Q1 2022 American Public Education Inc Earnings Call

Speaker 1: With these discussions, as the prospect of operationalizing these opportunities are transformative.

Speaker 2: As for our most recent acquisition, graduate school U USA, a major repositioning is underway and we are actively integrating the business into our shared services operations, which will enable us to operate more efficiently and deliver a better experience to its customers.

Speaker 2: We'll have more to share about our plans and expectations for gqa as our platform for career learning in the coming quarters.

Speaker 3: At API, we are continuing the integration efforts of both rapes and graduate school USA, with a focus on realizing our planned cost synergies, while implementing our expanded, more efficient shared services model to support future organic and inorganic growth.

Speaker 2: While this has had a immuted impact on margin improvement so far. We look to accelerate our shared services integration efforts with the operations of rasus Sen integraduate school USA, and are confident in our ability to deliver long-term value.

Speaker 2: one of our notable Q1 22 accomplishments was the creation of the student experience office and the hiring of our first Chief experience Officer, deff to NOA, who comes to ati with more than 25 years of marketing customer experience and leadership, most recently from Walden University and Laureate, and from global companies such as ATT Prudential, financial and Medco health solutions.

Speaker 2: Jeff ledwaldden's product management marketing enrollment, business development, analytics and operations teams to ensure an outstanding end-to-end customer experience and improved outcomes for students.

Speaker 2: During his tenure at Laureate education, death built and led the digital and organizational transformation around how digital marketing, recruitment of new students and the overall measurement capabilities operated across 12 institutions for over 500 products in 100 -plus countries.

Speaker 4: At API Jeff team will focus on overall marketing optimization and enrollment momentum, digital transformation, exstudent experience across each of API's education units.

Speaker 5: Some additional positive news comes from AUS, as we have already, in 2022, collected nearly twotwenty-seven million dollars, against a large outstanding receivable with the Army, which continues to be reduced, and we are confident in the Army's commitment to return the receivable to normal course levels.

Speaker 2: Also in 21 APUS graduated a record number of underrepresented students, with 35% representing diverse backgrounds, including 16% identifying vapican American and 14% identifying as Hispanic.

Speaker 6: We are pleased with how the repositioning of API in the past two years has created this momentum. APUS registrations have grown by 5% on a two -year KAR basis and enormous progress has been made in improving the student experience, from streamlining the enrollment process to transitioning to a more modern learning delivery systemat hondro a remarkable turnaround was engineered, and not only our enrollments up by nearly 1000 students, or approximately 50% in the first quarter of 22 compared to the first quarter of 20, but we also expanded our footprint from five campuses in Ohio to six and now include two new states in Indiana and, with the campus opening later this year, in Michigan.

Speaker 7: That improvement. hondro provided the blueprint and runway for our transformationalal acquisition of rasison University, which nearly doubled the size of a appi' revenue base and added an additional eight thousand-plus nursing students and 23 campuses to make API the largest educator of prelicensature nurses in the country.

Speaker 2: That acquisition also helped us transform our capital structure by deploying much of our large nonearning cash to an area with long-term strong secular growth trends.

Speaker 7: We reintroduced sapi to the capital markets V an equity offering a year ago and syndicated that $175 million debt transaction.

Speaker 2: And finally, we acquired graduate school USA and welcomes a new family of career learners to API in the form of the federal employees and agencies.

Speaker 5: As we turn our attention to Q2 22, our nursing enrollment momentum in the Northern region for rasissen has been primarily affected by the lack of available ad-jun faculty to support in-person clinicals. These part-time resources have seen significant earning opportunities with their current employers through overtime opportunities or increased based compensation.

Speaker 2: As such, cohort enrollment was sizeed to align with available faculty. These faculty shortfalls are number one priority and are being given significant attention.

Speaker 7: The near-term challenges of the external market for overall higher education enrollments due to the availability of higher paying jobs for prospective students and the pressures to faculty and staff wages have caused by in flplace in our real and in some cases have massed the good work that we've accomplished over the past two years. Despite that, we have held the line on tuition at AP's and hondro and at Ras have even reduced tuition for all master's degree programs in some early childhood education programs.

