Q2 2020 American Public Education Inc Earnings Call
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Ladies and gentlemen, thank you for saying.
Right and welcome to the ATP, He and I report second claims 2020 <unk> results conference call. At this time all participants are in I listen only mode. After the speakers presentation, there will be a question and answer session <unk>.
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I would now like to hand, the call that somebody to your first speaker for today, Chris Symanoskie. Thank you. Please go ahead Sir.
Thank you operator, good evening and welcome to American public education discussion of financial and operating results for the second quarter 2020.
Materials that accompany todays conference call are available in the events and presentations section of our website.
There are included as an exhibit to our current report on form 8-K furnished with the FCC earlier today.
Please note that statements made in this conference call and then the accompanying presentation materials regarding American public education or its subsidiaries that are not historical facts, maybe forward looking statements based on current expectations assumptions estimates and projections about American public education and the industry.
These forward looking statements are subject to risks and uncertainties that could cause actual future events or results to differ materially from such statements forward looking statements can be identified by words, such as anticipate the lead seek could estimate expect intend may plan, it should will and wood.
These forward looking statements include without limitation.
Statements regarding expected gross registrations enrollments revenues expenses earnings and plans with respect to recent current and future initiatives, including marketing initiatives efforts to grow Hondros College of nursing and information technology replacements and upgrades. Furthermore.
For these forward looking statements include without limitation statements regarding investments and partnerships and the future impacts Oh and the company's response to the cobot 19 pandemic and the economy.
Actual results could differ materially from those expressed or implied by these forward looking statements as a result of various factors.
Putting the risk factors related to the could 19 pandemic and the risk factors described in the risk factor section and elsewhere in the company's most recent annual report on form 10-K.
Quarterly report on form 10-Q filed with the FCC as well as the company's other SEC filings.
The company undertakes no obligation to update publicly any forward looking statements for any reasons unless required by law, even if new information becomes available or other events occur in the future.
This evening, it's my pleasure to introduce Angela seldom our CEO and Rick Sunderland, our executive Vice President and CFO now at this time I'd like to turn the call over to Angela Seldon Angie.
Thank you Chris good evening everyone.
I'd like to begin our call today first by expressing my gratitude to the faculty and staff of American Public University system.
Yes, Hondros college of nursing, HCM and American public education age 80, yet.
Our heritage of serving those who serves has never been more crucial indeed unprecedented time.
During our second quarter, our faculty and staff have selflessly mobilized to continue to safely serve our student.
The U.S. duties continued to benefit from our fully online operating model well.
Adjusted to a modified learning environment with virtual coursework supplemented by on Brown Latin Clinicals.
Please know that the health and wellbeing of our students faculty and staff remain a top priority.
We're pleased to report that enrollment momentum continues reflecting the ongoing transformation that has been taking place at 80 yeah.
80, less delivered double digit increases in registrations from both new and returning students.
At Hondros, both new and total enrollment increased meaningfully.
Overall, we're pleased that our second quarter financial results are ahead of expectations.
Today, we will also shared news on our ongoing enterprise transformation, including New leadership, New Board members as well as positive progress on our technology modernization initiatives.
We are incredibly grateful that a growing number of adult learners are seeking affordable space and I interrupted access to high quality higher education experiences.
Our institutions were built on the belief that quality education she'd be accessible to all not reserved for the few.
Our heritage.
And our beliefs have shaped todays 80 IAI mission.
To help adult learners have all backgrounds to fill their purpose.
And obtain the skills they need to maximize their higher education return on investment.
Term, we call H E ROI.
Since our founding fire retired Marine Corps Officer, 80, you exit strive to create a more efficient and effective student value proposition.
Online at a cost far less than many traditional on ground institutions.
We have been pioneers in making I'm fine learning affordable and have continued to improve the student experience since our founding.
We do this by focusing on core education, and separating coursework from other expensive noncore aspect of traditional higher education, such as storms dining halls and stadium.
This on bundling enables 80 U.S. to provide well design long established quality online programs without passing bundled cost on to learners.
Furthermore, it hasn't short our students receive the same successful academic experience is today as they had before the pandemic.
We continue to invest in enhancing student experience.
As evidenced by our ongoing technology modernization program at 80 U.S.
Our online learning platform enables a high degree of collaboration and engagement with quality academic content.
