Earnings Call Transcript - LOPE Q1 2023

Operator, Operator

Good day and thank you for standing by. Welcome to the Q1 2023 Earnings Conference Call for Grand Canyon Education Inc. Please be advised that today’s conference is being recorded. I will now like to hand the conference over to your speaker today, Chief Financial Officer, Dan Bachus. Please go ahead.

Dan Bachus, CFO

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 will turn the call over to Brian.

Brian Mueller, CEO

Good afternoon, and thank you for joining Grand Canyon Education’s First Quarter Fiscal Year 2023 Conference Call. GCE had a very good quarter, exceeding enrollment expectations, exceeding consensus revenue estimates at mid $0.06 producing a $0.04 beat in adjusted diluted earnings per share to consensus. Given how most of higher education is coming out of COVID years, these are excellent results. Most importantly, GCU online produced significant new enrollment growth for the third consecutive quarter over the prior year, and that momentum is expected to continue into the second quarter of 2023. I want to begin again by taking a step back and explaining why this is happening and briefly review what has happened since the GCE-GCU transaction took place almost 5 years ago. I’ve often said that the past trends in higher education have shown that institutions that are large, scalable, and flexible in how they offer higher education will be the ones to succeed. We expect to impact adults across the lifespan using technology to build platforms that take into account the life situation of the student and the nature of the content that needs to be learned. GCE has invested approximately $300 million, producing its own learning management and administrative system that allows it and its partners to manage our 7,000 full-time and adjunct faculty numbers, 112,600 students, and over 320 academic programs, emphases, and certificates across 4 delivery platforms. This system has automated processes including admissions, transcript collection, evaluation schedule building, financial aid processing, assignment of recruitment, payroll content acquisition, assessing learning outcomes, student-teacher placement, counseling and social work internships, and the list goes on. The administrative capability of the system allows institutions to focus on the learning process, which is still in a small group, instructor-led process that is highly interpersonal, collaborative, focused on writing, critical thinking, and problem-solving, and produces outstanding outcomes. GCE currently employs approximately 4,000 full-time professionals and approximately 1,500 new workers as it continues to build out its capabilities to grow its programs and delivery platforms for its university partners. Leveraging this infrastructure has allowed GCE’s partners to expand programs that are critical to the economy, maintain tuition levels in the period of rapid tuition increases across the country, and make access to higher education portable to all socioeconomic classes without any burden on the taxpayer. In the almost 5 years since GCE has become a service provider, it has helped its partners accomplish the following: during this time, Grand Canyon University graduated 130,276 students. This includes 35,815 in education, consisting of 16,537 first-time teachers at a time when teacher shortages have created a national crisis. Additionally, 37,685 students graduated in nursing and health care professions, including 1,767 pre-licensure nurses amid a significant nursing shortage. In the College of Humanities and Social Sciences, 44,863 students graduated, including thousands in counseling and social work, again where there are large shortages. Our business school has become one of the largest in America and has produced 22,151 graduates. The College of Science, Engineering and Technology has grown by 183% and provided 4,539 graduates. The College of Theology has also continued to grow. The impressive numbers I have just cited have all occurred in the almost 5 years since GCU has become a nonprofit institution and GCE has become an education service provider. Our partnership with GCU has given us the ability to invest $576 million additional in academic and residential life infrastructure for its ground traditional campus, bringing total investments to almost $2 billion. Currently, GCU is ranked 16 in the country by niche.com. Very importantly, GCE has assisted GCU in opening 138 new academic programs and certificates during the almost 5 years. 12.9% of the new students enrolled in the first quarter enrolled in these new programs. During this time, GCU has not raised tuition on its ground traditional campus, only implementing nominal increases in certain online programs. As a result, GCU students take out less debt than the average state university student. Specifically, GCU students take out only 50% in parent loan amounts compared to students at our 3 state universities. GCU students have a 1.5% cohort default rate on student loans compared to the recently released national average of 2.3%, and the 90/10 calculation of 66.2% for GCU’s hard financials. In addition, GCU has accumulated over $400 million in cash and investment reserves while implementing annual salary increases every year for all faculty and staff, which stands in contrast to the declining enrollments and negative financial trends in higher ed across the country that accelerated during the COVID years. This model has produced significant results for GCU, the state of Arizona, and the country. Grand Canyon University has also been recognized as the third-best employer in Arizona in the 2022 Forbes America’s Best Employers by state report. Additionally, during this same time period, GCE has established 25 new university partnerships. These partnerships, along with our relationship with GCU, have created 36 locations to produce health care professionals, especially prepared nurses. This is extremely important work since the country is expected to need 1.3 million additional