Good afternoon, and thank you for standing by. Welcome to the Second Quarter 2022 Grand Canyon Education Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. Please note that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, 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 any position in GCE. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our Form 8-K filed today. And with that, I will turn the call over to Brian.

Good afternoon, and thank you for joining Grand Canyon Education's Second Quarter Fiscal Year 2022 Conference Call. Service revenue was $199.8 million for the second quarter of 2022, a decrease of $1.7 million or 0.9% as compared to the $201.5 million for the second quarter of 2021. The decrease year-over-year in service revenue was primarily due to a decrease in online enrollments at GCU and, to a lesser extent, students in a university partners Occupational Therapy Assistance Program of 34%, partially offset by increases in GCU's traditional campus enrollments, university partner enrollments in the accelerated Bachelor of Science in Nursing programs and revenue per student year-over-year. Operating income for the three months ended June 30, 2022, was $33.8 million, a decrease of $16.4 million as compared to $50.2 million for the same period in 2021. The operating margin for the three months ended June 30, 2022, was 16.9% compared to 24.9% for the same period in 2021. The operating margin was negatively impacted by the investments that are being made to grow our partner enrollments. Net income decreased 48.3% to $25.6 million for the second quarter of 2022 compared to $49.5 million for the same period in 2021. The decline in net income was partially due to a significant reduction in interest income between years due to GCU paying off the secured note in the fourth quarter of 2021. GAAP diluted income per share for the three months ended June 30, 2022, is $0.80. As adjusted, non-GAAP diluted income per share for the three months ended in June 30, 2022, is $0.85 or $0.01 over consensus estimate. I want to start by putting our current performance within the context of the overall trends that exist in higher education to date. While the trends I'm about to discuss are not positive, Grand Canyon Education's strategy places itself and its partners in a differentiated and very strong position going forward. One, according to the National Student Clearinghouse Research Center, the percentage of 2020 high school graduates who immediately enrolled in college dropped by 6.8% last Fall during the height of the COVID-19 pandemic, a decrease that was 4 times greater than the prepandemic negative 1.5% for graduates in the Fall of 2019. The pandemic disproportionately affected graduates of low-income, high-poverty, and high-minority high schools with their enrollments dropping more steeply than those from more affluent counterparts. For instance, the decline in immediate college enrollments by graduates from high-poverty high schools, minus 11.4%, was 4 times larger compared to graduates from low-poverty schools at negative 2.9%. And among graduates from high-minority high schools, college enrollees in 2020 decreased 9.4% compared to a 4.8% decline from low-minority school graduates. Three, enrollment in private nonprofit four-year institutions saw a decrease of 5.2% in 2020, which is higher than the 3% drop at public four-year colleges. Four, according to Inside Higher Ed, as in so many spheres of life, COVID is having an accelerated impact on already concerning trends. For higher education, these sober statistics are acute signals of a decades-long enrollment decline of 13% and with the number of high school graduates projected to decrease from 2017 through 2037, college enrollment challenges have just begun. Five, according to the Wall Street Journal, the number of colleges closing in the past 10 years, around 200, has quadrupled compared with the previous decade. Six, in the past four years, there have been 95 college mergers compared with 78 over the past 18 years. Seven, in 2019, 51% of American adults considered a college degree to be very important, down from 70% in 2013 according to a Gallup poll. Positive perceptions of college among adults ages 18 to 29 fell the fastest of any group to 41% from 74%. Eight, lower demand has pushed some institutions to hand out more scholarships and grants. In the 2021-'22 academic year, students paid just 45.5% of the sticker price on average, the lowest ever according to the National Association of College and University Business Officers. And finally, the U.S. government provided $76 billion in aid to colleges and universities to shore up their balance sheets as COVID-19 swept the country. That money delayed some hard decisions, said Robert Zemsky, Professor of Higher Education at the University of Pennsylvania. He predicts that 500 four-year colleges and universities will close in the next year. There's obviously widespread dissatisfaction with higher education as an institution and the perceived value of the investment. Since GCE became a service provider, we have been saying consistently that college is too expensive, students are taking on too much debt. As tuition levels go up, diversity, especially socioeconomic diversity, goes down, and academic programs take too long to complete, exacerbating student debt levels. In addition, academic programs are not tied directly enough to where the economy is going and where the jobs and careers of the future are headed. The consolidation within higher education that many have predicted for at least 10 years is now taking place at accelerated rates. In the past, small and elite institutions dominated rankings, as seen in places like U.S. News and World Report. In the future, large, affordable, extremely flexible in terms of delivery models, and very workplace-relevant institutions will prevail in the new world of higher education. GCE and its partners have weathered these challenging times well, have made significant investments, and will continue to invest in programs, technology, and people as we look forward to a very promising next 10 years. In this context, I will only review the four pillars of Grand Canyon Education. First, GCU's traditional campus saw an increase of 5.7% in new students in the Fall of 2021 over the prior