Q3 2021 American Public Education Inc Earnings Call
As American military University, and 1991, API has been focused on solving big problems for society and for our select student population.
AMU was founded with the express purpose of enabling active duty military to get access to the education to which they're entitled from their earned educational benefits.
Rasmussen originally founded 120 years ago as a business college for women.
Today is a university that is focused on meeting the critical nursing and healthcare skills needs as well as providing degrees in high demand career fields like business and early education at very affordable rates.
Likewise, Honduras College of nursing is exclusively focused on meeting the need for nurses by creating new nurses do with Pn and ADN pre licensure programs.
In an era, where many of today's students do not fit into the traditional mold of traditional higher education.
<unk> strives to set adult learners.
Paths to achieving their dreams by providing the skills necessary to maximize their return on their higher education investment.
Slide four highlights how ATI offers a variety of learning solutions and delivery models.
Such as.
On line, one course at a time asynchronous learning at Apus.
And purpose built career minded programs, such as nursing at Rasmussen and Andre.
With the inclusion of graduate school USA API will now offer training and continuing professional education also in support of the mission of educating the service minded students.
On slide five at API affordable high quality and outcomes focused education remain key tenants.
<unk> aims to support our students lifetime career ambitions with a well thought out curriculum that translates to added skills and degrees to boost their success over their entire lifetime journey of career advancement.
We are focused on meeting any student wherever he or she or they are in that journey, whether it is in the beginning as he enters a new career as a first time nurse in.
In the middle of a career as he tries to transition out of the military or later in life as they advance their skills to obtain a specific promotion API is committed to helping each students achieve their purpose.
Let me bring this to life with some examples from each of the API education units.
At Apu us over three.
300000 military personnel have utilized their military tuition assistance benefits at AMU and Apu.
For those active duty military today.
<unk> total out of pocket costs for nearly all courses are priced no higher than the allowable military tuition assistance benefits.
As a matter of fact, the combined undergraduate fulltime tuition fees and book costs at Apu Us had been approximately 30% lower than the average in state cost at public institutions offering bachelor's degrees.
Apu asses per credit hour cost has increased by less than 1% in the last 20 years.
Fairly a blip in comparison to the greater than 150% increase in higher education tuition and fees more broadly over that time.
Apos's ensured our active duty military and veterans are able to utilize our programs to complete a degree without incurring any apu S.
Student loan debt.
This value proposition has made us the institution of choice for active duty military with 22% of total service members that are using your education benefit today take courses with AMU and Apu.
Apu is subsequently extended its educational focus to veterans and a broader array of service minded students, including law enforcement firefighters teachers public health and other populations that all serve for the common good.
Affordability is also a pillar of the educational offerings at Rasmussen for.
For example, it recently lowered the price of each of the Masters degrees. It offers which are now less than $10000, including MSN or masters of science in nursing.
It is important to note that both apus and Rasmussen sort of a non traditional students.
Only approximately 4%.
Of Apus students enrolled in 2020, and approximately 8% of Rasmussen students fit the department of Educations definition of first time full time students.
Thus many of the comparative traditional higher education success measures.
Fly to a very small portion of those student population.
Also worth noting is that recently, both apus and <unk> accreditation have been reaffirmed by the higher learning Commission and operate now within the HFC opened pathway accreditation option, which gives Apu S and rasmussen the unique opportunity to.
Pursue improvement projects geared toward current needs and aspirations.
Each of Apu S brass Essen and hundreds of programs are all focused on helping students advance their drop and career opportunities.
In particular <unk> is measured by the accrediting body add heads on student placement rates. Once students have graduated high.
<unk> is proud to report that each program at each campus has achieved or surpassed the app has placement standards for the most recent measurement period.
All of this translates to API being the largest educator of active duty military and veterans through two brands Apu and AMU.
And being the largest educator and pre licensure nursing education through Rasmussen school of nursing and the Honduras College of nursing.
The addition of <unk> has resulted in a more diversified ATI portfolio with now roughly equal parts, one third nursing, one third military and veteran education and one third other online education.
With our inclusive high quality affordable and outcomes focused education.
<unk> is setting its sights on being the best value in adult education for the service minded students.
