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Grand Canyon Education (NASDAQ:LOPE)

Q4 2013 Earnings Call

February 20, 2014 4:30 pm ET

Executives

W. Stan Meyer - Chief Operating Officer

Brian E. Mueller - Chief Executive Officer, President, Director and President of Grand Canyon University

Daniel E. Bachus - Chief Financial Officer and Principal Accounting Officer

Analysts

David Chu - BofA Merrill Lynch, Research Division

Philip Stiller - Citigroup Inc, Research Division

Adrienne Colby - Deutsche Bank AG, Research Division

Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division

Jeffrey Scott Lee - Wells Fargo Securities, LLC, Research Division

Operator

Good afternoon. My name is Toni, and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter 2013 earnings conference call. [Operator Instructions]

Thank you. Dr. Stan Meyer, Chief Operating Officer, you may begin your conference.

W. Stan Meyer

Thank you, operator. Good afternoon, and thank you for joining us today on this conference call to discuss Grand Canyon's 2013 fourth 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 1 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 these forward-looking statements made during this conference call.

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

Brian E. Mueller

Good afternoon. Thank you for joining Grand Canyon University's fourth quarter fiscal year 2014 conference call. In the fourth quarter of 2013, enrollments grew by 14.1% and net revenues grew by 15%. New enrollments grew in the low double digits and operating margins are at 25.2% for the fourth quarter 2013. We had another successful quarter, and I want to thank our faculty and staff for their hard work, the commitment to innovation and change and their continued loyalty to the university. Our faculty and staff turnover rates are at all-time lows.

We're excited to announce, as a result of the efforts of the administration, faculty and staff, Grand Canyon received the following awards in 2013: the Impact Awards from the Phoenix Chamber of Commerce in the categories of Economic Driver and Business of the Year; the Gold Stevie Award for the Company of the Year in the Services division; the Community Service Hero Award from the City of Phoenix; and the Industry Leaders of Arizona Education Company of the Year award.

I want to give you a few updates on our traditional campus. We've started fall 2013 with approximately 4,000 new students, bringing the total to approximately 28 -- 8,200 students. We raised the minimum GPA admission requirement to 3.0 and the average incoming GPAs of the admitted new students were approximately 3.4. Approximately 50% of the new students are studying in the science areas.

Based upon our current rate of applications for fall of 2015, we are expecting approximately 5,500 new students, which would bring our total student body to approximately 10,500. About 3,000 of the new students will be from Arizona and about 2,000 will be from California.

The percentage of all students who want to live on campus is going up and as a result, we're building 2 new residence halls. One will be a new apartment-style residence hall, which will house 1,000 students and the other will be a traditional style residence hall, which will house 650 students. In addition, we are building a new 4-story classroom building, 2 new restaurants, a new bookstore, and we are rebuilding our arena to seat 7,200 for games and 8,000 for concerts.

Planning for the East Valley campus is going well. We are on schedule to open up in the fall of 2015 with approximately 2,500 students and grow to about 10,000. The campus will provide a full residential experience from the beginning and include everything the main campus has, with the exception of intercollegiate athletics and theater.

One of the most important current initiatives of the university is to extend the reach of our STEM programs. We are adding information technology and computer science degrees in the fall of 2014, and we're working on 3 engineering degrees; electrical, biomedical and mechanical, for the fall of 2015. We are also excited to announce that we are launching our doctoral degree in a nurse practitioner program, which will be our fourth doctoral degree.

Grand Canyon's brand is growing rapidly, partly as a result of a very vibrant campus life. Classrooms and residence halls are at capacity. Chapel services have 3,500 students in attendance. We are just finishing our fourth major theater production this year and every performance has been sold out. Our premier praise band was chosen to perform on the national scene as part of the Rock & Worship Roadshow. Our intercollegiate debate team has performed very well in their first year of competition.

Our athletic teams are performing above expectation. Wrestling is 14 and 5 in dual matches. Our men's and women's track teams, swimming teams, tennis teams, golf teams and our men's volleyball team are competing very well on a national level during this winter season. Our women's basketball team is on pace to win 20 games in their first year and our men's team is currently in second place in the Western Athletic Conference. Every man's home game has been a sellout.

