Grand Canyon Education Inc (LOPE) 2014 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Grand Canyon Education Third Quarter Earnings Call. (Operator instructions) As a reminder, this call will be recorded. I would now like to introduce your host for today's conference, Mr. Brian Roberts, General Counsel. Please go ahead.

Thank you, operator. Good afternoon, and thank you for joining us today on this conference call to discuss Grand Canyon's 2014 third quarter results. Speaking on today's call is our President and CEO, Brian Mueller, and our CFO Dan Bachus. This call is scheduled to last one hour. During the Q&A period, we will try to answer all of your questions, and we apologize in advance if there are 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 GCU's future performance that involve risks and uncertainties. Various factors could cause GCU's actual results to be materially different from any future results expressed or implied by such forward-looking statements. These factors are discussed in GCU's SEC filings, including our annual report on Form 10-K for the fiscal year ended December 31, 2013, our quarterly reports on Form 10-Q and our current reports on Form 8-K.

We recommend that all investors thoroughly review these reports before taking a financial position in GCU, and we do not undertake any obligation to update anyone with regard to the forward-looking statements made during this conference call. And with that, I will turn the call over to Brian.

Good afternoon, and thank you for joining Grand Canyon University's Third Quarter Fiscal Year 2014 Conference Call. I want to begin by reviewing the results of operations for the quarter.

In third quarter of 2014, enrollments grew by 13.7% and net revenues grew by 14.9%. New enrollments grew in the mid-single-digits and operating margins are at 26.3% for Q3 2014.

Enrollment on our traditional ground campus grew by 31%, to just under 11,000 students. New students grew to approximately 5,500. The average incoming GPA of new students is approximately 3.5, and 50% of the students are studying in the natural sciences.

We successfully opened Computer Science and Information Technology degrees this fall, bringing our total program count to over 160 spread across our now 8 colleges. We are on track to open mechanical, electrical and biomedical engineering degrees in the Fall of 2015.

Approximately 60% of our traditional students live on campus in very new and modern residence halls. Campus life has become incredibly vibrant, and a strong GCU community is evolving. We have already had two major theatre productions, four sold-out concerts, numerous smaller concerts put on by students through our growing music programs, Fall athletic events, chapel is averaging over 5,000 students, and our much-anticipated basketball season is less than two weeks away.

Next year's ground enrollment is expected to be 14,500 including 7,500 new students, with approximately 70% living on campus. This will be our largest building year, with four new six-story residence halls, the first 80,000 square feet of a 160,000 square foot engineering building, a 50,000 square foot general use classroom building, a new parking garage, and a new stadium for soccer, lacrosse and rugby.

The online campus has grown 11.4% to 55,218 students. The student mix continues to move in a strong direction. Our strongest students, by virtue of high graduation rates, low acquisition costs, low bad debt expense, and low student loan default rates, are our doctoral students, all masters' students, and RN to BSN students. If you add traditional ground students to those categories, they comprise 62% of the total student body in third quarter of 2013, and are now 66% of our total student body.

The strength of the student body increased academic effectiveness across many objective measures, continued commitment to student academic support services, and continued operational excellence has caused the revenue and expense areas to improve as well.

Net revenues were $175.1 million in the third quarter of 2014, an increase of $22.7 million, or 14.9% from the $152.4 million in the prior year period. Operating margin for Q3 2014 was 26.3% compared to 24.5% for the same period in 2013.

It is important to note that tuition, room and board has been frozen for six years on the ground traditional campus and there was no increase in tuition for the online campus the past two years.

Net income was $29 million for the third quarter of 2014 compared to $22.5 million in the prior year period. After-tax margin was 16.6% compared to 14.8% for the same period in 2013.

Instructional costs and services grew from $64.7 million in the third quarter of 2013 to $71.7 million in the third quarter of 2014, an increase of $7 million or 10.8%. This increase is primarily due to the increase in the number of faculty and staff to support the increasing number of students attending the University.

As a percent of revenue, IC&S decreased 1.5% to 41%, primarily due to a decrease in our bad debt expense as a percentage of revenue from 3.5% of revenue in the third quarter of 2013, to 2.2% of revenue in the third quarter of 2014.

Admissions, advisory and related expenses decreased 0.5% to 15.6%, primarily due to our ability to leverage our admissions advisory personnel across an increasing revenue base.

