Grand Canyon Education, Inc. (LOPE) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day and thank you for standing by. Welcome to the Quarter One 2021 Grand Canyon Education, Inc. Earnings Conference Call. At this time all participants are in a listen-only mode. This call is being recorded. I would now like to turn the conference over to your host Mr. Dan Bachus, Chief Financial Officer. Please go ahead, sir. Dan Bachus: Thank you. 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 all investors review these reports thoroughly before taking a financial position in GCE. Brian Mueller: Good afternoon and welcome to Grand Canyon Education’s first quarter fiscal year 2021 conference call. GCE had another successful quarter and the long-term future is very bright. We are experiencing some short-term issues due to the pandemic, which I’ll explain in a minute. However, long-term, we’re building three unique and differentiated platforms that will provide significant and impactful growth. The pandemic has been a serious challenge for universities in many are experiencing financial issues. In addition, many recent college graduates who are new to the job market are having a difficult time. Many have degrees that aren’t serving them well in the current economy. It has been GCE’s goal to create educational models that address the real issues within higher education. I believe those issues continue to be; one, the out of control rising cost of university education. From the early 1980s to the 2000 – late 2010s the price of college increased eight times the increase in wages. Two, the increasing student debt levels that will seriously hinder graduates as they begin their adult lives. Three, as tuition levels go up university and college campuses go down. Four, bachelor’s degrees should not take four to six years to complete. Five, programs and delivery models lack to creativity and flexibility necessary to address critical shortages in some industries. Six, there are inadequate counseling and support services, especially for first-generation students are those studying at a distance. Seven, three-fifths of college graduates would change their majors if they were starting over. Eight, prior to the pandemic, 43% of college graduates were underemployed in their first job, two-thirds remained in jobs that don’t require college degrees five years later. Grand Canyon Education is a large organization over 4,600 staff, is in a very strong financial position, and can invest in educational infrastructure to help institutions address some significant opportunities in the employment marketplace. One of our partner institutions now derives 13% of their total revenues from GCE/Orbis healthcare programs, and they want to do more. The combination of institutions looking for additional revenue streams and our ability to help them launch programs locally that prepare students for in-demand occupations is creating rapid partnership growth. Let me explain how GCE is in a great position to support the three main pillars or platforms of our business. The first pillar, Grand Canyon University Online, has 91,334 students. As of March 31, 2021, and in the quarter just completed, new students grew on a comparable-start basis in the high single-digits, while total students grew 7.2% year-over-year. GCU has historically put a priority on new program development it helps students gain employment and build careers in the modern economy, as also focused on programs leading to professional licensure with most of those being at the graduate level. Dan Bachus: 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 three months ended March 31, 2021 and 2020. The non-GAAP amounts exclude the tax affected amount of the amortization of intangible assets. The amortizable and tangible assets acquired in the Orbis acquisition total $210.3 million and amortization expense in the first quarter of 2021 and 2020 was $2.1 million. We believe the non-GAAP financial information allows investors to develop a more meaningful understanding of the company’s performance overtime. As adjusted non-GAAP diluted income per share for the three months ended March 31, 2021, 2020 is a $1.72 and a $1.53 respectively. Service revenue exceeded our expectations in the first quarter of 2021, primarily due to higher than expected revenue per student due to higher ancillary revenues than expected and strong retention at GCU, which increased our average daily revenue per student. As expected revenue per student declined year-over-year, primarily due to approximately 3,500 of GCU’s traditional campus students selecting to attend the spring semester entirely in the online modality due to COVID-19 concern. As a result spring semester fees, room and board and other ancillary revenues for the first quarter of 2021 at GCU were lower than in the comparable period in the prior year, which reduced the service revenue we earned. This is partially offset by our revenue growing faster at our other university partners than at GCU. And we generally generate a higher revenue per student on those service agreements than our service agreement with GCU, as these agreements generally provide us a higher revenue share percentage, the partners have higher tuition rates than GCU and the majority of their students take on average more credits per semester as they