In addition to all the activity on the campus, the university has been involved with their immediate community. We are involved in more than 120 community events and projects throughout the year. We've put on a fall festival in October that draws more than 6,000 people to campus and popular gift drive at Christmas and Easter help brighten those seasons for many underprivileged families.

Our faculty, staff and students also go out in the surrounding neighborhoods to participate in university-sponsored programs such as Serve the City, Canyon Kids, 12 Months of Service and The Run to Fight Children's Cancer.

In September 2013, the university launched a free mentoring and tutoring program for students at nearby Alhambra High School in hopes of raising the math, reading skills and confidence of students at the Phoenix school, many of whom come from disadvantaged families.

Our students are serving as tutors and mentors to these high school students and the results thus far have been extremely positive. We anticipate expanding this program to other high schools as part of our K-12 outreach program within our communities.

Turning to our online campus, as most of you know, our plan is to grow this campus at 6% to 8% per year. Over time, our online campus will be primarily a graduate campus with our traditional ground campus primarily an undergraduate campus. Currently 43.5% of our working adults are studying at the graduate level. These students are attracted to full-time faculty, small class size, the interactive and collaborative intellectual environment and the highly service-oriented counseling teams.

The highest quality students at the university are doctoral students, master students, RN to BSN students and our traditional campus students. These students have high graduation rates, low bad debt expense and low default rate on students loans. These students are 63% of our total student body, which is an increase of 460 basis points year-over-year.

The growing number of high-quality students have had a tremendous impact on key metrics, including a reduction in our overall 2-year cohort default rate. Although the 2-year default rate for the period that ended September 30, 2013, is no longer going to be released the Department of Ed, based on information that we received from the lenders, our 2-year default rate for this period is approximately 7%, which is down from 12% in the prior year.

One of the trends in higher education is that it is becoming more regional and students want to attend a university closer to their home. This is true for traditional students, as well as working adult students. Our brand has grown in strength in the Southwest, which is where the majority of our growth is.

In the past 12 months, we have grown 21 -- 25.1% in Arizona, 52.4% in California, 30.8% in Colorado, 43% in Nevada and 42.9% in New Mexico.

Now turning to the results of operations. Net revenues were $162.4 million in the fourth quarter of 2013, an increase of $21.1 million, or 15% from the $141.3 million in the prior-year period.

Operating margin for quarter 4 2013 was 25.2% compared to 23.5% for the same period in 2012. The operating margin without the effect of state contribution made in lieu of state income taxes was 26.7%.

It's important to note that tuition room and board has been frozen for 5 years on our ground traditional campus and there was no increase in tuition for the online campus this past year.

Net income was $26.2 million for the fourth quarter of 2013 compared to $20.9 million in the prior-year period. After-tax margin was 16.1% compared to 14.8% for the same period in 2012. It should be noted that the difference between the operating margin before income taxes and the after-tax margin of 16.1% is primarily money that we pay in taxes that goes back to the taxpayer.

Given our relatively low default rates and our relatively low Pell usage and the high tax amounts that we pay, we are significant net plus to taxpayer.

Instructional cost and services grew from $58.8 million in the fourth quarter of 2012 to $68 million in the fourth quarter of 2013, an increase of $9.2 million, or 15.6%. This increase is primarily due to the increase in number of faculty and staff to support the increasing number of students attending the university.

As a percent of revenue, IC&S increased 0.2% to 41.8% from 41.6%. We are extremely pleased that bad debt expense as a percent of revenue decreased again to 3.1% from 3.2% in the prior year quarter.

Employee and faculty compensation and related expenses including share-based compensation decreased 60 basis points between years due to our ability to leverage our administrative personnel across an increasing revenue base, partially offset by increased use of full-time faculty and higher employee benefit cost between periods.

Instructional supplies and dues, fees and subscriptions increased 90 basis points. Depreciation and amortization expense stayed flat. Admissions advisory and related expenses as a percentage of net revenue increased 30 basis points from 16.4% in fourth quarter of '12 to 16.1% in fourth quarter of 2013. This decrease was primarily due to our ability to leverage our admissions advisory personnel across an increasing revenue base, which was partially offset by increased benefit cost between periods.

