Grand Canyon Education Inc (LOPE) 2009 Q4 法說會逐字稿

Good morning. My name is Taylor and I will be your conference operator today. At this time I would like to welcome everyone to the fourth-quarter and full-year 2009 earnings 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)

I would now like to turn the call over to Chris Richardson, General Counsel. Please go ahead.

Thank you, operator. Good morning and thank you for joining us today on this conference call to discuss Grand Canyon Education's 2009 fourth-quarter and full-year 2009 results. Speaking on today's call are Brian Mueller, our CEO, and Dan Bachus, our CFO. Additionally, Brent Richardson, our Executive Chairman; Stan Meyer, our Executive Vice President; Dr. Kathy Player, our 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 period 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 our 10-K report for fiscal year ended December 31, 2009, filed on February 18, 2010, its subsequent 10-Q reports, and its current reports on Form 8-K 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 report on Form 10-K, our quarterly reports on Form 10-Q, and our current reports on Form 8-K filed with the SEC before taking a financial position in our Company.

With that, I will turn the call over to Brian.

Good morning. Thank you for joining Grand Canyon Education's fourth-quarter conference call. We are pleased with the enrollment and EPS results for the quarter, and will explain the circumstances that led to the revenue results. However, before going into the fourth-quarter results of operations, giving guidance for the first quarter of 2010, and reiterating full-year guidance for 2010, I want to explain how we are looking at the current macro environment given President Obama's views on higher education and the negotiated rulemaking discussions.

We believe President Obama and the administration have been clear about five points regarding higher education. One, the United States should have the highest percentage of its adult population graduate from college of any modern industrial country. Two, students should be studying in areas leading to jobs. Three, students should be in programs with reasonable times to completion.

Four, tuition and debt rates of students should be commensurate with income levels they are likely to experience. Five, graduation rates should reflect the mission of the institution, and default rates should be as low as possible, also taking into account the institution's mission.

At Grand Canyon, we have a very specific strategy around the growth of our student body. At the end of fiscal year 2010, our total student body will have grown by between 25% and 30% from the end of 2009. Over the next few years, this growth rate will graduate down and eventually be between 20% and 25% on an annual basis.

Our 18- to 23-year-old students on our traditional campus will grow to 4,000 to 5,000 over the next three years. The average incoming GPAs of those students will be between 3.3 and 3.6.

Overall, the quality of those students will continue to grow, which will create high graduation rates, low default rates, and successful alumni. They will be studying primarily in the areas of health sciences, nursing, education, business, and in literal arts programs such as Christian studies, psychology, and criminal justice.

Our working adult population attending online will represent the majority of our growth, and we look at them in two ways -- first by level, and then by program types. We place a priority on doctoral and master's degree students, especially in healthcare and education.

Those students have high graduation rates, low default rates, and their income adjustments, given the successful completion of their programs, are generally known. We expect that those students will be greater than 45% of our total student body as we move forward.

At the baccalaureate level we have two categories of students by level. Our degree completion students are generally transferring between 40 and 60 college credits. They have good graduation rates, low default rates, and a high percentage of them are in healthcare and nursing, which is projected to be the highest job growth area in the country and where starting salaries are generally known and relatively high.

Typically, the most at-risk students at universities are entry-level students at the bachelor's level. These students have the lowest graduation rate, the highest default rate, and are the most problematic from the standpoint of understanding their potential employment and income earning levels. We are committed to working hard to support these students academically and to giving them the opportunity to be successful.

We have found over time that encouraging them to select a more job-specific program such as criminal justice, healthcare administration, or education promotes higher rates of graduation. The most important point to be made here is that those students will remain less than 25% of our overall student body.

We believe that taking a measured approach to the recruitment of students, both by level and by programmatic area, will put us in a strong position if there are significant changes made concerning the income levels and debt ratios required of college graduates. In addition, we are in good position as it relates to potential legislation because of our low tuition levels.

Even if there are no legislative changes, we believe these strategies will pay off as they will allow us to build a strong academic brand as well as keep default rates on student loans low.