nurses in the next 5 years alone. The number of existing and new partners will eventually lead to regional migrations across the country. Since January 2019, 93,018 students have graduated from our other university partner ABS and OTA programs. I wanted to include this brief summary because there is currently a lot of discussion about the future of higher education. Regardless of political or ideological positions, the discussion focuses on where the economy is going, and where the new jobs and careers will be. Models that can scale and offer opportunities for access to all socioeconomic levels in the market without expense to the taxpayer should be supported. Critics point to the revenue share model of bad to Universities. The past few years have proven otherwise, and we expect this will become even more apparent in the coming year. In inflationary periods such as the one we are currently experiencing, or when demand declines as it has, GCE, as a service provider, absorbs the majority of the financial risk. Our expertise, technology, and processes have allowed our university partners to continue to thrive during challenging times. Now I will review the 4 pillars of delivery platforms at Grand Canyon Education. First, GCU’s traditional campus saw an increase of 8.9% in new students in the fall of 2022 compared to the prior year, an increase of 8% in total ground traditional enrollment, and an increase of 10.5% in residential enrollment. Approximately 70% of ground traditional students live on campus. The average incoming GPA for the 2022-2023 class is 3.6, and the prestigious honors college has grown 8.3% year-over-year, with average incoming GPAs of 4.1. Traditional campus spring enrollment was slightly better than expected due to better-than-expected fall-to-spring retention. These are remarkable results given the fact that undergraduate enrollment declined by 4.2% nationally between fall 2020 and fall 2022, where GCU’s ground traditional enrollment increased by 18.3% during the same period. We expect fall 2023 new enrollments to be between 10,000 and 11,000. The quality and relevance of GCU’s academic programs, small class sizes, and the affordability of tuition, which hasn’t been raised in 15 years, are all important contributing factors. I also want to mention that unlike the national trend, over 2,600 of the 9,300 new students in the fall of 2022 were first-generation college students. Their average incoming GPA is 3.55, which is almost identical to the incoming class overall. These students largely come from lower socioeconomic strata but are enrolling at the university because our carry forward tuition rate directly contradicts the national trend, which is a very positive aspect of GCE’s story. As I said before, in the fall of 2023, we are anticipating between 10,000 and 11,000 new students. We are currently under construction on two new residence halls that will increase the number of beds on campus by 1,500. The ultimate number of new students will depend on the retention of continuing students and their desire to remain on campus amidst the competitive environment we have discussed previously, noting the trends of fewer high school graduates entering college. Pillar 2: working with all students attending GCU online and with traditional students attending universities across the country. 2021 saw a downturn in working students attending online. Unlike traditional students attending GCU’s campus, we experienced a downturn in online students as well. GCE has implemented two main strategies to advance the downturn, and we are now seeing positive growth again. Number one, we have invested in B2B strategies and are well-timed for this post-COVID period. The supply and demand for educated labor has shifted since the country has reopened. We are working with over 26,850 industry partner locations in K-12 education, health care, financial services, social service agencies, technology and engineering companies, military bases, etc., to develop custom strategic initiatives that are helping organizations grow their pathways. The number of new students who started through these strategies grew 24% over the previous year in the first quarter. Number two, GCE continues to work with GCU to roll out new and relevant programs. Since the transition nearly 5 years ago, GCU has rolled out 13 programs and certificates, and 12.9% of new students enrolled in these programs this latest quarter. This has resulted in first-quarter new online enrollments growing in the low teens compared to the prior year, and we are currently projecting new enrollment growth in the second quarter of 2023 to be in the high single-digit to low teens. Based on these trends, we have returned to total online growth this quarter. It is important to note that this return to positive growth is being accomplished with no loss of quality in the online student body, and as a result, there is no degradation of the quality metrics, including good graduation rates, low cohort default rates, and continued low debt amounts for students. We anticipate new enrollment growth to again be in the high single-digit, low teens in the second quarter, which should allow us to grow total enrollment on a year-over-year basis in the low to mid-single digits by the end of the year. I would like to discuss GCE’s third pillar of health care partnerships. Short term, COVID has had a negative impact. Hospitals were extremely busy with COVID patients, impacting many clinical placement opportunities. 