Advertising expense as a percent of revenue decreased 80 basis points, from 10.2% in Q3 2013 to 9.4% in Q3 of 2014. We spend less on advertising to attract traditional students than for online students, and our ground traditional campus is growing faster than our online student enrollment.

Marketing and promotional expense as a percent of net revenue increased 20 basis points from 0.9% in Q3 of 2013 to 1.1% in Q3 of 2014. General and administrative costs as a percentage of revenue increased from 5.9% in Q2 2013 to 6.6% in Q3 of 2014, primarily due to our decision to make contributions to school-tuition organizations in lieu of state income taxes, of $2.7 million in the third quarter of 2014. As in prior years, we have made this contribution in the fourth quarter.

Interest expense stayed flat as a percentage of revenue at 0.3% for both of the third quarters in 2014 and 2013.

I am very pleased to report that our three-year cohort default rate for 2012 cohort has dropped to 11%. Our two-year default rate for 2013 cohort, which is no longer officially reported but we can calculate it based on information we receive from our lenders, is now 6.5%. This reflects the quality of our student body, the rising graduation rates across all specters of our student body, the state-of-the-art operational processes and technology, and all-around aspects of the university. This is a major reason we were able to close the Department of Education's program review in 27 days with no major findings. As a result of the above, net income increased from $22.5 million in the third quarter of 2013 to $29 million in the third quarter of 2014.

We have now been a publicly-traded education company for almost six years. When the University went public in November of 2008, it had a traditional campus of less than 1,000 students and an online campus that needed huge investments in personnel, process improvement and technology in order to first survive and eventually prosper. The other for profit education companies were at an all-time high in terms of enrollment and valuation in 2008.

The traditional economic institutions, whether state or private, were at peak state subsidy and endowment levels, and were not interested in the adult online market. The 2008 recession completely changed the higher education landscape. Today, traditional institutions are making huge investments in the adult market, and we have seen the for-profit publicly-traded institutions rapidly decline in enrollments and valuations as a result.

Grand Canyon has built a highly-successful traditional brand. We are succeeding because of our brand's strength and an operational model that has allowed us to keep tuition, room and board very low, while still investing $400 million over the last four years to build state-of-the-art classrooms, laboratories, residence halls, new STEM-related academic programs, and technology.

From a Wall Street perspective, we have beat consensus and raised expectations 15 consecutive quarters. Many of you have expressed disappointment in the stock's performance. I believe the disappointing performance of the stock is the result of the huge change in the higher education landscape over the last six years, and uncertainty about the future of the for-profit, publicly-traded education space.

As a result, the management team has received approval from the Board to explore an avenue to become a private not-for-profit university. We are doing this for four reasons.

First, we think this is the best option for our investors. We continue to perform at a very high level without the stock price really reflecting the performance. Many analysts have commented that it is difficult to be a category of one.

Second, we want to do the best thing for our students, which is to provide high quality education at the lowest possible cost. Our competition is now the traditional state and private universities, most specifically the state universities inside Arizona. The universities get almost $1 billion in direct subsidy on an annual basis. They get additional funding to build buildings, don't pay taxes, and receive tax-deductible donations. If we were a not-for-profit institution, we would not get direct tax subsidies, we would continue to build using our own cash reserves, but a huge and growing tax burden would be lifted. This would allow us to continue to invest in the growth of the university while holding the line on tuition increases, making private education available to all social classes of Americans with no direct taxpayer cost.

Our students do have access to Title IV funding, like all accredited universities, but because of our low default rates and the high percentage of students paying back their loans with interest, we are net positive in this area to taxpayers. Third, currently we do not have an active grant-writing and fundraising operation because we cannot receive tax-deductible donations. This move would eliminate that obstacle and make it possible for philanthropists around the world to invest in GCU, making it even more likely that we can continue to avoid raising tuition.

The fourth reason is the negative stigma that still accompanies for-profit universities. We have overcome the obstacles of the stigma to this point, but removing the burden would be advantageous to the future of the University. Unfortunately, there are many private universities in the country struggling to keep tuition affordable and keep their enrollments up.

When GCU was faced with $20 million in debt and about to close its doors, the decision was made to build a business plan and seek investment. Fortunately, the strategy has paid off extremely well and we now have a thriving university not dependent on state tax dollars, but one in which high quality education is being provided at a very low cost.