Another area of investor concern is enrollment counselor compensation. We are not overly concerned about this area at this time. We have been moving away from emphasizing new student enrollments and have been placing an emphasis on student course completion and successful completion of academic years.

Turning to the results of operations for the fourth quarter of 2009, we are pleased to report another quarter of outstanding growth. Net revenues were $77.5 million in the fourth quarter of 2009, an increase of $26.9 million or 53.2% from $50.6 million in the prior period.

Student enrollments at the end of Q4 2009 are approximately 37,700, an increase of 53.1% from approximately 24,600 at December 31, 2008. Operating margin for Q4 2009 was 23.1% compared to 5.7% for the same period in 2008. And net income was $11.1 million for the fourth quarter of 2009 compared to $1.6 million in the prior year.

Excluding the exit costs associated with the previously disclosed closing of our Utah call center and contributions made in lieu of state income taxes, operating income for the fourth quarter of 2009 was $19.8 million and operating margin was 25.6%.

I want to make two comments about enrollment and revenue growth. First, our advertising plan is going as anticipated. We are not seeing any significant changes in rates on the Internet side and are experiencing some reduced rates on the traditional media side, which are reflected in the reduction of advertising as a percent of revenue.

Second, on the new enrollment side, we continue to focus our efforts on the recruitment of high-quality students and are experimenting with scholarship programs for online students as well as traditional students. This can have a limited negative impact on revenues in the short run, but will be positive long-term as we believe the students we make an investment in will retain at higher rates.

Next, I would like to talk about our earnings results for the fourth quarter of 2009. We made a number of strategic decisions in the fourth quarter of 2009 that had slight negative effects on those results, but they are the right decisions for the University long-term. Most of those changes also needed to be made as we transition to the non-term borrower-based financial aid environment.

We had a roughly $1.5 million revenue shortfall. This occurred for the following reasons.

One, the switch from a monthly to a daily approach for recognizing revenue. This is a more accurate approach to revenue recognition, but it changed the year-over-year analysis because of the two weeks students take off over the December holidays.

Two, we invested slightly more in the scholarship program for online students than we initially anticipated, which we view as positive long-term.

Three, we modified our satisfactory academic progress policy. While we are committed to supporting students with high-quality academic support services, if they fail to make satisfactory progress we remove them from class more quickly than we did a year ago.

Four, we modified our student refund policy. Prior to the change, our refund policy was similar to most traditional universities in that the refund was based on the entire term. We have moved to a course-by-course refund policy.

Five, we successfully made the transition to monthly student starts. While this is a major improvement and will help us with consistent growth long-term, in the short run it caused us to move some students from November into December, which had a slight negative impact on revenue during the fourth quarter.

We also incurred $1.2 million in expense, or $0.7 million net of tax, associated with the closing of our Utah student services facility. As was previously disclosed on November 9, 2009, the decision was made to close this facility and centralize our student services operations in Arizona to improve service to our students and promote cross-functional teams. The costs include one-time termination benefits to those employees that chose to not to relocate to Arizona; relocation costs for those that did relocate; future lease payments net of estimated sublease rentals; and the write-off of leasehold improvements.

Now turning to the rest of the results. Operational improvements and improved student retention have led to an operating margin increase of 18.4% quarter-over-quarter, excluding the exit costs in 2009 and the contributions made in lieu of state income taxes in both 2009 and 2008.

Instructional costs and services grew from $17.3 million in the fourth quarter of '08 to $25.7 million in the fourth quarter of '09. As a percent of revenue, IC&S decreased from 34.2% to 33.2% in quarter four '09.

Employee compensation and related expenses increased 243 basis points. We continue to focus on making investments in improving student academic success levels and, therefore, retention. During the fourth quarter of 2008 and continuing into the first half of 2009, we have invested in academic counselors, financial counselors, technical support specialists, and student academic support personnel and systems. Academic and financial counselors go through the same maturation process as enrollment counselors.