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 cohort sizes due to concerns about the lack of clinical capacity in some of the new sites we hope to open, especially in large markets, which have been pushed back to the fall of 2023 or 2024. Although positive signs are emerging on this front, the tight labor market has significantly affected the students interested in entering nursing. When we acquired Orbis in 2019, they were predominantly focused on post-baccalaureate students—those who had already completed a Bachelor’s program. Today, however, the majority of students interested in entering nursing have not completed a Bachelor’s degree. Therefore, we have been working with our partners and state nursing boards to adjust programs to allow students with 60 or more college credits to gain admission into the ABSN program. In addition, in partnership with GCU, we have created a more cost-effective and efficient pathway for these students or those who lack a bachelor’s degree but need to complete the required courses to enter the ABSN program. These challenges have temporarily caused some of our mature locations that are at capacity to shrink while some of our newer locations are not growing as fast as we expected. We believe these strategies will help us reaccelerate growth, and as we work through this, we will be much more selective about the new locations we open. We plan to open two new sites with GCU in the Venice area in the fall of 2023 and are hopeful to open a new site with a new partner in Southern California in the fall as well, although permitting issues have delayed construction. We also plan to open a couple of smaller sites with new partners that were previously committed to. I’m very pleased to announce that the GCU locations grew 27.2% year-over-year from 283 to 360 students. This is extremely important because we ultimately want 40 of our 80 locations to be GCU locations. This relationship is beneficial financially for GCU, but it is also advantageous for GCE in terms of cash flow and brand recognition. The essence of discussing this program is its proven ability to scale. As with GCU’s traditional campus, the long-term environment is very positive for these GCE health care partnerships for the following reasons: the country needs 1.3 million additional nurses in the next 5 years alone. Nursing programs are very expensive to operate, and given the financial pressures facing many universities, they will be unable to invest the necessary resources to scale the program. GCE has the capital to invest in the continued build-out, with the ambition of reaching 80 locations. In addition, our enrollment budget for the coming year is only 50% of the expected capacity, largely due to lack of efficient and supportive prerequisite course environments, regulatory issues delaying site openings, and a lack of clinical placements caused by COVID. Importantly, there are now over 1,200 students in GCU’s accelerated online science courses preparing to earn spots in 1 of our 36 locations. These are 8-week courses taught mainly by full-time faculty members and provide tremendous academic support services. There will be multiple start opportunities on a monthly basis. We expect this number to continue to grow, serving as a leading indicator of our ability to reestablish growth on the hybrid campuses. GCE is working diligently to invest in new enrollment, simulation, virtual reality, and prerequisite strategies to fill all available spots in future terms. This transitional year for the health care partnerships holds a promising decade ahead. It creates a winning scenario for students wanting to enter a promising career, health care providers desperately needing professional nurses, and universities looking for a low-risk way to help combat the nursing shortage while simultaneously generating additional revenue streams. Lastly, we continue to see positive results in our fourth pillar certificate programs. We are extremely excited about these programs, which are desperately needed in higher education today. Last September, we launched a certificate program in partnership with GCU’s newly formed Institute for Workforce Development. This certificate is designed to prepare students for a professional electricians apprenticeship program. It is a 16-credit hour, one-semester program heavily focused on the mathematical concepts necessary for a career in electrical work. This program was developed with a major industry partner that is offering apprenticeships to students who successfully complete this program. This partner has indicated a need for 1,000 electricians for their business in Arizona alone, and the country currently faces a shortage of a minimum of 100,000 electricians to meet the ongoing building demands. Last fall, 300 students applied for this program, and we accepted 40 into it. Of those 40 students, 39 completed the program successfully, and the feedback we've received from industry partners has been very positive. An additional 200 applications were submitted for the spring semester, and we accepted another 40. 35 of those students completed their program successfully. Once the concept is proven, this program holds potential for significant scaling. We have seen interest from many additional industry partners who wish to participate. Service revenue was $250.1 million for the first quarter of 2023, an increase of $6 million or 2.5% compared to $244.1 million for the first quarter of 2022. This increase year-over-year in service revenue was primarily due to an increase in GCU traditional campus enrollments and an increase in revenue year-over-year, partially offset by a decrease in hybrid enrollments, primarily among students in our partners' Occupational Therapy Assistant programs. Operating income for the 3 months ended March 31, 2023, was $74.5 million, a decrease of $3 million compared to $77.5 million for the same period in 2022, as we continue to invest to meet our clients’ enrollment goals. The operating margin for the 3 months ended March 31, 2023, was 29.8% compared to 31.7% for the same period in 2022. Net income increased 2.6% to $59.6 million for the first quarter of 2023, compared to $58.1 million for the same period in 2022. GAAP diluted income per share for the 3 months ended March 31, 2023, is $1.94, and adjusted, non-GAAP diluted income per share for the 3 months ended March 31, 2023, is $2.04 above consensus estimates. With that, I would like to turn it over to Dan Bachus, our CFO, to give a little more color on the first quarter of 2023 and discuss the updated guidance.