are in accelerated programs. As Brian mentioned, new online enrollments at GCU increased in the high single digits, but this was offset by a higher number of graduates at our university partners than expected. GCU had a 19% increase in working adult graduates year-over-year, which was higher than expected. And our occupational therapy university partner had significantly more graduates than anticipated in the first quarter. As a reminder of the reported other university partner enrollments at March 31, 2021, do not include the off-campus GCU ABSN students. And the reported year-over-year growth is being negatively impacted by the non-renewal of service agreement with a former university partner and the larger than expected number of OTA graduates. Operator: Your first question comes from the line of Jeff Meuler from Baird. Your line is open. Jeff Meuler: Yes. Thank you. So on the – I guess the weaker trends from a total enrollment and a new enrollment perspective in Q2, any quantification you can help us with and I ask from the standpoint that the way you’re describing this situation, it sounds fairly material. But then when I look at the revised 2021 guidance, I recognize there’s a reduction, but the magnitude of the change in revenue doesn’t seem all that material to me. So just any help you can provide there? Also there’s offsetting factors that we need to be considering. Dan Bachus: No, it is not hugely material, but obviously we take very seriously the guidance we gave. And in our 13 years, I can’t recall a single time we’ve added lower revenue. So it isn’t material, but it is lowering. And, so I think all three things that we talked about, the new starts, the reenters and the graduates are all slightly great as new starts are – we expected them to be down in the second quarter, but the magnitude of the down is slightly worse than we thought. The reenters is opportunity going forward is less than we thought in the graduations, as you said, is – as we talked about is, we knew graduations were going to be up year-over-year. We knew reenters were going to be down given the – what we talked about, but each are trending a little worse than we expected, but little pretty impressive given the year with that we’ve come off of. So, I don’t know, Brian, anything to add to that? Brian Mueller: Hey, Jeff sounds like, yes, branded question? Jeff Meuler: Yes. so I guess on the return to more normal growth, at least from a new starts perspective in the back half of the year, I guess, what gives you confidence in that? And I think you said that you’re already starting to see some reopening was that a specific reference to your recruiters being back in those environments or was that just a more general, I guess, macro comment on the economy, more broadly reopening. Brian Mueller: Yes, I think, we spend a lot less money on advertising than a lot of our competition does general media advertising, traditional media advertising. We have a relationship with over 8,000 high schools, for example, in the country including 4,000 private and about 4,000 public and those relationships produce a lot of win-win situations. And so a lot of what we do with schools, with hospitals, with counseling centers, with businesses is built on relationships that provide win-win kind of scenarios. And those things haven’t been as open to us. But we didn’t change our strategy knowing that this, the pandemic kept going, it kept going and it kept going. And, we were worried at some point that it would negatively impact us, but we didn’t change our strategy and buy a lot of leads and recruit some, questionable students, because we’re very concerned about the quality of both our students on ground and online. On ground, this fall we’re extremely excited. The average incoming GPA’s of this next class will be almost 3.6. Our Honors College has grown to 2,500 students – 2,700 students with average incoming GPA’s over 4.0 and our online students body is approximately 50% graduate students. And it was those students who are earning licensures in education and counseling and nursing, some in technology, those are the ones that we didn’t have as much access to. And those are the ones that are now returning to work and they’re, adjusting again. Their life is changing. They’re wondering what’s going to happen with their kids, are they going to be in school or not? And so it was, that strategy that made us a little bit more vulnerable than people who rely totally on advertising and generating leads. But we didn’t want to pivot out of that strategy because we’re very proud of the quality of our students and the quality of the outcomes that we’re producing. I mean, for example, one of the things that made us vulnerable in April was a higher than expected graduation numbers. We had incredible month-over-month, quarter-over-quarter retention numbers. Those are good things. Those are good things. If your enrollment is down, because students are dropping, then you have a real issue. But we’ve got really high quality programs that are leading to really good occupational career opportunities. And so, that’s why we believe that this is a temporary thing and long-term to single turnaround. Jeff Meuler: Okay. Makes sense. And then last on Harding University, you kind of went through it quick. So is it a signed contract or a letter