Grand Canyon Education Inc (LOPE) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Grand Canyon Education fourth-quarter earnings call. (Operator Instructions) As a reminder, today's conference is being recorded.

I would now like to turn the call over to Mr. Brian Roberts, General Counsel. Sir, you may begin.

Thank you for joining us to discuss Grand Canyon's 2016 fourth-quarter results. Speaking on today's call is our Chairman, President and CEO, Brian Mueller; and our CFO, Dan Bachus.

Our call is scheduled to last one hour and we will try to answer all of your questions during the Q&A period at the end of the call. But we apologize in advance if there are questions that we are unable to address due to time constraints.

Please note that many of our comments today will contain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results expressed or implied by such statements.

These factors are discussed in our SEC filings, including our most recent annual report on Form 10-K and our current report on Form 8-K. We recommend that all investors review these reports thoroughly before taking a financial position in Grand Canyon, and we undertake no obligation to provide updates with regard to the forward-looking statements made during this call.

And with that, I'll turn the call over to Brian.

Good afternoon and thank you for joining Grand Canyon University's fourth-quarter fiscal year 2016 conference call. In the fourth quarter of 2016, enrollments grew by 9.9% and revenues grew by 13.3%. New enrollments grew in the low-double digits year over year. Operating margins are at 31.3%.

We had another great quarter. I again want to thank our faculty and staff for their hard work and the incredible results they are producing.

As many of you know, our long-term goals are to grow the University's enrollments by 6 percentage points to 8 percentage points per year, grow revenues by 8% to 9% per year, and grow margins by 20 basis points on an annual basis without raising tuition. The enrollment growth is a combination of online enrollments growing at 6 percentage points to 7 percentage points and our traditional campus enrollments growing by 8% to 10%.

Revenue growth will happen as a result of continued increases in retention levels, and ground enrollment is becoming a larger percentage of total enrollment. Ground revenue per student is larger because of other ground revenue, including room and board revenue as well as the increasing revenues of 24 restaurants, a hotel, golf course, coffee company, and the six GCU stores selling our merchandise, as well as additional retail outlets like Walmart.

As you know, we accomplished our enrollment goal on the traditional campus this fall. We had approximately 17,500 students on campus. The average incoming GPAs are about 3.5 and our Honors College has grown to 1,200, with average incoming GPAs of about 4.1.

Applications for next year are now north of 22,000 and are significantly ahead of prior year at the same point. We expect about 7,000 new students, with 550 of those students being in our Honors College. We are currently building a new apartment-style residence hall which will have 600 new beds. Our total enrollment on campus for next fall will be approximately 19,000, and we expect all residence halls will be at capacity.

We continue to outpace our new online enrollment growth goals. The contributing factors to this are: number one, the tweaks we have made to our advertising strategy, which continue to be productive. Two, 15% of our new online starts come from the 40 new programs we rolled out in the previous 18 months.

And three, the brand and the reputation of the University continues to grow as a result of the credibility of our academic programs, the quality of our students and faculty, the excellence we are achieving in the performance areas, and the commitment to the transformation of an inter-city neighborhood. We expect new online enrollment growth to return to normalized rates by the third quarter of this year.

Yesterday we had a major news with a press conference on our campus that was covered extensively by local media. Elliott Pollack, a nationally renowned economist, completed an economic impact study that analyzed the University's impact on the state, county, and the city of Phoenix. He did an additional study on a 37-acre piece of property that we purchased and developed that is now the eastern border of our 260-acre campus.

The main speakers were Mr. Pollock, Governor Ducey, Mayor Stanton, Councilmember Valenzuela, and Jerry Colangelo. The timing for the release of this information was good because of the hope that a new Washington administration will take a fresh look at the potential of for-profit publicly traded education enterprises and because of the new legislative session in Arizona.

The results of the two studies are summarized in the following paragraphs. The economic and fiscal impact of the operations and expansion of the Grand Canyon University campus is significant for the community as well as for the state of Arizona.

