Q2 2022 American Public Education Inc Earnings Call
prelicensure nursing program. Rasmussen's enrollment momentum in Bloomington, Minnesota, has been limited by self-imposed enrollment caps.
As we discussed in our last earnings call, primarily due to lack of faculty availability for clinicals.
About 3% of RASdison's Q3 2022 enrollment decline can be attributed to this self-imposed cap.
RAS has increased select clinical wage rates to ensure adequate
coverage for faculty.
And as a result of the prior year NCLEX scores for Rasmussen's Bloomington ADN program, Rasmussen entered into a consent with the Minnesota Board of Nursing that among things establishes the same faculty to student ratios for that program that Rasmussen had previously implemented in order to bring NCLEX scores back to the Minnesota threshold of 75 percent.
RACIS's 2022 decline in EBITDA is primarily a consequence of three factors.
The year over year revenue decline.
an increase in the marketing spend, as I noted previously, and an increase in talent costs, which includes the increase in faculty costs,
along with aligning Rasmussen's executive compensation and workforce benefits with the APEI plan.
As a result, we intend to take $12 to $15 million out of our non-variable costs across the entire APEI enterprise in the next 90 days.
nearly three times the original incremental year two synergy estimate that we stated prior from the Rassison acquisition.
Our synergy expectations were initially $5 million in year one, recurring, and an additional $5 million recurring in year two.
These actions are outside of direct academic delivery costs and outside revenue generating parts of the business and instead are focused on realigning the organizational structure, eliminating redundancies and optimizing certain functions.
We are working to complete our realignment changes by the end of 2022 so that the results can fully benefit our 2023 operating and financial results.
The limited implementation of the Deloitte version of the Army Ignite platform at APUS has prompted the army to choose to move to a new portal with a provider currently serving the Air Force called BAMTEC.
This cut over is currently scheduled for late August .
APUS has been identified as an acceptance test partner and is working collaboratively with the new platform provider on automating some data transfer to minimize manual input required from soldiers or bases.
For the second quarter of 2022, APEI's revenue was roughly $150 million, up 92% compared to the prior year period, as we added racism during the third quarter of 2021.
We remain focused on educating the service-minded students and believe we are still well positioned to take advantage of the sizable nursing education shortage in the United States as the number one educator of pre-licensure nurses as well as building upon our number one position with the active duty military and veterans.
Turning to page four, let's discuss APUS's results in further detail.
APU has strong net course registrations from active duty military, particularly from the Army, which was up 38% in the current quarter as compared to the prior year period and is our largest active duty military branch.
Active duty military overall was up 9% in the second quarter of 2022.
compared to last year.
Registrations for most of the other military branches were negatively impacted in Q2 by the rapid pivot of those services to training and combat ready status due to the outbreak of the conflict in the Ukraine.
Overall, APUS experienced increased net course registrations of 1% in 2Q22 compared to 2Q21 as our veteran and nonmilitary saw a pullback consistent with softness in the broader higher ed market in the first half of this year.
Our status is the number one provider of higher education to active duty. Military has effectively provided an offset to the broader market conditions and allowed for an overall net registration increase year over year.
To help us enhance our focus on continued growth and execution, we have a series of
As I mentioned before, I'm very pleased to announce the hiring of our new president at AP West, Nuno Fernando.
Nuno comes to us from Illumina where he was president and CEO of the largest OPM in Latin America and among the top three globally in number of managed students.
During his almost 10 years at Alumna, the last three of which he was president and CEO , he was instrumental in driving growth from approximately 100,000 students in 2012 to almost 300,000 students in 2020.
His simultaneous focus on student success significantly improves student retention and graduation rates to some of the best in the region.
We believe Nuno's strong background and experience make him a perfect fit for APUS, and we are excited about the growth trajectory APUS can accomplish under his leadership.
We would also like to thank Dr. Kate Zatz for her 18-year commitment to APUS and her service during the last 10 months as acting president of APUS while we completed this search.
Separately at the end of August , the Army Ignite Ed portal, the system soldiers use to request tuition assistance, will be transitioned to a new provider while simultaneously receiving an upgrade to the system.