Our academic teams brings decades of know how and applying learnings theory instructional design and communities of inquiry with faculty to student student to student and student to content interactions.
All wrapped in effective technologies adaptive learning and tested principles.
And our active outreach programs aimed at educating learners about the affordability and the potential value of an 80 U.S. experience.
Our proven track record and the success of more than 98080, U.S. alumni speak for themselves.
80, U.S. has been committed to affordability since its inception.
Our undergraduate tuition has only increased $35 per credit hour, Spain.
2001.
Second.
No cost course materials have been a hallmark of our offerings the undergraduate doctoral and military tuition grants eligible students.
The 80 U.S. booked grant has provided students over $142 million in book Grant savings since 2001.
Number three we have helped reduce the time to completion for a majority of our graduates by providing learners was approximately 3.5 million transfer credits since 2001.
Number four undergraduate degrees are 60% lower than average for your public instate tuition and fees.
Not including any incremental savings students may enjoy from the recognition of transfer credits.
Number five as of December 31, 29 team.
72% of our alumni have graduated with no 80, U.S. incurred student loan debt.
And finally, 48% of 80 West students were referred by other 80, U.S. students or alone.
Which we believe underscores that our students recognize the importance of our value proposition of access to affordable inclusive high quality flexible education experiences.
Hondros College of nursing is intensely focused on its students first approach as it continues the training and education, a nearly 2000 frontline health care personnel. So that they can serve though they need.
The demand for nurses is outpacing supply, making the work of Hondros all that more important to the health care community.
Now with hospitalizations in Ohio recently, reaching the highest level since a pandemic began hondros is serving and even more critical role in the fight against Cobot 19, as they campus based pre licensure nursing educator, differing degrees, which prepare students to become licensed Pratt.
Cool or registered nurses.
Even though hondros itself incurred expenses to move all operations online in the second quarter due to the coven 19, Pandemics Hondros distributed 100%.
And let me underscore this to be sure that there is no confusion.
Hondros distributed not just the 50% required to be distributed but the full 100% of the $3.12 million received and Carers Act emergency really fade.
100% went directly to 1500 87 eligible nursing students in need we're studying who are not studying online at hondros prior to the Kogan 19 pandemic.
Already 123 of these nursing student recipients are working on the job having since graduated with nursing degree with Iran or LPN eligibility.
We took this stuff because it was the right thing to do to help our nursing students through time as needed.
According to Hondros students surely arrington now in El pen.
The eight came at a time of true necessity, because I was able to buy the things I needed to take my online courses. She added I am so grateful.
As we shared in a prior earnings call Hondros offers an institutional affordability grant to serve underserved communities by matching funds to reduce enrollment costs.
Additionally, hondros has over 45 employer partnerships, providing tiered pricing to maximize employer tuition reimbursement.
In the second quarter of 2020, New and total net course registrations at 80, U.S. increased year over year by 30% and 18% respectively.
We believe that the increase in net course registrations was driven not only by increased interest in online education, but also by our implementation of the freedom Grant, which extended our textbooks and tuition grants the military students at the masters level and by our positive message of affordability.
Resonating with the many communities we serve.
Net course registrations by students at 80, U.S. increase year over year in each primary funding category, including federal student aid or as I say, which increased 1.8% year over year.
Yes first year over year increase since the second quarter of 2012.
Net course registrations by new students utilizing cash and other sources increased 42.5% year over year, albeit as compared with a smaller number.
We believe increased interest in online education, particularly among nodes in military communities and our message of affordability helped drive year over year increases.
Net course registrations by new students utilizing tuition assistance or T.K., and veterans benefits or BA increased 42.3% and 12.3% respectively compared to the prior year period.
We experienced a year over year increase in net course registrations by new students from each branch of the military including the Navy, which was adversely impacted last year by limitations on T. a course approval.
We believe the increase in registrations among active duty military at 80, U.S. was driven in part by the launch of the Am you Freedom Grant and are focused effort to continue serving this community with honor.
Active duty military students are experiencing many of the same disruptions as non military learners and we think that has contributed to our results. So far this year.
Uncertainty regarding higher education options in the fall continues to make online education and attractive option.