Turning to slide six we believe the same principle of educating the service minus students holds true for the nation's nurses and health care workers.
Who is important in our society was made abundantly clear over the past 20 months.
They are just over $3 1 million registered nurses in the U S and the Bureau of Labor Statistics predict this will grow to over $3 3 million over the next decade as the aging of the U S population is expected to drive demand for healthcare both in hospitals and at home.
<unk> healthcare services firm.
More with the journal of nursing regulation, indicating a growing increase in nurse retirements. The gap for our enzyme vacancies is expected to be approximately 175000 each year for the next 10 years. According to the BLS.
We believe strongly that the nursing shortage is a critical societal crisis as nurses represent the backbone of our health care system.
As part of our efforts to educate the service minded students.
<unk> today is addressing that societal nursing shortage through our tour to nursing focused institutions cohort.
Collectively Honduras college of nursing, and Rasmus and school of nursing educate approximately 11 pre licensure nurses, thereby helping create the new nurses the country needs to help fill the growing nursing shortage.
Together, Honduras and Rasmussen provide nursing education at 30 campuses in eight states across the mid and upper Midwest and Florida, including in some of the states with the most severe nursing shortages.
Beyond the benefit of serving society and the public good nursing offers a long term career path with attractive annual salaries to our students and their families.
Taking into account their affordable tuition costs, Honduras, and Rasmussen work to deliver high return on educational investment.
Lastly, many of our nursing students come from disadvantaged communities with our accessible inclusive education and allows us to be a destination to help our local students drive and positively contribute to their communities and their families.
Let's move to slide seven.
In the third quarter, we also announced the agreement to acquire graduate School USA.
Graduate school or <unk> is one of the leading providers of training to the federal workforce.
<unk> extensive portfolio of government agency contract and customers is tightly aligned to <unk> focus on educating the service minded students and represents a strong adjacency to <unk> core military and veteran student population.
This acquisition further accelerates our focus on career training and degrees that help provide pathways to employment and career advancement.
Graduate School USA was established in 1921 as part of the U S Department of Agriculture and is celebrating its fan-tan you'll anniversary this year.
Today, It provides training to the federal workforce through a catalog of over 300 courses specializing in foundational and continuing professional development in the areas of human resources government auditing federal financial budgeting and management as well as leadership training to advance the performance of government agencies.
Through the competency and career progression of their employees.
<unk> USA is accredited by the Accrediting Council for continuing education, and training AIDS that and delivers its training both in person and through virtual learning.
Graduate school serves the federal workforce through two channels.
Customized contracted training to federal agencies, or BTG and open enrollment to government professionals or BDC.
With a broad set of over 120 government agency customers, including the department of defense and many of its branches.
<unk> of Homeland Security Health and human services Interior Justice and State Department Graduate School USA represents a strong complement to apus with primary student populations.
At school USA is a non title for training provider that further diversifies API with a foothold in the workforce training marketplace.
We believe its portfolio of short form courses offers meaningful opportunities to create new stackable credentials.
Additionally, we see opportunity to further serve the federal workforce marketplace beyond the core Washington D C market and by extending into other workforce training segment.
D. S. USA has generated more than $20 million in average annual revenue over the past three fiscal years is approximately a breakeven business today, and we believe that by leveraging API shared services and in particular <unk>.
Curriculum development and in house marketing expertise graduate school USA could generate margins similar to other trading businesses over the next few years.
API is acquiring substantially all of <unk> assets for a purchase price of $1 million and it will be a new standalone subsidiary education unit of ATI.
The transaction is anticipated to close at the start of the new year subject to certain closing conditions.
Now, let's move to enrollment momentum and business performance by turning to slide nine and the next section.
First at Apu.
Total net registrations of 83100 in the third quarter were down 8% versus the same period in 2020, which is at the high end of the guidance, we provided last quarter.
These results are favorable as compared to 2019 and up roughly 8%.
We're looking at just the combined August and September periods of this year compared to the August and September periods of 2020, net registrations were down just 3%, reflecting the army ignite Ed portal, partially coming back online towards the end of July.
Other military and nonmilitary enrollments continue to see some moderation in demand as some students have slowed their academic endeavors in favor of resuming other life.