Even as the Army Ignite Ed portal has improved throughout 2022, Army recently announced that it will again make a change and transition to an upgraded Army Ignite Ed 2.0 portal for courses beginning on or after October 1, 2022.
BAM Technologies will be the new service provider of AIE 2.0 and the expected go live to the upgraded system is August 23rd.
While this represents a second transition in 18 months, we believe that there are several important and significant differences between the upcoming transition versus the complications experienced during the 2021 transition from IBM's platform to the current Deloitte hosted platform that we'd like to point out here.
First, BAM Technologies is a proven service provider with significant experience working with the military. It has been operating a similar system for the US Air Force, which it has been servicing for over 15 years.
Unlike during the transition in 2021 where there was zero overlap between IBM and Deloitte during this process, Deloitte will remain on contract through March 2023 to facilitate the transition and could continue as a service provider should any unforeseen issues arise.
Unlike the 1.0 Deloitte system, which required quite a bit of manual intervention on the part of the Army Education Service Officers on bases,
We have been informed that those manual interventions have been eliminated in the 2.0 systems and we welcome this clear upgrade.
We can tell you that these manual interventions accounted for roughly 30% of all issues encountered in the 1.0 system.
Lastly, in conjunction with the transition to 2.0, APUS has been designated as a User Acceptance Test or UAT Partner.
This affords us the ability to see the system prior to rollout and work closely with BAM technologies to help contribute to ensuring the system operates as intended and the transition is smooth.
Overall, we are cautiously optimistic about Army and BAM Technology's ability to implement the 2.0 system in a timely manner with as little disruption as possible and see the move away from the previous provider as a positive for Army soldiers and APOS alike over the longer term.
Looking ahead, we still expect to be impacted by the tight labor market on the nonmilitary registration...
Although we anticipate the impact will be offset or mostly offset by strong continued military growth.
Thus far, all branches of the military, except for Coast Guard, are up year over year through the first two months of the third quarter.
Overall, we anticipate next course registrations at APUS of between 0 to plus 5 percent in the third quarter of 2022 versus a difficult third quarter 2021 comparable period when the Army portal resumed functionality at that time last year.
This translates to a range of 83,100 to 87,200 net course registrations in the third quarter of 2022. It is important to note that this forecast does not take into account any potential impact related to the transition to the new service provider and upgraded technology of Army Ignite Ed 2.0.
Now let's turn our attention to RAS-BISN on page 5.
Performance at Rassos in a 2Q was not where we expected it to be and was impacted by a few factors and reflects some challenges in specific markets.
In particular, our northern region and more specifically our Metro Minneapolis market experienced sharply lower nursing starts.
As we discussed earlier in my remarks, during the last quarterly earnings call, our nursing enrollment momentum in the northern region was affected by the lack of available adjunct faculty who excavation placing is the topic of the public debating.
As we discussed earlier in my remarks, during the last quarterly earnings call, our nursing enrollment momentum in the northern region was affected by the lack of available adjunct faculty to support in-person clinicals.
As a result, we implemented self-imposed enrollment caps to ensure we had the appropriate faculty to student ratios, which resulted in lower nursing starts and caused nursing enrollment to contract to 8,200 in the second quarter of 2022 as compared to 8,300 in the prior year period, or down 2%.
If we were to exclude the impact of our self-imposed enrollment cap, we would have generated positive overall nursing starts year over year.
We are working diligently to solve the adjunct faculty shortage, including by introducing variable wages for challenging clinical time plots, and have seen increased interest from adjunct faculty.
Rasmussen will work to continue optimizing the dynamic wage model and ensure faculty shortages don't arise in the future.
In addition to the faculty challenge, a few of RASIS's ADN program locations continue to experience first-time NCLEX pass rates below applicable state thresholds, which we believe was in large part a symptom of instruction having moved online for a number of months due to COVID.
We'd also note that this was not a phenomenon unique to Rasmussen as NCLEX first-time pass rates across the country dipped in recent quarters.
This is also a key reason why we are metering enrollment to Minnesota so we can deliver on state NCLEX outcomes.
Spending a moment on grants to non-nursing, enrollment saw an 11% decline in the second quarter compared to the prior year.
