Grand Canyon Education Inc (LOPE) 2009 Q1 法說會逐字稿

Good afternoon. My name is Tasha and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2009 Grand Canyon Education Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

Thank you. I would now like to turn the conference over to Mr. Chris Richardson, General Counsel and Director of Grand Canyon Education. Please go ahead, sir.

Thank you, operator. Good afternoon and thank you for joining us today on this conference call to discuss Grand Canyon Education's 2009 first quarter results. Speaking on today's call are Brian Mueller, CEO, and Dan Bachus, CFO. Additionally, Brent Richardson, Executive Chairman, Stan Meyer, Executive Vice President, Dr. Kathy Player, President and Chief Academic Officer, and Chris Richardson, General Counsel, will be available during the Q&A period.

This call is scheduled to last one hour. During the Q&A we will try to answer all questions, but we apologize in advance for any questions that we are unable to address due to time constraints. I would like to remind you that many of our comments today will contain forward-looking statements with respect to the future performance of Grand Canyon Education that involve risks and uncertainties.

Various factors could cause the actual results of the Company to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in the Company's SEC filings, including the 10-Q report to be filed later today and its subsequent 10-Q reports filed with the Securities and Exchange Commission.

The Company does not undertake any obligation to update anyone with regard to the forward-looking statements made during this conference call and we recommend that all investors thoroughly review our annual and quarterly filings with the SEC before taking a financial position in the Company. And with that, I'll turn the call over to Brian.

Thank you, Chris. Good afternoon. Thank you for joining Grand Canyon Education's First Quarter Conference Call. I am pleased to report strong first quarter results, provide second quarter guidance, and update guidance for 2009.

Our results validate two important core components of our strategy. First, our traditional campus and our online campus co-exist in a way that is mutually reinforcing. Our online campus benefits from the growing strength of the brand of the traditional campus. The brand is being built on a strong traditional faculty, the rising incoming GPAs of our traditional students, and strong affiliations with hospitals, school districts, and businesses based on long-term partnerships.

We are also placing a priority on the pursuit of excellence in performance areas such as athletics, music, and theater. In addition, we are currently in the advantageous position of being able to keep tuition rates for traditional students very competitive because of the profitability of the online campus. Second, we continue to benefit from the long-term job growth expected in education and healthcare, which are two of our most important verticals.

There are four goals I'd like to accomplish on the call before taking your questions. One, review the five key areas of management's focus as we move through fiscal year '09. Second, review the four strategies employed to differentiate Grand Canyon from other universities offering similar programs.

Third, I will review the results of the first quarter operations and provide guidance for second quarter of '09 and update guidance for all of '09. And finally, Dan Bachus will review highlights on our balance sheet, discuss the lending and regulatory environment, and will discuss material transactions that will occur in the second quarter.

As stated in our previous call, our mission is to offer each of our students high quality, professionally relevant academic programs that enhance their career prospects. Our educational schools are targeted within specific professional verticals and are tailored to offer maximum flexibility to accommodate the needs of traditional students and working adults.

To accomplish that mission, our management team continues to focus on the following five core initiatives. One, ensure that current and future programs of study are consistent with employment trends in the country. We continue to receive favorable long-term reports on the job growth trends in healthcare and education. In addition, we are adding programs in business and liberal arts where we see job growth.

Two, develop curriculum in our core programs that are relevant to schools, hospitals, and businesses. We continue to open programs in school districts and hospitals, delivering those programs both through traditional and online students. Three, build on one of our greatest assets -- our full-time, traditional faculty. Our traditional faculty will use the summer months to revise and update curriculum in many of our programs and courses.

Four, build innovative software applications that enhance the student experience, enabling us to most effectively engage students and thereby maximize persistence rates and learning outcomes. Our Academic Web Services Department built 31 web enhancements, which were inserted into 68 of our courses in the first quarter.

Five, build a cross-functional operations team environment that will utilize advanced systems and tools to provide superior academic and administrative services to students. We are making significant progress in building process and technology.