The impacts are generated by construction, operations, and student spending. Economic impacts are broken into construction-phase impact and impacts from university operations, including faculty and student spending. Overall, an average of 10,490 jobs are created each year in the economy with wages of $487.7 million and an economic impact of $1.1 billion annually. Thus, over 10 years, the total economic impact of Grand Canyon University is nearly $11.1 billion.

Overall, Grand Canyon University will generate $454.6 million in tax revenues over the 10 years from 2010 through 2019: $296.3 million for the state of Arizona, $85.6 million for Maricopa County, and $72.8 million for the city of Phoenix. These figures for the state of Arizona exclude estimated income taxes paid to the federal government of $652.3 million during 2010 through 2019 time frame.

The economic impact of the redeveloped 37-acre property is summarized in the following paragraphs. The redevelopment and new construction of the site provides important amenities to the Grand Canyon corridor.

With the additional office space, restaurant, and newly renovated hotel, not only is Grand Canyon University able to house additional office staff in the city of Phoenix, but it will greatly enhance the foot traffic and occupancy of the hotel.

The newly developed site includes 451,000 square feet of office space, a renovated 155-room hotel, and an 18,680-square-foot restaurant. There is a total of 2,461 parking spaces in the brand-new car parking garage. The development will provide an immediate $170.1 million economic impact from construction activity. This investment by GCU will create 1,103 construction-related jobs and $69.6 million in wages.

Upon completion of construction, the project supports 5,087 jobs, $257.3 million in wages, and $660.6 million in annual economic activity. Spending of the visitors to the hotel will generate an additional 104 jobs, $3.8 million in wages, and $9.8 million in economic output each year.

The redevelopment of the site will convert the property into significant revenue-generating project for the state, Maricopa County, and city of Phoenix. Over a 10-year period, an estimated $32 million in revenues will be generated for the state, $12.2 million for the county, and $21.7 million for the city related to this project.

During the press conference, Governor Ducey referred to Grand Canyon as a true Arizona success story. Mayor Stanton commented: The economic impact of this university on our city and our state is indisputable.

But for GCU, it's not just about new buildings and student enrollment. It's about being a positive catalyst for change. I'm proud of this university that puts its faith into action every single day to benefit the lives of people in the nearby neighborhood. I could not be more proud of the faculty, the leadership, and most importantly, the students of this university for caring about our city and our community.

Jerry Colangelo, former owner of the Phoenix Suns and Arizona Diamondbacks and current leader of the Colangelo College of Business at GCU, stated: This is not only one of the great stories in our state, it's a great story in this country and worldwide.

The University is also making a major impact on the economy through the contributions of its graduates. During calendar year 2016, 19,500 students graduated with either bachelor's, master's, or doctoral degrees. Given the major difference in lifetime earnings based on educational achievement levels, this is also a significant contribution to the economy.

We believe the gainful employment data recently released by the Department of Education provides some indication of the value of a GCU degree. The weighted average salary of our bachelor's degree students provided by gainful employment is $63,249.

Now turning to the results of operations. Net revenues were $244.7 million in the fourth quarter of 2016, an increase of $28.7 million or 13.3% from the $216 million in the prior-year period. Operating margins for quarter four 2016 was 31.3% in the fourth quarter compared to 29.2% for the same period in 2015.

Net income was $48 million for the fourth quarter of 2016 compared to $38.1 million in the prior-year period. After-tax margin was 19.6% compared to 17.6% for the same period in 2015. Instructional cost and services grew from $92.4 million in the fourth quarter of 2015 to $102.1 million in the fourth quarter of 2016, an increase of $9.7 million or 10.5%. 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 and increased benefit cost between years.

In addition, we continue to see an increase in occupancy costs, including depreciation and amortization and property taxes, as a result of us placing into service additional buildings to support the growing number of ground traditional students in the fall 2016 and an increase in dues, fees, subscriptions, and other instructional supplies, primarily due to increased licensee fees related to educational resources and increased food costs associated with a higher number of residential students.

As a percent of revenue, IC&S decreased 110 basis points to 41.7% due to our ability to leverage our growth, the instructional costs, and services expenses, across an increasing revenue base.