Activities that have been paused by the Covid pandemic.
On a year to date basis net course registrations through the third quarter are down only 2% as compared with 2020, which had been the best registration year for us since 2015.
It's also important to note that compared to 2019 on a year to date basis.
Course registrations are up over 9%.
For the fourth quarter, we anticipate registrations to decline by 2% to 5% to between 84000 86600, reflecting that same general student behavioral trends and compared to a somewhat inflated comparable period in 2020 that saw that increase course interest as normal social.
<unk> remained on hold during the Covid pandemic.
Finally, touching on the army ignite at Porto more generally while many improvements have been made important challenges remain.
As mentioned on the last earnings call. The portal became partially operational on July 19.
Soldiers are now able to use the portal to register but many continued to do so through an exception to policy or ETP.
Overall August and September so a much improved course registrations compared to the sharp declines experienced from March through mid July timeframe, but we believe the portal as you've continued to sign these soldier registration.
We and our Apus soldier students are experiencing three remaining challenges with the army ignite Ed portal and understand that these are common across all other education providers to the army number one system latency and performance issues, which have impacted the speed of the portal and its usability.
<unk>.
Number two remaining system and data defects such as students unable to access accurate degree plans course enrollments in education path that the developer Deloitte continues to resolve as they surface, but those defects continue to present challenges.
And more manual nature to the entire process for the education providers, where Emmanuel approvals have been interjected, along certain points of the process. We're never before which has made a commerce thumb for education providers, especially those such as API, which process thousands of education request.
Despite the ongoing challenges from the army portal registrations from the Army has stabilized and we expect positive registration growth year over year from soldiers in the fourth quarter.
Finally, we announced last week the Doctor Wayside has left <unk> as president to pursue a new endeavor and that factor Kathryn that most recently chair one of the Apu Board of trustees has been appointed acting president.
She holds a doctorate in higher and adult education and to Masters degrees for teachers College Columbia University Dr.
Dr. <unk> was first appointed to the Apu.
Board in 2004.
We thank Wade for his contributions over the past 15 months and look forward to filling the role permanently been ongoing nationwide search.
Moving to slide 10, nursing enrollment at Rasmus and continues to grow up 13% in the third quarter 2021 compared to the prior year period and to a new historic enrollment high for the University.
This positive growth was offset by a decline in non nursing enrollment by 13% in the first quarter in part due to the deliberate shift in marketing dollars away from those channels, which generate non nursing leads.
Overall enrollment was down roughly 2% and three Q compared to 2020, a year that benefited from a bump in enrollments due to the Covid pandemic.
When compared to the third quarter of 2019, Rasmus and total enrollment is up roughly 3% on a two year CAGR basis.
For the fourth quarter of this year, we anticipate a similar trend as the third quarter with nursing enrollments expected to increase by roughly 8% to 8800.
Yet another new enrollment record at Rasmussen.
On the non nursing side, we anticipate a decrease of roughly 13% to 8700 enrollments.
Overall this translates to expected total enrollment of roughly $17500 for the fourth quarter.
As we turn to slide 11.
Demand for nursing at Hydro continues to generate strong overall enrollment growth up 19.
Percent and <unk> 21 versus the comparable prior year period to a level of over 2300 students.
We believe that <unk> focus on student support services, it's favorable reputation and its communities and ability to deliver good educational outcomes that lead to jobs allows us to meet the needs of students and hospital system.
Both the Pn and ADN program saw growth and our one plus one pn and ADN Gateway program offer students a chance to quickly enter the workforce and then come back to increase their skills and earning power with an ADN degree that provides credit for their pn work.
We expect these trends to continue in the fourth quarter of 2021 and are anticipating the highest level of pn starts ever and the highest total pn and RN enrolment ever translating to 17% growth over the comparable for Q2 2020 period and over 2500.
Total students enrolled.
The uncertainty surrounding Covid <unk>.
Impact on our students ability to attend Clinical's by child, and elder care and concerns about vaccine mandates have all led to changes in perspective and at times existing student behaviors. For example, hydro to seeing some of its highest enrollment demand ever and yet at the same time experiencing.