With the growing competition within higher education, it is important that Grand Canyon has a clearly differentiated position. We are doing that in four primary ways. One, as I mentioned earlier, we will build the scope and reputation of our traditional campus in Phoenix by attracting high quality students and faculty, and by excelling in performance-related areas. Two, we will continue working to keep a large percentage of our online students at the graduate level.

Three, continue to build the reputation of our three core verticals -- education, healthcare, and business. We are actively collecting data from employers that give us important feedback on their performance as professionals. Four, continue to operate out of the basic framework of a Christian world-view, which focuses on employing a strong values-based and highly ethical approach in our teaching and in our operations.

Turning to the results of operations for first quarter of 2009, we are pleased to report a strong quarter. Net revenues were $59 million as of March 31, 2009, an increase of $23.3 million or 65.1% from $35.7 million in the prior year period. Student enrollment at the end of quarter one 2009 are approximately 28,400, an increase of 62.4% from approximately 17,500 at March 31, 2008.

There are four areas contributing to this strong growth. One, new enrollment growth met our expectations. The anticipated increase in EC productivity, enrollment counselor productivity, occurred during the first quarter as a large number of enrollment counselors who were hired in the last two quarters of 2008 became productive in the first quarter of 2009.

As a reminder, this year we are hiring more evenly over the quarters and focusing on higher enrollment counselors in education where a higher percentage of our students are studying at the Master's Degree level. Two, we continue to refine our advertising strategy with an emphasis on the brand recognition of our traditional campus and the continued focus on our footprint in Arizona. We are continuing the strategy of high quality and controlled distribution of leads.

Three, we have made great strides this quarter in improving the services we offer our students. The move to cross-functional teams has allowed us to pre-clear students for educational funding. This has made a significant impact on the retention rates of incoming students. We are working on a number of academic services which we believe will positively impact the retention rate of continuing students. Administrative and academic services will be strong areas of focus for us in the next 12 months.

Four, the last factor impacting revenue is an increase in the average tuition per student caused by tuition price increases and, to a lesser extent, an increase in the average credits per student. In '08, the average tuition price increase was 5% and we are building approximately the same amount of increase into our '09-'10 school year budget. Both our traditional and online student tuition rates are below the national averages for private institutions.

You might have noticed that our year-over-year growth in net revenues did slightly exceed our growth in enrollment primarily due to the tuition price increases. Historically, the price increases were more than offset by the mix shift towards online students who have a lower tuition price per credit hour and fewer credits per semester than our traditional campus students. Now that our online student base as a percentage of our total student base has leveled off at more than 90%, we anticipate that you will continue to see net revenue growth exceed enrollment growth.

Now, turning to expenses. Operational improvements led to an increase in operating income of 102.9% in first quarter of '09 versus first quarter of '08. Instructional costs and services grew from $11.6 million in the first quarter of '08 to $18.3 million in the first quarter of '09. As a percent of revenue, instructional costs and services improved from 32.5% to 31.1%.

Faculty compensation, as a percentage of net revenue, decreased 173 basis points as a result of class size increasing from approximately 17.6 students in quarter one '08 to 19.4 students per class in quarter one of '09. Employee compensation and related expenses increased 113 basis points. This is primarily the result of adding academic and financial advisors at the end of fourth quarter of '08 and the first half of the first quarter of '09. We expect this line will continue to increase slightly as a percentage of revenue in fiscal year '09. Other instructional costs and services decreased 80 basis points between periods as we were able to leverage these costs over a higher revenue base.

Selling and promotional expense increased from $12.6 million in the first quarter of '08 to $19.7 million in the first quarter of '09. As a percent of net revenue, there was an improvement from 35.2% to 33.4% while sequential improvement from the fourth quarter of '08 was 4.4% from 37.8% in the fourth quarter of '08.