This decline was less than what we experienced in the first quarter but still down compared to our pre-licensure nursing and active duty military registration.
which remain fairly well insulated from the broader higher education trends.
Despite this, there were a few bright spots to report on the non-nursing side, such as increased year-over-year starts in our School of Design, up 15%, our School of Education, up 12%, and our School of Technology, up 9%, albeit each from a small base.
Overall, however, the continued tight labor market and higher wages impacted prospective student interest levels during the first half of the year, leading to RAS's non-nursing enrollment performance that we believe is generally in line with the broader private for-profit education sector.
Shifting to changes in the business and as indicated during last quarter's call, we made a strategic decision shortly after the acquisition of Rasmussen to further our strategy by centralizing our marketing and enrollment services at Rasmussen.
Part of this shift was migrating the work managed by the third-party provider Collegius.
to our in-house marketing operation, which began to take effect July 1st.
We began the migration earlier than expected and we are already seeing some early signs of positive results along with increased efficiency.
With these early results, we have increased our marketing investments by $3.8 million at Rasmussen. And we have increased our marketing investments by $3.8 million at Rasmussen.
predominantly focused on pre-licensure nursing in our growth markets.
While this transition will benefit us with lower marketing costs, it was done so that we have full control of our marketing and enrollment operations.
Results through the end of July are showing good momentum and these efforts have begun drawing higher lead volume overall with nursing leads up 40% quarter to date versus the same period last year.
With the use of more advanced capabilities, we have greater control over optimizing our media across geographies, programs, channels, and audiences.
Early signals show an increase in capturing more demand from our primary market and we are purposefully optimizing for our highest LTV program on campus nursing.
Additionally, our campuses are showing increased interest in nursing since these activities were brought in-house.
We set an ambitious internal goal for new starts in the fourth quarter and are tracking towards meeting these targets.
Based on our current plans, we anticipate that Rassus's nursing enrollment will turn positive by the second half of 2023.
In addition to the marketing change since our last earnings call, long-time CEO Tom Schlegel has departed.
We thank Tom for his service at Rasmussen and APEI.
As we have officially launched the search for the new president of racism
Early views of prospective candidates are encouraging, and we are particularly focusing on finding a growth-minded leader to help Braxtonson prioritize its core programs and reestablish enrollment momentum, especially in our highest LTV nursing programs.
In the meantime, the Rassus and business is in good hands with Javier Miaras as its acting president until the permanent position is filled.
Javier has extensive experience in higher education with over 45 years driving innovation and change in campus-based and online modalities, including eight years most recently as president of the University of Maryland Global Campus.
For the third quarter, our guidance is for Rassafin's nursing enrollment to be down approximately 8%, and non-nursing enrollment is expected to decrease by about 8% in the third quarter as well, compared to the prior year period, due to general student behavioral trends in the United States.
Let's turn our attention to Honduras on page six.
At Honduras we are seeing positive enrollment momentum.
Enrollment is up roughly 3% to 2440 in Q22 versus the prior year period, and we are expecting a 4% increase in the third quarter of 2022.
While we have seen some slowing down in the growth trajectory, this is partly caused by COVID. As we saw, almost 2% of students delayed their resumption of classes after the July 4th holiday because of contracting COVID.
The cost of tuition remains the number one reason prospective students don't enroll in our Other work on our process.
This is why we are very pleased that we have signed a phase one agreement with a large national healthcare provider to facilitate providing access and education to more students through an arrangement of tuition sponsorship in exchange for a multi-year work commitment.
As we begin to operationalize this program, we expect normal course challenges that are excited about this inaugural partnership and are encouraged by conversations we are having with other prospective partners.
These partnerships will be beneficial to all parties as they enhance enrollment growth in our nursing programs, help build a workforce shortage in the health care system, and provide reduced education costs plus an entry into a career with a specified employer for our students.
Honduras has also seen early interest from prospective students in the Detroit location despite no marketing effort other than the Michigan Board of Nursing unexpectedly publishing our new location on their website.
We have submitted all approval requests and are awaiting responses from the state nursing board to get our first cohort signed up at the brand new campus.
Now, the strong early interest in Michigan shows that demand is present for our high-quality pre-licensure offerings and measured expansion should lead to the scale necessary for hondros to return to strong profitability.