Higher rates of deferrals or drops and students cope with an ever changing environment.
Right all that hydro remains on pace to have another record setting <unk> and 2021.
I would now like to turn the call over to Rick to review, our third quarter financial results and fourth quarter outlook in further detail.
Thank you Andy before we go to financial performance for the quarter.
Closing of the restaurants and acquisition I'd like to provide an overview of API strong quality indicators regulatory performance and general compliance history, because everything we do is built on our strong regulatory and compliance track record.
On slide 13, we presented important quality and compliance metrics, representing our schools commitment to the guiding principles of quality integrity and compliance.
Starting with accreditation we are pleased to announce that the higher learning Commission Rachel food just reaffirmed apos's accreditation for 10 years through 2000, 32031 and accepted the school Intuit's open pathway truck, which of course institutions greater opportunity to pursue institutional improvement projects.
And then the previous standard pathway designation similar.
Similarly restaurants is also accredited by the HFC through the open pathway designation and recently received reaffirmation of accreditation through 2025 2026.
Carter's is accredited by the Accrediting Bureau of Health Education schools <unk> through 'twenty 'twenty seven.
Finally, each who have specialized accreditations for many of their top programs.
On the right hand side of the page you can see our strong performance as it relates to the most recent three year cohort default rates or CVR.
The 2018 cohort, which was released this past quarter all three institutions achieve <unk> chief <unk> that are below the national average for all proprietary institution.
Within two percentage points of the national average for all institutions, including non-profit touching on 90 10.
Honduras and Rasmussen were all well below the 90% threshold for the 2020 reporting period.
Turning to slide 14.
On slide 14, we present, our financial highlights for the quarter and year to date nine months periods.
Total revenue for the third quarter was $98 million up approximately $19 million from the comparable prior year period due entirely to the inclusion of one month of restaurants and results in the 2021 period.
Third quarter revenue was $66 million, a decrease of 5% from third quarter 2020, as a result of the decrease in net course registrations that Andrew spoke about earlier driven in part by the disruption of the army tuition assistance program and a moderation in the near term demand for online education due to the abatement of the.
COVID-19 pandemic.
<unk> revenue increased by roughly 18% to $11 million in the current quarter compared to the comparable prior year period, driven by comparable increases.
And earning enrollment due to the ongoing demand for nursing education, our successful marketing efforts and execution of our enrollment strategies of Congress.
Total cost of expenses for the quarter were $97 million, an increase of $21 million from the prior year period due primarily to the inclusion of one month of <unk> results in the current year quarter.
This includes roughly $1 8 million of noncash stock compensation expense and $1 6 million of M&A related professional and integration costs related to the restaurants and acquisition and $4 4 million of depreciation and amortization all on a pre tax basis.
On our second quarter earnings call in August we completed a reduction in force, but it is expected to deliver approximately $1 8 million and pre tax labor and benefit savings in 2021 and between approximately $2 6 million and $3 6 million of cost savings in 2022.
Overall, <unk> achieved adjusted EBITDA of $9 1 million for the current year quarter.
Net loss per diluted share for the period was one.
Net cash provided by operating activities was 600000 for the nine months ended September 2021, compared to $44 7 million for the 2020 period the.
The decrease was primarily due to the timing of the restaurants and acquisition.
Restaurants and receive the majority of its cash receipts at the start of our quarterly term during the first month of each fiscal quarter, while disbursements occurred throughout the quarter.
As the seller retain substantially all of the cash at the time of close the majority of restaurants as operations were therefore funded by API through the middle of October when restaurants and received its temporary provisional program participation agreement where tipi.
Permit that allows restaurants to continue drawing tuttle for funds.
Cash provided by operating activities was also impacted by the army transition to army ignite ads, which is adversely impacted <unk> ability to invoice the army.
As of September 30, approximately $18 7 million in accounts receivable is due from army of which $11 6 million is older than 60 days.
Cash at September 32021 was 141 million of which approximately $27 million is restricted.
Restricted cash is almost entirely comprised of restricted certificate of deposit securing a letter of credits restaurants and University is required to post as a result of its 2020 composite score.
The composite score shoes by Ed for determining compliance with financial responsibility standards and the Rasmussen.