of intent and on the master’s aspect of it is that broader than like healthcare in any scale ambition, potential you can relay in terms of number of programs or number of students you’d hope to get to over an intermediate term basis? Brian Mueller: Yes. We’re excited about that the Harding thing, because number one, it is a signed contract. Number two, it is for a number of Orbis sites. But also, yes, we are helping them with some of their master’s programs outside of the healthcare area. We’re helping convert them so they can be delivered online. But we’re really excited because they’re very excited. And they have a lot of ambition in this area and they’re very, very willing partners. And so as a result of that, we’re, not only going to do something with them from an oldest standpoint, but we’re going to do some other things that they want to do. And so yes, it’s a signed contract and, we’re moving. Jeff Meuler: Got it. Thank you. Brian Mueller: Yes. Operator: And your next question comes from the line of Brett Knoblauch from Berenberg Capital. Your line is open. Brett Knoblauch: Thanks for taking my question. Just on Orbis. When I look at the – I guess the other enrollment that growth was a bit lower than historical, was that largely due to two or the one university that terminated a couple of those locations? Or is there anything else in that? Dan Bachus: No, it’s, a couple things. One is the, when you’re looking – if you’re looking at the enrollment number, there are a couple of things you’ve got to remember. One is that GCUs offsite locations are not in that other partner number. And then that’s where a fairly significant amount of their growth is coming from GCU open to offsite locations through the Orbis relationship. And those are being included in the GCU enrollment number. Number two is, as you suggest the non-renewal of the contract and thus the enrollments are not in there for the next year or – for current year where they were in the previous year. And then lastly they have one partner for occupational therapy and there were significant number of occupational therapy students that graduated at during the first quarter of 2021. And so we actually saw a slight decline in the overall occupational therapy enrollment number there, not necessarily because the new starts were below their expectation in that program. But that the graduates outnumbered the number of new starts. And, part of that I think had had to do with COVID type of thing. So in total, when you, and I mentioned this in my prepared remarks, but when you strip out the – when you add in it back at, in effect GCUs, Orbis students, and you strip out the contract that was terminated. I mean, their growth was in line with what we thought it would be for ABSN. Those long answer to your question, but I was delaying as I was trying to find that exact number 18.6%, year-over-year growth for Orbis/ABSN and or offsite ABSN students. Brett Knoblauch: Understood. And then maybe just one follow-up on, I guess the new contract with Harding University, I guess going into – I haven’t heard of the university before, I click Google search 5,000 students, in the middle of Arkansas. Can you walk through what I guess – what determined why you guys chose them? Why you think that’s a good fit? How quickly would these maybe master programs ramp, and maybe that the timing of when you’d expect that to start to flow through to revenues? Dan Bachus: I think there’s two things there. One, when we – 26 months ago, we said, we thought about 70 locations, 70 markets, 70 locations, but then we started to look at places like Arkansas. And there are cities within Arkansas that are not large cities, but the greater metro area is significant and could provide enough to have these Orbis location. And so Harding is very willing to do things at a distance they’re very excited about these programs, the quality of their programs, and converting them into this accelerated format. And so that it allowed us to move our location number from 70 to 80 and it possibly could be more. So, we’re really excited about the experimentation with that side of it. And then their master’s degree program, the other master’s to reprograms, the interesting thing about Harding is a religious institution. It has a denomination that is a pretty extensive denomination, and they have a network as a result of that. It’s a little bit similar to Liberty. Liberty has a little bit of an advantage in the size of the Southern Baptist Convention and that being tied to their institution. Well, that’s true to some extent with Harding. And so it’s going to be a very interesting experiment on both of those levels. And like I said before, they’re all very willing partner and so we’re anxious to see what we can make of that. And as we do, we’ll learn things, which will be very valuable as we keep moving forward. Brett Knoblauch: Understood. Thank you. Operator: And our last question comes from the line of Greg Pendy from Sidoti. Your line is open. Greg Pendy: Hey guys, thanks for taking my questions. Just, I guess, in light of the guidance, and I know it was just kind of modestly brought down on a forward basis, but in regards to the new students starts, we’re hearing from a lot of the schools, I think, in this space that do depend on the advertising and buying leads model that