We expect this line to actually increase as a percentage of revenue during the first half of 2010 as we continue to invest in IT infrastructure and personnel. But as a percentage of revenue, will remain at current levels for fiscal year 2010.

The increase in the wage and salary line was more than offset by an improvement in share base compensation by 302 basis points due to the stock option grant that occurred upon completion of our Initial Public Offering in the fourth quarter of 2008 and a reduction in other instructional costs by 114 basis points.

Selling and promotional expense increased from $19.5 million in the fourth quarter of 2008 to $23 million in the fourth quarter of '09. As a percent of net revenue, there was significant improvement of 8.8% from 38.5% in quarter four of '08 to 29.7% in quarter four of 2009. This improvement reflects the maturation of our enrollment counselor workforce as well as improvements made to our advertising approach which has resulted in higher conversion rates of leads.

Selling and promotional salaries and related expenses as a percentage of revenue decreased 326 basis points between periods. Advertising and revenue share as a percent of net revenue decreased 265 basis points in the fourth quarter of '09 versus the same period of 2008, primarily as a result of continued improvement in the acquisition and distribution of leads.

Share-based compensation declined period-over-period by 258 basis points due to the stock option grant that occurred upon completion of our IPO in quarter four of '08.

General and administrative cost decreased from $10.9 million in the fourth quarter of 2008 to $9.5 million in the fourth quarter of '09, and as a percentage of revenue declined significantly from 21.4% in quarter four of '08 to 12.3% in quarter four of '09. This improvement was primarily the result of a decline by 301 basis points in share-based compensation due to the quarter four 2008 stock option grant.

Bad debt expense as a percentage of revenue decreased by 99 basis points between the fourth quarter of '08 and the fourth quarter of '09, primarily due to process changes made during 2009 including the financial clearing of students before they start.

We realized net decreases as a percentage of revenue between periods in other expenses, including employee compensation; legal, audit, and corporate insurance expenses; occupancy costs; and consulting, due to our ability to leverage these costs over a higher revenue base.

As a result of the above, net income grew from $1.6 million in quarter four of '08 to $11.1 million in the fourth quarter of '09, a 574% increase.

Our enrollment and financial guidance is as follows. For the first quarter, fiscal-year 2010, we expect enrollment growth of approximately 34% to 37%, equating to between 38,000 and 39,000 students at March 31, 2010. We expect net revenue growth of approximately 51% to 53% to between $83.5 million and $85 million. We expect diluted net income per share will be between $0.19 and $0.20 per share.

For fiscal-year 2010, we are reaffirming our previously announced guidance. We expect enrollment to be between 47,000 and 49,000 students at December 31, 2010. We expect net revenues to be between $390 million and $400 million. We expect diluted net income per share will be in the range of $1.15 to $1.23 per share.

With that, I would like to turn it over to Dan Bachus, our CFO, to talk about the balance sheet and changes in the lending and regulatory environment.

Thanks, Brian. Before I jump into the balance sheet and lending and regulatory environment, I thought I would give a little more color on our 2010 guidance. As a result of the increase in the number of start dates for courses offered to our students for the 2009-2010 academic year and in preparation for our conversion from a term-based to a non-term borrower-based financial system, on July 1, 2009, we refined our revenue recognition methodology to recognize tuition revenue and most fees on a daily basis over the applicable period of instruction. Previously we recognized tuition revenue and most fees monthly over the applicable period of instruction, which we believe resulted in revenue being recognized under the day's approach -- it created materially different results in certain interim periods.

However, upon adoption of the day's approach, we noticed that while the monthly approach recognized revenue on a basis that materially approximated the annual revenue recognized under the day's approach, it created materially different results in certain interim periods. Those differences were primarily the result of the timing of the starts of the terms and scheduled breaks.

As a result, we have restated our quarterly financial information for all periods prior to July 1, 2009. The restatement also reflects adjustments to our accrual for certain expenses, including salaries and benefits for faculty, revenue share, and royalty arrangements, and -- prior to its termination -- the royalty payment to the former owner, to appropriately match the timing of recognition of those expenses with the related revenue.