For the third quarter, we expect Honduras enrollment to be 2,410 students, up 4% from the prior year period. For the third quarter, we expect Honduras enrollment to be 2,410 students, up 4% from
Finally, I would like to briefly mention that at graduate school we continue to make progress in our effort to reposition and turn around that business and position it to be API's platform for career learning and workforce training.
I would now like to turn our call over to Rick Sunderland to review our second quarter results and third quarter outlook in further detail.
Thank you, Angie. Going on to slide 8, second quarter 2022 financial results.
On slide 8, we present a summary of our financial results for the second quarter of 2022.
Total revenue was approximately $150 million, up approximately $72 million, or 92%, from the comparable prior year period, due primarily to the addition of Rasmussen and graduate school revenue of $64 million and $4 million, respectively, in the 2022 period.
At A2S, revenue was approximately $70 million, an increase of approximately $3 million, or 4%, as compared to the prior period. The revenue increase was due to a 1% increase in total net course registrations in the second quarter of 2022 compared to 2021, and the timing of registrations in the quarter.
Honduras revenue was 12 million, an increase of 400,000 or 3% as compared to the prior period.
This increase is in line with the year-over-year enrollment growth that Angie touched on earlier.
Second quarter, cost of expenses include a non-cash impairment charge of $144.9 million to reduce the carrying value of RU segment goodwill and intangible assets and to reflect the corresponding tax impact.
The impairment charge was the result of our evaluation of Rasmussen financial performance compared to plan and overall financial performance during the period and also included recent enrollment trends as well as industry and market conditions.
To complete the fair value analysis, we engaged a third party valuation firm to determine the fair value of rasmo sets.
The independent valuation firm used two methods when determining the fair value of Rasmussen, equally weighted 50-50, the discounted cash flow method and the guideline public company method.
Therefore, the final valuation was impacted by both the financial performance of the business as well as public company pricing multiples in the higher education space.
Excluding the tax impact of 36 million, we estimate that roughly 2 thirds of the impairment, or approximately 70 million, is attributable to the discounted cash flow analysis, and the remaining 1 third, or approximately 36 million, is attributable to market metrics.
Excluding the non-cash impairment charge for the quarter, total costs and expenses were approximately $146 million.
an increase of approximately 70 million or 92% compared to the prior year.
The year-over-year increase in expenses was due primarily to the inclusion of Rasmussen and graduate school results in the current year period.
Additionally, we estimate the impact of inflation to be approximately 5% of nursing faculty wages and student supplies, or approximately $1.5 million during the quarter. Expenses for the quarter include approximately $2 million of non-cash stock compensation expense, $400,000 of professional fees and integration costs primarily related to the integration of Rasmussen and graduate school, and approximately $8 million of depreciation and amortization, all on a pre-tax basis.
On a consolidated basis, API adjusted EBITDA was 14.5 million for the current year quarter compared to approximately 9.9 million in the prior year period.
Net income per diluted share for the current quarter was a loss of $5.82, including the impairment charge, and a loss of $0.06, excluding the impairment charge, versus income of $0.03 in the prior period.
Total cash and cash equivalents at the end of the second quarter were approximately $185 million, an increase of approximately $35 million from year end 2021. Restricted cash at June 30th was approximately $27 million and continues to be almost entirely comprised of a restricted certificate of deposit that secures a letter of credit for RAS bussing with the Department of Education.
Cash provided by operating activities was approximately $45 million in the first half of 2022.
quarter first half of 2022 compared to approximately 9 million in the prior year period.
The increase in cash flow from operations was primarily due to payments received from Army that totaled approximately $39 million in the first two quarters of 2022.
Accounts receivable from Army were approximately 13 million at June 30th and approximately 7 million was older than 60 days from course start date. We have continued to work with Army to address the past due accounts receivable and have made significant progress.
However, with the transition to the new Army Ignite Ed portal provider and related upgrade, we could see an increase in the accounts receivable due from Army and a decrease in cash flow in the second half of 2022.