We don't have any philosophical issues with having a for-profit status and having investors, however, the academic community has been very slow to accept a change. There are some in the higher education community who have been impacted by our success and have questioned our motives. Fortunately, this has had little impact on our growth or the positive perception of the University to this point.

Whether or not this process is successful, and there is a great deal of legal and financial due diligence that must be conducted to determine if it is possible, the growth and upward trajectory of the University will continue. If the plan is successful, it ensures greater acceptability within the higher education community, and therefore further solidifies the University's long-term legacy.

With that, I would like to turn it over to Dan Bachus, our CFO, to give a little more color on our 2014 third quarter, talk about changes in the income statement, balance sheet, and other items.

Thanks, Brian. Revenue and income from operations exceeded our expectations in the third quarter, primarily due to higher enrollments and higher revenue per student than expected. Revenue per student was up year-over-year due to our residential traditional campus enrollment growing at a rate higher than our working adult enrollment.

When factoring in room, board and fees, the revenue per student is higher for these students than for our working adult students. Scholarships as a percentage of revenue increased from 14.6% in Q3 2013 to 15.7% in Q3 2014, due primarily to the growth in our ground traditional student enrollment between years.

Online scholarships as a percentage of related revenue continues to be up slightly year-over-year due to an increase in students from organizational partners.

Bad debt expense as a percentage of revenue decreased to 2.2% in Q3 2014, as compared to 3.4% in Q3 2013. This decrease is primarily the result of continued improvements and processes in the quality of our student body. In addition, during the third quarter 2014, we changed the way we recognize revenue for students that withdraw from the university such that revenue is recognized when payment is received. Given the low withdrawal rate of our students, and our historical reserve methodology, this change has an immaterial net impact on our financial statements that slightly reduces revenue and bad debt expense.

Our effective tax rate for the third quarter 2014 was 36.1% as compared to 41.1% of the third quarter of 2013. The decrease in the effective tax rate between years is due to us making contributions in lieu of state income taxes to school tuition organizations during the third quarter of 2014, whereas these payments have historically been made in the fourth quarter.

We did not repurchase any shares of our common stock during the third quarter of 2014. The Board did extend our repurchase authorization date this quarter to September 30, 2015, and we have $25.9 million available under our share repurchase authorization as of September 30, 2014.

Turning to the balance sheet and cash flows, total cash unrestricted or restricted in short term investments at September 30, 2014 was $242.4 million. Accounts receivable net of the allowance for doubtful accounts is $8.3 million at September 30, 2014, which represents 4.6 days sales outstanding compared to $8.0 million or 5.1 days sales outstanding at the end of the third quarter 2013.

CapEx in the third quarter 2014 was approximately $59.2 million, or 33.8% of net revenue. This quarter the University completed a number of the ground campus building projects prior to the fall student start, such as the construction of an additional classroom building, additional residence halls that accommodate another 1,600 students, an additional parking garage, new food options, and land purchases adjacent to our Phoenix campus to support our growing traditional student enrollment.

We have increased our revenue and EPS guidance for the fourth quarter 2014 based primarily on higher anticipated revenue. We have reduced our effective tax rate due to the effect of the contributions made in lieu of state income taxes, and have lowered our diluted weighted average shares outstanding slightly based on our recent stock price performance.

Although we might repurchase shares during the fourth quarter 2014, these estimates do not assume repurchases.

I will now turn the call over to the moderator so that we can answer questions.

Thank you. (Operator instructions) Our first question comes from Peter Appert from Piper Jaffray, your line is open.

Thanks. So, Brian, are you able to provide any additional information in terms of the process by which Grand Canyon might convert? I'm thinking about issues around how you would fund it, debt levels you'd be able to take on, regulatory approvals, time frame, anything along those lines?

No, Peter, we don't want to share any additional information at this particular point in time. We've been working on this for about six months, and we believe it's going to be a 6-to-12 month process, and as we move through that process we might reveal some additional information, but at this point we don't want to release any additional information.

Understood. How about any commentary in terms of just what you're seeing, in terms of start trends in the online business? I guess it's a little bit slower, as anticipated, this quarter versus the last couple of quarters. How does it look going into the fourth quarter, and your expectation into next year?