As you can see in our 10-K or in our press release, in both 2008 and 2009 revenue shifted from the first and fourth quarters to the second and third quarters. Based on the way the calendar sets up for 2010, most of the revenue shift out of the first quarter moves into the third quarter.

In summary, we did not restate annual results. 2008 and 2009 annual revenue, EPS, and cash flow remain the same. We did this to provide readers historic quarterly financials that reflect this previously announced change, primarily to enable you to project 2010 financial results off of the proper base, using the comparable revenue recognition method.

We are targeting full-year 2010 IC&S, S&P, and G&A as a percentage of revenue of 33% to 34%, 31% to 32%, and 12% to 13%, respectively. We anticipate that as a percentage of revenue these amounts will be higher than this in the first half of the year and then trend down in the second half as revenues grow.

Our effective tax rate for the fourth quarter of 2009 was 37.2% compared to an effective tax rate of 41.3% for the first nine months of 2009. This decrease is primarily the result of $750,000 in payments we made in the fourth quarter of 2009 to various Arizona school tuition organizations for which we receive a direct state tax credit for the same amount. Thus our cash expenditure was the same, but the expense is reflected in G&A rather than tax expense.

You may recall we made payments in the same amount in the fourth quarter of last year as well. Had these payments not been made, our effective tax rate for the fourth-quarter 2009 would have been 39.8%, and 40.7% for the year. We anticipate our effective tax rate will be approximately 40% for 2010.

As Brian mentioned, total stock-based compensation during the fourth-quarter 2008 and 2009 was approximately $5 million and $1 million, respectively. This decrease is the result of us granting stock options, including some fully vested stock options, to long-tenured employees at the time of our Initial Public Offering while not doing a grant to management in 2009.

We do anticipate the compensation committee approving a grant to management in the first quarter of 2010. We are forecasting stock-based compensation to be $1.5 million per quarter, subsequent to the grant.

Turning to the balance sheet, our cash, cash equivalents, and investment balances, unrestricted and restricted, totaled $66.3 million at December 31, 2009. Our accounts receivable net of the allowance for doubtful accounts is $13.8 million, which represents 19.2 days sales outstanding compared to 21.4 at the end of the fourth-quarter 2008.

Unearned revenue and student deposits increased 31.6% between December 31, 2009, and December 31, 2008, with unearned revenue increasing 25% and student deposits increasing 6.6%.

CapEx in the fourth-quarter 2009 was approximately $5.9 million or 7.6% of net revenue. CapEx in the fourth quarter was primarily internal use software development and furniture and equipment to support our additional headcount. As has been previously discussed, we estimate that CapEx will be between 9% and 11% of net revenue during 2010.

In terms of the lending and regulatory environment, we continue to work with the regulator and the US government to negotiate final settlements related to the qui tam lawsuit and the OIG investigation. We are recommending that all of our financial aid students use the direct lending program for their Title IV needs; and this seems to continue to be going smoothly.

We are proud to report that our draft cohort default rate is 3.5% for the 2008 federal fiscal year. Our 2009 composite score is strong; and using the Department of Education's formula under the 90/10 rule that was in effect prior to the 2008 reauthorization of the Higher Ed Act, for our 2009 fiscal year we derived approximately 82.5% of our revenues, calculated on a cash basis, from Title IV program funds. Private loans represented less than 1% of our revenue during 2009.

I will now turn the call back over to Brian.

Thank you. Before we begin taking questions I would like to take a minute to say thank you to all of our full-time faculty and staff. 2009 has been a tremendous year for Grand Canyon University. We have asked a lot from each of you and I appreciate the hard work and dedication that you brought to serving our students.

We are extremely excited about the future. With that, I would like to turn the call over to the moderator, and we would be happy to answer your questions.

Mark Marostica, Piper Jaffray.