year, an increase of 9.5% in total enrollment and an increase of 36.1% in residential enrollment. The momentum continued in the Spring of 2022 as new enrollments were up 39.6% over the prior year. Approximately 70.3% of ground traditional students now reside on GCU's residential campus. The average incoming GPAs of the 2021-'22 class rose to 3.6, and the prestigious Honors College grew 8.4% with average incoming GPAs of 4.1. We anticipate approximately 9,700 new students this fall with an average incoming GPA of 3.6 and an increase in the Honors College to 3,100 students with an average incoming GPA of 4.1. The retention of returning students this fall will be even better than expected, bringing the total on-ground student enrollment body to just about 25,000. A larger percentage of those students are choosing to remain on campus, resulting in the university having to turn away some new students due to lack of housing. This is despite the fact that the university built two new residence halls and repurposed another residence hall that was used to house prospective students, effectively adding three residence halls. These are remarkable results given the overall trends. The quality and relevance of GCU's academic programs, the low class sizes supporting its faculty who have less than a 5% turnover rate, the quality of counseling services, a new very modern campus ranked 18th in the country by niche.com, and 20 Advisory Boards with over 500 companies represented creating internships and employment opportunities for GCU students, along with very affordable tuition, which hasn't been raised in 15 years, are all contributing factors. I also want to mention that, unlike the national trend across the country, GCU expects over 3,000 of the 9,700 new students this year to be first-generation college students. These students are largely from the lower socioeconomic strata, but their enrollment at the university, due to very affordable tuition rates, is directly counter to the national trend and is a very positive part of the GCU, GCE story. Pillar 2, working adult students attending GCU online. As with traditional students attending universities across the country, 2021 saw a downturn in working adult students attending online. Unlike with traditional students on GCU's campus, we experienced the downturn in online students as well. GCE has worked with GCU on two main strategies to combat the downturn, and we are now seeing signs pointing toward positive growth again. Number one, we have invested in B2B strategies that are well-timed for this COVID and post-COVID period. The supply and demand, at least in the short run, for educated labor has slipped. Since the country has reopened, we are working with over 23,100 industry partners in K-12 education, healthcare, financial services, social service agencies, technology and engineering companies, military bases, etc., developing custom strategic initiatives that are helping organizations grow their talent from within. The number of information meetings scheduled and the attendance at these meetings now exceed where we were prior to the pandemic. Number two, GCE continues to work with GCU to roll out new and relevant programs. Since the transition four years ago, GCU has rolled out 66 new programs, emphases, and certificates. This is a remarkable accomplishment, and these new programs have enrolled 19,843 new students. We are still running behind the number of counselors we have budgeted, but despite that, we are currently projecting new enrollment growth in the mid-single digits in the second half of the year. It is important to note that this return to positive growth will be accomplished with no loss of strength in the quality of GCU's online student body. As a result, there is no degradation of the quality metrics, including good graduation rates, cohort default rates reaching 5%, well below the national average, and continued low student debt levels. Next, I would like to discuss GCE's third 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. Despite these 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. Some of the new sites that we hope to open, especially in large markets, have been pushed back to 2023. We are disappointed in the second-quarter enrollment numbers, but positive signs are emerging. We were only able to open four new locations between January 2021 and May 2022. We are currently planning to open 14 new locations between May 2022 and September 2023, six in the second half of 2022 and eight in 2023. As a recent example, the state of Washington approved the university partner to open its first location in Seattle just a few months ago, and with very limited marketing, we were able to fill the entire cohort for this Fall, and the Spring cohort is almost full. The other new locations that are scheduled to open in the summer or fall of 2022, including GCU’s locations in Las Vegas and Salt Lake City, are off to good starts. We are optimistic that our partner in Southern California will be able to start its first cohort in the fall of 2023, and our mature locations that had declines in total enrollment year-over-year will be back to full capacity by the end of 2023. I'm also very pleased to announce that the GCU locations grew 84% year-over-year from 176 students to 324, and their first 71 graduates passed the NCLEX examination with a 100% first-time pass rate. This is extremely important because GCU would ultimately like 40 of our 80 locations to be GCU locations. This relationship is good financially for GCU but is also beneficial for GCE given GCU's national footprint and brand recognition, the excellence of its nursing program, and its proven ability to scale. 