Advertising as a percent of net revenue increased 10 basis points from 9.2% in quarter 4 of '12 to 9.3% in quarter 4 of 2013, primarily due to increased brand advertising focused on the Southwest U.S. region.

Marketing and promotional expense as a percent of net revenue stayed flat over the prior-year period at 0.9% in both quarter 4 of 2012 and 2013.

General and administrative cost as a percentage of revenue decreased from 8.3% in quarter 4 of 2012 to 6.7% in quarter 4 of 2013, primarily due to employee compensation and related expenses, including share-based compensation, decreasing between years, as well as a decrease in legal cost between years.

Interest expense increased $0.3 million over quarter 4 of 2012 as a result of the expansion of our credit facility in December of 2012. As a result of the above, net income increased $20.9 million in the fourth quarter of 2012 to $26.2 million in the fourth quarter of 2013.

With that I would like to turn it over to Dan Bachus, our CFO, to give a little more color on our 2013 fourth quarter, talk about changes in the income statement, balance sheet and other items.

Daniel E. Bachus

Thanks, Brian. Scholarships as a percentage of revenue increased from 16.9% in Q4 2012 to 18.2% in Q4 of 2013 due to the growth in our ground traditional student enrollment between years.

Online scholarships as a percentage of related revenue is down slightly year-over-year. Bad debt expense as a percentage of revenue decreased to 3.1% in Q4 2013 as compared to 3.2% in Q4 of 2012. Our effective tax rate for the fourth quarter of 2013 was 35.2% as compared to 36.7% in the fourth quarter of 2012. The low effective tax rates in the fourth quarters of both 2013 in 2012 were primarily due to the university making contributions of $2.5 million in 2013 and $2 million in 2012, to school tuition organizations in lieu of state income taxes, which had the effect of increasing operating expenses and decreasing income tax expenses.

Excluding contributions made in lieu of state income taxes recorded during the period, the effective tax rate was 39% and 40.3% for the fourth quarter of 2013 and 2012, respectively. The effective tax rate, excluding the contributions made in lieu of state income taxes was lower than anticipated, primarily due to nonrecurring tax items. We repurchased 6,700 shares of our common stock during the fourth quarter of 2013 at a cost of $0.3 million and have 27.5 million available under our share purchase authorization as of December 31, 2013.

An additional 14,000 shares at a cost of $0.6 million have been purchased subsequent to year-end.

Turning to the balance sheet in cash flows, total cash unrestricted and restricted and short-term investments at December 31, 2013, was $228.6 million. Accounts receivable net of the allowance for doubtful accounts is $7.2 million at December 31, 2013, which represents 5.3 days sales outstanding compared to $8 million, or 5.7 day sales outstanding at the end of the fourth quarter, 2012.

CapEx in the fourth quarter of 2013, excluding the development of the off-site administrative office was approximately $19.8 million, or 12.2% of net revenue.

I'd like to touch on a couple of regulatory items. Earlier this week, we received our draft 3-year cohort default rate related to students loans that went into repayment between October 2010 and September 2011 for students whose last day of attendance to the university was between April 1, 2010, and March 31, 2011. That rate is 15.9%, which is down significantly from the previous year's rate of 19.0%. Based on information provided to us, it appears that our 2012 3-year cohort default rate could be under 10%. We believe the primary reason for the decreased default rates is the increased retention rates we have seen over the past couple of years.

Our cash basis 90/10 amount for 2013 was 78.5%, down from 80.3% in 2012. We estimate that this decrease is due to the continued growth in our ground traditional student body, which has a much lower 90/10 ratio than does our working adult students.