Yes, thank you. I wanted to get a little more detailed clarification on the revenue recognition topic and the shifting of revenue that inevitably will take place throughout the quarters in fiscal 2010. Could you give us a sense of what we will see move from Q1 to Q2, Q2 to Q3, Q3 to Q4 in a more granular fashion, so we can isolate our models a little bit better?

Yes, Mark. We're estimating that about $5.5 million will move from Q1 into either Q2 or Q3, with the majority of it -- about $1 million is actually going to Q2 and the rest is moving to Q3. But there is also about $1 million of revenue that moves from Q4 to Q3.

So in total, what I think you will see is roughly $5 million move from -- out of Q1; about $1 million moving into Q2; about $6 million moving into Q3; and then $1 million less in Q4.

Okay, that's very helpful. Thank you.

And it's all based on -- just real quick, it's all based on when terms start, when the breaks fall. And unfortunately there is differences year-over-year just because of the way the calendar falls. So that is kind of our projections of how it will look this year.

Great. That's helpful. I wanted to also ask a question related to the increase in the mix of undergraduate students. I appreciate your commentary about your goal to keep the entry-level bachelor students below the 25% level.

But I'm wondering, do you run the risk, as you see the undergraduate student mix creep up now to 60%, that you may in fact eclipse that 60% level? Or are you putting a governor somehow on the undergraduate growth?

And as a follow-on to that, given a close competitor of yours this morning announced some bad debt issues, do you worry that you may in fact be surprised yourself that bad debt may suddenly creep up because of the heightened undergraduate mix? Thanks.

No, I don't think so. The movement to under 50%, closer to 45% is primarily the positive development of more than expected nursing students. They're greater --- they come with 60 college credits, they have a very specific two-year program to completion.

And those are really strong students. In fact, financially, they look very similar to master's and doctoral students because their retention rates are so high, and their bad debt to rates are so low.

Then the second group of students that caused some shift is military students. We are more active in the military. And military students also look very similar to master's and doctoral students in that they have lower tuition rate, but their acquisition costs are very, very low. Their bad debt is virtually nonexistent. Virtually nonexistent default rates. Their retention rates are high.

So we don't mind that percentage moving some as long as it's with the nursing students and the military students primarily.

Got it. Okay. Thanks. I'll turn it over.

Ariel Sokol, Wedbush.

Good morning. A couple of questions. Regarding the reiterated 2010 guidance, given Q1 guidance, I am just curious to know, are there any assumptions? Moving aside the issue of the revenue recognition issues, are there any changes in the assumptions associated with the business today as there was from Q3?

No, Ariel. As Brian talked about, the majority of the things that caused us to come in slightly under our revenue guidance were things that we had planned on transitioning to as we moved to the borrower-based environment in 2010. So those things were already included in our 2010 model.

We made the strategic decision to do some of those things earlier than we had anticipated. So we are very comfortable with our 2010 guidance. And that's it.

Perfect. That works for me. The next thing, going on to the issue of gainful employment, I'll be the guy on the call that asks these questions. Could you provide the default rate for your graduate students -- I'm sorry, for the students who graduated the program?

You know, that's not something we've ever tracked. Maybe it's something that we could follow up on, but given the fact that our default rate has always been so low, it's just not been something that we have been focused on in terms of getting a breakout between the graduates and the nongraduates.

I would tell you just based on our previous experience that the majority of the defaults come from students that do not graduate. Students that graduate typically repay their loans at a very high percentage.

Great. Thank you.

Sara Gubins, Bank of America Merrill Lynch.

Hi, thanks. Good morning. Could you quantify the impact of the transition from the 3-credit hour to the 4-credit hour system? Just walk us how through how that impacts numbers.

Well historically, about 20% of our students took two courses at a time in the 8-week 3-credit model. As we move to the 8-week 4-credit model, we are strongly recommending all of our students just take one course. Now you will have some students that want to double up, but we expect that to be a very, very small percentage.