Yes, things are in line with our expectations. There are two things happening. One, our ground campus is growing at a very high rate which is a very positive thing because of the additional revenue per student that we get, and because of the four-year revenue streams. As it becomes a bigger percentage of our overall student body, our 8% to 10% enrollment growth numbers are easier to achieve with less online students, so that's one thing that's happening. The second thing that is happening is that the online starts continue to be an upward trend in terms of being the strong students in the upper categories, and so we need fewer of them to hit the total enrollment goal. And so, the online starts are exactly where we want them to be right now in order to achieve 8% to 10% overall enrollment growth thing that we're trying to accomplish.

Okay, thank you.

Yes, thank you.

Thank you. Our next question comes from Jeff Meuler with Baird, your line is open.

Brian, the first thing you listed under the four reasons was it's the best option for investors. Can you just help us maybe understand a little bit better how you came to that conclusion? I fully understand how it could be good for the educational community and the students, but how you came to the conclusion that it's the best option for investors, and it sounds like you've been exploring it for six months or so? Six months ago, your stock wasn't all that far-removed from an all-time high, so just if you could help us understand from an investor standpoint what the benefit is?

Well obviously, if we are successful in this, the investors would be bought out at a premium, and a fairly significant premium. And so, given some of the uncertainties in the landscape of this whole industry going forward, we thought that most investors [wouldn't] view this as a positive.

Okay, and can you, without talking about exactly where you are in the process, can you talk about just -- I'm not as familiar with what debt burdens are common or allowed at not-for-profit universities. Can you just give us some perspective on that?

Very important question. We have had a meeting with the Higher Learning Commission, and then we had a very, very important meeting with the Department of Education, and the calculations that you are referring to are significant. The Department of Education expressed huge support for this move, and said that they would work with us as we go through the process. And so, this will be an important part of the process, but the initial information that we've gotten from the Department of Ed as a result of a face-to-face meeting a while back is very positive. They're highly supportive of this move, and want to help us make it, so we have confidence that that part of it will go well.

Okay, and then just I guess finally, anything else you can say about how it would change the vision for what the university would ultimately become? It sounds like more research, but I don't know if there's differences in terms of size or any other ways that would change the ultimate structure of the university?

Yes, it wouldn't. We would stick with the plan that we have right now. We want to grow the traditional ground campus out to 25,000 students. We'll make the CapEx investments necessary to do that, and we're on track to make that number in four to five years. We would still want to grow the online campus, 5, 6 percentage points per year, and keep moving the student body in the -- towards a graduate student body. The rest of what we do in the community, the rest of what we do in terms of developing academic programs, placing a real strong focus in the STEM area so that we can help Arizona rebuild its -- or build its work force, none of those things will change at all. So, the strategy would remain about the same.

Okay. Well hey, hats off to all the great progress you've made, and look forward to continuing to follow it. Thanks, guys.

Thank you.

Thank you. Our next question comes from Adrienne Colby with Deutsche Bank, your line is open.

Hi, thanks for taking my question. I was wondering in terms of the PAC-12 conference, if there's an update on the initial decision to allow for-profits to participate but not to vote, if this is something that's contributing in any way in your decision to explore options of not being a for-profit? And also, just wondering again if ASU is still boycotting Grand Canyon, and if the friction with ASU has created any issues in attracting athletes or other students to your ground campus?

You know, it contributes a little bit to it. There's two separate issues, there. The first one is Arizona State and its president leading a boycott against Grand Canyon, and he did lead the boycott. And so, that has been effective to some extent. We don't have many contests any longer scheduled with PAC-12 institutions, we don't have any with ASU. In fact, it's reached a little bit of the point of ridiculousness -- we were there in a swimming meet with them last week, and we could only count the scores against Seattle, or their scores against Seattle, but we couldn't count the scores against each other, so that was an interesting thing.

So yes, now, I want to make sure I point out though, that we don't harbor any resentment against Arizona State University. Our coaching staffs get along, our faculties get along, our student bodies get along. They've got friends in each other's student bodies. This is just one person, this is their president, who has insisted on this boycott. It has nothing to do with the two universities. And we don't ever speak negatively about Arizona State University. My two oldest sons graduated from there, and so that would not be helpful to Arizona.

But yes, the NCAA, the other issue is that the NCAA did vote to allow us to participate at the Division 1 level, but not to be a board member or not to serve on committees. And so, that's not a major setback, but it's a little bit of a setback, so it impacted a little. University of Arizona had a number of games scheduled against us that were canceled and so they seem like they've joined in a little bit with that, and the unfortunate thing there is that it is a little bit of a disadvantage to our student athletes. Our student athletes ought to have the same opportunities as the other student athletes.