With the increased unrestricted cash at the end of the second quarter, APEI's net debt was just $11 million at the end of June . Additionally, there were no borrowings under APEI's $20 million revolving credit facility, which remains fully available at this time. Looking ahead, we continue to evaluate uses of our increasing unrestricted cash balance, including the possible prepayment of debt.
Going on to slide nine.
The third quarter 2022 outlook.
API's outlook for the third quarter of 2022 is as follows.
APOS total net course registrations are expected to be in the range of 0% to plus 5% year over year.
As a reminder, year to date net course registration growth has been driven by an increase in active duty military registration growth, partly offset by declines in our veteran and other service minded students.
At Rasmussen and Hydros, third quarter student enrollments are actual because of the quarterly starts at these schools.
At Rasmussen, third quarter total nursing student enrollment decreased 8% year-by-year to approximately 7,700 students.
Total nursing, non-nursing total enrollment also declined 8% for an aggregate last-listen enrollment decline of approximately 8% year-over-year to approximately 15,000 students.
At Honduras, third quarter total student enrollment increased by 4% year-over-year to 2,410 students.
In the third quarter of 2022, consolidated revenue is expected to increase between 48% to 51% year-over-year given the addition of Rasmussen and graduate school.
As a reminder, there was one month of rash lesson results included in the comparable third quarter of 2021.
The company expects net income to be between a loss of $5.8 million and a loss of $4.5 million and earnings per diluted share of a loss between $0.31 and a loss of $0.24 per diluted share. Adjustity is expected to be between $5.8 million and $7.7 million for the third quarter of 2022. The company expects net income to be between $5.8 million and $7.7 million for the third quarter of 2022. Adjustity is expected to be between $5.8 million and $7.7 million for the third quarter of 2022.
Third quarter adjusted EBITDA is negatively impacted by nursing faculty wage inflation, and separately the impact of the enrollment reduction at the Roswes and Bloomington campus. The latter estimated to be approximately $1 million.
With that, I'd like to turn the call back to Angie for final comments.
Thank you, Rick.
In summary, each of our leaders
remain confident in APEI strategic positioning as number one serving active duty military and veterans, and number one, educating pre-licensure nurses.
While we also continue to transform and diversify API's portfolio of career learning assets,
and expand our mission of educating the service minded.
In the near term, the factors adversely impacting athletic.
Nursing enrollments will continue to be affected by these smaller prior quarter cohort enrollments for the next few quarters.
However, as we continue to bring marketing back in-house at Rasmussen, we are seeing early indicators of success that we believe will translate to increased starts and ultimately increased enrollment, especially as we believe 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.
We believe we continue to be well positioned to fulfill these needs.
Key leadership changes at APS, API, and Rastafson.
will help reinforce and accelerate the business on enrollment growth and momentum.
And overall, APEI continues to be focused on higher education return on investment for our service-minded students by keeping tuition rates in check and being one of the most transfer credit-friendly institutions.
We now ask the operator to open the line for questions.
Thank you. Today's question and answer session will be conducted electronically. If you would like to ask a question, please press star 1 on your telephone keypad. Once again, everyone, hit a star 1 to ask a question.
We'll take our first question from Toby Summer with Truist Securities.
Hey, good afternoon. This is Jasper Bibbon for TOBI. Just on the Rasmussen performance, I know you mentioned the ability to hire, like a tapping enrollment, but how recent would you say its deterioration in performance has been there and how much would you say is market factors versus, I guess, the performance?
Just RASMUS in its operations.
Hi, it's Angie. I will be happy to answer that question. There have been episodic incidents over the last several quarters where Rasmussen began to cap enrollments in the Bloomington campus. The most, I think, overt was in this recent quarter. And consequently, that is the reason for what we're forecasting in terms of declines.
I think that while we saw our own cap being imposed because of these faculty shortages, what we had been experiencing from the time of the close of the acquisition was a degradation in the effectiveness of marketing from the third party provider. And so we remained very steadfast in our belief that moving, moving, moving, moving, moving,
that mission critical revenue generating function in house, rather than having that outsourced to a third party provider was absolutely necessary for us to build momentum and regain enrollment momentum at Rasmussen.
And then I guess looking at the third quarter guidance, does that assume negative adjusted EBITDA from both Honduras and Rasmussen, or how should we think about the profitability there at the segment level?