Speaker 7: We continue to deliver an extraordinary value proposition of high-quality, career-focused education at affordable prices for our students, while providing new career opportunities across our education units for our employees and ensuring a laser-focus on the commitment to delivering great outcomes for shareholders.

Speaker 2: As we turn our attention to Slide 5, API has total nursing enrollment of approximately 10.9 thousand that are predominantately prelicensure. rasmuson's nursing enrollment continued to grow in the first quarter of twotwenty-two up 2% as compared to a very difficult positive comp in 2021 and up 12% on a two -year kger basis.

Speaker 7: Nursing enrollment continues to be over 50% of total rasness enrollment and nursing revenue is over 60% of total rasness in revenue.

Speaker 8: At Hondros we have approximately twent thousand-five hundred nursing students, which represent an 8% growth in the first quarter of two thousandtwenty-two versus the prior year period and a twent thousand-five percent two -year kader growth over the 2020 period.

Speaker 9: As a reminder, we look forward to welcoming our first students at hondro's Detroit Michigan campus later this year, which remains on track.

Speaker 10: For the second quarter of 22. we have seen some enrollment challenges in the Northern region due to the limited student enrollment as a result of this in-person adultct clinical faculty availability and some broad student interest levels tapering off, which we believe is temporary and tied more to the economic environment over the last several months, including the tight labor market with highway levels and low unemployment.

Speaker 7: In the second quarter of 22. we anticipate total nursing enrollment to decrease marginally by rossough flee 1% compared to the same period of twenty-one and.

Speaker 7: Notably, this small decline is against steep comparable positives in 21, when the programs are exhiiting very strong enrollment growth, with 30% and 33% increases at rasissen and Hondros respectively.

Speaker 7: The two -year kagger parasus and nursing is still a robust 13%, resulting in eight thousand two hundred current student enrollments. The two -yearkagger for hondro nursing is 15%, resulting in two thousand -four hundred enrollments. Additionally, we are more confident than ever that we can work with community partners to become a solution to work for shortages and we look forward to providing more updates in the coming quarters.

Speaker 2: As turn to Slide, six APS saw strong net course registrations from active duty military, particularly within Army, which was up 11% in the current quarter compared to the prior year period and is our largest active duty military branch.

Speaker 7: These results are an indication that the Army Ignite Ed issues are mostly behind us. Additionally, Army has made headway in reducing the net accounts receivable. That has been building over. The majority of 21 overall APS experienced increased net court registrations from all of the major active duty branches in the first quarter of 22 compared to 21, and overall active duty military increased approximately 7% year-over-year.

Speaker 7: Our veteran net corre registres were up sequentially fourth quarter 21 by approximately 9% though down versus a strong comparable first quarter 21 period by 4% and.

Speaker 5: Apus's other online educational learners that only represent 15% of our registrations, saw a pullback in net course registrations of roughly 11% in the first quarter- 22 as compared to 2021. due to the broader macro environment.

Speaker 7: Overall our significant market share in the military provides some insulation against the broader online education market trends.

Speaker 5: As nursing has accelerated at rasisson over the past several years. rasis and nonnursing enrollments declined 14% in the first quarter of 22 as compared to the first quarter of 21 and in line with the broader private for-profit general education sectorwe believe continued tight labor markets and substantial growth in nominal wages has muted to general populations focused on continuing educational pursuits.

Speaker 7: In addition, prior to the pandemic, rasisson had a sizable early education enrollment but was significantly reduced due to the closure of daycare centers and ultimately businesses, which represented about 25% of the total decline in nonnursing over that period.

Speaker 11: Looking ahead, we expect the tight labor market to continue to put pressure on nonmilitary registrations in the coming months, which we anticipate will lead to decreases in year-over-year registrations and enrollments.

Speaker 7: For the second quarter of 22. we anticipate net cort registrations in APS to be minus 2% to plus 1% when compared to the second quarter of 21. this translates to a range of 80.9 thousand to 83.4 thousand net cort registrations in the second quarter of 22 and is primarily driven by an expected decline in nonmilitary registrations, along with a slight impact on military registrations.