Composite score relates to its prior ownership.
And it was below the minimum required the composite school will now be calculated at the API consolidated financial position and will be re evaluated by head after submission of audited financial statements that reflect <unk>.
Fiscal year of API ownership, which means after the 2022 audited financial statements are submitted that we anticipate the API consolidated composite score.
We will eliminate the need for that letter of credit in 2023.
In connection with the closing of Rasmussen and to fund a portion of the purchase price.
<unk> entered into a $175 million term loan B on September one with a scheduled maturity of September 2027. This is the first debt facility entered into by API as a public company in conjunction with the term loan. We also closed on a revolving credit facility with a commitment amount of $20 million that remains undrawn at this time.
On the.
The facilities are issued at LIBOR, plus 550 basis points with a LIBOR floor of 75 basis points. The term loan requires annual amortization of 5% or $8 $75 million and includes customary restrictions on incurring incremental indebtedness in our financial covenant, requiring a total net leverage ratio of <unk>.
Other than two to one.
Turning to slide 15.
<unk> outlook for the fourth quarter of 2021 is as follows.
<unk> net course registrations are expected to decrease between 2% and 5% year over year.
This reflects a rebound from army registrations offset by the impact on your near term demand of the moderation of COVID-19, and broader factors impacting the higher education industry.
<unk>, we continue to work on re accelerating registration momentum.
In Honduras, and Rasmussen fourth quarter student enrollment as actual because of the quarterly starts at these schools.
<unk> fourth quarter student enrollment increased by 17% year over year to 2500 students at Rasmussen nursing student enrollment increased 8% year over year offset by non nursing enrollment declines of 13% for an aggregate rasmuson enrollment decline of approximately three 5% year over year.
Year.
In the fourth quarter of 2021 consolidated revenue is expected to increase between 75% and 80% year over year. Given the addition of the restaurants in the company expects net income to be between $5 7 million and $7 1 million and earnings per diluted share of between <unk> 31 and.
38.
The outlook for the fourth quarter net income includes the following on a pre tax basis.
Ultimately $1 7 million to $2 2 million in professional fees related to the Rasmussen to the integration of Rasmussen approximately 600000.
Between 600000, and 800000 and labor and benefit cost savings from the August production in force adjusted EBITDA is expected to be between $23 8 million and $26 3 million for the fourth quarter of 2021.
One additional point to note is that the restaurants and transaction is expected to result in a cash tax benefit to API due to the step up in tax basis of the assets acquired we have estimated this cash tax benefit to the present value of approximately 29 million, which represents a $29 million of value to the API.
Pay to acquire Rasmussen over the $300 million that we otherwise would have been willing to pay for the business. We expect that in the first year post closing API will experience a cash tax benefit of approximately $6 million.
We do not currently reported cash EPS.
Cash EPS metric this cash tax benefit would amount to 30 to 35 per share in the first year.
With that we now ask the operator.
Open the line for questions.
Operator, please open the line. Thank you.
Yes, Sir and ladies and gentlemen, if you would like to ask a question. Please press star and then number one on your telephone again, if he would like to ask a question press star one on your telephone.
Our first question, we have Tobey Sommer from <unk> Securities.
Your line is open.
Hey, good afternoon, everyone. This is jasper bibb on for Tobey. Thanks for taking my question I wanted to drill into Rasmus and it looks like nursing continues to grow high single digits, but could you provide a bit of color on the pressures youre seeing on the non nursing side.
Are the health sciences programs that are being less impacted than the other non nursing, but goes like this.
Thanks.
Hi, Jasper to ANZ Seldon, thanks for the question.
Let's talk a little bit about <unk> and non nursing first as I mentioned in the script there has been a deliberate focus on.
Investing in marketing to generate leads for nursing given both the momentum and the shortage in the.
The number of nurses in the public markets.
What I will say on the non nursing side is that we're very enthusiastic about the opportunity to turn that momentum around.
With some of the capabilities that exist through Apu S. Namely the the fact that there is relatively small academic overlap in the non nursing business between Apus and Ross and that we actually have some capabilities, namely our national marketing capabilities.