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 in 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 required to scale the programs. Number two, GCE has the capital to invest in the continued build-out to eventually reach 80 locations. Three, in addition to the runway of 80 locations, our enrollment budget for this upcoming year is only 50% of the actual spots that exist today. The 50% shortfall is due to the lack of efficient and highly supportive prerequisite course environments, regulatory issues that are creating slowdowns in opening planned locations, and the lack of clinical placements due to COVID challenges. GCE is working hard, investing in new enrollment, simulation, virtual reality, and prerequisite strategies to fill all available spots in the future. This is a transitional year for our healthcare partnerships coming out of COVID-19. However, there is a very promising 10-year runway that creates a winning scenario for students, who have a promising career, healthcare providers desperately needing professional nurses, and universities looking for a low-risk way to help solve the nursing shortage while simultaneously creating additional revenue streams. Last, as we discussed in last quarter's call, we continue to work on a new pillar. We're extremely excited because it is desperately needed in higher education today. In collaboration with our largest partner, GCU, we are developing accelerated certificate programs and the first three have been rolled out or will roll out in the next couple of months. Two of the certificate programs are for students who want an efficient way to get into nursing school. We believe there is a significant opportunity here. Getting prepared academically to apply to nursing school can be a daunting and confusing process. First, the pre-nursing certificate program allows recent high school graduates to stay home and complete the first 60 credits of their bachelor's degree completely online. GCU has worked with GCE to design state-of-the-art science courses that will prepare students to apply for a spot in one of GCE's 80 locations. These courses will be taught mainly by full-time faculty with a tremendous amount of academic support for the students. The second certificate program is designed for students who have completed a college degree in another academic area or have a partially completed degree. These students will take the necessary science courses required to apply to one of our partners in one of our 80 locations. The first certificate has a synchronous component, while the second certificate is being taught completely asynchronously. Given that eventually GCE will have approximately 24,000 ABSN slots to our partners across 80 locations, we will need more than 24,000 students in certificate programs preparing for those opportunities. The third certificate program, which will begin in September, comes from GCU's newly formed Institute for Workforce Development. This certificate will prepare students for a professional electrician's apprenticeship program. This is a 16-credit-hour, one-semester program heavily focused on the mathematical concepts necessary to prepare for a career as an electrician. This program has been designed with a major industry partner that will offer apprenticeships to students successfully completing this program. This partner needs 1,000 electricians for their business in Arizona alone. This partner also indicates that the country is short a minimum of 100,000 electricians necessary to complete the building projects currently underway. GCU has received 278 applications for the September start and is currently interviewing candidates, and will accept 40 of them for the fall semester. Once the concept is proven, there is significant potential to scale this program. With that, I would like to turn it over to Dan Bachus, our CFO, to provide a bit more color on our 2022 second-quarter performance, changes in the income statement and balance sheet, and other items as well as discuss the updated 2022 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 three months ended June 30, 2022, and '21. The non-GAAP amounts exclude the tax-affected amount of the amortization of intangible assets of $2.1 million in the second quarters of both 2022 and '21. 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 three months ended June 30, 2022 and '21 is $0.85 and $1.12, respectively. Service revenue was generally in line with our expectations in the second quarter of 2022. Revenue from traditional campus students slightly exceeded expectations due to higher summer school enrollment, whereas revenue from online students was slightly lower than we anticipated, primarily due to slightly higher-than-expected graduations and students taking more time off from class during the quarter. Hybrid revenues were in line with our expectations. The hybrid enrollment growth rate is being impacted year-over-year due to timing of site openings, a 34% year-over-year decline in OTA enrollments, and the closing of sites. Excluding enrollments from closed sites, ABSN enrollments grew 6.6% year-over-year, which was slightly below our expectations as a few sites had lower-than-expected summer enrollments due to the challenges Brian discussed previously. The revenue impact of this had little impact on second-quarter revenues but will have an impact on revenues in the second half, which I will discuss further in a moment. Revenue per student continues to grow year-over-year primarily due to increased room, board, and other ancillary revenues from GCU students as compared to the prior-year period and the growth in enrollment of ABSN students. Service revenue per student for ABSN students generates significantly higher revenue per student than we earn on the other students as these agreements generally provide us with a higher revenue share percentage; the partners have higher tuition rates, and the majority of their students take more credits on average per semester as they are in accelerated programs. Our operating margin was slightly higher than our expectations. As I discussed on prior quarter's earnings calls, we have restarted hiring, during which headcount has mostly been flat since March of 2020 due to our expected future growth, which is driving increased compensation costs in technology and academic services, counseling services, and support costs. But as Brian mentioned, we remain below our headcount plan, which is the primary reason that expenses were below expectations. We also anticipate a significant year-over-year increase in travel and employee benefits, as those amounts were significantly lower than pre-COVID levels in the prior year. We also expect increased clinical costs at off-campus classroom and laboratory sites due to the nursing shortage. This spending is in line with our expectations. The year-over-year difference in the timing of new site openings is significant; all new sites in 2021 opened