We are rolling out the 8-week 4-credit model over the course of 2010. Roughly 25% by the end of the first quarter; 50% by the end of the second; 75% at the end of the third. And we are hoping that 100% of our students in the 8-week format would be at 8-week 4-credit models by the end of the year.

So that is kind of how that rollout will occur over the course of the year.

The only slight exception to that is that we're still going to have some courses and some programs that are going to be in a different format. We have some programs that are 3-credit 5-weeks; we have some programs that are 3-credit 8-weeks. So that probably will be less than 10% or 15% of our total student population, but there will always be some students in slightly different formats.

Okay. Then in terms of the transition to the monthly starts, I know that it creates some lumpiness, but does that normalize out over the full year? At what point do you expect that we will see a benefit from it?

Well, I think it's -- yes, it will normalize. I don't know that -- it just takes some adjustment on the part of our staff, our enrollment management staff.

I think in the third and fourth quarter it will start to normalize. They will make the adjustment, and it will go fairly smoothly.

The biggest -- and there should be some gain from a new enrollment perspective. But the biggest gain should be when we go to the borrower-based system in April and May. We're going to do a better job of being able to reenter students.

I will just remind you that in the term-based system when a student has to take a break, they actually have to take a break for 16 weeks. Once we go to the borrower-based system, students can take one or two-week breaks and be right back in the program. And that is where we are going to get the greatest amount of improvement.

Okay, and then last question. Brian, in the beginning you talked about expecting 25% to 30% total enrollment growth this year and then long-term 20% to 25%. Is the expectation that -- when you think long-term are you talking like 2011 would be at 20% to 25%? Or do you actually mean that you think you could do 20% to 25% annually for the next several years? I'm trying to understand the timing of those expectations.

2010 will be between 25% and 30%. I think 2012-2013 will be down to somewhere between 20% and 25%. And then the intervening years will be in between that.

But we are purposefully ratcheting that down so we can get to a level that we believe we can support with doctoral students, master's degree students, and strong baccalaureate students in the areas that have the highest retention rates.

Okay. Thank you.

Jeff Silber, BMO Capital Markets.

Thanks so much. Just a follow-up on that question, going out over the next few years. How do you plan on slowing down that growth? Is there anything proactive that you are going to be doing?

Yes, we don't -- we have -- as we grow our enrollment counselor force and as we invest our advertising dollars, our marketing dollars, we are investing them in the areas where we can recruit the kinds of students in the percentages that we want to recruit them in.

This year hasn't really been a slowdown in terms of -- you can really have all the low-credit students, Pell Grant students that you want. We are purposefully limiting that number. That is primarily where we are limiting the number.

But we believe that the doctoral students, the master's students, and the high-quality baccalaureate students, those we can still grow at a 20% to 25% rate years out.

Okay, great. I want to go back to some of the revenue issues that you discussed earlier. Forgive me if I'm wrong, but I think you said of the $1.5 million revenue shortfall -- did the bulk of that come from this restatement issue?

No, actually, a small percentage of it did; and the only piece that came from that was really related to the moving to the monthly starts, and having a start in December and recognizing very little revenue on those.

A lot of those students would have been in November had we not moved to the monthly starts, and so there was some impact to that. But the majority of it was related to the other four items that Brian mentioned.

Is it fair to say, if you had not had those issues, revenues would have come in above your $79 million guidance?

Yes, because the students are there.

Sure. Okay. Just wanted to double check that. Also just wanted to clarify something, I think, Brian, you had said about instructional costs and services. I know they are going to be up in the first half of the year.

Did you say that they were going to be flat as a percentage of revenue for the entire year?

Yes.

Okay, great.

And, Jeff, I gave that -- our target is 33% to 34% for the full year, with it being higher than that in the first half of the year and lower in the second half.

Okay, great. Did you comment on new enrollment trends at all, either last quarter or what you have been seeing this quarter?

No, we have not given that. They are going as we expected. They are really -- that has been very consistent.

Okay. Are you seeing any programs growing faster than others?

The nursing program is growing faster than we anticipated, which is a very good thing. The military program is growing faster than we expected.

