American Public Education, Inc. Price & Performance (APEI)

Such as those identified in our Form 10 ks under the heading Risk Factors and those related to potential impacts from government shutdowns, or changing federal government policies and practices, including impacts on revenue, or the timing of receivables. Forward looking statements may sometimes be identified by words like anticipate, [indiscernible] [indiscernible] Estimate expect, [indiscernible] May plan potentially should, will, would and similar or opposite words. Forward looking statements include, without limitation, statements regarding expectations for registration and enrollments, earnings and adjusted EBITDA and other earnings guidance. We repositioning Rasmussen University for growth, combination of our institutions, financing and spending plans future governmental and regulatory actions and our response to those actions. Changing market demands and our ability to satisfy such demands, and other company initiatives including with respect to future competition and demand, cost savings efforts. This presentation contains references to non GAAP financial reconciliation between the non GAAP financial measures we use and the most directly comparable GAAP measures is located in the appendix to today's presentation in the earnings release. Management believes that the presentation of non GAAP financial information provides useful supplemental information to investors regarding its results of operations it should be only considered in addition to and not as a substitute for or superior to any measure of financial performance prepared in accordance with GAAP.

I'd like to turn the call over to APEI's President and CEO, Angela Seldon. Angela, please go ahead. Thank you, Brian. Good afternoon. And thank you for joining American Public Education's fourth quarter and full year twenty twenty four earnings call. We are very pleased with our results in both the fourth quarter and full year 2024 and remain enthusiastic about our path forward. We have four areas to highlight during today's call. First, APEI outperformed fourth quarter twenty twenty four financial guidance. In the fourth quarter, we exceeded guidance for revenue, net income and adjusted EBITDA. Importantly, as we signaled at the beginning of the year, Rasmussen in the fourth quarter delivered both positive EBITDA and positive enrollment growth. Next, APEI outperformed full year financial guidance. We delivered on the full year guidance that we first established at the beginning of twenty twenty four and then raised.

Revenue of $624,000,000 exceeded the top end of the original guidance and met the midpoint of our raised revised guidance. Adjusted EBITDA of $72,300,000 exceeded both the high end of our original and revised guidance range was $65,000,000 Capital expenditures were in line. Third, 2025 will be a year of simplification at APEI. In January, we announced a plan to combine our three degree granting institutions into a single consolidated institution. This should provide simpler operations and an opportunity to find both revenue and cost synergies over the long term. Additionally, we intend to redeem our preferred shares prior to the end of the second quarter, which would be accretive to net income and earnings per share.

We have closed some underperforming campuses, terminated expensive leases and contracts, and have two corporate buildings held for sale.

These steps should simplify the balance sheet and cost structure resulting in significant earnings growth in 2025. Finally, 2025 will be another year of revenue and adjusted EBITDA growth. We're initiating 2025 guidance with revenue of $650,000,000 to $660,000,000 and adjusted EBITDA of 75,000,000 to $85,000,000 Rick Sunderland, APEI's CFO, will provide more details on guidance in his remarks. Now I'll provide more detail about the fourth quarter and full year 2024 results starting first with APEI's Nursing and Healthcare institution. Much of the work over the past two years at Rasmussen has been focused on strengthening its foundation for long term growth. We have made real progress and in particular are pleased with the previously guided financial results in the second half of twenty twenty four. 3Q twenty twenty four was the first quarter in which experienced positive year over year enrollment growth since API's acquisition. In 4Q 'twenty four, the trend continued with a percent year over year enrollment increase. In the first quarter of twenty twenty five, this momentum has accelerated with a 7% increase in enrollment compared to 1Q 'twenty four. Including positive enrollment in our on ground nursing and healthcare programs. Beyond enrollments, we signaled that RASESON would be adjusted EBITDA positive in the second half of twenty twenty four and we achieved that goal with $6,400,000 of adjusted EBITDA in 4Q 'twenty four and positive $3,100,000 for the second half of twenty twenty four.

A particular note is that this growth has been achieved even with the suspending of enrollments in two Wisconsin campuses and the Bloomington ADN program.

These results support our belief that there remains significant up Additionally, we continue to prioritize student outcomes and NCLEX pass rates that support real career opportunities and a positive ROI on students' educational investment. In 2024, 23 of our 25 nursing reporting entities met the state NCLEX pass rate threshold.

At Hondros, as previously reported, 4Q 'twenty four enrollment was very strong with 19% growth as compared to 4Q 'twenty three. 1Q 'twenty five enrollment continues a positive trend increasing 9.6% year over year to 3,600 students. This marks the twentieth consecutive quarter that Hondros has posted year over year enrollment growth. We're building on that momentum of 'twenty four into 2025 at both Rasmussen and Hondros with 1Q 'twenty five reported student enrollments as actuals because these quarterly starts have already begun. We believe our nursing schools can continue to be a significant and margin expansion going forward. The higher fixed cost base of these businesses allows for increased EBITDA flow through as we fill existing spaces in classes and on campuses.