in the first half of the year, whereas nearly all new sites opening in 2022 will be in the second half, which has a negative impact on both revenue and expense. Included in both our 8-K and 10-Q filed today is a detailed explanation of the actual and anticipated impact of COVID-19 on all our university partners. Our effective tax rate for the second quarter of 2022 was 25.2% compared to 23.3% in the second quarter of 2021 and our guidance of 24.9%. Our effective tax rate continues to be unfavorably impacted by an increase in the state income tax rate primarily due to the fact that revenues continue to grow at off-campus classroom and laboratory sites outside of Arizona, and the majority of these states have higher state income tax rates than Arizona. We repurchased 1,319,289 shares of our common stock in the second quarter of 2022 at a cost of approximately $128.5 million. The Board is committed to spending at least $24 million during the rest of 2022 based on its previous commitments. Turning to the balance sheet and cash flows. Total unrestricted cash and short-term investments on June 30, 2022, was $203.3 million. GCE CapEx in the second quarter of 2022, including CapEx for new off-campus classroom and laboratory sites, was approximately $8.4 million or 4.2% of service revenue. We continue to expect CapEx for 2022 will be between $30 million and $35 million. Lastly, I would like to provide color on the updated guidance that we have given in our 8-K filed today. The guidance we have provided continues to be non-GAAP as-adjusted net income and as-adjusted diluted income per share, as we have excluded amortization of acquired intangible assets. We continue to provide ranges for revenue, operating margin, and earnings per share for each of these quarters. We do this because our financial results are seasonal. As you recall, the difference between the high and low end of the previously provided ranges was primarily due to differing enrollment assumptions for GCU online and hybrid enrollments. The high end of our originally provided revenue guidance assumed GCU online would return to new enrollment growth in the second quarter of 2022, whereas the low end assumed that new starts would remain down on a year-over-year basis in the second quarter but would turn slightly positive in the second half of 2022. As Brian mentioned earlier, the B2B activity continues to improve, which gives us confidence that new online enrollments will return to year-over-year growth in the second half of the year. However, our headcount continues to be approximately 10% lower than planned. As mentioned earlier, our summer school hybrid enrollments were slightly less than we expected. Demand generally remains strong for our hybrid locations, but the clinical capacity issues and prerequisite challenges discussed previously continue to pressure cohort sizes at these locations. These challenges have impacted some locations more than others, resulting in lower-than-expected summer school enrollments at a few of the hybrid locations. One recent example of the challenges currently being faced is a university partner that has historically had 100 student cohorts informed us that they would cap their cohorts in the summer and fall at 80 students each due to concerns around the availability of clinical faculty, even though there were qualified students available to fill the cohorts. We are working on solutions to ensure them that there is sufficient clinical faculty for the higher cohort sizes, but at this time, it seems more likely that the cohort sizes through the end of 2022 will be 80. It is important to note that most of the locations have met or exceeded their enrollment goals for the summer term and anticipate the same in the fall. However, due to clinical capacities, we are unable to compensate for the locations that had shortfalls with increases in future terms or at other locations. As a result, we have adjusted our guidance for the second half of the year. The midpoint of the revenue guidance is in line with our previous low end of the guidance. The midpoint of the EPS guidance falls between the midpoint and low end of our previous guidance. The adjustments are primarily due to the lower expected hybrid revenues and expenses. The difference between the high end and low end of the range of the updated guidance is primarily due to differing online headcount assumptions, with the high end being if we can increase headcount over the next couple of months to what we had originally planned, whereas the low end assumes that net headcount remains at the current levels. Traditional campus and hybrid revenues and expenses are generally the same in the guidance provided. The effective tax rate for the second quarter of 2022 has been lowered to 18.4% and 22.9% in the third and fourth quarters, respectively, and the operating margin has also been slightly adjusted down to reflect contributions in lieu of state income taxes that were made last month. As in prior years, the impact of these contributions will increase G&A expense by $5 million in the third quarter and decrease the effective tax rate in the second half of the year, with $3.6 million or approximately three-quarters recognized in the third quarter and $1.4 million or approximately one-quarter in the fourth quarter. This will lead to a $0.05 lower EPS in the third quarter and $0.05 higher EPS in the fourth quarter. Our weighted average share count considers the number of shares purchased and what we intend to purchase for the remainder of the year. As discussed in the last quarter, the primary reason the board has been aggressive in its stock buyback activity is that it believes the stock is considerably undervalued. A couple of the key metrics the Board uses to make this determination is the ratio of enterprise value to adjusted EBITDA and 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 few, if any, appropriate comparisons. On an enterprise value to adjusted EBITDA basis, the stock currently trades at roughly 10.7, which is significantly less than the recent S&P average of approximately 17. The average free cash flow yield for the S&P 500 remains at about 2%, whereas the company's free cash flow yield is approximately 7.8%. I will now turn the call over to the moderator so that we can answer questions.