Then when we get additional doctoral programs approved, which we hope will come shortly, we think that will also go maybe quicker than anticipated.

Okay, great. Thanks so much.

Adam Shatek, Credit Suisse.

Hey, guys. How are you doing?

Good.

Can you give a little more color on the applicant screening process and the academic progress changes?

Satisfactory.

Yes, like most universities, we -- if the student didn't make satisfactory academic progress in the first semester we would give them a second semester to try to improve that. For us that could mean a student would take either 3 or 6 credits in the first 8-week term and 3 or 6 in the second 8-week term, which means they could accumulate somewhere between 6 and 12 or 15 credit hours in a semester.

If they did poorly, they would be incurring debt that it is unlikely they are going to pay back. So what we have done simply is say we are going to take a look at it term by term. So if in the first 8-week term the academic progress is poor, if they get in the second term of that first semester and again perform poorly, then we are going to remove them and ask them to go someplace else, get some help, and maybe come back later.

Okay. That's helpful. I imagine the answer is no to this question, but have you had a chance to analyze the impact that forbearances and deferments have on the CDR?

No, we haven't looked at that yet.

Okay. Then one final modeling question. Can you give us guidance on CapEx for the year, for 2010?

Yes, we are projecting somewhere between 9% and 11%. The slightly elevated amount is, as we previously discussed, we're focused heavily on IT infrastructure and we have some campus building projects that we are going to be working on in 2010/2011.

Okay. Thanks, guys.

(Operator Instructions) Bob Wetenhall, Royal Bank of Canada.

Hey, good morning. I just want to understand a little bit more concretely. I think your first-quarter outlook you are suggesting that revenues will be up like 51% to 53%, right?

Yes.

And your enrollment is up 34% to 37%?

Yes.

So the natural conclusion would be that you're taking a huge increase in pricing. But you haven't announced anything like that, correct?

That's right.

Right. The differential there, the increase is the result of, one, converting to -- from 3- to 4-credit hour 8-week format, so there is a little bit that's going to happen as a result of that. And then also, there are improved retention rates of the higher-quality students. Those two things combined are causing that to happen.

We have talked about tuition rates in some of our meetings. We typically raise tuition in May or June, and we will again. It will probably be within the 3% to 5% range.

Okay, so if you had to allocate -- and just for talking purposes, say it's like a 15% delta between enrollment growth and revenue growth. What percentage of that is attributable to the shift from a 3-credit hour to 4-credit hour in an 8-week term? The majority, I would assume?

Yes, I mean, you have -- our average tuition price increase last June was 5%. So what you would typically see is if enrollment was going at 30%, you would see 35% or slightly higher or lower revenue growth. So primarily the delta above that 5% is the shift to the 4-credit model.

Got it. What is the cost per credit hour?

It's $415 at the bachelor's level, and generally around $450 at the master's level.

As a percent of total enrollment, you are getting that extra credit hour, that extra $415 on, you estimate, 20% of total enrollment?

Yes, probably about that. As of the first quarter, that is our expectation.

Then across the balance of the year, that's going to account for the pickup in revenue per student, I guess, as everybody shifts over to a 4-week credit as opposed to a 3-week? Correct?

4 credit instead of a 3 credit for an 8-week course. For that percentage of our population that is in the 8-week 3-credit model.

What is the overall percentages the population which is in that model that will transition to the new model?

We think it's about 75% or 80%.

Great. And how long will it take to complete the transition?

About the full year. The reason being we rolled it out on a program by program basis; but also if a student is near completion of their program, there is no reason to move them from the 3-credit model to the 4-credit model. So as our students graduate and others come into the system, they will be on the 4-credit model if they are in the programs that offer 8-week 4-credit models.

And we hope the majority of our -- up to 75% of our programs will be on the 8-week 4-credit model by the end of the calendar year.

That's a pretty impressive change. What is the new time it takes for somebody to graduate if they go full-time versus the old model, because of the compression of credit hours?