These continuing operational improvements reflect the return on our investment in enrollment counselors hired in the third and fourth quarter of '08 as these employees have become more productive. Selling and promotional salaries and related expenses as a percentage of revenue decreased 236 basis points between periods. Advertising and revenue share as a percentage of net revenue increased 48 basis points in the first quarter of 2009 versus the same period of 2008 due to some promotional activities in the first quarter of '09. In general, we have not seen a significant change in advertising costs over the last year.

General and administrative costs increased from $4.5 million in the first quarter of '08 to $8.8 million in the first quarter of '09 and as a percentage of revenue from 12.7% in the first quarter of '08 to 15% in the first quarter of '09.

The 230 basis point increase was primarily the result of 105 basis point increase in employee compensation, mainly in the executive management, accounting, and compliance areas. There was a 109 basis point increase related to share-based compensation and an 89 basis point increase in bad debt, partially offset by a reduction of 73 basis points in other general and administrative costs.

Although we did see a slight increase in bad debt expense on a year-over-year basis, this increase was slightly less than we expected. The new processes related to financially clearing students prior to the start of the term that we began to implement in the fourth quarter of '08 has resulted in decreased AR levels for the most recent terms. However, receivables related to older terms still need to work through our aging process. As we have previously discussed, we anticipate slightly elevated bad debt levels through the third quarter of '09.

As a result, net income grew from $3.3 million in the first quarter of '08 to $6.9 million in the first quarter of '09. This represents a 109% increase.

Our enrollment and financial guidance is as follows. For the second quarter fiscal year '09, we expect enrollment growth of approximately 63.5%, equating to roughly 27,000 students. We expect net revenue growth of approximately 67.8% to roughly $58 million. We expect diluted EPS will be $0.10 per share.

For fiscal year '09, we expect enrollment growth of 40% to 42% to between 34,500 and 35,000 students. We expect net revenue growth of 57% to 60% from $254 million to $258 million. We expect diluted EPS will be in the range of $0.60 to $0.64 per share.

With regard to fiscal year '09 guidance, I want to make a special comment on three expense-related areas. One, we have made rapid gains in sales and promotion as a percent of revenue in the first quarter. We will continue to improve in this area, but the gains will be more gradual as we continue to move through fiscal year '09.

Two, we have made rapid gains in instructional costs and services as a percent of revenue because of improvements in class size. We don't expect class size to become much greater in the future. Three, as a result of hiring academic and financial advisors in the fourth quarter of '08 and first quarter of '09, we expect that instructional costs and services in the employee wage and salary line will increase slightly as we move through fiscal year '09.

With that, I would like to turn it over to Dan Bachus, our CFO, to talk about the balance sheet, any changes in the lending and regulatory environment, and our second quarter transactions, which enhance our branding focus on our campus footprint.

Thanks, Brian. Our cash, cash equivalents, and investment balances unrestricted and restricted totaled $72.7 million on March 31, 2009. Our accounts receivable net of allowance for doubtful accounts is $10.5 million, which represents 20.8 days sales outstanding compared to 25.8 at the end of the first quarter of 2008.

CapEx in the first quarter of 2009 was approximately $4.5 million or 7.6% of net revenue. The majority of the CapEx was equipment and leaseholder improvements to support our additional headcount including technology and phone infrastructure for our off-campus call centers and internal use software development costs.

Unearned revenue and student deposits increased 124.3% between March 31, 2009 and December 31, 2008 with unearned revenue increasing 148.9% and student deposits increasing 52.4%. Capital lease obligations increased $1.6 million between December 31, 2008 and March 31, 2009 as some of the technology and phone infrastructure for the new call centers were financed through capital leases.

Additional paid-in capital increased $5.1 million between December 31, 2008 and March 31, 2009 primarily to a tax benefit recorded in the first quarter of 2009 related to the Spirit warrant exercise which occurred in the fourth quarter of 2008 prior to our initial public offering.