Admissions advisory and related expenses as a percent of revenue decreased to 13.1% from 13.6%, primarily due to our ability to leverage our admissions advisory personnel across an increasing revenue base. Advertising expenses as a percent of net revenue increased slightly by 10 basis points from 8.5% in quarter four 2015 to 8.6% in quarter four 2016.

With that, I would like to turn it over to Dan Bachus, our CFO, to give a little more color on our 2016 fourth quarter, talk about changes in the income statement, balance sheet, and other items as well as to provide detailed information on our guidance for the full year of 2017.

Thanks, Brian. Revenue per student increased between years, primarily 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 ground students than for our online students.

In addition, as we have previously discussed, the fall semester began five days later in August in 2016 than in 2015, which had the effect of moving $4.9 million of revenue from the third quarter to the fourth quarter. Online revenue per student was down slightly year over year, primarily due to the timing of the holiday break, mix changes, and the fact that we did not raise tuition levels during 2016.

Scholarships as a percentage of revenue increased slightly from 18.6% in Q4 2015 to 18.7% in Q4 2016 due primarily to growth in our ground traditional student base, partially offset by a decrease in the traditional scholarship rate year over year as a percentage of total revenue and due to an increase in ancillary revenues. Online scholarships' percentage of related revenues were up slightly year over year. Bad debt expense as a percentage of revenue stayed flat at 2.4% year over year.

Our effective tax rate for the fourth quarter 2016 was 37.2% as compared to 38.6% in the fourth quarter of 2015. The variance in the effective tax rate year over year is primarily due to the University making higher contributions in lieu of state income taxes to school sponsoring organizations in 2016.

As a reminder, in Q3 2016, we contributed $4 million, an increase of $1.2 million over the $2.8 million contributed in Q3 2016. As you might recall, these payments are included in G&A expenses in the third quarter of each year, and these payments reduce dollar for dollar our state income taxes. Three-quarters of the lower tax rate is reflected in the third quarter as we true-up our annual effective tax rate, and the remaining is reflected in a lower tax rate in the fourth quarter.

We repurchased 416,000 shares of our common stock at an aggregate cost of $15.4 million during the year ended December 31, 2016, although no stock was repurchased in the fourth quarter of 2016. We have $99.2 million available under our share repurchase authorization as of December 31, 2016.

Turning to the balance sheet and cash flows, total cash, unrestricted and restricted, and short-term investments at December 31, 2016, was $193.5 million. Accounts receivable net of allowance for doubtful accounts is $10 million at December 31, 2016, which represents 4.2 days sales outstanding compared to $8.3 million or 3.9 days sales outstanding at the end of the fourth quarter of 2015.

CapEx in the fourth quarter 2016, excluding our off-site development of $18.9 million, was approximately $20.7 million or 8.5% of net revenue. Total CapEx for the year was $178.3 million, which was slightly under our $180 million estimate.

Our off-site CapEx of $18.9 million in the fourth quarter was related to the new student services center and parking garage in close proximity to our traditional ground campus in Phoenix, Arizona. We estimate that 2017 CapEx will be between $80 million and $100 million.

Included in current portion of notes payable at December 31, 2016, was $25 million in borrowings on our revolving line of credit. This amount was repaid in early January 2017. We continue to have $150 million available to borrow on our line.

Our cash base of 90/10 was -- amount for 2016 was 72.3%, down from 74.8% in 2015. We believe that this decrease is primarily due to the continued growth in our ground traditional student body, which has a much lower 90/10 ratio than our working adult students.

Last, I would like to provide color on guidance we have provided for 2017. As you probably noticed, we have again provided estimates for each quarter 2017. We do this because our financial results continue to become more seasonal due to the significant growth of our ground traditional campus. A large percentage of these students only attend class between the end of August and the end of April.

However, a large percentage of the ground traditional campus cost are fixed, and these costs continue to grow due to our anticipated growth. We must hire additional support staff to service the increasing student body in the spring or summer of each year so that they are trained and can start working with the soon-to-be students when these students are ready to be registered for the fall semester.