The fact that we have a different financial model shouldn't impact their abilities to compete just like every other student athlete in Division 1 schools. So yes, those things did have a little bit of a role in us wanting to make this transition. Do we think over time it might change? Yes, but for the long term legacy of the institution, for the good of our alumni and our students, we think that this move would be something that would be helpful.

Great, and if I could just ask a follow-up question, you had talked about having about a 25% share from incoming students in your Fall start from California. Just wondering if that's how that actually panned out, and then also wondering how many of your ground students are from Arizona, and maybe how many of your online students are from Arizona?

Yes, the 25% number for new students from California is accurate, and we are off to a big start in terms of applications from there for the Fall of next year, a really big start. Our ground student population from Arizona is about 55%, we're looking right now.

Total? Total, right?

Yes. It's close to 60%, it's between 55% and 60%.

And your online student population?

The online student body population from Arizona is?

20%.

20%.

Thank you.

Yes.

Thank you. Our next question comes from Jason Anderson with Stifel, your line is open.

Good evening, guys.

Good evening.

Regarding the potential change here, I know there's only so much you could say, but has the -- I'm guessing you've been garnering some interest previously? Has that accelerated into the last six months, or is there any -- I guess I'm just trying to gauge, here, the buy side of this equation potentially?

I would say that the interest has gained some momentum in the last six months, which is why we've decided that we need to release this information, at this point. It's still obviously not a done deal at all, there's a lot of work that has to be done, but I would say yes. It's correct to say that it's gained in momentum.

Thanks, and then did you guys say what online starts were, growth-wise?

No. They're right in line with our expectations. We had one fewer start date in this quarter than we had in the previous quarter, so when you factor that in, it's right in line with what we've been doing.

Okay, similar to prior quarter trend?

Yes.

And then one last one, the -- have you guys begun marketing the Colangelo School of Business, the new naming, and has that marketing begun? Have you seen any traction yet? I mean, I guess it might be a longer-term build, but judging by the name you might think there'd be some immediate traction.

We are putting together a really significant plan with regards to marketing that name and our business program, especially in Arizona. So, we really haven't seen a big uptick in that at this point, but we plan to market that name and that brand extensively in January and February of this upcoming year.

Great, thank you.

Thank you. Our next question comes from Jeff Volshteyn from JPMorgan, your line is open.

Thank you. I wanted to find out whether you had initial conversations with the state regulatory agency, and the accreditors, and are there any obstacles or additional approvals that you will need from them before -- in conjunction with the US Department of Education?

Yes, we will need approval from both the state agency and the Higher Learning Commission. We started the conversation with the Higher Learning Commission, and now we'll start the conversation with the state agencies.

Okay, great. Switching over to more of a fundamental question, can you give us a sense of how you think about 2015, kind of your -- are there any changes in aspirations for the second campus, growth there? And perhaps any targets, any updates on targets for the next Fall start of 2015?

Targets have all stayed about where they've been, so there's really no change fundamentally in the strategy around ground enrollments, online enrollments, revenues per student. No real changes in those things at all. The -- whether we do something in the East Valley campus next year or not, is still not determined. The thing that caused us not to do it this year was that the momentum on this campus is just so strong, and the most interesting part of it is the East Valley campus was going to be built primarily for commuters. And our -- unlike at most universities, a couple years ago about 50% or so of our students wanted to live on campus. As we trend towards next year, we're going to be around 14,000, 14,500 students, with 70% wanting to live on campus. Most universities have the problem of juniors and seniors wanting to move off.

The new dorms, the residence halls that we're building, are absolutely tremendous and students want to stay, which really helps build community at the University. It also really helps on a revenue-per-student basis, because it goes from $7,800 to $15,000 and residence halls are -- even though it's a very good deal for students, they're very profitable. So, that's why we continue to put that off.

That makes sense. Last question for me -- in the past, you've shared with us scholarships as percentage of revenue. Can you update for the last quarter?

Yes, I mentioned it, but I'll give it to you again. Scholarships, 15.7% in this last quarter compared to 14.6% in the Q3 2013.

Thank you so much.

Thank you. Our next question comes from Trace Urdan with Wells Fargo Securities, your line is open.