In terms of the legal, lending, and regulatory environment, we continue to cooperate with the Office of Inspector General to facilitate its investigation. We've entered into the discovery phase in both this investigation and the [Keetam] lawsuit. The Company plans to vigorously contest the Qui tam lawsuit.

The Higher Learning Commission considered our initial public offering to be a change in control under its policy. While we obtained the Higher Learning Commission's approval to consummate the offering as a result of its determinations that the public offering constituted a change in control, the Higher Learning Commission informed us that it would conduct a site visit to confirm the appropriateness of the approval and to evaluate whether we continued to meet the Higher Learning Commission's eligibility criteria.

The Higher Learning Commission conducted its site visit in March 2009 and determined, among other things, that the initial public offering was conducted in a manner that did not disrupt the ongoing operations of the University and that no further action would be required as a result of the change in control.

As we have mentioned previously, we have been approved to begin participating in a direct lending program and intend to begin participation in the future.

On April 27, 2009, we signed a purchase agreement pursuant to which we agreed to acquire our campus land and building and 909,348 shares of our common stock from Spirit Master Funding, LLC and Spirit Management Company respectively called Spirit for an aggregate purchase price of $50 million.

Prior to the acquisition, we had leased the land and buildings from Spirit, accounting for the land as an operating lease, and the buildings and improvements as capital lease obligations. To finance this purchase, we also entered into a loan agreement with Bank of America pursuant to which we agreed to borrow $25.7 million, all of which will be used to fund a portion of the purchase price.

Under the terms of the loan agreement, the Company will make principal payments in equal monthly installments of $143,000 plus accrued interest at 30-day LIBOR plus 3.5%. It is anticipated that these transactions will close this week. We plan on fixing the interest rate on a majority of the loan amount with an interest rate swap given the very favorable interest rate environment. These transactions are expected to be $0.02 accretive during 2009 and $0.03 accretive on an annual basis in 2010 and forward. The accretive effect of these transactions has been included in our revised guidance.

The underwriters have granted Spirit a waiver from the IPO lockup specifically to sell these shares back to the Company and the Company is retiring them. As a result of this waiver, the underwriters will not be able to publish research for a period of time. Last, at this time the Company and its significant shareholders do not contemplate moving forward with a follow-on offering. I will now turn the call back to Brian.

Thank you and we'd be happy to take your questions.

(Operator Instructions)

Your first question comes from the line of Mark Marostica at Piper Jaffray.

Hello, Mark.

Sorry, I had the phone on mute. My first question relates to the mix shift favoring more Bachelor's students over Master's; now about 50-50. I'm curious, as you look at the mix of new students, incoming students, this quarter, what was the ratio of Bachelor's to Master's?

There were more Bachelor's than there were Master's. The history on that, Mark, is that when the Company went from 250 enrollment counselors to about 530 over a year ago, the majority of those people -- almost all of that addition was in the area of business.

What we are doing currently is that we're reversing that. There is plenty of run room in our education programs at the Master's level and so more than 70% of the enrollment counselors that we're going to be hiring this year will be in the education area, which should allow us to start turning that back the other way.

There are plenty of leads and there is plenty of opportunity in education. And so as we move forward, and I would expect even into 2010, we will be focusing hard in those areas that allow us to recruit Master's Degree students. We believe that we can turn that around.

That said, Brian, are you seeing any margin headwind as a result of that mix shift? I know in the past you've talked about it being margin neutral, but I'd just like to get an update on that point.

It's still margin neutral. We charge a little bit more for tuition at the Master's level. We get more credit hours per student on an annual basis at the Baccalaureate level. The thing that's really a differentiator in terms of driving margins is that the retention levels are higher at the Master's level. So we still look at it as neutral, but we believe that in the future it will be more positive if we're effective at the Master's Degree strategy.

Fair enough. Onto another question and that's the impact of financially clearing students a little more prominently this quarter. And I'm curious whether or not -- if you could quantify if there was an impact on new student starts as a result of the more stringent financial clearing process.

