time, GCE has helped Grand Canyon University graduate 206,709 students, 55,808 in education, including 26,099 first-time teachers at a time when teacher shortages have created a national crisis. 54,068 in nursing and health care professions including 3,383 pre-licensure nurses at a time when there is a huge shortage of nurses. 42,820 in the college of humanities and social sciences, including thousands in counseling and social work where there are also huge shortages.

College of Business has become one of the largest business schools in America and has produced 36,276 graduates. The College of Science, Engineering and Technology has grown by 220% and provided 9,029 graduates. The Doctoral College, Honors College and College of Theology also continue to grow. In addition, GCE has helped as other partners graduate over 15,000 pre-licensure nurses and occupational therapist assistants. The numbers that I have just cited have all happened in the past 7-plus years since the GCU, GCE transaction and since GCE has become an education services provider.

All of this has occurred while GCE paid out $612 million in federal and state taxes. While state universities and community colleges pull money out of the tax system, GCE has helped to produce over 220,000 graduates while pouring millions of dollars into the system. Service revenue was $261.1 million for the third quarter of 2025, an increase of $22.8 million or 9.6% as compared to the $238.3 million, up for the third quarter of 2024. The increase year-over-year in service revenue was primarily due to an increase in partner enrollments of 7.9%, including an increase in GCU online enrollments of 9.6%. University partner enrollments at their off-campus classroom and laboratory sites of 17.4% and an additional day of ground traditional revenue at GCU of $0.9 million in the quarter as a result of the one day earlier than last year fall start date, partially offset by a decrease in revenue per student year-over-year, primarily due to contract modifications for some of our university partners in which the revenue share percentage was reduced in exchange for us no longer reimbursing the partner for certain faculty costs, which had the effect of reducing revenue per student and a slight decline year-over-year in revenue per student for online students due to the continued mix shift to students that have a slightly lower net tuition rate.

Operating income and operating margin for the 3 months ended September 30, 2025 was $18 million and 6.9%, respectively. Excluding the charges described in detail in our 8-K filed today, adjusted operating income and adjusted operating margin for the 3 months ended September 30, 2025, was $58.2 million and 22.3%, respectively, as compared to $50.3 million and 21.1%, respectively, for the same period in 2024. Net income was $16.3 million for the third quarter of 2025. GAAP diluted income per share for the 3 months ended September 30, 2025 is $0.58. As adjusted, non-GAAP diluted income per share for the 3 months ended September 30, 2025, is $1.78, which is in line with the consensus estimates.

With that, I'd like to turn it over to Dan Bachus, our CFO, to give a little more color on our 2025 third quarter, talk about changes in the income statements, balance sheet and other items as well as to discuss the 2025 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 3 months ended September 30, 2025 and 2024. 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 3 months ended September 30, 2025 and 2024 is $1.78 and $1.48, respectively.

Service revenue was higher than our expectations in the third quarter of 2025, primarily due to higher-than-expected hybrid enrollments. Traditional campus and online enrollments were in line with our expectations, although traditional campus revenue was slightly less than expected due to slightly lower revenue per student than anticipated and online revenue was slightly higher than expected due to slightly higher revenue per student than anticipated.

The third quarter operating margin was positively impacted on a year-over-year basis by the higher revenue and the contract modifications, partially offset by additional spend for 2026 partner initiatives, but also due to the continued impact of significantly higher-than-expected benefit costs as a result of higher claim costs. The higher-than-expected benefit costs had a $0.06 impact on EPS in the third quarter. We are currently anticipating this trend will continue in the fourth quarter.

Our effective tax rate for the third quarter of 2025 was 24.9% compared to 20.8% in the third quarter of 2024 and our guidance of 20.6%. The higher-than-expected effective tax rate is primarily to the tax impact of the key TAM settlement. As we discussed in our last quarter's conference call, we did make $5 million in contributions in lieu of state income taxes in the third quarter of 2025, which had the effect of increasing general and administrative expenses in the third quarter by this amount and lowering income tax expense approximately 3 quarters in the third quarter and 1 quarter in the fourth quarter.