We believe the overall number of active duty service member utilizing the tuition assistance program remained steady with growing percentage of them seeking online options and an increasing number of them are selecting am you as a trusted higher education brand. This further illustrates the durability of the franchise.
We have created over the years.
We plan to continue building on or nearly three decades of service the military military affiliated and veteran community and pursuing our goal of increasing the number of military learners with minimal or no out of pocket cost for their higher education.
Our academic operations and technology teams have worked tirelessly over many years to improve the student experience and learning outcome.
I am pleased to report on our continued progress the undergraduate persistence rate at 80, U.S. as bright as measured by the first course path and completion rate a student utilizing fsh improve in May 2022, a tie the highest level since 2009.
A tremendous milestone that is particularly noteworthy given the severity of the current recession and the fact that we are only just beginning to implement our strategy for non military communities.
I'm also pleased to welcome New senior management team members.
The 80 last board of Trustees recently appointed Dr. waste like as you universities President.
Dr. Diapers, a former president of Capline University and more recently served as the CEO of Great Hearts Academy.
We look forward to is starting in his official role in two days.
These summers also formerly of Catlin and formally Rosetta stone is our new SVP of strategy and corporate development.
And Amy Manning has joined as SVP of human resources, most recently, serving as vice President of HR at Cisco systems.
We're also delighted to welcome to recently appointed a T.I. Board members were not up 11, a business advisor who has served in a number of executive leadership capacity, including CFO, COO and chief of staff for education, and educational technology companies and Daniel Pankow, who brings more than two decades.
Of investment experience and as a trusted education expert frequently featured by National media outlets.
All of these new management and board members represent fresh leadership and additional bench strength that will be tremendously helpful and accelerating our enterprise transformation and scaling our adult learning platform I'm committed to ensuring that we have the best team in place to achieve our goals and further strengthen our.
Core enterprise.
To that and I am pleased at our technology modernization project at 80 U.S. remains on track with our goal completing our migration to a new learning management system or LMS by early 2021.
As of the August Threerd, we have successfully transitioned approximately 42% of our unique courses to the new Allomap with no unscheduled downtime.
We have begun to expand the functionality and integration of our new CRM system Salesforce with other systems and before the end of this year, we intend to accelerate our initiatives aimed at moving most of our infrastructure.
The cloud, which we believe will further improve our student experienced.
Our systems and processes continue to scale well with the increased enrollment at 80 U.S.
Our team continues to operate successfully under difficult conditions, while addressing increased demand for online learning and nursing programs.
Our learning platform at 80, U.S. is robust with the capacity to serve thousands of additional students.
Under conditions, a fully remote working and high student demand are critical service functions continues to operate successfully.
Our leadership team has evaluated the eventual phased in reopening of our administrative offices with the health and safety of our workers as our primary consideration. We currently anticipate the full opening of our offices in Charleston, West Virginia, starting in early 2021.
As discussed at the beginning of this call I would like to in particular applaud the efforts of Hondros hardworking mission driven employees, who earlier this year under emergency conditions and in support of nursing students created virtual courses lectures and clinical while keeping campuses.
Open for advising labs and other hands on portions of the curriculum.
Conversely, since fully reopened at six campuses using small in person classes and screening social distancing and masking requirements, while continuing to offer virtual courses.
Of note to the reporting year ended June Thirtyth 2020, Hondros program satisfied as primary accrediting bodies threshold requirements App has for retention rates placement rate and mandatory licensure and Credentialing examination pass rates.
For the three months ending September Thirtyth 2020, new student enrollment at Hondros increased 88%.
In total student enrollment increased 38% compared to the prior year period as I mentioned earlier, we believe the increase is the result of Hondros students first approach and the flexibility and quality of its nursing program as well as a result of the increases from the demand for nurses in.
The battle to save lives during the pandemic.
As we've illustrated today, we believe in creating shared value.
This is reflected in everything we do including environmental sustainability.
We remain committed to linking business strategy and social responsibility.
With example, such as 80 U.S. is online learning platform.
Solar arrays powering the LEED platinum buildings in Charles town, allowing us to fulfill our mission with a relatively small impact on the environment.
And while our nation's path to post covert 19 conditions and economic recovery remains uncertain.
80, U.S. and Hondros are grateful to be the institutions of choice for many learners, including nurses first responders veterans and active duty military now more than ever at Apiay, we remain committed to providing learners have all backgrounds access.