It does, Jasper, in both those...
EU, both those business units.
But we're laying the foundation to reverse that enrollment trend and it's the growth engine that will drive profitability in those units. The other thing to note is we are in the midst of the startup of the Michigan campus, which does have a negative impact on the on the Honduras even though for the period.
So how should we think about, I guess, the timeline?
to get Rasmussen back to, I guess, breakeven or adjusted even without profitability going forward.
Right, so as Angie indicated in her remarks, given the current plans in place for targeting to return to enrollment growth at Rasmussen in the second half of 2023, I think, you know, broadly speaking, the earnings of those units will track with the enrollment turn and ultimate growth in enrollment there.
And just to put a finer point on that, Jasper, unlike APUS, and I think we've tried to share this difference before, APUS has monthly starts and students buy courses in eaches. So blips in consumption can be rectified more quickly than in either hondrodes or racicins.
because racism has quarterly starts.
as those hondros and in the case of the nursing programs in particular, because there is a defined curriculum.
and students move through that curriculum in a cohort.
If you impose a cap on a cohort at the beginning of an academic journey, you are basically living with that.
reduced enrollment in that cohort through the entire educational journey of those students until they graduate and complete. So when Rick is talking about returning to enrollment growth he's not talking about nursing starts, he's talking about enrollment total. Because we now have imposed a limit and now we will live with that reduced cohort through the entire journey for those students to graduate. So hence the reason why we are very pleased with the early results.
and critical that we control our destiny on marketing and enrollment momentum by bringing that capability from the third party back in house.
Okay. And as part of, I guess, the response to some of the inflationary pressures you've been seeing at Raffasan and Honduras, are you evaluating tuition price increases for the nursing programs?
or how are you thinking about that?
Yes, Jasper, it's Rick. Obviously, we look at all the levers we can pull and pricing is one of them. It's a program by program and market by market analysis.
But we do see that as...
an opportunity or maybe a necessity in a world where we're seeing wage inflation at the levels that we're seeing it. And RASDSAT at the beginning of 22 did in fact selectively increase program pricing among several of its programs. So that was put into place earlier in the year and we need to look at the programs that had not experienced an increase and evaluate that at this time.
Last question from me and then I'll get back in the queue. Can you just update us on where you think you would stand over the new 9010 regulations that were announced a couple weeks ago?
Yeah, that, Chastity, we've looked at that continuously since they've been talking about it. It's been a long time.
Across the EUs, there's really no challenge at RAS. It's in the kind of 77 range. Honduras is about 80. It would be APIS, which we've talked about when you add in the tuition assistance, which is active duty, and then VA. You can look at our concentration note in our financials. It's not an exact proxy, because as you know, 90-10's on a cash basis, and that's an accrual basis based upon primary payer. But I think we've said in prior...
our calls were about 87% and we still track towards that number so we would be under the 90% under the new rule and we do look at that as being implemented with a measurement date starting in January of 23 so we're very cognizant and focused on maintaining that 87 and reducing it through other activities and students that are non-federal funded.
Okay, got it. Thanks for taking the question.
We'll take our next question from Raj Sharma with B. Riley.
Hello, thank you for taking my questions. I wanted to touch upon Rasmussen. I think there's been significant degradation since.
I wanted to understand and now you have an impairment, I understand the impairment is a non-gas charge and it's an accounting exercise, but it is a big piece of the original purchase price of 330. So I just wanted to understand does it inherently accurately reflect the
true intrinsic value of Rasmussen and obviously
You've made statements that employers are clamoring for nurses and they will need nurses and you are going to fix the enrollment issue. I just wanted to... I wanted to..
could understand, do you see the impairment of accounting as a reflective of the intrinsic value of restlessness in order to be overpaid?
So, Raj, it's Rick.
We broke down the impairment between, let's call it business performance elements and then market-based elements.
between let's call it business performance elements and then market-based elements.
It's a snapshot.
But we remain very enthusiastic about the long-term elements of the business, right? The nursing and the supply demand and balance for nurses. That's unchanged. Obviously, it's impacted by things like our ability to hire faculty and the enrollment gaps that we put in place in Bloomington. And obviously, we have to do those types of things. So that does impact the number when you look at the business.
and you look at what's been going on since we bought it last.