Last, I would like to provide some color on the guidance we have provided for 2014. As you probably noticed, we have again provided estimates for each quarter of 2014. We did this because our business continues 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 costs are fixed. In addition, we must hire additional support staff to service the increasing student body in the spring or summer of each year, so that they're 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 mid-single digit online new student growth. It also assumes a slight increase in retention and an increase in graduates between years in excess of 30%. The significant gains we have seen in retention rates over the past 2 years was the result in increased graduates in 2014. For example, in January 2014, we graduated approximately 1,700 students, which was more than double the number of graduates we had in January 2013. These results in online year-over-year growth rates that slow from 10.9% at the beginning of the year to 8.5% by years end. We estimate our total ground enrollment, ground traditional and professional studies students to be 9,600 in the spring, 3,800 in the summer and 12,500 in the fall and winter.

Our revenue guidance assumes no tuition increase for our ground campus or our online campus. We anticipate revenue per student will continue to grow year-over-year as a result of the ground -- growth of our ground traditional student body as a percentage of total student body. The growth in our ground traditional student body as a percentage of our total student body continues to make year-over-year comparisons more challenging as these students are much more seasonal than our working adult students and there can be differences between years in the start and end dates of our semesters. For example, due to differences in the start and end date of our spring semester, approximately $2.3 million of additional revenue will be earned in the first quarter of 2014 and $2.3 million less of revenue will be earned in the second quarter than would have if the start and end dates of our spring semesters were the same as 2013.

Like last year, we anticipate revenue per student would be down slightly year-over-year in the third quarter due to the ground traditional campus growth and only earning 1 month of revenue in that quarter.

On the expense side, bad debt is projected to be slightly down year-over-year due to the expected improvement in retention. Advertising as a percentage of revenue is budgeted to be flat year-over-year. We have forecasted instructional costs and services, especially employee compensation and related expenses, to be up year-over-year. We plan to invest heavily in 2014 in new program development in addition to the increased contributions to the city of Phoenix that involve K-12 education, safety and crime reduction and other community projects.

In addition, we're expecting continued increases in medical benefit costs in 2014 and rather than pass along the higher cost to our employees, we're accepting most of this increase.

Instructional supplies will be up 30 basis points and depreciation will be up 10 basis points year-over-year. We anticipate that we will get leverage in admissions advisory and related expenses and general and administrative expenses between years.

Interest expense and other income will be approximately $2.1 million. Interest expense should remain comparable between years, but we do not anticipate any other income similar to the $3.65 million of income earned on the settlement of the note receivable that we recognized in 2013.

Our guidance this year assumes an effective tax rate of 40%. This is down 50 basis points from our previous estimates but is in line with what we have seen the last 2 years, exclusive of the contributions made in lieu of state income taxes. We have also provided our estimates of diluted weighted average shares outstanding by quarter. Although we might repurchase shares during 2014, these estimates do not assume repurchases. They do assume the increased dilution from stock options and restricted stock grant in previous years and from an anticipated 2014 stock grant.

We anticipate CapEx in 2014 and 2015 will be $145 million and $155 million, respectively. The 2014 amount is up over our previous expectations as we now plan to build an additional dormitory to be completed for the 2014 fall semester due to increased demand.

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

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Sara Gubins from Merrill Lynch.

David Chu - BofA Merrill Lynch, Research Division

This is David Chu for Sara Gubins. Can you give us an update for online starts for the fourth quarter please?

Daniel E. Bachus

Yes, they were up low double digits.

David Chu - BofA Merrill Lynch, Research Division

Okay, great. And can you speak to what you're seeing in terms of lead flow in lead-to-start conversion rates? And if you can just separate Southwest from the rest of the country?

Brian E. Mueller

That's a hard one because the trend is in a very positive direction away from buy-in leads from the lead-generating companies. Less than 25% now of our starts come from those companies. Those leads are still in a downward trend in terms of their conversion rates. But everything that -- except those leads are in a very upward trend, so it does breakout by Southwest versus not Southwest, but it really is also, it breaks out by increase in conversion rates that are very high with students doing searches and us getting those people coming directly to our website. In terms of the lead companies, it continues to go down, but fewer than 25% of our starts now are coming from them and our goal is to eliminate them completely.

David Chu - BofA Merrill Lynch, Research Division

Okay. And last question, so in terms of retention, I know it's been quite strong, but if you speak exclusively to online, I mean, how has that been looking? And is there more room here as well?