Dan Bachus, CFO

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 March 31, 2023, and 2022. The non-GAAP amounts exclude the tax-affected amount of the amortization of intangible assets of $2.1 million in the first quarters of both 2023 and 2022 and the tax-affected amount of the losses on fixed asset disposal of $0.1 million and $0.7 million for the 3 months ended March 31, 2023, and 2022, respectively. 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, 2023, and 2022 is $2 and $1.72, respectively. Service revenue was higher than our expectations in the first quarter of 2023 due to the higher-than-expected ancillary revenues at GCU and a higher-than-expected number of students in nursing prerequisite courses. Other online and hybrid revenues were in line with our expectations. The ground enrollment growth rate continues to be impacted by a decline in professional study. The hybrid enrollment growth rate is being impacted year-over-year due to the timing of site openings, a 19.9% year-over-year decline in occupational therapy assistant enrollment, and a decline year-over-year in enrollment at some of our material sites due to challenges previously discussed. Revenue per student continues to grow on a year-over-year basis, primarily due to the service revenue impact of growth in the GCU traditional campus enrollment for seniors, which has a higher revenue per student due to room, board, and other ancillary revenues and the higher revenue per student generated at off-campus classroom and laboratory sites. Service revenue for hybrid ABS students generates significantly higher revenue per student than we earn on the other sites, as these agreements generally provide us with a higher revenue share percentage, partners have higher tuition rates, and the majority of their students take more credits on average per semester since they are in an accelerated program. However, the increase in revenue per student was negatively impacted by year-over-year differences in the timing of the GCU traditional campus spring semester, with $4.5 million shifted from the first quarter to the second quarter compared to last year. Our operating margin was higher than anticipated, primarily due to the higher-than-expected revenue. As I discussed in previous earnings calls, we have been aggressively hiring, whereas headcount had mostly been flat since March 2020, to meet our partners’ expected future growth, driving increased compensation costs and technology and academic services. We plan for a significant increase year-over-year in travel and employee benefits as those amounts were significantly lower than pre-COVID levels in the prior year. We also anticipate increased clinical costs at off-campus classroom and laboratory sites due to the nursing shortage, and this spending has generally remained in line with our expectations. Our effective tax rate for the first quarter of 2023 was 22.3%, compared to 25.2% in the first quarter of 2022 and our guidance of 22.3%. The decrease in the effective tax rate year-over-year is due to excess tax benefits of $0.9 million in the first quarter of 2023 compared to $0.1 million in the first quarter of 2022. The 2022 effective tax rate was impacted unfavorably by higher state income taxes, whereas the 2023 effective tax rate benefited from state tax refunds. We repurchased 309,978 shares of our common stock in the first quarter of 2023 at a cost of approximately $34.9 million and an additional 96,547 shares since March 31, 2023. We have $149.7 million remaining available as of today under our share repurchase authorization. The Board of the company intends to continue using a significant portion of its cash flows from operations to repurchase its shares, but share repurchases in future years will be less than in 2021 and 2022, as we have utilized all the proceeds from the repayment of the secured note during the past few years. Turning to the balance sheet and cash flows, total unrestricted cash and short-term investments on March 31, 2023, were $194.5 million. GCE CapEx in the first quarter of 2023, including CapEx for new off-campus classroom and laboratory sites, was approximately $8.6 million or 3.4% of service revenue. We expect CapEx for 2023 to be similar to 2020, at between $30 million and $35 million. I’d like to provide color on the updated 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, compared to adjusted GAAP amounts to non-GAAP as adjusted net income and non-GAAP adjusted diluted income per share, and we will continue to provide both GAAP net income and diluted income per share and the non-GAAP amounts with a reconciliation between the two when we report actual results. We have updated full-year 2023 guidance to include the first quarter’s revenue and earnings peak and are reaffirming the second, third, and fourth quarters of previously provided guidance. A couple of reminders: timing differences in the start and end of the traditional campus semester pushed $4.5 million from Q1 2023 to Q2 2023 compared to 2022, and $1.3 million from Q4 2023 to Q3 2023 compared to 2022. We anticipate new online enrollments will be up year-over-year in the high single digits to low teens in the second quarter. As a reminder, the comparison becomes much more challenging in the second half, as new enrollments were up year-over-year in the mid-teens in the third and fourth quarters of 2022. Thus, our guidance provides a wide range of potential outcomes in the second half between low and high single-digit growth. Our long-term objectives include growing new enrollments in the mid-single digits, and the midpoint of this range would meet these goals. Based on this, we anticipate that total online enrollment will end the year with low to mid-single-digit year-over-year growth. As Brian discussed earlier, hybrid growth will remain below our long-term objectives during the first half of 2023, but we’re hopeful to start seeing acceleration beginning in the fall semester due to new site openings and the impact of the prerequisite initiative on the number of eligible students able to start in our partners’ programs. We estimate the effective tax rate in the last three quarters of 2023 will be 24.9%, 24.9%, and 24%. The effective tax rate will be higher in 2023 than in 2022 because of the impact of state income taxes as revenues continue to grow at the offsite locations outside of Arizona, driving our tax rate increase. These estimates do not assume a contribution; however, if one 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. Assuming a contribution of $5 million is made in July 2023, as was made in July 2022, this would decrease net income by $1.3 million in the third quarter of 2023 and increase net income by $1.3 million in the fourth quarter. However, no decision has been made yet regarding this contribution. Our weighted average share guidance assumes we purchase most of the remaining amount authorized by our Board evenly over the rest of the year. The Board continues to authorize the repurchase of shares as the stock remains undervalued based on the metrics it uses for evaluation, including the ratio of enterprise value to adjusted EBITDA and the free cash flow yield, rather than multiples of other education companies. 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 is currently trading at roughly 12.5%, which is lower than the recent S&P average of 16.4%. The average free cash flow yield for the S&P 500 is 2.8 million, whereas the company’s free cash flow yield is approximately 5.5%. The guidance does not include any reduction in revenue or expenses associated with the Dear Colleague letter issued last year that I’ve discussed on previous calls. However, it is likely that many of our university partners' contracts will be adjusted prior to the fall term such that we will no longer reimburse them for certain costs and will ultimately be reducing our revenue as a result. It's important to note that these changes will not have a material impact on revenues or operating profit, as the Dear Colleague letter does not directly affect our relationship with GCU, since GCU provides all faculty for their courses, and receives little to no reimbursement from us or any other outside sources for faculty costs. Because the contract modifications are being made to ensure both parties are made whole. Lastly, I want to highlight that the named executive officers have signed extensions of their employment agreements. Brian’s agreement has been extended through June 2024. I’ll now turn the call over to the moderator so we can answer questions.