it seems like things are getting more aggressive out there. So, I understand you guys have more of a different model for attracting students, but is that potentially something that could be impacting you on a go-forward basis? And how has it happened or have you operated in times when you’ve seen some of the other competitors in the space that do depend on sort of the buying leads model when they get more aggressive? Is it a risk to you, or is it something that has been you’ve been relatively immune to? Dan Bachus: Well, no, I mean, we’ve –I’ve been saying for seven or eight years, when you – it’s the online – the conversion of campus-based programs to an online format, when they’re the kind of generic programs that’s very competitive business and it’s the easiest business to get into, because you convert some curriculum and you put some advertising now, you collect some leads and you convert those leads. That’s the easy way to do this. But it’s very competitive. When you go all the way back to what the conversion rates on those leads used to be, to compare to what they are today. It’s the efficiency, it’s still efficient, but it has not near the efficiency that it has 10 years ago, 12 years ago. And so we still do some of that, but a lot of what we do is more from a branding perspective. And then we rely on a lot of the relationships that we have to produce students. And we have just found that the quality of students that we produce, because we have these partnerships is much higher, which is why we have good graduation rates, low cohort, default rates. Our average student dental mounts are very under the state universities. And so is it a crowded market? Yes. Are more people entering that advertising market? Yes. But we have a very, very efficient model that combines both that with this partnership model. And so, we’re not concerned that we can’t continue to grow the way we have. Greg Pendy: Got it. That’s helpful. Thanks. Dan Bachus: We reached the end of our first 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 very much. Operator: And this concludes today’s conference. Thank you for your participation. You may now disconnect.LOPE Ratings Summary
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Grand Canyon Education, Inc. (NASDAQ:LOPE) Q1 2024 Earnings Highlights
Grand Canyon Education, Inc. (NASDAQ:LOPE) recently held its Q1 2024 Earnings Conference Call, revealing a strong financial performance that has caught the attention of investors and analysts alike. The company reported quarterly earnings of $2.35 per share, which not only surpassed the Zacks Consensus Estimate of $2.22 per share but also showed a significant improvement from the $2 per share earned a year ago. This marks an earnings surprise of 5.86%, continuing the company's trend of exceeding expectations, as seen in the previous quarter's earnings surprise of 1.84%.
In terms of revenue, Grand Canyon Education posted $274.68 million for the quarter ending March 2024, beating the Zacks Consensus Estimate by 0.89% and showing a notable increase from the $250.13 million reported in the same period the previous year. This consistent outperformance in revenue over the last four quarters underscores the company's ability to grow its financial base and maintain a positive trajectory in its operations. Such financial health is crucial for the company's strategic direction and its ability to invest in future growth opportunities.
Despite these strong financial results, the stock performance of Grand Canyon Education has been somewhat subdued, with a gain of about 4.8% since the beginning of the year. This is in contrast to the broader market performance, with the S&P 500 gaining 8.6%. This discrepancy may be attributed to various factors, including market sentiment and the overall performance of the education sector. However, with the company's solid earnings report and positive revenue growth, investors might see potential for future stock appreciation, especially considering the company's strategic initiatives and market positioning.
The valuation metrics of Grand Canyon Education provide further insights into the company's financial health and market perception. With a price-to-earnings (P/E) ratio of approximately 20.30, investors are shown the premium they are currently paying for a dollar of the company's earnings. The price-to-sales (P/S) ratio of about 6.16, along with the enterprise value to sales (EV/Sales) ratio of roughly 6.02, highlights the value the market places on the company's sales. Additionally, the enterprise value to operating cash flow (EV/OCF) ratio of approximately 16.12 indicates the company's valuation in comparison to its operating cash flow, offering insights into its profitability and cash generation capabilities.
Moreover, the company's financial leverage and liquidity positions, as indicated by a debt-to-equity (D/E) ratio of around 0.13 and a current ratio of approximately 2.78, suggest that Grand Canyon Education has a lower reliance on debt for financing and possesses a strong ability to cover its short-term liabilities with its short-term assets. These financial metrics not only reflect the company's solid financial foundation but also its efficiency in managing its resources and obligations, which is crucial for sustaining growth and navigating market challenges.