Daniel E. Bachus

Yes, when we talked about retention rates, we're really talking -- focusing on the online attention rate. And I think we do believe there is some more room, although on a sequential quarter, retention rate basis, we're in the high 80s, low 90s depending on the quarter now. And so, we won't be able to see that 150 to 200 basis points year-over-year improvement like we've seen for the last 18 months-or-so. We're now hoping for somewhere 20 to 50 basis points year-over-year improvement in that metric.

Brian E. Mueller

And the biggest place that those improvements will come from is, as a percent of those high-quality students, as a percent of those students could become a greater percent of the total, then that graduation rate will keep inching up.

Operator

Your next question comes from the line of Phil Stiller from Citi Research.

Philip Stiller - Citigroup Inc, Research Division

Just wanted to ask about the ground applications for the fall season. Can you give us some idea of what type of growth you're seeing there? I think you gave the expected enrollment. I'm just wondering if there's a difference in the applications.

Brian E. Mueller

Yes, we're running 50% to 60% ahead of last year. And so last year, we started 4,000 students, that's why we're saying, conservatively, we should be at about 5,500 new ground students in the fall.

Philip Stiller - Citigroup Inc, Research Division

Is that consistent with the level of applications? I mean, are you turning down more students than you have in the past, based on capacity? Or are you meeting increased capacity?

Brian E. Mueller

Well, we have less -- students go to our website and if they have less than a 3.0 GPA, typically they don't apply. And so, there are a lot of students that are kind of self-eliminating themselves. Any student above a 3.0 and meets all the other qualifications we'll admit, with the exception of we're going to have a problem from a housing perspective. Even with the 2 new dorms that we're building, we're going to run out of beds this year, and so our ability to help the out-of-states students that want to stay on-campus will cause us to have to reject some of those students. But so, yes. Does that help?

Philip Stiller - Citigroup Inc, Research Division

Yes, it does. On the operating margins, it seems like you're investing back in some of the growth that you see this year into the margins next year, you're not really -- or this year, you're not really expecting lots of margin improvement. Is that something we should think about on the longer-term basis? You guys have -- obviously, have very good margin expansion over the last few years, but as the ground campus grows and, I guess, you kind of hold the line in terms of tuition, should we not expect the same level of margin expansion we've seen recently?

Brian E. Mueller

Yes. We talk to people that our long term goals were to have our operating margins at 24% and we're -- take out that income tax provision and we're -- not the income tax, but the state tax as a result of contributions to private schools, we're above 26%. Yes, we are reinvesting some of that into CapEx and so depreciation is going to grow, and we are investing some of that into the communities in Phoenix and in Arizona, and that has paid huge dividends for us. I mean, our brand and reputation in the state of Arizona and the Southwest is really growing as a result of our community involvement. And so, could we get more expansion than we're getting? Yes, we could. But long term, this thing will continue to grow. See, the game that can be made is in us not having to pay as much to acquire students, and that's happening. So one of the things -- in terms of reinvesting in the community, it costs us some money, and it hurts us a little bit short-term in terms of margin expansion, but long term, it can pay big dividends for us. And so I know that's kind of a complicated answer, but I would expect for you to see the margins stay about where it is or increase slightly and we're predicting a slight increase for 2014.

Philip Stiller - Citigroup Inc, Research Division

One quick question, if I may. There's been some recent news stories about you guys seeking some tax credits in Arizona. I'm just wondering where that stands? What the potential impact would be? And then anything longer-term in terms of potentially reducing the tax rate you guys pay?

Brian E. Mueller

It's been recommended in the Senate, but it has to go to a vote and then it has got to go through the house, and the most important thing to keep in mind here is that, what the city of Phoenix is trying to do is they want us to keep investing in the city of Phoenix. We put $400 million in the last 4 years into this infrastructure on campus and into technology and they're trying to incent us to keep doing that. The amount of overall taxes that we're going to pay is going to go up. It won't go down, but as a percentage, it will go down, which will be fairly helpful in the next 4 to 5 years.