To obtain the skills they need to achieve their purpose, while maximizing their higher education return on investment.
Now I will turn the call over to our CFO Rick Sunderland.
Thank you Andy Good evening, everyone American public education consolidated revenue for the three months ended June Thirtyth 2020 increased 16.4% to 82.1 million compared to 70.6 million in the prior year period.
Hey, guys segment revenue increased 15.9% to 73.5 million as a result of higher net course registrations, primarily for military students utilizing P.A., which is at a lower revenue per net course registrations in other funding sources.
Hey, Tim segment revenue increased by 20.5 percentage.
Point Sixmillion as a result of higher student enrollment.
We believe the increasing enrollment at Hondros was due in part to the continued impact of initiatives implemented in 2019 as well it changes in the competitive landscape landscape due to covert 19 and increased demand for nursing education.
In the second quarter cost and expenses increased year over year by 12.6% to 73.1 million as compare to the prior year period.
The increase in cost some expenses was primarily due to an increase in employee compensation costs advertising and marketing support costs.
Specialties in our APC segment as well as an increase in instructional materials costs in our HCM segment, which was partially offset by decrease in commencement and travel costs in our APC segment.
Consolidated instructional costs and service expenses increased approximately 2.0 million to 30.7 million and as a percentage of revenue decreased to 37.4%.
Fair to 40.7% in the prior year period.
The increase in structural costs and services expenses was primarily due to an increase in employee compensation costs in our APC segment, and an increase in employee compensation and instructional materials costs in our HCM segment.
Partially offset by a decrease in commencement and travel costs in our APC segment.
Selling promotional expenses increased approximately 3.0 million to 17.1 million and as a percentage of revenue increased to 20.8% of revenue compared to 20.0% in the prior year period.
The increase in selling and promotional expenses was primarily due to an increase in advertising costs in our APC and HCM segments, and an increase in employee compensation costs and more marketing support costs in our APC segment, partially offset by a decrease in travel costs in our APC segment.
For the quarter ended June Thirtyth advertising costs increased 1.9 million in our APC segment, and 0.2 million in our HCM segment and marketing support costs increased 0.5 million in our APC segment as compared to the prior period.
General and administrative expenses increased approximately 3.6 million to 21.7 million and as a percentage of revenue increased 26.5% from 25.7% in the prior year period.
The increase in general and administrative expenses was primarily result of an increase in employee compensation costs and professional fees and our APC segment, partially offset by decreases in employee compensation costs.
Hey, sand segment and bad debt expense in our APC segment for the quarter ended June Thirtyth General and administrative expenses includes the following on a pre tax basis.
1.3 million, a professional fees related to growth opportunities and 1.0 million and costs related to our technology modernization project.
Consolidated bad debt expense was 1.0 million or 1.2% of revenue in the second quarter of 2020, compared to 0.9 million or 1.3% of revenue in the prior period.
Depreciation and amortization expenses decreased approximately 0.5 million to 3.4 million and as a percentage of revenue decreased to 4.1% of revenue from 5.6% in the prior period.
Operating income for the second quarter of 2020 increased by 3.3 million or 59.2% to 9.0 million compared to operating income of 5.7 million in the prior year period.
Consolidated net income for the quarter was 6.7 million or 45 cents per diluted share compared to net income of 4.9 million were 30 cents per diluted share in the prior year period.
Total cash and cash equivalents as of June Thirtyth 2020 were approximately 216.0 million compared to 202.7 million as of December 30, Onest 2019.
Cash flow from operations for the six months ended June Thirtyth, 2020 increased 33.8% to 31.7 million compared to 23.7 million in the prior year period.
Capital expenditures for the six months ended June Thirtyth, 2020, or approximately 2.9 million compared to 3.0 million in the prior period.
Going on the page eight third quarter 2020 outlook.
Our outlook for the third quarter of 2020 is as follows.
POS net course registrations by new students are expected to increase between 10% and 14% year over year.
And total net course registrations are expected to increase between 8% and 12% year over year.
At Hondros, new student enrollment increased by 88% year over year, while total student enrollments increased 38% compare to the third quarter of 2019.
In the third quarter 2020, we expect consolidated revenue to increase between 10% and 14% year over year with year over year increases in both our apiay in HCM segments.