It was significantly improved from a retention standpoint at what we call the 21-day period, so students that start that make it through the first 21 days. And then there's also significant improvement in terms of the students that finished that first course, and so it did contribute somewhat to the positive new student enrollment.

But just in terms of the number of new students that -- your starting point, was there a negative impact at all?

We don't think so. If it was, it won't play out negatively in the long run from a revenue standpoint or a bottom line standpoint because starting students that drop after 21 days is not -- obviously is not a positive business practice.

Right. And then last question, I'll turn it over. You did mention you saw an improvement in enrollment costs or productivity, as you expected. You think there is much left there, or can you give us a sense if you have more room to improve productivity or are we at a level now that we should consider to be a level that is appropriate for the rest of the year?

I think that's a good question. I think that will key around our strategy of reversing the Master's/Bachelor's trend. The conversion rate on Master's Degree leads is higher; the retention rate is higher. So if we're going to see an increased amount of productivity there, we're not factoring that into our model, but, if we do see it, it will be because we are more successful at generating Master's Degree leads and converting them at a higher rate.

Great. Thank you.

Okay. Thanks, Mark.

Your next question comes from the line of Kelly Flynn with Credit Suisse.

Hi. It's actually Patrick Elgrably for Kelly. Can you comment on corporate reimbursement trends and if you're seeing any changes on that front?

Not really. We saw just a little bit of -- in terms of hospitals in the short run, cutting back. It didn't really negatively impact our recruiting because nurses -- it's such a favorable thing for nurses to pay for it themselves if they have to because of the impact it has on their income.

We haven't really seen much of an impact at all at the education level, especially at the Master's Degree level. Most of those students don't get reimbursed, and so there are more students that are driven to go back right now. A Master's Degree helps, obviously, in your income and your job stability.

And then from a business standpoint, we have not at this point. What you see first in a time like this is that companies will make it more difficult for you to get into the talk to the people. We've seen just a little bit of that, but it hasn't been significant and I wouldn't say at this point that it has had a negative impact.

Okay. And Brian, you mentioned increased competition in online. Is there anything incremental you've come across in recent months? And can you add some color on the changes you're seeing in the landscape there, what types of schools you're seeing the most competition from and anything new you're doing perhaps to counteract that? Thanks.

Well, I think there are two things we are doing to counteract it. I haven't -- obviously, there are the for profit, publicly traded companies who are still in the space and will be in the space and you see a little bit of competition from traditional universities, although we've seen that go the other way with the fiscal crisis that many of them are in. This is low on their totem pole.

We anticipate that there will be increased competition. I think that's just a good business practice. There are two things that are important to us as we move forward. Number one, build the brand of the ground campus, of the traditional campus, because it's a differentiating factor when people are making their decision. They take comfort in the fact that the university has been around for 60 years and they take comfort in the fact that you have a traditional campus that looks and feels like what most people are used to and accustomed to.

The second thing that we're doing is that we're building the brand of the student body based upon our Bachelor's/Master's Degree mix of students. Both of those things, I think, are differentiating in the marketplace and both of those things are recession-proof to an extent. So no, we're not seeing it specifically right now, but we're anticipating it and we're trying to position ourselves so that we're clearly different.

Thank you.

Your next question comes from the line of Jeff Silber with BMO Capital Markets.

Thanks so much. It's Jeff Silber. I just wanted to go back to the discussion about class size. You mentioned you don't expect class size to continue to increase from these levels, but I'm just curious. In terms of the increase you saw, did it have anything to do with the mix shift towards more business in Bachelor's students, or did class sizes increase within the different verticals?

No, they increased within the different verticals. The major contributing -- there are two contributing factors there. The major one is that as you get bigger you've got more sections available and you're able to manage your sections more appropriately. You don't have to offer as many end-of-program courses with small numbers. That's the biggest factor. It's just a scale thing.