Our enrollment guidance assumes low-teens online new-start growth in the first and second quarter of 2017 and mid-single-digit new-start growth in the third and fourth quarter of 2017. The anticipated deceleration of start growth in the second half of 2017 is due to the higher-than-expected growth in new starts that occurred in the second half of 2016.

Our guidance assumes a slight increase in retention and an increase in graduates between years of approximately 13%. The significant retention gains we have seen in recent years and the continued shift to a higher percentage of graduate students continues to result in year-over-year increases in graduates that exceed our total enrollment growth rate. This results in online year-over-year growth rates that accelerate in the first half of the year and then start to slow in the second half of 2017.

We estimate our total ground enrollment, (ground traditional and professional studies students) to be 15,800 in the spring, 5,700 in the summer, 19,000 in the fall, and 18,800 at year end. We are starting to experience larger numbers of graduates at our ground campus due to our increasing enrollment base and a high percentage of our students graduating in less than four years. And although we anticipate our term-to-term retention rates to be flat to slightly better between years, the large enrollment causes bigger fluctuations between fall and spring semesters.

Our revenue guidance assumes no tuition increase for our ground campus or our online campus. We anticipate that revenue per student will continue to grow year over year as a result of the growth of our ground traditional student body as a percentage of our total student body. However, we will be impacted in the first quarter 2017 by one less day of revenue due to 2016 being a leap year, resulting in $1.9 million of less revenue in 2017.

In addition, our revenue per student will be impacted by changes between 2016 and 2017 of when the traditional campus semesters begin and end and when the online breaks occur. The spring and summer semesters start five days later in 2017 than in 2016, pushing revenue from Q1 to Q2 and from Q2 to Q3, while the fall semester will start one day earlier this year than last, pushing revenue from Q4 to Q3.

We estimate the effects of these changes are $5.3 million of less revenue in Q1, $4.7 million more in revenue in Q2, $1.7 million more revenue in Q3, and $1.1 million less revenue in Q4. We are also anticipating a decrease in online revenue per student of approximately 1% due to programmatic mix changes, higher scholarships, and the fact that we do not plan to raise tuition levels.

On the expense side, we have forecasted instructional costs and service as a percentage of our revenue to be up again year over year. This is being caused by the investments we continue to make, significant increases in depreciation and occupancy expenses, as well as growth in ancillary revenues that have forecasted margins in the mid-single digits. This includes food and merchandise sales and revenues earned at the Grand Canyon University Golf Course and the Grand Canyon University Hotel as well as the additional businesses Brian discussed. Although the revenues are small, we estimate that in total, these revenues will grow approximately 16% this year.

In addition, the minimum wage increase approved in November 2016 by Arizona residents will increase our costs by approximately 40 basis points year over year, as we were required to increase the minimum pay of the majority of our approximately 2,500 student workers to $10 per hour on January 1. As a result, we anticipate IC&S as a percentage of revenue to be up 60 basis points year over year, with the primary drivers being employee-compensation-related expenses, which we estimate will be up as a percentage of revenue 40 basis points, depreciation up 60 basis points, and occupancy costs to be up 50 basis points year over year, primarily due to an increase in property taxes. We plan to continue to invest in new program development and various community projects.

Bad debt is projected to be flat year over year. We anticipate advertising will be up slightly as a percentage year over year. We estimate that we will get slight leverage in admissions advisory and related expenses and G&A between years.

We are hopeful for margin expansion in 2017, as we have been able to accomplish in the past, and are working extremely hard on operational efficiencies to accomplish this. But due to the factors discussed above, we anticipate it being more difficult this year than in the past.

Interest expense net of interest and other income will be approximately $1.7 million. Although our borrowings should be down year over year, the amount of capitalized interest should be less due to the decrease in CapEx.

Our guidance this year assumes an effective tax rate, excluding the contributions made in lieu of state income taxes, of 35.3% compared to an effective tax rate, excluding the contribution made in 2016, of 38.2%. The estimated decrease in the effective tax rate is the result of our adoption of a new accounting pronouncement in January 2017, which requires that the excess tax benefits from our equity awards be recorded as a reduction in income tax expense rather than additional paid-in capital in the period stock options are exercised and restricted stock vests.