Speaker 7: For the month of April , APS saw a small decline due to the Ukraine conflicts. That resulted in increase training requirements for the military filed by strong. Expected to grow in the military registrations for May and June . At Ras, the said nonnursing enrollment is expected to decrease by roughly 11% in the second quarter of 22 compared to the prior year year due to the general student behavioral trends in the United States.

Speaker 12: I would now like to turn the call over to Rick to review our first quarter results and second quarter outlook in further detail.

Speaker 13: Thank you, Angie. On Slide 8, we present our financial highlights for the first quarter of 2022. total revenue was 155 million, of approximately 66 million from the comparable prior year period. Due to the addition of rasmusson and graduate school results in the 2022 period and APUS, although total net course registrations were up 1% in 2022 compared to the 2020 one quarter, APS first quarter 2022 revenue decreased approximately 6% to 73 million. The decrease in venrevenue was a result of the timing of registrations within the quarter and lower revenue per net course registration. The increase in net course registrations in the current quarter was driven by active duty military registration growth. These students utilized tuition assistance or tag and have a lower revenue per course registration than other funding sources.

Speaker 14: Hundreds revenue increased approximately 4% to 12 million in the first quarter of 2022 versus the comparable prior year period, driven by the year-over-year enrollment growth that Angie touched on earlier. First quarter 2022 raspmuss revenue was 67 million and the consolidated results include approximately three million of graduate school revenue. Within corporate and other.

Speaker 15: Total cost and expenses for the first quarter 2022 were hundred and five million and increased of approximately 72 million compared to the prior period, due primarily to the inclusion of rasmusson and graduate school results in the current year period. Expenses for the quarter include two million of noncash stock compensation expense.

Speaker 14: nine thousand of professional fees and integration costs, primarily related to the integration of graduate school and rasmusson, eight thousand related to loss on disposal of longlive assets and approximately eight million of depreciation and amortization, all on a pretax basis.

Speaker 14: As a reminder, we completed a reduction of force at rasseonse mid-January 2022 that we estimate will result in pretax labor and benefit savings in the range of two point five to three point five million in 2022, which excludes four thousand in severance costs associated with these actions.

Speaker 14: On a consolidated basis. eightpei adjusted EBITDA was 17.4 million for the current year quarter, compared to 16 million in the prior year period. Net income per diluted share for the current quarter was 28 cents versus 49 cents in the prior year period.

Speaker 14: Toe cash and cash equivalents at the end of the first quarter were 171 million, an increase of approximately 21 million from year-end 2021.

Speaker 14: Cash provided by operating activities was 25 million in the 20- 22 quarter, compared to 11 million in the prior year period. The increase in cash flow from operations was primarily due to payments received from Army. The total of approximately twent y-one million in the quarter.

Speaker 14: theaccounts receivable from the Army, with 19 million at March 31, with approximately 11 million older than 60 days from core start date. We continue to work with the Army to address the passth due accounts receivable. Since quarter end we have received an additional six million in payments, with another six point eight million approved by Army for payment but not yet paid.

Speaker 14: restricuted cash in March 31 was approximately 26 million and continues to be almost entirely comprised of the restricted certificate of deposit that secures a letter of credit for rasmusson with the Department of education. Additionally, there were no borrowings under AP's $2 million revolving credit facility and which remains fully available at this time.

Speaker 14: Turning to Slide nine.

Speaker 14: Api's outlook for the second quarter of 2022 is as follows: APS.

Speaker 16: That courset's registrations are expected to be in the range of minus 2% to plus 1% year-over-year. At rass and hondro's second quarter student enrollment is actual because of the quarterly starts to these schools. At run decreased 2% year-over-year to approximately 8000 sortorred students.

Speaker 17: Total nonnursing total enrollment declined 10% for an aggregate rass in enroment: decline of approximately 6% year-over-year to approximately 15.9 thousand students. At hondro's second quarter, total student enrollment increased by 3% year-over-year to approximately two thousand four hundred.