And then the second thing is that we've added some technology that's enabled us to manage class size a little bit better, but we don't anticipate going much over 20. Obviously, we watch the retention levels by class size and retention -- class size is important and has a positive impact on the bottom line, but the most important thing is retention. So we think 20 for us, the way we deliver right now, is probably the right number.

Okay, that's helpful. A more general question about the regulatory environment. I know there's been some concern from Wall Street's perspective about maybe some more oversight from coming down on this sector from Washington. I was wondering if you had any comments on that.

I think it's just like the corporate situation. I think you always have to anticipate that there might be oversight -- additional oversight. You have to kind of anticipate what it's going to be. I think that we're doing the right things in case that would happen.

I think you have to really understand what you're doing in terms of an online class delivery perspective, make sure that you have lots of credibility built in there, make sure that you have lots of assessment built in there so you can demonstrate what's going on with the learning of your students, and we're doing those things.

So with regards to lending, Dan mentioned the direct loan program and we anticipate that maybe having to move to that and if we do we're prepared to do that. And so we're watching that carefully like everybody else is and I think you have to anticipate there might be changes. I think the stronger you are able to demonstrate the credibility of everything that you do, especially from a learning standpoint, I think the stronger position that you'll be in.

Okay, great. That's very helpful. Thanks for the color.

Your next question comes from the line of Ariel Sokol with Wedbush.

Hi. Good afternoon, guys.

Hi.

Hello.

So just a couple of questions. The first one related to guidance. Just want to make sure I understand. I think you said that there would be $0.02 related to the accretive transaction and you also beat your Q1 guidance by around $0.06 for the midpoint, but you increased your 2009 guidance by $0.02 to $0.03, so presumably you're making investments in the back half of the year and maybe you could speak to the difference between the earnings, the accretiveness, and the guidance for the year.

Well, we actually beat by $0.05. The consensus was $0.10 and we came in at $0.15. As we talked about, there is $0.02, but we raised our guidance at the bottom by $0.08 and at the top end by -- hold on one second, I want to make sure I'm citing the right numbers -- by I think it's bottom and top by $0.08, right? By $0.07. So the bottom end by $0.08 and the top end by $0.07.

So it's a good question. It's kind of why I made those points after the guidance about the three areas that we made rapid progress in, that we'll continue to make some progress in, but we can't make as rapid of progress as we've made most recently. So that's why it might seem more conservative to you than you'd expect.

I see. Thanks for the clarification. Also, just a quick question with respect to bad debt expense. I think you said that the increase in bad debt expense was lower than expectations. What are the bad debt expense assumptions imbedded in 2009 guidance and how should we think about it as it trends to 2010?

We had forecasted on an annual basis of 6% of revenue, although just because the way the quarters fall versus the way our terms, there are some quarters that are slightly going to be higher than 6% and some that we have forecasted to be slightly lower than 6%. But on an annual basis, 6% is what we had forecasted.

Thank you.

(Operator Instructions)

Your next question comes from the line of Brandon Dobell with William Blair.

Hi, guys. First related to the campus transaction, two questions there. First, how should we think about CapEx assumptions now with the different structure? And I guess related to that, anything significant that we should think about from an investment perspective now that you've got a little more control of that asset?

Should we expect a big increase in CapEx? Are there some interesting things you think you could do now that you couldn't do before? And I've got a couple of follow-up questions on leads and quality.

Yes. Let me start with the first part of the question, then Brian can talk -- answer the second part. In terms of the first, no, I don't think it really has an impact. Although Spirit owned the campus, we were the ones that spent all the money on leasehold improvements and other additions to the campus.

And so other than putting the asset on the books as part of the acquisition accounting, you won't really see anything else from that perspective. And actually since we were treating the majority of the asset as a capital lease, the net asset that's going to be placed on the books is going to be pretty neutral from a balance sheet perspective. So that's in terms of the small picture. Big picture, Brian?