Further, the market dynamics present for new nurses remains as we as when we acquired RASM in 2021. With an annual shortage of approximately 200,000 nurses each year and with Hondros and Rasmussen currently educating over 9,000 students per year, there remains significant runway for further growth and expansion.

Now I'd like to turn our attention to APEI's online universe educating our nation's military, veterans and their families. Currently called APUS. In 4Q twenty twenty four, overall net course registrations increased 7% year over year.

Revenue at APUS was almost 4% higher due primarily to the overall growth in registrations. EBITDA margins in the fourth quarter were 34.5% at APUS, which was down slightly as compared to 35% in 4Q 'twenty three. As APUS invested, in various initiatives in the back half of 'twenty four, aiming to modernize and strengthen its online curriculum, IT infrastructure and to better optimize its marketing spend while aligning student support headcount to growing segments including nonmilitary and military families For the full year 2024, APUS total net course registrations increased 3% as compared to 2023.

We're pleased with the return to strong registration growth in the fourth quarter and expect continued registration growth in the low to mid single digits in 2025. 2025 will be a year of simplification for APEI. As announced in January of this year, we are planning to combine APUS RASPESEN and Hondros into one consolidated American Public University System, which we are now referring to as the system. We are targeting the fourth quarter of twenty twenty five for the combination to be completed assuming all regulatory and accreditation steps have been satisfied. This system will have a healthcare division, which will include Rasmussen University, Anadros College of Nursing, combining and expanding our nursing campus footprint will allow us to strengthen our ability to address the growing demand for nursing and other clinical roles in the healthcare ecosystem. We're very excited that Mark Arnold, Raffesen's new President, will be leading that division. The system will also have a military and veteran division called APUS Global.

We're also very pleased that Nuna Fernandez will continue to lead that division. We have upcoming process steps with our creditor, Higher Learning Commission and the U. S. Department of Education. We will provide updates in future earnings calls as we complete key milestones. Overall, we're very proud of our results and its We believe in our future growth and opportunities in 2025 and beyond. Each of our education units was purpose built to deliver accessible and affordable higher education and training across a diverse range of subjects. By aiming to educate service minded students and their families, and by offering classes, certificates and degrees in fields that will continue to have high demand, APEI is enables students to experience a valuable lifelong return on their educational investment. Our mission reflects those priorities. To power purpose, potential and prosperity for those in service to others. We're proud of the foundation for growth we have built and we remain focused on setting clear achievable goals for With that, I will now turn the call over to APEI's Chief Financial Officer, Rick Sunderland.

Thank you, Angie. Total revenue in the fourth quarter was $164,100,000 up $11,300,000 or 7.4% from the prior year period. Fourth quarter revenue growth was driven by increased revenue at all of our units Hondros in particular delivered a 20% increase in revenue compared to the fourth quarter of twenty twenty three. Fourth quarter revenue exceeded the top end of our guidance range. Total cost of expenses in the fourth quarter increased $5,700,000 or 4.2% as compared to the fourth quarter of twenty twenty three. The increase was primarily driven by increases in employee compensation costs, and bad debt expense, partially offset by a decrease in advertising, and depreciation and amortization expenses. In the fourth quarter, diluted net income per common share was $0.63 as compared to $0.64 in the prior year period. Fourth quarter adjusted EBITDA was $31,400,000 which is above the top end of the guidance range and represent an adjusted EBITDA margin of 19.1% as compared to 16.8% in the prior year period. Fourth quarter adjusted EBITDA represented a 5700000.022.2% increase as compared to the prior year. At APUS, fourth quarter revenue increased to $82,400,000 an increase of 3.8% as compared to the prior year period. Fourth quarter net course registrations increased 7% which was above the top end of our guidance range.

The increase in fourth quarter net course registrations was driven by both military and military affiliated net course registrations. For the quarter, APUS EBITDA was 28,400,000.0 and EBITDA margin was 34.5% as compared to 35% in the prior year period. At Rasmussen, fourth quarter revenue was 57,500,000.0 an increase of 9.3% compared to the prior year. In the fourth quarter, online enrollment increased 9% as compared to the prior year and total enrollment increased 4% to approximately 14,600 students. On ground enrollment continues to stabilize with first quarter twenty twenty five on ground on ground enrollment increasing 3.2% as compared to the prior year period. In the fourth quarter, dollars as compared to EBITDA of $600,000 in the prior year. As previously discussed, Rasmussen reported positive EBITDA of $3,100,000 dollars in the second quarter of in the second half of twenty twenty four delivering on our promise of positive 2H twenty twenty four EBITDA. At Hondros, fourth quarter revenue was up 20% to $18,900,000 as compared to the prior year period due to continued enrollment growth. For the quarter, Hondros enrollment Hondros total enrollment increased 19.3% to approximately 3,700 students. At Hondros, EBITDA was $1,300,000 in the fourth quarter of twenty twenty four compared to $1,200,000 in the prior year.