Speaker 16: Students.

Speaker 14: In the second quarter of 20: 22 consolidated revenue is expected to increase between 92% to 97% year-over-year. Given the addition of rasmus, income to be between zero, one thousand and one point four million and earnings per diluted share of between zero and seven cents per diluted share. Adjusted EBITDA is expected to be between 14.3 million and 16.2 million. For the second quarter of twent thousand and 22.

Speaker 14: With that, I would like to turn it back to Angie for final comments.

Speaker 9: Thank you, Rick. In summary, we remain confident as we continue to transform and diversify API's portfolio of career learning assets and fulfill our mission of educating service. -minded.

Speaker 7: Demand for nursing graduates is expected to remain strong for the foreseeable future, as employers are clamoring for new nurses to supply the national shortage, and we believe we are well positioned to fulfill these needs.

Speaker 7: Ap continues to strengthen its number one position in education to the? U's military and veterans and overall, API continues to represent an exceptional return on educational investments for working adults by keeping tuition rates and checks, while providing books and materials at no cost and being one of the most friendly transfer credit institutions.

Speaker 7: We now ask the operator to open the line for questions.

Speaker 18: Thank you and as a reminder that a Star one ask the question, we will call for a moment to compile the Q a roster.

Speaker 19: And our first question will come from chby summer with true Securities?

Speaker 20: ple go ahead.

Speaker 21: Good afternoon. This is jasper. Good bond fortoby. Marketing expenses came in a bit higher than we're expecting in the first quarter. Was just hoping you could update us onsomewhat you're seeing respect to student interest levels and managing the marketing yield there.

Speaker 22: So Jeff fer, let me comment on the numbers and then- and you can comment on student interest, you're right, marketing numbers were up.at rasmus, we saw approximately a million dollars higher than what we were actually expecting when we did guidance, as they invest in in student momentum. And at Hondros, when you look at the quarter, was up about $4 thousand year-over-year, So investing both both the nursing related businesses.

Speaker 23: Sure and what we're seeing in the conversion of those marketing dollars is very promising. That hasn't necessarily led to the number of enrollments that would be equivalent to prior year period, So we see double digit increases. An application: what we are seeing is a slower application to enrollment pace with with a handful of students primarily focused in the Northern territory of rapisand business. But we are keenly focused on adding to our admissions reps to help support the questions and the curiosity that those prospective student passed TA the time tofillout an application and we will continue to lean in and convert those students to to enroll students. The other thing that we are seeing is the, as we mentioned in the script, that we have had to increase the wages of our adjjoun and full time faculty, specifically because the state of Minnesota has required rassus to go back to in person some clinical, whereas in in the last two years since the beginning of COVID-19, rassus has been given the opportunity to do clinical rotations virtually, and so consequently we're now looking to ask both part time the full time faculty to the present in hospital environment to support the clinical learning for the students and that's creating some scheduling and availability conflicts.

Speaker 16: So we are looking at different kinds of incentives to ensure that we can fulfill the clinical placements that we need with our students with the appropriate as-on faculty support.

Speaker 16: That that makes sense. And then you know, understand- you are't guiding by yon two Q yet, But what some of the trends decid. Do you think the second quarter would represent a low point for margins in 2020 -two, or how should we say quickly? Nor will the.

Speaker 14: On wages, particularly related to nursing faculty. Well, that's us up inside, So that ongoing inflationary and inflation and nursing faculty cost.

Speaker 14: Impact on our nursing.

Speaker 24: Businesses through the remainder of this year.

Speaker 25: We do believe it's an environment where it's our obligation to tighten our belt, and so we'll be looking for opportunities for cost savings across.

Speaker 5: All of our education units in the coming quarters to really improve the margin profile in spite of inflation.

Speaker 16: Okay got it. And then, with the eightigh us enrollments being down pretty significantly from one Q in the second quarter guidance, can you give a bit more color on what dripping that, that enrollment trend? Is that primarily the impact of the true movement he cited in response to Russia Ukraine, or is there anything else we should pick up just for trick? Now that's your seasonality. Year-over-year we're seeing it was a 1% increase in.