Thank you. At this point, we'll conduct a question-and-answer session. Our first question comes from Ryan Griffin with BMO Capital Markets.

This is Ryan on for Jeff. I was just wondering if you can provide any additional details on the ABSN closures. It seems like those classrooms and labs were quite large? Thank you.

Did you ask about the closures?

Yes. Florida.

Yes. Yes.

Yes. There were two locations, both in Florida. As we've discussed in previous quarters, it was a joint decision between GCE and that university partner, as they wanted to refocus their efforts on locations closer to their campus. This fall, they're actually opening a second location in Albany, New York. So, we exited the Florida market. We will be reentering the Florida market, hopefully, in the next 12 to 24 months, most likely with Grand Canyon University as our partner. So, we will be back in Florida. We believe it is a good market, and so that will happen. But yes, it did have an impact on our year-over-year enrollment growth, although one of the reasons that we were satisfied closing those locations is that, even though they had been open for multiple years, they were still losing money. From a profitability standpoint, that was a good decision for both partners.

Got it. And then how would you expect your business to perform in a recessionary environment?

I believe we are going to do very well. The ground campus is exceeding our expectations. We have become a national institution. Although the number of high school graduates and the percentage attending college are decreasing, more people are seeking affordable, high-quality options, and we provide that in a desirable location. Regardless of whether there's a recession, we expect strong performance from our ground campus. For online programs, we've made significant progress, primarily by focusing on licensure programs. The fastest-growing areas are in teacher education, where there is a significant shortage of teachers, as well as social work and counseling. Even in a recession with a tighter job market, interest in these fields does not seem to be declining. Licensure requires degrees, which positions us advantageously. This trend holds true for our online graduate students, many of whom are in licensure fields and looking to advance in their careers. Therefore, we do not foresee a downturn in that segment. From a healthcare standpoint, if a recession occurs and the job market tightens, we might see an increase in candidates wanting to transition into nursing programs to earn degrees, given the pay and benefits. Thus, we believe we are well-positioned to thrive in a recession. If the job market tightens, we are confident in our ability to benefit from it.

Thank you, Ryan.

I think we have a question from Alex.

Yes, our next question comes from Alex Paris with Barrington Research. Go ahead, Alex.

Hi, thank you. And thanks for taking my questions. I just had a couple questions about the new certificate programs within the fourth pillar. Brian, I think you said that you have rolled out or will roll out soon. What has been rolled out? How is it being rolled out? Is it being offered online? How do you charge for these programs? Is it the same cost per credit hour, or is there a difference?