We repurchased 219,369 shares of our common stock in the third quarter of 2025 at a cost of approximately $39.5 million and another 38,745 shares were repurchased since September 30, 2025. We have $136.4 million remaining available as of today under our share repurchase authorization. The Board and the company intends to continue using a significant portion of its cash flows from operations to repurchase its shares.

Turning to balance sheet and cash flows, total unrestricted cash and cash equivalents and investments as of September 30, 2025 were $277 million. GCE CapEx in the third quarter of 2025, including CapEx for new off campus classroom laboratory sites -- classroom and laboratory sites, was approximately $9.7 million or 3.7% of service revenue. We anticipate CapEx for 2025 will be between $30 million and $35 million.

Last, I'd like to provide color on the updated guidance we have provided in our 8-K filed today. As a reminder, the guidance we have provided in the outlook section of our 8-K filed today is GAAP net income and diluted income per share with components to adjust GAAP amounts to non-GAAP as adjusted net income and non-GAAP as adjusted diluted income per share. We have updated full year 2025 guidance to include the third quarter results. We have reaffirmed the previously provided range for the fourth quarter based on current online trends in the fall, ground and hybrid enrollment. It is likely that revenue would have been in the top half of our previously provided fourth quarter guidance, but we anticipate slightly lower revenue from military tuition assistant students due to the government shutdown. A little under 5% of GCU's online students are service members using the Department of Defense program to fund their education. The program provides up to $250 per credit hour, has an annual cap of $4,500 and the aid year begins on October 1 of each year.

No courses starting during the government shutdown will be paid on those programs. So not only will new students typically delay starting their program, but continuing students will take a break in their studies and students that had planned to restart their program in October due to previously reaching their annual cap, will wait to restart. Assuming that each of these students is out for one course or 8 weeks, the impact on -- of this on GCE is $3 million. We are hopeful the effect will be less due to timing of when students courses start and end, the length of the shutdown and when the students choose to return once it is over. But if the shutdown continues through Thanksgiving as many predict, fourth quarter likely will be impacted by $3 million.

Other than this timing issue, all pillars are performing better than or as we had expected when we significantly raised our guidance last quarter. We continue to anticipate that new online enrollments will be up year-over-year in the mid- to high single digits in the fourth quarter, and that total online enrollments will remain in the high single digits over the prior year. Total online enrollments will continue to be pressured by increasing graduations and a continued decline in reentries, students returning to school after a break due to the high retention rates. We have raised our expectations for the hybrid pillar due to higher-than-expected 2025 hybrid enrollments, revenue growth rates for the hybrid pillar continued to be impacted by changes made to the contracts for university partners that are no longer being reimbursed for faculty costs.

We have slightly lowered our expectations for the ground traditional campus revenue per student based on the actual net tuition revenue of the fall students. And excluding the military tuition assistance impact, we have increased our revenue per student expectations for online. As a reminder, the ground traditional campus for GCU starts one day earlier in 2025 and in 2024, which will have an impact of moving $0.9 million in revenue from the fourth quarter to the third quarter in comparison to the prior year.

On the expense side, we do not anticipate any material changes in the assumptions we gave last quarter. The current trends that we have been discussing will continue in the fourth quarter. We continue to absorb significant increases in both benefit costs and technology services and we have accelerated some ground campus spend into the second half of 2025. We are estimating that interest income will continue to be down year-over-year due to the decline in cash balances due to more aggressive stock buybacks and a declining interest rate environment. We still believe that the effective tax rate for the fourth quarter of 2025 will be 22.8%, with a full year tax rate of 22.9%.