Speaker 16: And given our guidance.

Speaker 14: And if you go to the midpoint, to be about a 1% increase in the second quarter. So both quarters are tracking.

Speaker 16: Seasonality and, I would add, we did as we mentioned in the script.

Speaker 26: First month of the quarter in April because of the Ukraine conflict. But we are seeing momentum building again as the troops get deployed and they are waiting for their instructions And so able to kind of reengage in their education. The other thing that we do know about the second quarter is that we do have one last week of of registration enrollment as compared to the prior year, So that will be factored into the second quarter as well.

Speaker 16: All right. Last one for me. There have been a couple of other services providers talking about students may be taking less courses than they have in previous semesters. Is that something you're seeing at any of your portfolio of institutions?

Speaker 27: Right So just for got to break down the different units in the nursing schools. It's a prescribed curriculum, right? So you signed up on a a term or quarter basis and curriculum prescribed based upon the program that you're in. When you look at AIS, the military students have historically taken fewer courses and so on average we they see a very slight decline in average courses taken over the entirety of the University each. Simply because of that mix shift.

Speaker 22: So this: we observed any?

Speaker 16: Because by call a customer segment, I would put- I would put some numbers behind that- at rasisson, the retention rates for students. So once they've defined a cohort and you're taking four classes each quarter, the retentions and all-time high rasis. Until once students have begun their educational journey, they're completing at an all-time high pace and we're also very pleased to report that retention, meaning the concentration of courses that a puus is up a percent year-over-year in the first quarter.

Speaker 16: Appreciate the callor. Thanks for chetake the questions.

Speaker 16: Our next question will come from Steve sheldman with William Blair. Please go ahead.

Speaker 28: Hi everyone, this is Matt filacagon for Stephen. Thank you for taking my questions.

Speaker 29: Was wondering what impact our enrollment caps having on the business and are there any?

Speaker 30: Campuses that are struggling to grow because of those enrollment caps.

Speaker 31: That thanks for the question as we mentioned we aren't seeing any growth restrictions because of enrollment caps across the rases and campuses. We have no enrollment caps. You know among the other education units. We have what I would call self imposed limit on the number of students who are rolling in the Northern region of rases presently because of the lack of.

Speaker 32: But that is not anything other than our own obligation to make sure the students are getting a high-quality education and we have the right mix of faculty to students. So this is rect, So that the limit there is based upon the availability of faculty, particularly in the clinical area. When we think about the physical space, the campuses, we have plenty of room to continue to grow enrollment within those. So once we solve the availability of faculty challenge, we have capacity within the physical spaces to continue to grow enrollments.

Speaker 16: I' the nursing faculty front. Could you maybe just talk a little more about what actions you're specifically?

Speaker 33: And how do you generally feel about your ability to build nursing faculty capacity to meet student demand over the remaining part of 2020? -two.

Speaker 16: varviety of basically financial.

Speaker 34: So as well as selex schedule levers that we're using right now certainly, I think.

Speaker 16: It's the most acute but, as we mentioned, it was this very swift shift from a virtual clinical in the state of Minnesota back to in person clinicals that has created.

Speaker 32: dida lack of availability of some of the ad-somept faculty that we had been relying on in a virtual environment in the past, and so it's in some wages- either be because of St bonuses or increased pricing facultyes- to now do these IM.

Speaker 32: clinacles in H in hospital.

Speaker 35: President being able to do those virtually from the comfort of their home or there or their office So.

Speaker 16: So we do believe that we will see a continued pressure on our faculty wages in the coming quarter or two.

Speaker 36: Thanks for that call. I'll jump back in the queue.

Speaker 16: And our next question will come from.

Speaker 16: Price.

Speaker 16: Hi and.

Speaker 37: Sorry about that. B Thank you for atting in the University and marketing spend.

Speaker 16: That on the nonnursing I'm working as well and want to understand the enrollment declines.

Speaker 38: Out the early education accounting for.

