Grand Canyon Education (LOPE 0.56%)
Q1 2022 Earnings Call
May 04, 2022, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon, ladies and gentlemen, and welcome to the first quarter 2022 Grand Canyon Inc. earnings conference call. [Operator instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr.
Dan Bachus, chief financial officer.
Dan Bachus — Chief Financial Officer
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 position in GCE. And with that, I’ll turn the call over to Brian.
Brian Mueller — Chairman and Chief Executive Officer
Good afternoon, and thank you for joining Grand Canyon Education’s first quarter 2022 conference call. 2021 was a difficult year in higher education. Grand Canyon Education came through the year amazingly well as compared to the rest of higher ed. Most important, the overall trends predicted for 2022 in the sector continued downward, while Grand Canyon Education will resume its consistent upward trend for 14 years and is positioned to do very well the next 10 years.
COVID had a negative short-term impact on all three of our pillars. However, long term, the negative impacts on the rest of the sector have turned into positives for GCE because of how it has positioned itself, especially the last three years. I will explain as I talk about each pillar individually. First is GCU traditional campus.
Both the number of high school graduates per year and the percentage of them going to college has declined in recent years, and that has resulted in lower enrollments at many universities and community colleges. It has also caused some universities to lower their admissions requirements in order to boost their enrollments. In the fall of 2021, GCU’s traditional campus actually saw an increase of 6.2% in new students over the prior year, an increase of 9.5% in total enrollment, and an increase of 25.8% in residential enrollment. Approximately 70.3% of GCU’s ground traditional students now live on its residential campus.
The momentum continued as spring new enrollments were up 39.6% over the prior year. The average incoming GPA of this year’s class rose to 3.6, and the prestigious Honors College grew 8.4% to almost 2,800 students with average incoming GPAs of 4.1. These are remarkable results given the overall trends: the quality and especially the relevancy of GCU’s academic programs; the low-class sizes in support of its faculty who have less than a 5% turnover rate; the quality of counseling services; a new very modern campus that is ranked 18th in the country by niche.com; the 20 Advisory Boards with over 500 companies represented who are creating internships and employment opportunities for GCU students; and Phoenix as a destination city are all contributing factors. Having a very successful year compared to the majority of the sector, we still, however, have not reached our full potential in pillar one for the following reasons.
Number one, GCU continues to gain visibility across the country. However, its extremely significant value proposition is still relatively unknown. GCU relies heavily on a process called Discover GCU. We fly in thousands of students for a one- or two-day campus visit and house them at a residence hall designed for that purpose.
In the 2020 school year, because of COVID, we were down 46% from our campus visit goal, yet still produced good results. This year, as the country is reopening, campus visits have already more than doubled over the prior year. Number two, I didn’t list this previously in GCU’s list of advantages because I wanted to call it out separately due to how important it is. According to research produced by Jon Marcus in The Hechinger Report, college costs outpaced inflation by 28% at public institutions and 19% at private nonprofit ones in a decade preceding the pandemic, according to the National Center for Education Statistics.
But those relentless higher-than-inflation tuition hikes came to a halt in the fall when the College Board reported that tuition rose at less than the Consumer Price Index. However, he finishes the report by listing all the universities who have already announced tuition, room, board, and fee increases due to inflationary pressures for next year. In contrast, GCU has already announced it. For the 15th straight year, there will be no tuition increase.
This has resulted in GCU students taking out less debt than the highly subsidized state universities and GCU’s parent PLUS loan amounts being 50% of the three Arizona state universities. Number three, the city of Phoenix and the state of Arizona’s economic outlook is very bright. Hundreds of companies are moving here, especially from California, and we estimate right now that approximately 80% of GCU’s traditional graduates stay in Arizona post-graduation, partly because the career opportunities are so significant. Number four, a growing segment of university enrollments in the country are first-generation college students.
Of the approximately 9,000 new students at GCU this past year, approximately 3,600 were first-generation students. The first-gen college students this year had an average incoming GPA of 3.55, almost identical to the 3.6 of the overall class. This year, we expect 4,000 of GCU’s 10,000 new students to be first generation. The 7,600 first-gen students at GCU in two years alone is a transformative number and a great reason to invest in GCE and donate to GCU.
The quality and relevance of our programs, the quality of GCU’s campus facilities, the intense amount of faculty and counseling support, the number of campus jobs available to students, the percentage of students graduated in three years, and especially the low price point all contribute to the success. Number five, GCU is able and prepared to financially build this campus out to 50,000 students, creating opportunity for GCE in this pillar for the next 10 years. We are targeting over 10,000 new students in 2022 and are making investments now to significantly increase that number in 2023. Next, I would like to discuss GCE’s second pillar, its healthcare partnerships.
Short term, COVID has had a negative impact. Hospitals were extremely busy and preoccupied with COVID patients, and many clinical placement opportunities were canceled. In spite of these very significant challenges, many instructional assignments requiring one-on-one clinical interaction in the hospital were replaced by simulations. Some of our university partners requested that we reduce the cohort sizes for 2022 due to concerns about the lack of clinical capacity in some of the new sites that we hope to open, especially in large markets, have been pushed back to 2023.
But against this backdrop, both the projected new and total enrollment numbers were met for the first quarter of 2022. As with GCU’s traditional campus, the long-term environment is very positive for these GCE healthcare partnerships for the following reasons. Number one, the country needs 1.3 million additional nurses the next five years alone. Nursing programs are very expensive to operate.
And given the financial pressures facing many universities, they will be unable to invest the dollars it will take to scale programs. Number two, GCE has the capital to invest in the continued build-out to eventually 80 locations. Number three, in addition to the runway of 80 locations, up from 30 locations currently, our enrollment budget for this coming year is only 50% of the actual spots that exist even today. The 50% shortfall is due to the lack of efficient and highly supportive prerequisite course environments, which I will speak directly to later, regulatory issues creating slowdowns in opening planned locations, and the lack of clinical placements due to the COVID issues.
GCE is working hard in investing in new enrollment, simulations, virtual reality, and prerequisite strategies to, in the future, fill all the spots that are available. This is a transitional year coming out of COVID for the healthcare partnerships. However, there is a 10-year runway that is very promising and creates a winning scenario for students that want into a promising career, healthcare providers desperately needing professional nurses, and universities who want a low-risk way to help solve the nursing shortage while, at the same time, creating additional revenue streams. As all this is taking place, we will be adding healthcare and non-healthcare programs to some of the existing and future locations.
Pillar three, working adult online students. When COVID first hit, there was an initial surge of working adult students returning to college as online students were reentering if they were temporarily out. GCU Online benefited from that surge. As the pandemic progressed, some potential students began questioning the ultimate value in investing in higher education.
There was also talk of free community college and state university education by the new administration. In addition, many adult students that pursued high-volume programs like the RN to BSN program were busy at work taking care of COVID patients or uncertain about the future and putting off starting school. 2021 definitely saw a…
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