Capabilities that are different from the marketing approach that Rasmussen presently takes today Rasmussen really focuses on <unk>.
Marketing, it's non nursing programs to the geographies within 150 miles of their campuses and we believe that there are.
Lots of opportunities to take the non nursing educational offerings.
<unk> begin marketing them to a national audience.
Okay. That's helpful. One more on screening acquisition.
Selling expense came in a bit higher than we were expecting.
Can you give any color on how youre marketing yields trended and are seeing more competition there.
Jeff is that overall or are you seeing that specifically for one of the education units.
That's across the portfolio, Okay, I'll turn it to Rick Yes, So Jeff where we are seeing successes very.
Harry Wilkins and his team have been working on.
On the internal metrics related to conversions and retention retention so as we.
See improvements there at Apus.
We see additional opportunities to invest and then of course in the nursing businesses.
<unk> and Rasmus and given the.
<unk>.
<unk>.
The demand in the marketplace for nursing education.
Warrants additional investments in those areas. So I would say we are.
We are always.
Focused in how we invest our marketing dollars and were seeing current improvements on the apus side in particular because of some of the internal work that period as teams are doing.
Okay.
Oh I was going to just add one more point, which is that.
As we think about the <unk>.
<unk> in the year, where we are right now we typically invest slightly more in marketing in Q3 to try and drive a larger Q4 and Q1 start and so it is a time of year, where we are on.
On a flowing basis being a little bit more of an investment in Q3.
Okay got it and then last question for me on Rasmussen, Honduras, what's been the experience with reopening campuses and then how much of that expense would you say is kind of already in the third quarter results versus incremental costs, you see coming back in the fourth quarter over 2022.
I'll start and then Rick.
Yes.
Details.
We are we have been and continue to be fully open at <unk> and at <unk> and the cost profile that youre seeing in the financials today will continue to be the cost profile.
In the coming quarters.
Absolutely and I would also add that.
If you look back over the last year.
Look at instructional costs for Rasmus and Honduras, they were likely favorably impacted by the going remote on some element of it and so as they come back into the classroom youre going to see a modest increase in structural costs. When you compare to those earlier periods.
Okay. Thanks for taking the question.
Thank you.
And for our next question, we have Jeff Silber from BMO.
Your line is open thanks.
So much wanted to shift the focus back to nursing.
Some of the other companies in this space talk this quarter about a difference between some of the post licensure programs and the pre licensure program, specifically that they were seeing pressure on post licensure enrollment at <unk>.
<unk> decided to continue working because the salaries are so high are you seeing any major difference between those two groups and if so how.
Hi, Jeff and Sanjay Thanks, very much for the question I'm going to turn it over to Steve. He has been following this trend pretty close yes, hi, Jeff.
In our case, the vast vast majority upwards of 95% of the nursing enrollment across Rasmus and Honduras as pre licensure.
<unk>.
We haven't really experienced that bifurcation of enrollment trends because the post licensure is a relatively small component of our total nursing enrollment and so the trends that youre seeing there is when we quote the nursing certainly at the hydro side are entirely pre licensure and the numbers for <unk>.
<unk> are for all intents and purposes.
Nearly entirely pre licensure as well so that's not an area that we've really experienced.
Tremendous divergence in trend.
As we reported with Honduras.
The increase in interest for the Pn program in particular.
The salaries people are commanding now and the opportunities that are being presented to pn students.
Are much greater than what they would have seen in the past and so there is significant demand for our pn programs across the board.
Okay, that's really helpful.
In a few.
Few times, you talked about some changes in student behavioral trends it doesn't sound like you're really seeing it on the nursing side, but it sounds like you're seeing it in the non nursing side across your various programs.
What changed over the past two months this wasn't something that you discuss much last quarter.
Well, what I can share with you is that we are.
Continuing to see increasing enrollment momentum in our returning students at Apus in fact, we had one of our.
Largest returning students single day registrations in five years at Apu us in the past.
Several weeks.
And we have worked tirelessly as we began discussing on the last call about streamlining our enrollment processes and adding some new tools and capabilities under Harry Wilkins leadership. So we brought him in to bring the best practices that he had instituted at Honduras into Apu us as well.