Operator

Your next question comes from the line of Adrienne Colby from Deutsche Bank.

Adrienne Colby - Deutsche Bank AG, Research Division

I was wondering if you could update us on how we should be thinking about capacity at the current Phoenix campus location.

Brian E. Mueller

It's somewhere between 15,000 and 17,000 students. We'll be at just under 11,000 students as we start next year and another 4 years, we'll be somewhere between 15,000 and 17,000. So I'd say 15,000 on the short end and 17,000 on the high end.

Adrienne Colby - Deutsche Bank AG, Research Division

Are there any opportunities to expand capacity at the existing location then?

Brian E. Mueller

Yes, that is -- the 15,000 to 17,000 is at the existing location. So we've been saying 15,000, and now we're saying it could go as high as 17,000 on the main campus and then we're going to start out with 2,500 students in the East Valley campus and hope to grow that to somewhere around 10,000. So in terms of campus students, in the Phoenix area, it's going to be somewhere between 25,000 and 27,000 students total.

Adrienne Colby - Deutsche Bank AG, Research Division

Okay. And in terms of the East Valley expansion, can you talk a little bit more about what the key milestones we should be looking for over the course of 2014 as you're gearing up for that fall '15 start?

Brian E. Mueller

Yes, I would say applications. And so, we'll be giving you some updates as to applications that we are collecting for starts in the East Valley campus and we'll compare that to applications and conversion rates of those applications in the main campus, expecting them to be fairly similar. Obviously, it would probably be October or November before we'll start that for the -- in the fall of 2015.

Adrienne Colby - Deutsche Bank AG, Research Division

Great. And one last question. Could you just talk about what you're 2014 guidance includes in terms of full-time faculty versus your 70% goal, I think, for courses taught by full-time faculty?

Brian E. Mueller

For 2014, it's going to go up a bit, but it's going to stay somewhere between 50% and 55%.

Operator

Your next question comes from the line of Jerry Herman from Stifel.

Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division

I just wanted to follow-up on the Mesa campus and give us a progress report there, especially in terms of your expectation, that it would be break even right out of the box. And as part of that, in terms of your growth initiatives, would you expect any dilution or margin impact associated with technology and engineering?

Brian E. Mueller

The last question, the technology and engineering, no. I mean there's going to be some CapEx expense and so the buildings that we're building will be slightly more expensive because of -- the engineering and computer science programs, there'll be a slight cost to that from a CapEx standpoint, but we expect to make the same margins on the students. And so, there shouldn't be any difference, that we're going to collect the same amounts of tuition, there'll be some laboratory fees. But -- so I wouldn't expect anything out of the ordinary because of those students or those programs with a little bit of added CapEx, but as far as what's built into the budget for -- Dan you want to answer that?

Daniel E. Bachus

Yes, obviously, there's really nothing from a P&L standpoint in 2014 built in a little bit, but not much. In '15, it still is our expectation that we'll be breakeven for that first year. Obviously, there'll be some cost in the front part of the year with no revenues, but then, we'll hope to make that up and break even for that first year when you look at just that East Valley campus on a standalone basis.

Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division

That's good. Just to follow up with regard to Division I sports and the arena. Can you talk about traffic? I mean, obviously, your games are selling out, but is it also driving traffic to the recruiting center?

Brian E. Mueller

Trying to measure all of that from an objective standpoint is difficult, but what I can tell you is we have a TV contract and the ratings are very surprising. We went head-to-head last week with -- on a Thursday night, we were, cable TV, and Arizona State was on cable TV that night and we outdrew them in the local market. And then Saturday, there was a game against the University Arizona, we went head-to-head with Arizona on Saturday and we outdrew them there too. So the visibility that it's getting inside the valley and inside the state of Arizona is exceeding our expectations. We do have these things, what we call Discover GCU, where we bring students from all over the Southwest and they spend a night on campus and we really pack those nights when we have basketball games and the spirit and enthusiasm that is inside that arena from about 45 minutes before the game starts until it ends is tremendous. So we can only respond by saying, anecdotally, the students are very -- and parents, are very, very favorably impressed with that and everything else that's going on in the campus. So I can't give you any hard measures other than that, but the soft measures look very good.