Speaker 39: A quarter of the decline.

Speaker 40: Could you do talk about that and.

Speaker 16: The longer-term sort of picture in we Bom nuring.

Speaker 16: Hi rise in restaurant.

Speaker 16: nope.

Speaker 41: Sorry I'll let you finish your question. No, I'm done going Please.

Speaker 6: Okay sureort. So start by saying that there is positive news coming from some of the the non nursing segments in Raf in quarter two where we are seeing flat to growing enrollments there. And we believe that that's a return of interest of students wanting to take education benefits and and continue their education. So we do believe that there is momentum in several of those including the business school health sciences and in the the Justice studies program we have also as we noted in the 10-Q terminated the media buying relationship that rasus had with collegiious which is allowing AAP I to have more control over the choicees being made about how we're going to generate leads and where we're going to invest those dollars that will the fully terminated and a I will be responsible for media buying direct consumer. Media can of buying affected July one of 2020 two and so we have confidence that we with the ability to direct those efforts will be able to create a balance around nursing prelicensature. Nursing leads and.

Speaker 7: The key nonnursing businesses, to generate more momentum across both of those segments.

Speaker 42: So So, as the decline in the moment largely have been because of the economic pit to labor markets and keeping students away from an enrolling, or how marketing dollars not been spent. whe they have't spent, it is not efficient.

Speaker 9: Yes great, quite while you're been in-house, rightpe.

Speaker 1: Yes there's an ememeaningful shift, as we've discussed on prior calls, marketing dollars investing in prelicenssure nursing, leadase and and kind of being redirected away from the nonnursing businesses. We intend to try and create an end strategy with control over the media buying now for rasis effect of July first of 2022 and have a high degree of confidence that.

Speaker 43: And what I will reassforort again as we mentioned in the script is that.

Speaker 44: It is really.

Speaker 45: Almost exclusively a Northern region issue. We're not seeing.

Speaker 16: Same dmmas in our markets in Florida or Illinois.

Speaker 16: But that's also related to the faculty right unavailable way of the asing faculty. Yes, my next question is on just an observation: our conless enrollment trend, different from the nursing reues, how is that second quarter? And it seem a little different. Others seems to be doing a little better.

Speaker 16: Hey roche, it's Rick. Yes, and I think that's a market basase view. Right, it's what's going on in the Ohio market, where they have their largest concentration versus the impacts we see in the North Central region at rasmusson.

Speaker 46: Yes then fewer problems with access to faculty. I think it's primarily one of the things that isn't clouding the hondro's picture like it is in Ras.

Speaker 16: Got it. And then on the APU's enrollment, it's flat, it's essentially flap. Second quarter guidance.

Speaker 38: Is that despite the military enrollments, sort of picking up issues kind of behind us that would being held. There was a low because of Ukraine but you saw a pickup the interest but the enrollment trends are guided to flat.

Speaker 46: I think you it right. Yes, I think you VE got a right Raj engine. And her comments noted that we continue to see strength in the military, some softness in May because of Eastern Europe recovery from that, and the other elements of the business- military affiliated and and non military- remain soft. What I will say rise is that we, as we mentioned on our prior call, have completed a significant portion of our CR upgrade and we are seeing a meaningful increase in the number of applicants at as and much like the situation that rap and where we want to make sure we have the right number of admissions reps able to process the the, the interested student applications. We're also pro trying to work to appropriately size the's admissions team as well, to make sure that we are converting everythingsinglethe one of those applications that we can into enrolled students.

Speaker 25: So it ISN. 't. At atu's in particular on the nonmilitary side, we don't really see it being as much a Opp of the funnel issue as it is really being able to take those interested prospects in converting them into enrolled students.

Speaker 2: And Jeff, and you know, our new cxo is labor-focused on this, in conjunction with the APS management team.

Speaker 37: Right that's exciting. That's exciting. Thank you for answering my questions. I'll take my llunthket offline for me, Thank you.

Speaker 16: Send us no further questions. That will conclude today's conference. Thank you for your participation, and you may now disconnect.