Well, regarding three of the certificates: The first one will be rolled out through our ground campus enrollment counselors, predominantly those individuals working within high schools throughout the country that send students to GCU. They are identifying students who would like to remain at home, save money, and earn the first 60 credit hours of their undergraduate degree to prepare for a nursing program, all while completing those online for approximately the same tuition rate paid by other online students. So, that's being rolled out in September. The second certificate program is also being launched in September, aimed at students who have a partially completed or completely completed degree and want to take the necessary science courses for admissions into one of our accelerated Bachelor of Science in Nursing programs. Those courses have all been completed, faculty have been hired, and we will provide that opportunity to individuals beginning in September. We are informing all our partners and the individuals representing those programs about this option, so they can refer students to us. Presently, most individuals expressing interest, who have a partial or complete degree, are often directed to community colleges, which can be a lengthy process. If they are redirected to GCU's program beginning in September, we offer eight-week courses. If you need to take five or six of those courses, they can be completed in a span of two to three weeks after expressing interest. You could be done with your prerequisite courses and eligible to begin one of our programs within a period of eight to nine months. We believe that this will streamline the process for students to complete their prereqs and get into our nursing programs. A discount will be offered on that tuition compared to our standard rates, as we are focused on preparing as many students as possible to enroll in the ABSN program across the country. The third program will have a slightly discounted commission rate as well. This relates to the electricians program at our campus, which is supported by substantial grant funding. We received an almost $700,000 grant from the State of Arizona, demonstrating enthusiasm for our workforce development center amid an ongoing construction boom in Arizona, particularly for electricians. We have a cautious partner who wants to ensure we execute this program properly to begin with, so we're starting with an acceptance of 40 students for the semester, with potential for a range of 40 to 80 students in the second semester. However, once we've proven the concept, we anticipate tremendous interest. We've already had 278 applications, and we are just getting started. All three of these programs are shorter offerings leading to certificates that will set individuals up for jobs and careers in the workforce. Thus, I believe universities can work with students throughout their lives, from industrial degrees to certificate programs, to help build the workforce. I think we are preparing ourselves to be a premier supplier of these programs.

That sounds very exciting. I presume then based on your remarks that if the first three are successful, it could lead to further certification programs offered by GCU.

Yes. There are already people expressing interest in the electricians program who are approaching us as potential partners that want to discuss additional programs.

Alright. Last one from me, just kind of big picture. Grand Canyon has historically grown organically. What are your thoughts regarding M&A? Are there any capabilities out there that might make sense to acquire rather than grow organically, particularly given what's happened with ad tech valuations and valuations in general over the last six months or so?

There's a lot of opportunities available; we receive calls all the time. We will evaluate these possibilities. However, the likelihood of us doing something within the next 12 to 24 months is not very high. We are extremely enthusiastic about our ground campus, and our ability to grow it from the current 25,000 students to 50,000. Now that online appears to be moving in a positive direction again, we wish to focus on continuing to build out programs in that area. Additionally, we anticipate the opportunity to grow our 80 locations following our hybrid campus partners. That represents a significant amount of work. The return on investment in that area is impressive, especially given we've remained focused on identifying gaps in workforce development. The nursing industry has historically struggled to scale, and the shortage presents a significant risk area for the nation. If we could build out all 80 locations and produce 24,000 nurses annually, not much could match that need more effectively. It's the same with our teacher education programs. Many might not realize that we have 25,000 students in our teacher education program, the majority of whom are aspiring to become first-time teachers. Given that we have implemented the necessary infrastructure for distance learning, we can facilitate their studies and assist with their internship hours, observation hours, and student teaching schedules. We are quite excited about our current programs and their potential for growth over the next 10 years. Thus, the likelihood of pursuing alternatives right now is minimal.

Great. Thank you for that insight. One final question that just occurred to me—for clarification—did GCU online experience a decline in new student enrollment for the second quarter? I understand you project mid-single-digit growth in the second half. How did it perform in the second quarter?

Yes. It declined in the mid-single digits, which was what we anticipated entering the quarter given where the headcount was. The momentum is promising, but as you know, the historical comparisons become different now. It's the combination of those two factors that places us in a very favorable situation going forward.

Thank you, Alex. Our next question will come from Jeff Meuler with Baird. Your line is now open.