Last fall, there's things that are happening. The delivery model is altered, I believe we've talked about this. There was a time during COVID when much of the delivery was online and then it went back on campus. We are experiencing higher costs. We talked about inflation and particularly nursing faculty waste inflation. And then the declining enrollment. That's a post-COVID phenomenon and it's also a business-specific matter related to.
Bloomington as the example. So.
It is a current snapshot, but I think long-term, we all remain enthusiastic that it's gonna deliver on the promise of growth. We did talk about Raj in the call about how we're going to optimize our cost structure and address the cost side of the equation, right? So we are focused on enrollment and enrollment growth and we're also focused on addressing some short-term costs.
So without a doubt, I'll turn it to Angie. She just has a short comment. Hey, Rob. Yeah, hey, Roger. Steve, hey, don't just a couple more comments on there. Really to piggyback Rick's point of view, like we're playing a long game here with the RASFIS in acquisition, right? It was a unique asset with 20 plus campuses in a lot of important markets. Right now there are some internal, but also market driven challenges. And we'll be able to fix the internal ones. We think there's a lot of.
long-term positive secular trend, even if there are some minor sickle-cality, whether it's related to COVID or other...
you know, unemployment related matters a lot of unemployment rates. So we're still very positive on the way how that positions us as a business. And we also have opportunities as we think about, you know, aligning our business and, you know, providing a great service to students. We're in, you know, what we think is an end-of-the-world position, even though there are some short-term challenges.
And last point I would add, Ross, is we really look forward to bringing new leadership into Rathlison that will both focus on the important enrollment momentum for predominantly our pre-licensed nursing program, but also to make sure that we continue to anticipate our staffing needs so that we can operate with excellence. And so we're looking for a leader.
I certainly don't. I'll start and Rick and Steve can weigh in. I think we ended up.
in a circumstance which is what we call the perfect storm, where we've got the market comps of our sector trading at almost all time lows.
We had imposed, we thought doing the right thing, imposed an enrollment cap in order to make sure that we had the right faculty to student ratios in Bloomington to it ensure that our students were getting great educational experiences. And at the same time, we had returned to an operating model of fully on campus-based operations where we had enjoyed last year much more of up-blended online and on-ground.
operational experience was changed to the EBITDA profile. And so I think just that perfect storm that all certainly happened in this period of time basically prompted an accounting exercise to evaluate the value of the acquisition we made. We don't in any way believe that this represents the long-term value of a RASCISN and we will continue to remain enthusiastic about.
the supply demand gap that exists for pre-licensar nursing in the United States, which is quoted between 200 and 400,000 each year on an annual basis for the next 10 years. And our ability to continue to grow and supply those pre-licensar nursing student graduates. So.
I think we unfortunately face this timing issue and we are
Certainly seeing, as I mentioned, incredible momentum from a lead generation perspective. Now we've taken marketing and lead generation in house and for the first time in, I believe, 10 years for Rathasin. Got it, got it, thank you. Thank you for that answer. So that leads me to my second question because when you're seeing these really good leads on the nursing side, when did they translate into starts and how soon will we find out?
you know, the up 40% leads are really generating good stars.
Cwater routes.
Yeah, I think about 40% of the leads that we get in this period of time will translate into next quarter, starts and then the remainder will be in the next two quarters act of that, predominantly. We still are working all leads that we have that are even more than a year old and always are building momentum from those leads as well. So this will be something that will benefit us.
over the next half of quarters, now to the upcoming quarter itself. Hey, Raj, it's Rick. It's what Angie described earlier about the cohort basis, so much I know you understand. And you've got to teach through those cohorts that were smaller. So the way to up and down the way to reverse that is to have a large start. And so we're very focused, I think Angie's comments centered on. So we're very focused on a very large October start at Rasmussen.
the incremental $3.8 million investment in marketing. We're investing in what we've done, what Jeff and his team did, in source those execution services. It's generating good leaf flow. And then the teams at Rasmussen have to, to your point, have to convert those leads into starts. And everyone's aware of the priority and the mission to get that done. So we're very focused on, in October start.
that's going to set the path for ultimately total enrollment growth. Thank you.
switch for the Army Coral. You don't foresee, I mean, you see this process as having been done a lot more, you know, an organized way with the existing provider still in service. So you don't foresee delays that you had experienced last time.