Although we estimate that this will have the effect of reducing our effective tax rate from 37.8% in each quarter to 33.1% in Q1, 35.6% in Q2, 36.0% in Q3, and 36.7% in Q4, these amounts will be impacted by fluctuations in our stock price and differences between estimated and actual option exercises. If a contribution in lieu of state income taxes is made in the third quarter of 2017, it will have the effect of increasing general administration expenses and decreasing income tax expense.

We have also provided our estimates of diluted weighted average shares outstanding by quarter. The increase in the diluted weighted average shares outstanding between years is primarily due to a change in the calculation of the treasury stock method for diluted shares outstanding required by this new accounting pronouncement. Although we might repurchase additional shares during 2017, these estimates do not assume repurchases.

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

(Operator Instructions) Peter Appert, Piper Jaffray.

Brian, can you spend a second talking about the areas where you are seeing strength from a programmatic standpoint in terms of the online business? I'm asking this in the context of trying to understand better, given how strong the numbers have been. I understand the comps get tougher, but why you're maybe not a little more confident in terms of the sustainability of the recent improvements you've seen.

The places where we are gaining in terms of programmatic development are mainly niche areas. And so when you look at our education program, for example, a program like autism is really growing. We started about a year and a half ago in computer science and information technology.

Those programs are not growing as rapidly as we had hoped, but they are growing and we are making tweaks to them. And we expect to get that figured out more finely in the next year or so. And so we are confident, but we are also conservative. We went through a period of time when we tweaked our advertising strategy, and it was just so productive that it really took us, to some extent, by surprise.

The other thing that is very interesting is the number of adult students that want to attend the campus in the evening. You know the history of this, Peter. When we first got started way back with Phoenix, students would come to classrooms that were in office complexes by convenient freeway locations, and they were happy to do that one night a week. And then as online took hold, people said I'm not interested in going to that kind of a facility one night in the evening. And so everybody went online.

This campus has become such a focal point of activity for the entire valley of 4 million people that the number of people wanting to come here in the evening one night a week is growing again. And so that was -- in addition to the new programs, that was a catalyst for this acceleration that we were not expecting.

We didn't increase enrollment counselors. We didn't increase advertising spend, really, as a percent of revenue. But the increased brand of the institution and some of the new programs just took off more sharply than we anticipated.

And so what we are doing right now is being conservative. And there's a lot of unknowns in this whole thing right now with the amount of new entrants into this space, and so -- we are optimistic. We feel good about where we are going, but we are being a little bit cautious.

Okay. Fair enough. And just to clarify, the adult students who were coming on campus at night. Does that count in the ground traditional enrollment numbers?

Campus-based students, yes.

Okay, got it. And then different topic. Obviously, given the reduced cash flow and the success you've had in driving revenue growth and profitability, we are going to see a presumably dramatic improvement in the free cash flow here in 2017. I'm wondering if you just remind us how you are thinking about the priorities for the use of that cash and how comfortable you are just accumulating large cash balances.

Well, the first is to continue to look at ways that we can invest in the ground campus: classrooms, laboratories, residence halls, those things. One of the unknowns that will -- that we are going into the next two years, we know that there's a huge need and desire for students that want to go into electrical, mechanical, biomedical engineering, computer science, information technology.

Our program is growing, but not at as an accelerated rate as we think may happen in the future because we are not ABET accredited. So we are going to reserve cash in order to pump it into those programs if we see, once we get close to ABET accreditation that that would really pay off for us.

The second thing is an interesting thing that's happening now is on our ground campus, we are starting to attract students, more out-of-state students. Housing is going at a very rapid rate. And so California is growing, but we are really starting to grow in the Midwest.