Yes. There are some building projects that we are contemplating, we're investigating. One of them -- we're going to need more dorms and more apartments for our traditional students. We're having tremendous amounts of success recruiting students to the traditional campus, which is a good thing. We are hopeful that that will be done by outside vendors who look at that as revenue-generating and profitable, so that wouldn't have a negative impact on our balance sheet.

The second one is the thing that we are talking about is an event center. We can bring some additional high profile events and attention to Grand Canyon University through the potential of an event center, but we are looking at getting funding for that from outside sources before we would ever think about doing it from our own cash reserves. And so in the short-term you shouldn't expect any change.

Okay, that's fair. And then turning over to the business for a second, if you talk a bit about lead trends and conversion rates. How much are you actively managing the sources of leads and are you seeing any interesting opportunities to really leverage either experience or technology to kind of direct those the way you want?

Then from a conversion perspective, you talked about productivity. Is it because you're getting better leads or is it because the EC force has a longer tenure or is it a systems issue that's driving some leverage? Just trying to figure out external versus internal inputs into what is making that conversation rate better.

We are doing some things very actively in terms of managing relationships with our Internet lead providers. We have the opportunity to do that because we're fairly narrow in our niches. We're also very favorably in the position of having lots of Master's Degree students and lots of potential for Master's Degree students. And so we won't talk specifically about what we're doing because we consider that competitive information, but yes, we are actively managing that in a way that is possible when you are very niche-oriented like we are.

The other thing that we're doing is that because education and healthcare gives you a very targeted audience, your opportunity for direct sales, direct lead generation outside of the Internet is very possible there. It's been a thing the Company has been very good at in the past and so we're proliferating that as we go forward and so both of those things are helping us.

And then in terms of conversion, obviously the experience of the enrollment counselors and having a higher percentage of them being more experienced helps from a conversion standpoint. And so I wouldn't tell you that we're doing anything that's having a dramatic impact on that, but there are little things that we're doing that are all contributing to a little bit of improvement.

Okay. And then final question, on the ground operations, I would think all the noise that we've heard from the Arizona schools about budget cuts and things like that would drive more of the nursing program students especially towards you guys. How do we think about that, how that flows through your business from a timing perspective? Just trying to get a feel for how to model the ground part of your population, or if it makes that much difference near term.

You know, it does. We talk about that at a high level. When our student body -- our traditional student body base was at 1,200 students, we were talking about the fact that we were losing $7 million to $8 million a year on that.

If we do what we expect to do in this upcoming fall term, we'll recruit in the vicinity of 1,000 new freshmen, which would take our total student body to between 1,700 and 1,800. If we do that two, three, four years in a row, we're hoping to get to our number of between 3,000 and 4,000.

Probably, roughly speaking at 2,500 or so, the traditional campus will be a break-even proposition versus a money-loser and so I don't know if that helps. I know it's high level and very general, but that's at a high level how we think about it.

That's helpful. Thank you.

Brandon, just to add, because you asked about timing. It's important to remember that the majority of our traditional students are off in the summer and so revenue for those students will kind of stop at the end of May and then it will start again in September. And so you'll see the impact of that large freshman class in the last four months of this year, but you won't see it before then.

Okay, that's helpful. Thanks.

Okay.

(Operator Instructions)

Your next question comes from the line of [Charles Preston] with [220 Partners].

Hey, guys. I had a question about the sports programs. It seems that that's clearly an area of differentiation with Grand Canyon. Can you talk about how that relates to the business overall more than just the fact that you have some good sports programs?

Yes, this is -- we've got a lot of publicity and a lot of press recently about the hiring of a men's basketball coach. And we are a NCAA Division II athletics currently. There's a moratorium on going Division I in athletics. It's something that we'll contemplate when that moratorium of two years is over, but we do believe that pursuing excellence builds the profile of the University at large in all performance-related areas. Obviously, men's basketball is a big one and so it's not something that's primary in terms of our strategy, but it is something that is part of the strategy.

Thanks.

Okay.

Your next question -- I'm sorry, this concludes today's conference. You may now disconnect your line.

Thank you very much.