And we're starting to see the fruits of that work really manifesting itself. We also have seen that.
Very strong.
On top of the funnel leads so we're not seeing any declines in leads what we are seeing is some.
Delay in people converting from an interesting student into an enrolled students and so we're working very hard now to take all of those really wonderful leads that we have and get those students converted at a faster pace.
Okay. Thanks, so much.
You.
Our next question, we have Raj Sharma from B Riley and company. Your line is open.
Thank you so much for taking my question.
Can you dig in and maybe into <unk>.
And revisit the army portal impact.
The impact in the December quarter is this impact will likely to persist.
Two.
First calendar quarter.
And.
Any sort of you can maybe impact and if you could give more color on the percentage of the total army enrollment that is being impacted if you can understand that a little bit.
Sure.
I'll start.
Im really pleased to say well thanks Raj for the question great to speak with you and Rick and I had the privilege last week of speaking with the leadership team running Army ignite Ed we really believe that was a breakthrough because up until this point, we haven't had the opportunity to have a fulsome conversation with them and we really focused on.
Two key topics the first of which was.
We had we had pulled our students who are using the portal and not using the portal to try and collect information about the areas of issue that they were having and we shared those survey results back with with the Army leadership team.
We also.
Spent a fair amount of time on collections, which I'll, let Rick dig into here in just a moment.
We have seen.
Reduction in the number of students that have to use the exceptions of policy process in.
And in particular in in the months of October and November and what that tells US along with the survey results is that the students are becoming more familiar with how to use the new tools.
System issues are diminishing and while I can't promise that in Q1 of 'twenty, two we will be fully operational with no ETP.
Enrolled students.
Being an acceleration in the students using the new platform and and and obviously a return to positive enrollment comparisons year over year as a result so.
You never want to knock on wood and say, we've turned the corner, but I do feel that we've turned the corner not only in terms of how the system is performing the students are responding and also the fact that we now have created an open dialogue.
With with the Army leadership team to make sure that we can communicate both ways in terms of what we're seeing and how we can help these really important students soldiers be able to use our education benefit Rick I'll turn it over to you Yeah, Hey, Raj so.
Last week was really productive the team came with.
With a description of the challenges they face with great detail and then how theyre going to work their way through those challenges with.
Specificity not only.
Related to the steps are going to take but as to the timeline.
And as Andy said, you really have to sort of break the challenges down into two areas one students being able to actually register in and through the system and as Andrew said, we are seeing.
Sequential and rather substantial increases in the number of enrollments coming to us in the system as opposed to through the exception to policy or ETP process on the on the collection side.
We continue to invoice and the army continues to pay but at rates that really don't.
Dress the current call it backlog.
And unapproved unbilled and unpaid transactions as evidenced by the dollar amount.
<unk>.
The army folks that we met with laid out a plan for us where certain holds in the system will be addressed in the pilot November timeframe.
Sort of phase, one and then phase two.
Later in the year towards the end of the year.
Based upon the description we got it's my expectation that that will.
Address a large number of the transactions that are currently held in the system, allowing us to invoice those transactions and then putting it into the process for the army the army.
The army is for those transactions that are Invoiced. There is a payment methodology on the army side. So that's really not an area of challenge.
So.
I think we should see a reduction in that.
Not a return to normal in its entirety as we go into and through the fourth quarter of the year.
Hopefully.
Of the backlog in terms of approvals and payments will be cleared up.
Closer to the end of the year.
That remains to be seen of course, I would say I was encouraged because.
When we finished our meeting.
Folks from Army asked for a follow up meeting, which says to me that.
They are really committed to delivering on the points that they described to us that they would want to come back and have a further discussion. So that was that was really productive beating last week.
Great.
The registration during enrollment.
Army.
Personnel and.
Where do we stand.
I'll be down.
20% down, 5% and where and when do we expect to kind of come back to last year's levels.
Yes, so it's really Raj, it's really stabilized.
In the third quarter actual.
The army was down for the quarter, roughly 3% and so you're really seeing a return to kind of the prior year.
Right now as we look at our guidance for the fourth quarter Army is going to be flat to slightly up right. So it's really a combination of soldiers getting through that system.