Operator

Your next question comes from the line of Jeff Lee from Wells Fargo Securities.

Jeffrey Scott Lee - Wells Fargo Securities, LLC, Research Division

You said you're expecting 5,500 new ground students for the fall of 2014? Is there a difference in the composition from Arizona versus California from previous years? Is California increasing as a proportion?

Brian E. Mueller

Yes, California is really blowing up. It's a combination of the system out there being overly taxed and students not having places to go and in combination with -- we have a strong marketing effort out there and parents, families are just shocked when they compare our tuition rates and our room board rates with private schools in California and even with state universities. And so, when you come at our campus, and you see brand new classrooms and laboratories and high-quality academic programs, brand-new dormitories, eating facilities, it really has become a beautiful campus and if you compare that, you take that and then you compare that to a very low tuition room board rates, then it becomes something that's very attractive to people. The other thing that's very attractive is that our crime rates on campus are very, very low. We have a dry campus. It's a very safe campus, and parents and families are really looking for the elements that exists here, which are spiritual formation, character development, and those kinds of things, and it's those kind of things that are really attracting people, in addition to the high-quality academic programs and the very low price. And so we think that if we -- we're not saying we're going to do this, but if we double the amount of counselors that we have working in California, that thing would go even faster. Right now we just had to start building a new dorm, which will be ready in the fall of 2014 that will house 650 people, and we'll still be short. And a lot of that is because of those 2,000-plus students that are going to be coming from California. So the future is pretty bright there.

Jeffrey Scott Lee - Wells Fargo Securities, LLC, Research Division

Given that demand, what are your thoughts in opening in California at some point? Open a campus in California?

Brian E. Mueller

No. Yes, we've thought about that and who knows, in the future, that might be something that we do. But right now, California is an hour's flight. It's a 5-hour, 6-hour drive and so students feel like they're getting away from home, but they're still very close to home. And so, it's really a very, very enticing package from that standpoint. And in the short run, we just don't think we need to do it, but who knows, in the long run.

Jeffrey Scott Lee - Wells Fargo Securities, LLC, Research Division

Okay. And one more for me. You mentioned that your brand is growing due to community involvement and investment in Phoenix. Can you elaborate a little more on the types of things that you're doing there?

Brian E. Mueller

Yes. We're very, very involved with the Phoenix Union School district and the City of Phoenix. There is a very deliberate effort on the part of the City of Phoenix, the Phoenix Union School District and Grand Canyon University to extend our STEM programs to graduates of the Phoenix Union School District. The state knows that we need to produce far more engineers, far more computer science and information technology people and we want to be a really big part of doing that, in addition to all the students that are coming to us graduating in the sciences. And so, we are not looking to be at the low end of that. We have a great community college system that can work with the students that need the lower end help. We're really working to attract very high potential, low-income students who have the potential to earn engineering degrees and computer science degrees and biology degrees, nursing degrees, and so that's a big focus of ours. We have our teacher education program is involved in a lot of the K-3 schools, a lot of the middle schools and junior highs, as well as the high schools. And then, we're involved in a tremendous amount of service projects. We have over 2,000 students that signed up to participate in projects in this community on a voluntary basis. And so we're teaching English as a second language. Out of our nursing program, we offer health services, pregnancy screening services and a number of other educational programs to children from ages 4 and 5 up through high school. And so, we're going to continue to be involved with the City of Phoenix as we move forward. In fact, we have a standing meeting with them every 2 weeks, where we talk about things that we could do to revitalize the economy in the West Valley and we'll be giving you updates on those things as we move forward.

Daniel E. Bachus

We've reached the end of our fourth quarter conference call. We appreciate your time and interest in Grand Canyon Education. For investor-related questions, please contact myself, Dan Bachus, or for media-related questions, contact Bob Romantic. Thank you very much for your time.

Operator

This concludes today's conference call. You may now disconnect your lines.

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Source: Grand Canyon Education Management Discusses Q4 2013 Results - Earnings Call Transcript

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