Operator, Operator

Thank you. Our first question comes from Jeff Meuler with Baird. Your line is now open.

Jeff Meuler, Analyst

Yes. Thank you. For the hybrid prerequisite initiative, have you had any students graduate from that program at this point? When do they apply for the ABSN experience—just how much of a lag between completing the pre-requisites and enrolling in ABSN would you expect?

Brian Mueller, CEO

Well, when students express interest in our program, we assess their prerequisite courses and determine the schedule for them to transition to the ABSN program. Depending on how many courses they need to take, that will determine when they finish their last course, after which they will begin attending one of the sites they selected, often even before they start their prerequisites. Many students will find a site very close to home, while others may select a site further away. The majority of these students are completing their courses at a very high rate, and while we haven't had any students complete all prerequisites to enter the ABSN program just yet, we are very close to that. Preliminary results have been promising, and I cannot underestimate how important it is. When you apply to enter a nursing program, if you don't have the necessary prerequisites, you can be referred to a community college, which could add 2 or 3 years before you complete your prerequisites and get into a program. Given the costs associated with other routes, the centralized process we have—allowing access to appropriate prerequisites—should facilitate successful entry into the ABSN program, and we believe this is key to accelerating growth. We’ll provide updates on this as time passes, but our early experiences indicate that students are performing well in their coursework, receiving ample support.