With the remainder utilizing that ETP process Thats really.
Routing them to now restart for those that were paused to restart their educational journey.
Great and then just one.
One more question.
The LLC could you come back to the LLC on the recognition.
The amount again.
Is there any impact.
As far as.
Regulatory impact is concerned it was just it was what it was under the last ownership.
And now there will be assessed on the CBR under API.
And going forward it should not be a problem, but you won't.
You will still be able to still need to post DLC until I'm, sorry, I missed that.
Yes, So Raj you haven't right it's related to the composite score under the prior ownership.
Rasmussen fell just below the threshold of one five, prompting the department of Ed to require them to post a letter of credit.
The letter of credit is required to be posted at 105% of 10% of their title for disbursements.
Numbers roughly.
$95 million Raj and the way the department construct this if they want to see one full year of audited financials coming from the new owner. So we won't get relief for the short year since we acquired restaurants in on September one we will go through the entirety of 2022 those financial.
To be audited will calculate the financial composite score under our ownership and submit those financial statements.
Early in 2023, and then there'll be available for Ed to evaluate as I said in my part of the script, we fully expect will be above the threshold at that point.
As you know we've been comfortably above the threshold it with API.
Our expectation is that Ed would then released that letter of credit.
<unk> said in the script in 2023, so that's that's the timing.
By the process from department of Ed.
Meanwhile, it does not been posting daily C. There is no other impact on the.
The operations or.
Enrollment business.
Well Ross mission.
No.
Okay. Thank you I will take my questions offline. Thanks, a lot.
<unk>.
For our next question, we have Stephen Sheldon from William Blair Steven Your line is open.
Hi, everyone. This is Matt <unk> for Steven Sheldon. Thank you for taking my questions with respect to army ignite.
Can you further expand on the progression of the portal since the last earnings call. It May also be helpful. If you could provide some detail on the mix between exceptions to policy enrollment and tuition assistance approved enrollments and how that trended throughout the quarter. It sounds like ETP enrollments are decreasing but any metrics surrounding that.
Would be helpful.
Well the portal.
We went live on July 19th.
And in the early <unk>.
Clemente's period, there was a lot of learning that needed to go on.
With soldiers utilizing the system.
And we were we play a role in helping soldiers learn how to use the new system we have.
Folks in the field that work with soldiers and ESOP.
The in terms of the progression. We're currently seeing about 75% of the students coming through.
Using the system as opposed to the ETP, obviously that would have started.
Back in July when the very first began using the system.
Higher to that it was all ETP. So I don't know that its been a linear progression, but it's certainly been a substantial progression from let's start in July to now 75% roughly 75% of the students utilizing army neither of the portal and I can just add to that Matt that we saw an acceleration even for.
October to November where in October 45% of the students who are using the new portal and in November 75%.
That's very helpful. Thank you for that commentary and switching gears I was wondering if you could provide some commentary on how cost per lead and conversion rates have trended during the quarter.
Matt we don't actually provide that level of detail Unfortunately, but thanks for the good question.
Okay. Thank you and one more quick one for me recently, you announced the partnership with California community Colleges to help program bankers pursuing online bachelors degree through Apu S. Any.
Any updates on that partnership and your expectations for it going forward.
Okay.
We have <unk>.
Large number of California students that enroll in a degree.
A degree programs today largely affiliated with military bases in the state of California, and we believe that the two plus two partnership that we've created for many community colleges around the country would certainly make a lot of sense.
With the 100 and.
115 community colleges in California.
Very early days for that partnership and we are excited about the possibilities.
At this point, there's not a lot of.
Information about the enrollment momentum.
But like I said, we've got some brand awareness in the state of California to our largely our military students and.
And a lot of experienced during the two plus two partnerships in some of the other states, including Virginia and Arizona.
That's helpful. Thanks for taking my questions.
You bet.
And we don't have any further questions at this time presenters. Please continue.
Okay, well. Thank you so much everyone for your interest in API and participating in our third quarter update we look forward to seeing you all virtually and hopefully on the road in the coming months ahead take care and have a good evening.
And ladies and gentlemen. This concludes today's conference call. Thank you all for participating you may now disconnect.
Okay.
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