Well, in the old model if a student took one course at a time and started at the bachelor's level from scratch, it would take them over seven years to finish. Now the theory was that students would take more than one class at a time; but the reality is that most didn't and those that did struggled with it. That was one of the primary reasons we changed.

Today if you start from zero credits, which not a lot of our students do, you're going to graduate in about four and a half years, which I think is a reasonable time frame. It is certainly not an accelerated time frame.

I think for us, that seems to balance the need to graduate in a reasonable time frame with given enough time to earn the credits that you need.

In the master's it used to be -- again, taking one course at a time was close to three years; now it's around two years. So again what we believe is a very reasonable time to completion, but not too aggressive.

I assume this is also kind of in-line with your peer group. Like University of Phoenix Online in terms of hours, credits per 8-week course.

It's pretty similar.

Yes.

So you guys were actually the outlier, and now you are doing what more of the industry is doing, correct?

Well, yes, we were the huge outlier on the bachelor's side, not as much on the master' side. But we were the huge outlier on the bachelor's side, yes.

Okay. Just one follow-up question for Dan. Do you expect this to have a very material impact on revenue per student going forward, in terms of metrics? Because you are getting more credit hours paid for in a shorter period of time.

Absolutely.

Okay, great. Nice quarter guys. Good work.

Amit Anand, Axial Capital.

Hi, good morning. Just a quick question on your PhD program. I noticed that you all made some pricing adjustments to that program. I was just wondering what the thinking was behind that.

I am hoping that you will be able to grow a lot faster, now that you've adjusted the pricing. I was wondering if you could talk about your updated growth expectations for that program.

Yes, we did bring the price of that program down. We've got ambitious goals with regards to that program both with the current programs that we have and our ability to expand them.

We have got a number of programs that are under review by HLC right now. We're anticipating that those will be approved. We are hopeful that they will be approved. And if they are, we are going to be expanding that area significantly.

So we wanted to get a price point that we thought would return the margin that we want to get out of the program, but at the same time make it affordable for students. So that was the thinking there.

Great. Thanks.

Brandon Dobell, William Blair.

Thanks, guys. I may have missed if you talked about this earlier, but could you talk a little bit about how we should think about your use of scholarships, and also in terms of your ground pricing strategy going forward? Thanks.

Yes, I mean, on the traditional student side, we have the same or very similar scholarship kind of a program that most private universities have. And that's going very well.

Historically, there have been -- universities have made on the online side certain incentives for people to start at certain times of the year. The only change we really made to that was that we made them almost exclusively based upon academic performance.

So we were trying to use very small kinds of incentives that really are not material in terms of our financial results. But we were trying to use some small incentives to encourage enrollment counselors to really seek out those students who got really good grades.

So it's nothing major, nothing very material at all. But it's an attempt to reinforce our strategy of trying to attract the best students that we can.

And on the ground pricing as you look out this year and next?

Yes, we have frozen tuition on the ground side. Our traditional students. It's at $16,500 a year and that's before scholarships, grants, etc. But that won't change. We will not raise that for fiscal year 2010.

But again, those students as a percent of our overall student body are not nearly as material as they were previously.

(inaudible). Any update on -- obviously you talked about CapEx spending, but how we should think about the timing or magnitude around student housing, the events center, or anything else that we should be aware of in terms of kind of bigger allocations of traditional CapEx for the ground campus?

I think it will be pretty smooth spending between the beginning of 2010 and the end of 2011 on those type of projects. Some of those projects have already broken ground, including the dorm. Others won't break ground until this summer or late fall.

So we're not undertaking all of them at the same time. It's a pretty smooth project plan.

Okay. Thanks a lot, guys.

There are no further questions at this time. I would now like to turn the call back to Brian Mueller for closing remarks.

Thank you. We have reached the end of our fourth-quarter conference call. We appreciate your time and interest in Grand Canyon Education.

If you still have questions, please contact either Dan Bachus or Bill Jenkins. Thank you and have a good day.

Thank you. This concludes today's conference call. You may now disconnect.