Thanks. I actually talked to some lawyers about this transaction which has been taking place among smaller institutions, primarily to avoid annihilation from regulations, and one of the obstacles that I understand is true is not really come from the education regulatory side, but rather from the IRS. They look very carefully at transactions like this, in order to ensure that there's not a windfall accruing to the seller in these circumstances. So, in that context, I'm wondering if the people that are advising you are comfortable that you really can pay a premium that shareholders, or at least outside shareholders, would find acceptable in this circumstance?

Yes, it's something -- again, we've just started our work, but it's been an issue that's been identified. I think for us, the biggest issue frankly would be the built-in gain that's been accrued given the difference between the value of the university and the net book value of our assets. And so, I think the IRS would actually be very pleased with the transaction, because the tax bill would be pretty significant. And we're working on how that would play out, but it is something that's been identified and we're working through it.

Okay, next --

If I could just comment quickly on the first part of that, when we met with the Department of Ed, we told them what we were going to meet about so they did their research, and one of the first things they said was -- well, what some people might say is that you're doing this to avoid any potential regulatory things, and they said -- we've done the research and obviously you're in a very strong place with regard to that so we know you're not doing it for that purpose. So, I just wanted to make sure that I got that out there.

Thank you. Our next question comes from Jeff Silber with BMO, your line is open.

Hey, good morning, it's Henry Chien calling in for Jeff. Sorry to tack another one along the conversion. Would you -- I know you can't share too much, but would you be able to -- I know that you said you would probably take out shareholders at a premium. Would you be able to walk us through the process, maybe a timeline of how that would go about?

Again, it's just too early to go through that at this point. As we get additional information we'll share it publicly, but it's just too early in the process to give more detailed information.

Got it. And barring authorization, are there any major reasons that would lead you to choose to remain as a for-profit, public company?

Well, it has to make sense for the university and for the shareholders, so coming to a valuation that makes sense to our shareholders but also doesn't put an extreme debt burden on the university, and so that -- I think that's obviously the biggest piece to ensuring that this transaction happens, is it has to be, make sense for both parties.

Thank you.

Thank you, our next question comes from Sara Gubins from Merrill Lynch, your line is open.

Hey, this is David Chu, for Sara. So, in regards to those premium for investors, who determines this value?

Again, I think David, that'll be something that will play itself out over the next few months, etc. There's obviously got to be two separate parties to the transaction, and then I think typically the bankers get a fairness opinion to make sure that it's appropriate.

And I did use the word premium, and what I meant by that is obviously it has to make sense for both of us. So, whatever that is eventually determined, it'd have to make sense for both of us in order for us to go forward.

Okay, and to follow up on Trace's question, so besides say Ed, accreditors, states, IRS, can some other entity stand in the way of the potential conversion?

I think you probably hit on all the major pieces. It's the state, it's our accrediting body, it's the Department of Ed, and it's the IRS. I think those are the major outside parties that will be reviewing the transaction.

Okay, and just lastly, I guess the other I guess topic in the 8-K, what prompted the change in voting standards for the election of the directors?

We got an unsolicited request from one of our investors that we make this change, and so our Board as we do with any similar situations, reviewed the request and determined it was appropriate, and thus made the change.

Okay, thank you.

Thank you. Our last question comes from Phil Stiller with Citi, your line is open.

Hi guys, thanks for taking my questions. Just following up on the potential conversion, I guess would a potential transaction here be 100% debt-funded, or would there be equity as part of the buyout? And if so, where would that money come from?

Again, Phil, it's just too early to get into those type of details. So, I just -- we can't answer that at this point. It'll be a process that plays out, and we will look at all options, and once we have more definitive information we'll share it.

Okay. I guess on the margin performance in the quarter, it was pretty strong despite the tax contribution. The fourth quarter revenue guidance was raised, but the margin guidance was not, so I'm just trying to figure out what flowed through in the third quarter that won't necessarily benefit the fourth quarter margin?

Well, we had already had a pretty significant bump in our margin expectations for the fourth quarter versus the third quarter. As we talked about in the second quarter, and it continued in the third quarter, our summer revenue for our ground traditional students was higher than we expected, and thus that helped. Obviously, that doesn't flow through to the fourth quarter. So, we still feel good about the margins for the fourth quarter. They're much higher than I think -- you know, two years ago we would have thought, but we don't feel that they're going to be higher than what we've guided to.

Okay, thank you.

We have reached the end of our third quarter conference call. We appreciate your time and interest in Grand Canyon Education. If you still have questions, please contact either myself, Dan Bachus, or Bob Romantic. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.