Jeff Meuler, Analyst

Got it. And regarding the fall 2023 ground campus enrollment, I just want to ensure I’m interpreting your comments correctly. You mentioned new starts, but I feel like there was a caveat a couple of months ago about registrations tracking behind. Has visibility on that front improved regarding retention of students from spring to fall and increased competition? Is there any reason to believe that retention could be lower this year?

Brian Mueller, CEO

No, retention is looking very good. We will likely come in with more returning students than we initially budgeted for, which is great news. However, there have been notable changes in higher education concerning traditional students, accelerated by COVID. We are expressing a wide range of between 10,000 and 11,000 students for a reason. While our applications, campus visitations, and one-on-one appointments with students and parents have increased significantly, what is lacking are the students' commitments to register. They are not outright rejecting us but are not committing to register. We've had numerous institutions visit us—well-branded private universities—seeking potential collaborations as they assess their fall numbers. The situation isn't dire, but many institutions are under pressure. Students and families are increasingly aware they are in the driver's seat now. They recognize that if they wait, institutions will compete for them with better offers. We don’t feel that we need to rush into this because our low tuition rate remains competitive. Moreover, parents and families are questioning the value of higher education if it entails unacceptable debt levels. We believe that when they compare offers from other institutions, our proposal will still look favorable, especially considering more than 40% of our students graduate within three years due to our dual credit programs. So despite the continuing trend of fewer high school graduates, if students scrutinize the value of higher education, we offer a solid investment with limited debt and a shorter time frame for graduation.

Dan Bachus, CFO

And just to clarify on the earlier caveat: you might recall we had a similar discussion last year where the university built 1,500 new beds. If retention rates remain consistent with last year, we could potentially recruit an additional 1,500 new students compared to last year. Based on current registrations for continuing students, they are projected to fill the entire 1,500 additional beds. After the summer, we do expect some attrition as we’ve seen in the past. But at this moment, retention numbers appear stronger than projected, allowing for continued demand for the increased bed capacity.

Brian Mueller, CEO

From an overall enrollment perspective, it won’t shift the total enrollment numbers; it will merely adjust the composition between new and returning students.

Jeff Meuler, Analyst

Got it. Thank you.

Operator, Operator

Our next question comes from Jeff Silber of BMO. Your line is now open.

Jeff Silber, Analyst

Thanks for sneaking me in. I apologize, I joined late. Brian, and forgive me if you mentioned this, you talked about the hybrid business being in a transitional year. Could you briefly explain why that is?

Brian Mueller, CEO

Certainly. The market has altered due to shifts in the labor landscape. Currently, there are fewer students who have completed a Bachelor’s degree returning to careers where they want to transition to nursing. Given the low unemployment, there are many graduates with solid jobs earning between $60,000 to $70,000 a year. The attractiveness of leaving such a position to invest in nursing education hasn’t been appealing for this demographic. What we’re seeing is significant interest among students who may not have a Bachelor’s degree, like those from community college with anywhere from 30 to 60 credits, along with fewer accumulated debts. Therefore, creating an efficient pathway for them to complete their science prerequisite courses is essential to facilitating their entry into the ABSN program. We've established support systems to streamline scheduling and offer frequent start times at GCU, and this has led to 1,200 students enrolling in these courses. We're confident that if we can successfully support these students through the requisite courses, it will significantly smooth the pathway into ABSN programs in the future. As students identify the locations and ensuing schedules for their courses, our projections for enrollment in hybrid campuses look favorable.

Jeff Silber, Analyst

Okay, that clarifies things. Can you also provide an update regarding acquisition costs in your GCU online programs? I know the market has been competitive, and I'm interested to hear if those costs have come down.

Brian Mueller, CEO

Historically, our acquisition costs were a major source of margin expansion. However, recently they have remained relatively flat. We haven’t faced significant pressure like others in the market. In fact, we experienced a 24% growth in starts this first quarter compared to the same quarter of the previous year. Developing partnerships with institutions has reduced the pressure on our marketing approach. While others have had to spend more on marketing, resulting in diminishing returns, we’ve managed to keep our advertising costs stable, seeing slight increases due to the increase in starts from school partnerships, hospitals, counseling centers, and organizations we are collaborating with on customized programs.

Jeff Silber, Analyst

I appreciate the insight. Thank you.

Dan Bachus, CFO

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 questions, please contact me, Dan Bachus. Thank you very much.

Operator, Operator

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