Revenue at Graduate School included in corporate and other was $5,400,000 as compared to $5,000,000 in the prior year period. For the quarter, graduate school EBITDA was a loss of $700,000 compared to an EBITDA loss of $1,100,000 in the prior year period. At 12/31/2024, total cash, cash equivalents and restricted cash was $158,900,000 an increase of 14,600,000.0 from year end 2023. For the year ended 12/31/2024, cash flow from operations was $48,900,000 compared to $45,500,000 in the prior year. CapEx in 2024 was $21,100,000 dollars and free cash flow for the year defined as adjusted EBITDA less CapEx was 51,200,000.0 compared to $45,700,000 in 2023. Principal on API's term loan at December 31 was $93,000,000 with unrestricted cash of $132,000,000 API continues to be net cash positive. Additionally, there are no borrowings under API's $20,000,000 revolving credit facility remains fully available. I'm going to turn now to our outlook which covers forward looking statements subject to the various risks noted. For the first quarter twenty twenty five, APUS total net course registrations are expected to be between 100,500 to 102,000 registrations representing a 1.5% to 3% increase compared to last year. The first quarter guidance is negatively impacted by the scheduled maintenance maintenance of the Army and Air Force TA portals that extended beyond its planned downtime.

The outage lasted approximately two weeks resulting in an overlap with the March session enrollment period. At RASBOS and In Hondros, first quarter student enrollments are actual because of the quarterly start to these schools. At Rasmussen, first quarter total online enrollment increased 11.1% to approximately 8,000 students, while total on ground enrollment increased 3.2% approximately 6,500 students for an aggregate enrollment of 14,500 students This represents a 7% increase when compared to the first quarter of twenty twenty four and is our third consecutive quarter of overall positive year over year enrollment growth at Rasmussen. At Hadros, first quarter total student enrollment increased 9.6% year over year to approximately 3,600 students.

In the first quarter of twenty twenty five, consolidated revenue is expected to be between $161,000,000 and $163,000,000 The company expects net income available to common shareholders to be between $1,700,000 and 3,100,000.0 or between income of $0.09 and $0.17 per diluted share. Adjusted EBITDA is expected to be between $13,500,000 and $15,500,000 in the first quarter of twenty twenty five. We are providing full year guidance with anticipated consolidated full year 2025 revenue to be between $650,000,000 and $660,000,000 We expect full year adjusted EBITDA be between $75,000,000 dollars and $85,000,000 and net income available to common shareholders to be between $19,000,000 and $26,000,000 Our net income guidance assumes the redemption of our preferred equity prior to the end of the second quarter, which will reduce preferred dividend payments by approximately $3,000,000 in 2025, if redeemed mid year, and $6,000,000 annually, We anticipate 2025 capital expenditures in be between $40,000,000 This translates to free cash flow expectations defined as adjusted EBITDA less CapEx to be between $53,000,000 and $67,000,000 With that, operator, please open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Stephen Sheldon. Please go ahead. Hey, thanks and nice work here. So within APUS, great to see the strong acceleration in 4Q. Think you noted some portal timing headwinds. To enrollments in the first quarter. I guess how big of an impact was that? And is that kind of why enrollment growth is going to slow in 1Q? And then I guess, how should we think about enrollment trends potentially over the rest of the year?

Right. So we don't have the exact impact because we're still late registering students. We've built in the anticipated impact which is in the mid single digits percentage wise into the first quarter guidance and then of course Matt including in the first quarter guidance means it's included in the full year guidance.

But the good news is while the outage extended longer than was expected, It was expected to be somewhere around a week and it lasted slightly over two weeks. And it did to that extent impact first quarter guidance It's now behind us. The portal is working. We are continuing to late register students that would have otherwise registered And because of the full functioning of the portal, students that want to register for future sessions, April and beyond are able to do so.

Got it. That's helpful. And then great to see you turn the corner on profit and this quarter. So I'm just curious, generally how long are you thinking that it might take for Rasmusen to get back to a double digit adjusted EBITDA margin profile? Is that something that we're expecting kind of consistent improvement as we think about the couple of years? And just generally when you think you could get back to that stronger market profile?

Hey, Stephen, it's Ray. I said Matt and Andy corrected me by writing it on a piece of paper, my My apology. Go ahead. Do you want to take that, Angie or give that to you? Steven, how are you? So we certainly aren't giving multiyear guidance presently, but we are really pleased with the acceleration in enrollment momentum we're seeing at Rasmussen both and it includes both our online unit as well as our campus based unit. So we believe that we will see a significant flow through of that incremental revenue to the bottom line and we're very excited about what we're seeing at Rasmussen right now.