Hi, thank you. I heard that the enrollment advisor headcount is 10% behind plan. Can you help us understand how much you grew it during the quarter? Additionally, can you provide any insights that instill confidence in the forecast moving from down mid-single digits to up mid-single digits in GCU online new enrollment, beyond the easier comparisons? I know you referenced some better partnerships; any additional context would be helpful.

No. The main aspect to highlight is that nearly 35% of our counseling staff is engaged in B2B strategies out in the marketplace. We are collaborating with school districts, and we recently hosted visits from large school districts in cities such as Boston and Chicago. They are continually asking us to work on programs that aid their paraprofessionals in becoming licensed teachers. Military bases are also requesting that we prepare undergraduate students for cybersecurity careers, as they cannot compete with outside firms for cybersecurity specialists. These developments represent a couple of examples. Hence, the productivity, which came to a halt during the pandemic, is slowly being restored, requiring that we reconnect, meet their needs, and present programs to aid them in accomplishing their objectives. However, that's the main reason we are regaining momentum. Our counselors have been re-engaging, and we've progressed to a point where they've been reestablishing and strengthening relationships over the past six months, which is leading to the enrollment of students. Their enrollment lags slightly, but it is starting to occur. Our internal advisors have been productive at levels comparable to historical norms, but we had to share those leads among all advisors for a while. They are now returning to historical performance rates. The external counselors are also becoming more productive. As this continues, along with the ease of comparisons, we believe this will enhance our momentum and growth. We experienced some growth in the last quarter, but it remained relatively flat. Yet, many are starting to perceive an improvement again. We offer excellent job prospects, benefits, and opportunities for advancement. If the job market tightens, as many anticipate, this will likely work to our benefit, as it could make it easier to bridge this 10% gap to where it should be.

Understood. Just one last question—regarding the clinical instructors: Were there regulatory changes during COVID that temporarily affected the amount of simulation available for clinical experience? Is the use of simulations now returning to normal, or is there pushback from partners regarding simulations?

Well, there is indeed a trend in many regions—not all states—where the boards have relaxed regulations, becoming more open to fulfilling requirements without one-on-one nurse-to-student ratios. For example, in some states, as much as 40% of the instruction that was previously done one-on-one is now handled through simulations or other virtual reality exercises. That’s just one part of the equation. Another significant factor is faculty availability. Many masters-prepared nurses were hesitant to take one-on-one clinical positions because they were earning substantial overtime wages working directly on the floor. As such, we've had to increase our pay levels to make these positions attractive. We're also likely to start hiring traveling professors, who are willing to relocate for those assignments. The trend is evolving, and hospitals are beginning to work closely with us to help create clinical spots and encourage faculty members to engage. In Arizona, particularly given the sharp population increase on the west side, we already have a west-side location, but numerous new cities are approaching us, requesting the establishment of additional locations in their area, intending to hire local graduates to fill nursing positions within their hospitals. We have already navigated through the toughest phase, and we are optimistic about the level of cooperation among nursing boards, hospitals, and clinical faculty moving forward. This will place us in a strong position, especially now that we are preparing to open 14 new locations across the next 18 months. The only additional point I would make is that with 27 partners and 32 locations, the situations can vary; it's partner and location-specific. Some of the challenges that emerged recently at certain locations popped up elsewhere last year, where they had already requested a cohort size reduction. The example I provided today on the call pertains to a partner that had not made that request until recently. Thus, I wouldn't characterize this as purely better or worse; it's more about location and partner-specific variations. However, I want to stress the significant work being done through the GCU program. I am extremely enthusiastic about what has transpired in our West Valley and Tucson locations, which are both advantageous for accelerated Bachelor of Science in nursing programs. Both of these fairly new locations saw 71 students graduate in the first and second quarter, and we achieved a remarkable 100% first-time pass rate on the NCLEX examination. This model is achievable and can be executed with an exceptionally high quality. We just need to instill confidence in some of our partner institutions to facilitate this process. I believe as we continue to open more GCU locations and demonstrate this success, we will encourage others to follow suit.

Thank you. Regarding the 14 planned locations, could you share the current status of the regulatory approval process for those sites?

Most of them have already been approved. Some, particularly those slated for the fall of 2023, including the one in Southern California, are in the regulatory process. However, I feel more optimistic about this than I was three months ago regarding approval for these locations, although there are no guarantees. But we do feel the situation is progressing positively. We have 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 me, Dan Bachus. Thank you very much.

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