Arizona State and University of Arizona always did well in the Midwest because kids wanted to get out of the winter. But what happened over the course of the last 5 to 10 years is that their out-of-state tuition rates just have become exorbitant. And now the word is getting out that you can get out of the winter and get into Arizona at very low tuition rates and stay in brand-new residence halls and study at brand-new campus, so that's starting to grow.

If our total student body that wants to stay on campus as a percent of the total student body goes up, we want to reserve the cash to build additional dormitories. Because there's not a better investment that we can make than to build better residence -- more residence halls.

That being said, the cash is going to pile up. And we certainly will continue to develop new programs, but we will also take a look at repurchasing stock when there is weakness. And so that will be the third part of our strategy.

So not ready, basically, to commit to some sort of more methodical share repurchase program at this point?

Not in the first six months. We are going to take a real close look at how this moves in the next six months. We're going to take a real close look at how we are going to end up with our enrollment on ground this fall and see both in terms of residence halls and additional classroom buildings how much we might need for the following year.

Understood. Okay, thanks very much.

Jeff Silber, BMO.

It's Henry Chien calling in for Jeff. Just a question on your capacity, just if you had -- if you could share with us what's your current capacity. And just how you are thinking about expanding this with the new residence halls and any upcoming constructions. Just curious your thoughts on that.

Yes. In the fall with the new dorm going up, it's going to be about 11,000 beds. And when I said we were going to be at capacity, we expect it to be out in front. But the requests for living on campus has really gone up this year as compared to last, and so we're going to watch how that goes for the rest of this spring. And if it goes as it is, we are going to be at capacity and maybe have to turn some students away.

So the 11,000 of the 19,000 is a little bit above the percentage we thought. But the way things are going now, that's going to probably go up in the next coming years, which for us would be a good thing. Because the revenue per student just goes up when we have the additional students staying on campus.

Got it. And this is including the new residence hall that's going to open at the end of the year -- this year?

Yes.

Okay, got it. Thanks. And just wondering if you could comment on just the political environment there in Arizona and how supportive it is for Grand Canyon. Or any thoughts there.

Well, that's why I did go through that kind of lengthy explanation of that press conference. Because with the new administration, and we've got some contacts, but we hope that people are willing to take a fresh look at this thing after eight years of just being beat down nationally, I think this is becoming a model that can be replicated. And we can reinvigorate this for-profit publicly traded education company concept.

It's overwhelming in Arizona right now. We had the governor, we had -- and there was a sea of 3,000 people in purple shirts out there at an outdoor press conference. But we had the governor; we had the mayor of the sixth-largest city in the country. We had Jerry Colangelo, who is a nationally respected businessman. And they made glowing comments about the University, its contribution to the economy, its contribution to inter-city revitalization.

And so there's just this whole -- this thing -- we have a very pro-business governor, extremely pro-business governor. He's also extremely pro-school choice and he wants to give people as many options from preschool through higher ed as he can. And he thinks competition is good.

And so obviously we have a slight detractor in terms of the president of Arizona State University. But other than that, there's overwhelming support for what's going on here, which is good. And I think it can be easily replicated. I just think this thing can be turned, to some extent, in the next few years.

Got it, okay. That sounds promising. Thanks.

Jeff Meuler, Baird.

Brian, I think you just said you are not planning on being methodical with share repurchase in the first half. You are saying you think the model can be replicated. If state and real estate taxes become more economically equitable, is there a change in thought on the potential to do another stand-alone campus?

Possibly. We certainly have a lot of people who would like us to. People are looking at the model. With the increasing inefficiencies of the state university model and how this is being such an economic catalyst in the state, people are certainly looking at this. And so we have people in different states approaching us on a consistent basis.

And so it's something that we are going to continue to evaluate and consider. It's not something that we plan on doing in the next two years. We believe that we can build this thing out to 30,000 students over the next 5 or 6 years, and every dollar we invest in this thing will return far more than starting something new. But we are not going to hold it -- there is the potential that we would do something eventually.

Okay. And then I just want to understand the comment on the online new enrollment outlook. I understand the tougher comps as the year unfolds. But is the message that that's the guidance assumption? Or if -- would you instead, if new enrollment growth is running hot, would you pull back on marketing expense or in other ways try to govern it lower?