The effective tax rate continues to be impacted by higher state income taxes as we continue to add new sites in states outside of Arizona, which have higher state tax rates and other factors. We have not adjusted our weighted average shares outstanding amount, the number of shares purchased were less on a daily basis through late October, but have accelerated in the last week due to the decline in the stock price. The Board continues to authorize the repurchase of shares as it believes the stock remains undervalued based on the metrics that it uses to evaluate, including the ratio of enterprise value to adjusted EBITDA and the free cash flow yield rather than multiples of other education companies, as although we can be viewed as being in the same sector, there are a few, if any, appropriate comps and the board has instructed us to be more aggressive in stock buybacks when the stock drops like it has recently.

I will now turn the call over to the moderator so that we can answer questions.

[Operator Instructions]

Our first question is from Jeff Silber of BMO Capital Markets.

Brian, really appreciate the color on what's going on in your nursing programs. Maybe we can just double-click on that. Can you just frame it for us in terms of how large your nursing programs are at GCU and how they differ between pre- and post-licensure programs and how each one of them have been growing.

Yes. When you think of everything related to health care, at GCU, probably about 30% of our students are in those areas, but that's pretty diversified. That's pre-licensure students on our campus that's ABSN students at our off-site campuses that is prerequisite students preparing for the ABSN. It's RN-to-BSN, it's MSN, it's Doctorate of Nursing. And so like -- unlike other institutions, yes, we are heavily vested in the health care industry. But then I should also include occupational therapy, the nurse practitioner program.

And so health care is about 30% of our total enrollments, but even that is highly diversified across program levels and in different programs. And so I know that there has been a lot of concern about less diversified institutions with regards to health care. We're very different and not nearly impacted the way others would be because of how diversified and competitive we are in the programs that we offer. Does that help?

That's really helpful. It does. And of that 30%, and I know you may not have the numbers at your fingertips, but roughly, what percentage of the total of that 30% are specifically in post-licensure nursing programs.

In post-licensure nursing?

Yes. Well, roughly, as you know, 5,000 GC -- of the hybrid student. We have roughly 5,000 hybrid students. We have a couple of hundred GCU pre-licensure students. And then the rest is online nursing students as Brian said, which includes the prerequisite studies.

Got it. Okay. All right. That's really helpful. Let me shift gears and talk about your focus on younger students specifically with GCU online. You talked about some changes to campus marketing. I'm just curious, do you market to the students that will potentially go online, these younger students any differently? And if so, if we can talk about the different marketing channels.

No, what I referred to in terms of the change -- a little bit of a change in strategy is, so much of the work that we've done for GCU traditional students has been work in high schools. We have a sizable staff that works in high schools throughout the country. We signed contracts with schools. We have over, I think, 8,000 partnership with high schools. And so that's been 95% of our work. But what we figured out is that we can contact through social media avenues students at a less expensive rate and to a far greater extent.

And so we are starting to advertise more, especially in social media areas and the -- so we spent some money there where we typically haven't spent it, but the results have been tremendous. Our actual registrations at this time are significantly ahead of what they were last year at this time. And we're watching that carefully. In fact, we watch it every day. But part of our thinking is that, yes, there's fewer high school graduates and fewer as a percent are going to college. But the reasons that are -- that is true, we've answered in space. The value proposition that we have here is just, I think, under -- not understood by enough Americans right now, and we need to get that word out in a way that is more aggressive than just depending upon those people working in high schools.

And so our initial results are really good. and we'll keep monitoring them. And if it continues in that vein, we'll spend even more money in January and February. So it's a slight change in terms of the balance really between what we're doing from an advertising standpoint and what we're paying in salaries for people working in high schools. We're moving a little bit out of the salary component. We're moving that into the advertising component. And initially, we're getting a broader reach. We're getting a broader reach, and we're getting very strong interest. So we're excited about that.

Our next question is from Steven Pawlak of Robert W. Baird.