The company expects diluted earnings per share to be between five cents and 10 cents in the third quarter of 2020.
The consolidated outlook for the third quarter earnings per share includes items, which we generally view as important investments and our future growth such as investments in our technology modernization project and increased marketing to elevate our affordability method.
HP financial strength was achieved through the fulfillment of our mission, which were which places a relentless focus on student outcomes and student satisfaction and forms the core of our long term approach, we're honored to be the educator of choice for so many adult learners.
Although the pandemic has created a great deal of uncertainty in our daily lives.
In our economy, we remain optimistic about the future our students future or institutions future and that at the communities we serve.
Now, we'd like to take questions from the audience operator, please open the line for questions.
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As a reminder, ask a question need to press star one on your telephone to withdraw your question pressure pounder husky, please standby, where we've compiled it una roster.
Your first question comes from Jeff Silber BMO capital markets. Your line is open.
Thank you so much and congratulations on the momentum that you guys have going forward.
I'm just curious compare to the guidance that you gave us three months ago from your perspective, what were the biggest areas of surprise.
Thank you for that feed that really appreciate it yes, hi is angie selling here I Jorge that.
Great. We're very pleased with a few areas that are result of this platform and this investment in momentum that we've been building over the past three quarters.
We're very pleased that we've seen year over year increases in graduate programs and certificate in our military affiliated segment, we've seen year over year increases in our undergraduate degrees and certificates for our non military and certainly significant momentum across all different.
Segments of our military so.
We're just very pleased with the momentum that we're seeing across all of those segments.
Okay, Great Thats helpful.
Given that you've seen this big increase in demand I'm just curious.
From your perspective can you wish handled this demand what do you have to do to make sure the even sort of the students.
Great question, if you recall.
In the first earnings call I had the privilege is participating we discussed on our growth strategy, which was first and foremost focused on organic growth focused on 80, U.S. and focused on hondros in in that organic growth strategy, we identified API.
Operational areas, where we needed to invest those in talent and technology.
In order to be able to grow the business and we had been good fortune of making the decisions to make those investments in advance of the pandemic such that we then as a result were able to handle the increased demand without a without.
A hedge so we're very we're very grateful that we had begun the growth initiatives in the fall of last year to lay the foundation for the operational capabilities necessary to support the increased volume due to the pandemic and and some of the other investments we've made.
Okay, Great I could sneak in one more on this one is on Hondros.
First of all in terms of the numbers that you reported can you remind me the Indianapolis campus.
Is it already in the same store number or I'm, just curious what if it's not what kind of your same store enrollment growth would have been.
Rick can you answer that question, Yeah sure Jeff it's not in the same store unopened.
April one of this year, so it's not in the prior number.
The the Indiana.
Board limits the initial enrollment for a new campus.
So the enrollment this year will be limited to I believe a total of 30 students. So it's in consequential to the.
A large growth that we're seeing at Hondros that said in the future.
The expectation is it will grow well beyond that and certainly contribute to the momentum enrollment momentum were seeing at Hondros.
And is there any limited opening up new campuses in that state.
In Indiana or Ohio.
Well I know you're already in Ohio, and maybe more for more but I was more curious about Indiana.
I'm not aware of any limitation.
Were authorized in that state that's a market by market evaluation.
Jeff and we're going to obviously look to the most compelling markets as we think about opening additional campuses.
Okay Fantastic I'll get back into queue. Thanks, so much.
Thank you.
Your next question comes from the off the line of Austin model.
Sure.
Hi, good one on Hondros as well.
Given what we're seeing in healthcare and Alan Miller of all the macro trends that making nursing.
So when demand sweet countries needs can you talk about how.
Person offering might evolve and potentially expand over time.
I believe.
Yes, RN to BSN in Ohio was good bad go more nationally like our other.
Decree tracks that you might experiment with over time.
I'll start and then Rick if you have other comments to add that would be great. So thank you for your question.
Today at Hondros, we offer to program we offer the.
T N program, which allows eligibility for students who fit to the end clecs exam and become an El pen and we offer an ATM program, which allows us doing just that to become an R&D.
When several years ago, when Hondros was acquired the other post licensure programs that were accrued at Hondros will migrate into 18, U.S. and 80 you asked today offers some of those post licensure degree programs.