Good to hear. And then just one more quick one if I could. As we think about profit guide for the first quarter, you're expecting revenue to grow kind of mid single digits, you're expecting adjusted EBITDA to be down a decent amount year over year. Can you talk about what's driving that? EBITDA kind of contraction year over year and whether there are timing or one off issues we should be You want me to take that? Stephen, it's Rick.

So we look at first quarter of twenty twenty five compared to first quarter of twenty twenty four, We're investing more in advertising as we've really kind of hit the accelerator on impact and effectiveness of advertising. So advertising is up. About $2,100,000 We do have higher labor costs in Q1 this year at APUS. That we did Q1 of last year. We invested as the marketing function continues to deliver good and even better results. We invested in student facing staff, admissions, advising, student support to to really care for the needs of the prospects and new students that were were coming in. So it's advertising and its labor. That's driving that year over year change.

Makes sense. Thank you for the color and nice work.

Thank you very much.

Your next question comes from the line of Jasper Bibb of Truist Securities. Hey, good evening, everyone. I wanted to ask about the portfolio consolidation in the one institution. I know [indiscernible] going to close in the fourth quarter, that's the plan, but I guess as of now, is there any way you could help frame for us if you're expecting G and A savings associated with that, how large they might be and the potential timing in 2026 or beyond of when we could expect see that.

Thanks for the question, Jasper. Certainly, the We anticipate both revenue synergies and I'll talk about why that is, as well as cost synergies And our belief is that we'll close in the fourth quarter of twenty twenty five. That we have some important process steps coming up in the next few weeks that will finalize that timeline for us. I want to talk about the revenue synergy first because one of the things we're quite excited about is offering to our Hondros students who have only access to pre licensure nursing programs today, the full ladder of post licensure curriculum that exists at at Rasmussen. Also, we believe that the online modality for our students at both Rasmussen and APUS are different in that one offers a monthly start, one offers a quarterly start. And we believe that students who may find one of those institutions and may not like that start pattern, we can offer them the alternative of our [indiscernible] A lot of revenue synergies we're going to see as a result of this combination. As it relates to costs, we certainly see in the long term an opportunity to streamline some of the the services that we have that overlap between the institutions today.

But I think in the short term, the primary areas of cost synergies will be a few leadership positions at Hondros. And then importantly, we will be aligning our accreditation and other academic teams to the system level. So but by and large, the is not a cost reduction. That is not what this is intended to be. It's really about building these platforms to allow us to accelerate the growth in our our military business as well as in our nursing and healthcare business.

Thanks a lot. And then the online group for Rasmussen has been really strong. It looks like you're looking for double digits in the first quarter. Could you frame some of the drivers of that growth? And then also what you're seeing from a marketing yield perspective that's allowing you to generate these new starts?

Yes, I'll start and then Rick please jump in. So one of the things that we're particularly pleased with is the optimization of the marketing spend. We've turned our attention to organic lead generation as opposed to paid leads. And as those leads have increased substantially, the flow through on those leads has been very material. And so we've we actually saw a reduction in marketing spend at Rasmussen last year and an increase in conversion rates. So that has had a substantial positive effect in particular, on our online enrollments, but certainly also on our campus based enrollments as well. The can you remind me what the second part of your question was? [indiscernible] And Drivers of enrollment strength and marketing yield.

Okay. Yes. And so what we are also finding from a marketing perspective is that we turned our attention to what I would call hyperlocal marketing for our campuses and that has had a significant positive effect on our campus based enrollment growth. We have returned to some fairly traditional methods, radio and some other very local market activities. And for the student demographic that we educate, it has been highly effective. And so so we're really treating those two businesses or two business segments as part of Rafelson. With different marketing strategies and that separation of marketing strategies is really paying off I think for me, I know there's typically some seasonality in the rest of some margin, but $5,500,000 in 4Q EBITDA is a decent margin Looking ahead, I guess just hoping you could frame for us, do you expect RAPTIS and contribution is in your '25 EBITDA guidance and how you expect that to Look, a quarterly basis for the year.

We as you know, Jeff, we don't break out those margin contributions by education unit. Presently. But we as I said before, the revenue improvements that we're seeing at RASESCENT and certainly on a year over year basis are going to have a substantial flow through to the bottom line from a EBITDA and margin improvement in all of 2025.

Thank you. This concludes our Q and A session.

With that, I will now turn the call back over to Angie for closing remarks. Please go ahead. Thank you all for joining earnings and guidance call. We appreciate all that you do for our students and for APEI and look forward to our next call with you coming up shortly. Thank you very much.

Ladies and gentlemen, this does conclude today's teleconference.