No, we wouldn't pull back. We would not pull back on marketing expense. If the demand for what we are doing grows at an unanticipated rate, we would fill that demand. But it would have to be, as it has been, with higher and higher quality students.

The reason I mentioned the 19,500 graduates that we had at Grand Canyon this year: that's a big number. And so as that goes up, that's the other thing that we are being a little conservative about because it took us a little bit by surprise.

Of the students that graduate on our ground campus, 70% of them are now graduating in less than 4 years. And that's becoming part of the brand that's attracting people. But in the short run, it caught us a little bit off guard. In our models, we anticipated the average student who graduates to graduate in four years.

But 70% are now graduating in less than 4 years and 54% are graduating in exactly 3 years. It's because we've got hundreds and hundreds of agreements with high schools and we're delivering dual credit to them. So good students are coming to us with already earned 20, 30, 35 college credits, in addition to the fact that our students who may go home in the summer will take an online class or two.

And so all of a sudden, they've graduated in three years for an average tuition rate of $8,300 to $8,600 on an annual basis, which from a value proposition is incredible. And that word is spreading and that is becoming part of our brand. So we have to monitor what kind of increase that will cause in our ground enrollment versus the amount of graduates that we will lose before we initially anticipated.

Okay. Thank you and thanks for pointing out the forever youthful Mr. Appert's historical knowledge of the industry instead of my own. (laughter)

Duly noted.

Trace Urdan, Credit Suisse.

I wanted to ask about the -- what was it? The ever-youthful Peter Appert's question. When you were talking about needing to hang onto cash for various purposes, that doesn't change your outlook for CapEx that you guys provided to us at your investor day, does it? Is that guidance still operative from your perspective at this point?

Yes. $80 million to $100 million. I would say it's probably going to be closer to $100 million than $80 million.

Okay. But that's within the same framework that you had outlined originally. So when you're talking about things like more students coming from out of state and possibly needing more dorm space sooner, you are not -- at this point, you have not altered your outlook for the buildings you need to build over the next four years?

Not for 2017, but possibly for 2018.

Okay. TBD after that, right? I understand.

Yes.

And that I also wanted to ask about the comments that you made about the shifts in the program offerings and maybe ask for a little bit more specific color. I understand conceptually that there are some programs that are large that may be maturing, and then others that are smaller and more nascent might be growing nicely, but are still relatively small.

But can you talk about that maybe a little bit more specifically, like what are the programs that you guys are seeing that may be approaching maturity? I could speculate, but I'd rather have you speak to that. Or have I mischaracterized the situation? Is that not what you said?

No, no, you are right. Talking about maturity, RN to BSN is just a very large program for us, and so having to grow off of a very large number. There's a little bit of maturity that we are seeing there.

In terms of revenue per student, counseling programs at both the baccalaureate and master's degree level are growing fast. And those programs from a revenue-per-student perspective are lower than some of our other programs. But we have developed a little bit of a reputation in that area, and so those things are growing. And that's having a little bit of a negative impact on the revenue per student.

Okay. And then I know you talked before about the challenges in particular for undergraduate education degrees. Have you made any progress on that front? I guess it may be sort of early to ask you whether you've had any contact in Washington. But have you had any contact in Washington?

We don't have an appointment with Betsy at this moment.

And specifically about how the department might -- yes, okay.

But we would love -- we have a tremendous relationship with the staff at the Higher Learning Commission. And so we are in constant contact with them. We would like to have some influence and some impact on what happens if the Higher Ed Act gets potentially reauthorized in the next two years. We think there are some very, very significant things that could be put into that new act that could be very beneficial.

And so, given -- I didn't mention the support of our US Senators. And John McCain is a huge supporter of ours, as is Jeff Flake. And they do have contacts in Washington. And if we can provide some influence around what will happen in the next couple years, we'd really like to do that. I think there are some very practical common sense things that could be done that would help everybody. So we'll see. We are going to try.

Okay, fair enough. 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 Bob Romantic. Thank you.

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