As you I imagine we are continuously evaluating the opportunities in scale higher specifically as it relates to post licensure degree programs and and at the board level, we discuss periodically.
Each of those maybe of interest for us to offer in the future, but at the present time, what we are committed to in Ohio and in Indiana is the Pn and ADN program offerings.
Yes, I would just add that when you think about hondros.
And a Pos together we offer.
The thing from and LPN, which is it hondros all the way through a MSN master of science in nursing.
Add.
Hey, Pos so we do have fairly broad nursing offering when you.
Considered across the two too.
Distribution.
Got it and would you be able to elaborate a bit more on.
On the changes in nursing competition, you you've mentioned in your each season.
Segment commentary.
You want me to answer that Andrew.
Gulfport, Yeah, I mean quite simply.
Rather than choosing to go online.
And offer a blended virtual as well as on ground.
Offering.
Some schools, perhaps many.
Disclosed.
They're thereby limiting.
The choices that prospective students have so.
Yes, it's a very much a localized market in certain markets.
The competition was reduced due to closure.
Got it got it and.
My last question, you mentioned inorganic growth opportunities in the press release can you elaborate a bit on those it is that in reference to the.
Enterprise transformation or is that something else.
Well I'll start by.
Reinforcing what are a P.I. mission really is about which is.
Provide learners have all backgrounds access to the skills they need to achieve their purpose and maximize their higher education return on investment when we began the growth initiatives in.
Q3 of last year, our focus was really on organic growth and making sure that we had the people processes and the tools in place to unlock organic growth at a few Ethernet hondros.
We Additionally, said we would be looking opportunistically for ways to continue to reinforce that mission.
Creating a platform.
Offering ways for learners to obtain new skills, but all underpinned by the notion of maximizing their higher Ed return on investment or AG ROI. So we're very committed to making sure that the any any additional learning experiences that we offer our stewart.
Our students who are learners in the future really follow that principle and so we're we're evaluating now a ways in which we can expand how we serve those students beyond a to U.S. and hondros.
Great appreciate the color.
Okay, and ladies and gentlemen, if you like to ask your question. Please press Star then number one and your telephone keypad I've done at a star was asking a question.
I would you have a question from the line of Jeff Silber from BMO capital markets.
So let me back in.
Given we've got a big election coming up over the next few months I'll ask the question that a lot of folks are asking.
If we see a change in administration.
Do you think there might be any impact on your business and I'm specifically focusing on.
The inclusion in the 90 10 growth potential inclusion of military and veterans funding. Thanks.
I think I'll start at the high level, and then Rick I'll turn it over to you for the 90 Jan.
Yes, the thing that we're very pleased with Jeff is that.
Our value proposition to students.
Does it really fall into one or the other political side. The fact that we can offer students an incredible value proposition of affordability high quality and 72% of our students graduate with zero student that is something that both both sides of the I'll will embrace.
And so we believe that that's a message that perhaps has not been made widely known in the past about 80, I and in particular, if U.S. and where as I mentioned on previous earnings calls were higher education best kept secret [laughter] and so we really believed.
Hi.
That value proposition will persevere.
In the face of whatever political wins, a com come at US I think I'd like to turn over the questionnaire 90 tend to Rick.
Right Jeff.
So obviously the conversations not only about including.
Okay, and V.A., but also about how will it.
Shift to 80 515.
Okay, we paid very careful attention to that and.
You know it 90 10, if you look at the payer sources I.
I think.
You could surmise.
Achievement of that at 80 515 it.
It's probably closer and I would point out the experience of this quarter were albeit off a smaller number cash another with one of our.
Got it is growing.
Funding sources so.
Where we have an eye on that and we follow the.
Details as it comes up periodically in Congress and you know in the Senate.
One of the think I'll also add is that our marketing initiatives.
Recently in 2020 are really focused as we've discussed on past earnings calls on micro segments and one of the micro segments that were focused on is something that will assist with creating some more distant on that 80 515 potential threshold.
Okay, great looking forward to hearing more progress on that thanks, so much.
So at this time there are no further questions I would like to conclude the call for today and I wish to thank you for your.
Continued interest in American public education have a great evening everyone.
Ladies and gentlemen. This concludes today's teleconference. You may now disconnect at this time.
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