You talked about the diversification beyond nursing programs. I know in the past you've talked about education being one of them. I guess, what other programs are you in that are sizable, that are growing at and above nursing program rate? And I guess, how would you just characterize the competitive landscape in those programs?

Yes. We're having a tremendous amount of success in education. The fact that there's a teacher shortage in this country is really the problem of universities. They're waiting for 17-year olds to decide to become a teacher, go through years -- 4 years of college and then step into a public school classroom. It is our belief that anybody between the ages of 18 and 50 years old may have a reason to re-career into teaching. And so we're signing contracts with major school districts all over the country, helping them take military veterans and people have retired from the police and fire department. People that work in public schools as paraprofessionals or as teachers' aids. And we're bringing education right into the school district, so that they can become baccalaureate prepared and they can -- school districts can license those people and put them in the classroom. That thing is growing tremendously. Our business programs continue to grow. We have one of the fastest-growing business programs in the country. We're really excited about the future of counseling and social work.

Those are 2 areas where there's also a tremendous shortage of professionals. And like teacher education, counseling and social work, those are licensure areas. They're very difficult to operate at a distance because you have to do all of the work necessary, not just to teach the student in the classroom, but you've got to provide observation hours, you've got to provide internships, you've got to provide student teaching. Those things have to be viewed and evaluated. And we have a $300 million plus administrative system plus a field force that allows us to provide those opportunities. And so it's very uncompetitive in those -- it was a huge need, but it's not very competitive because those things are very difficult to do at a distance.

In addition, we're very excited about where we're going in a number of technology and engineering areas. The engineering is a little bit tougher to do online, although we're going to be doing it, but technology is not. And we're just scratching the surface in terms of what we're capable of from a technology standpoint, especially in areas like cyber and especially in those areas -- and places like military bases, where they can't compete with the outside workforce from a salary standpoint, but they need cybersecurity specialists, wars are going to be fought that way. And so some of the major military contracts that we've signed recently are the result of expansion in those areas.

And so I'm glad you asked that question because when people are viewing this industry, frequently, they are responding to institutions that have a limited number of programs so that if something happens that impacts the enrollment in those programs, they're really in trouble. Our programmatic mix is so expensive. And it's one of the reasons our online leads are up, because so many students now, potential students are not searching on universities. They're searching on careers and they're searching on programs to help gain entrance into those careers.

And our name comes up first because there's very few universities in the country that have our expansive programs. And so when you think about the ups and downs that have been part of this industry, we look at our 17-year history, we have basically moved through the ups and downs and it's mainly because of the diversity that exists in our programmatic offerings and in our delivery models that allows us to move things around if there are changes. And it just makes us not as susceptible to minor changes in -- or even major changes in a specific area. We can move money and we can move emphasis, and we can do it very quickly.

No, I appreciate all the color there. And then you've also talked about sort of the positive spread between -- or sort of the enrollment adviser efficiency as you have over the last few years. Are you still seeing the positive spread between enrollment gains and enrollment adviser growth? And I guess do you expect that to be sustainable for the next couple of years?

Yes. the we -- there's -- another way that we have become diversified and not subject to the vagaries of changes is that about 33% of our starts through GCU, come as a result of activity working directly inside companies and organizations all over the country. One of the things that people hear us say now frequently and people are responding to is that there are vast amounts of untapped potential in today's American workforce. And that's basically because only about 25% of students that want to access higher education can do it on a college campus and spend 4 or 5 years on that campus.

We are really growing, working directly with companies and helping people working at lower levels in the organization move up through education. So whether it's military bases, school districts, hospitals, clinics, social work agencies, all of those areas. And that -- the percent of new starts that we're getting as a result of that work continues to go up, which puts less pressure on our need to generate leads, and it makes our lead purchase that much more effective. And so when you think about GCE and our capabilities as compared to our competitors, we're just more diverse in a whole variety of ways, which allows for the consistency of the performance that we've been able to have.

We've reached the end of our third 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 all.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.