You see, you're forcing this to be a smoother process.
We think the elements are in place, Raj, to make that happen. Right? We don't know, but we are planning and working hard to not experience the same challenges that we did last time. The points were made, a known provider with a known system, an organization we have a relationship with, we're doing the UAT testing. They're not going to drop the system on a day. They're going to run it in parallel.
I'm concerned about the data transfer from 1.0 to 2.0, particularly as it relates to unprocessed.
tuition assistance requests, which translate into transactions that we invoice. But those will be, if there is a disruption there, that'll be transitory, just like it was. Think about what we experienced with 1.0, our AR increased the $30 million, working with ARMY, working with the bases, we've been able to work that down to 12.5, I think we said 13 in the call. So we'll work through that, those challenges, but I think we will do so in a much better place.
then we were with the transition from Go Army at Army Ignite at 1. So I- If I could just add one additional observation, Raj, which is in the 1.0 transition, we had no information. We received emails, we had no opportunity to communicate with Army. We have worked very hard to build an open dialogue as an active partner and supporter of what the Army is attempting to approve. The Army is attempting to accomplish.
And as a result, we have much more awareness and we are grateful for the opportunity to be part of the UAT process, user acceptance test process which is completely different than what we experienced last time. So we believe we will be able to know early on what challenges we might face, but we are very grateful for the for the Army's willingness to partner with us this time around. And it speaks to the Army's confidence.
seems like faculty shortages are the biggest headwood on the nursing side. And was wondering if you are finding that it's starting to get somewhat easier to source nursing faculty to meet program demand, or do you think that will start to improve in the second half of the year? Any comment or there would be helpful.
Sure, I'll start. Certainly what we see is different.
Levels of availability, specific to certain markets. You can see our most acute challenge has been in the Twin Cities market. What we have instituted, as I mentioned, among the many remarks I made today, a model whereby we offer the schedule of available clinical, these are primarily part-time and the actual problems that we're having not full time.
We offer a schedule of available clinical positions at a certain rate and people have the opportunity to get the kind of their first choice or their best choice. And then as the remaining positions remain unfilled, we start creating a more competitive price for those open positions and we've seen really great success. In getting all of our clinical positions filled, we were able to fill 100% of our clinical positions for this upcoming.
cohort. And so we think that that model of variableizing the rate for these different clinicals creates a way for us to fill the schedule completely and also maintain a cross structure to the best of our ability.
Okay, that's helpful. And then just as a follow up to that, given that the capacity for faculty is still somewhat constrained, how are you thinking about marketing spend for the nursing programs over the very near term?
Mark, that's a great question. The marketing spend really is determined for the first time. The marketing spend really is determined for the first time.
what I would call bottoms up, right? And when we had the, this is Raph, this is specifically, when we were engaged with the third party provider, the marketing spend was identified at a macro level top down, and then the lead fell wherever the next best. and then the lead fell wherever the next best.
you know, dollars sent to generate a lead, which was not at all aligned with faculty availability, campus capacity, et cetera, clinical placement availability, et cetera. We have turned that upside down and are doing market-specific forecasting and capacity planning at each campus for each program so that we know that the constraints include what is the capacity at a campus.
What is the available clinical spot? And what is the faculty we have filling those clinical spots? And so now for the first time, we are being very directive about the way in which we're investing marketing in the markets where we have the ability to continue to enroll students and grow because we aren't facing those constraints. And that is what's driving our 40% increase in lead generation because we've taken that function in-house underpefest IDs.
year-to-year. I believe through June it's up about $2 million and we're going to spend an incremental 3.8 in the third quarter, we're investing for the reasons we said. Hundreds is a small company, but year-to-year they're advertising year-to-date, up about $400,000. So two different businesses, two different investments in amounts, but consistently we're investing in the nursing element of the business for all the reasons we've described.
Very helpful context. Thank you, Angie and Rick. That's it for me.
And that does conclude today's presentation. Thank you for your participation, and you may not disconnect.