Q3 2022 American Public Education Inc Earnings Call
Integration, both delivering our first year target of $10 million and run rate cost savings and accelerating the realization of the years, two and three API enterprise savings with the recently completed cost reduction effort that resulted in $13 5 million in annual run rate savings.
Additionally, as we look to <unk> 22 Rasmussen has achieved its first positive year over year students start in six quarters, driven primarily by the result of API, bringing Rasmussen paid media marketing back in house effective April of 2022.
At <unk>, we saw a third consecutive quarter of year over year total student enrollment growth through <unk> 'twenty, two and set a record for a new all time high of new and total enrollments in <unk> 'twenty to <unk>.
<unk> also began educating his first new student cohort and its Detroit, Michigan campus in October .
We are continuing the integration of graduate school USA and are pleased with its third quarter registration momentum.
Graduate school resumed its on ground course delivery in this quarter welcoming back at students to its Washington, DC Metro campus.
Now, let's take a closer look at the financial and enrollment highlights.
At API, we beat Q3, 'twenty to both top and bottom line versus guidance and expectations. Despite the challenging macroeconomic environment for our institutions. We are positioned to deliver on our full year 2022, adjusted EBITDA guidance that we issued in our September supply.
<unk>, raising and narrowing the range to $55 2 million to $58 million.
The organizational simplification that rasmussen and cost savings implemented across all of API over the last 60 days are expected to have long term positive impact to both the quality of our education and to the financial health of our company.
At <unk>, we have now experienced a third consecutive quarter of year over year net registration growth Q3, Q22, driven primarily by strong total active duty military registrations and new registration growth across all segments.
We expect full year 2022, net registration growth of plus one to plus 2%.
Overall and as indicated on our last earnings call. Our three Q22, total Rasmussen enrollment was down roughly 8% as both nursing and non nursing faced tough prior year comps were both of those enrollment segments had posted record high results compared to 2000.
<unk>.
The 8% decline in nursing enrollment was partially affected by the self imposed enrollment caps in the twin cities campuses due to previous faculty and clinical shortages, along with captain, Illinois due to the <unk> pass rate declines primarily occurring as a result of COVID-19.
Online educated cohorts now sitting for the exam.
Trend that is occurring nationally.
Non nursing enrollments also saw an 8% decline in three <unk> 22, as the tight labor market and higher wages made returning to education, a less attractive option with our adult learner population and consistent with student interests at similar levels seen in the broader higher.
Occasion sector.
Positive momentum is occurring as indicated in our September supplement where Rasmussen has seen positive new student momentum for <unk> 22, and achieved our internal enrollment target.
While this will still result in total enrollment declines in <unk> 22, as compared to the prior year period of plus 12% for nursing and plus 5% for non nursing. These improved starts are in line with our expectations and this growth momentum keeps for assets on on track for second half 2020.
Three total enrollment growth as described in our last earnings call.
Pre licensure nursing enrollment momentum remained strong in Honduras as student interests in our three newest campuses in Detroit Indianapolis and Akron.
Along with continued solid enrollment in our five legacy, Ohio campuses has led to year over year enrollment growth of 4% to 24 110 students in <unk> 22 versus the prior year period.
Further Congress is experiencing its highest ever start number for the for Q2, 'twenty two term and its highest ever total earning enrollment during the same period was approximately 2600 students.
In addition to the improved student momentum across our education units and better financial performance in the quarter <unk> balance sheet remains strong with over $158 million of unrestricted cash on hand, and approximately $8 million of net debt at quarter end.
We continue to explore additional capital allocation options, including the pay down of debt.
Let me now share some other areas of note.
At us delivering exceptional education at an affordable price continues to be at its core and recent third party publication validate our contributions to student access and achievement.
Again ranked in the top 10% in the United States for Best return on educational investment out of 4500 colleges and universities nationwide. According to the Georgetown University Center on education, and the workforce report.
And according to a recent study from optimal published in University business.
<unk> ranks in the top 5% in the United States for starting salaries for bachelors degrees ranking at number 26 overall and ahead of many well known traditional nonprofit universities, while charging substantially less than their tuition.
Since the departure of Rasmussen former CEO , we have worked intensely to stabilize enrollments and simplify the organizational design at Rasmussen to putting out a path for growth and return it to the performance it had experienced leading up to the acquisition.
We have taken steps to align our clinical site and faculty requirements to our forecasted enrollment as well as increasing support for our students and clicks exam preparation both of which are assisting with growth in enrollment at Rasmussen and <unk> 22 and beyond.
First we have operationalized, an educational readiness center, starting in our twin cities market, where the nursing faculty shortage is most acute.
The readiness center is focused on projecting by program and by campus. The clinical site needs the associated faculty requirements on a rolling three term forward basis.
It also aims to identify and resolve other students and faculty preparedness requirements and gap.
This will allow for proactive hiring and action planning to ensure we had the correctly credentialed faculty and more market aligned wage rates.
In addition, Rasmus and established a center for nursing excellence that is dedicated to helping students pasta and collect exam. The first time state boards of nursing evaluate and educators program efficacy based on first time, rather than total <unk> pass rates. Unlike most other licensure requirements.
Yeah.
We're program campus combinations experienced first time <unk> pass rates below their applicable state threshold.
Recently at <unk>, Minneapolis twin cities location.
Primarily in Bloomington, and in Illinois. This nursing center of Excellence will first pinpoint students specific challenge areas and provide customized tutoring support to short gap.
Second we will integrate additional and collect testing stimulation and prep tools throughout the curriculum.
And third we will initiate an overall curriculum assessment to identify areas of improvement to better enable student mastery and success.
While rasmuson programs have largely demonstrated historical success on and flex exam first time pass rates, we believe that shift in the underlying <unk> and student preparedness demographics, along with prior shifts to primarily online delivery for several quarters due to COVID-19 have driven.
<unk> pass rates to lower levels.
In two Q 'twenty two as we previously discussed we brought Rasmussen paid media marketing in house at API and as a result have also seen an increase in overall lead generation, which has substantially contributed to new student start growth in <unk> 'twenty two as.
As you know leads in starts growth are important leading indicators of our ability to return <unk> to total enrollment growth.
As we have an enhanced faculty facilities and student educational readiness.
We have operationalized, the nursing center of excellence to improve and clicks first time pass rates and a broad paid media marketing in house. We expect these improvements will take a few quarters to have the full positive impact.
As such to ensure that we deliver on our commitment to student success and regulatory compliance over the nearer term we have voluntarily further limited the number of new nursing students at the twin cities ADN program for our <unk> 23 January start in a manner similar to what was mentioned.
Regarding the <unk> 22, and <unk> 22 starts on our last earnings call. We will however work to add BSN enrollments in the twin cities to somewhat offset the short term enrollment cap and the ADN program.
To fund, our new capability centers and deliver on our projected savings rasmuson has simplified its academic and campus operations into two divisions Rasmuson University campuses and Rasmussen University online.
We have streamlined leadership and established clear Accountabilities and reporting lines. So that the argue campus operations can be 100% focused on enrolling educating and providing support and job placement in on ground nursing and clinical health programs, along with supporting <unk> first time pass rate.
Success.
At the same time are you online now leads enrollment retention and student success for all of the programs.
The result is a single streamlined academic structure and clarity and accountability for campus Executive Directors, who are now responsible for enrollment operations and quality student outcomes, including <unk> pass rates.
This change was essential to ensure rasmussen can operate more efficiently and effectively going forward and to set the stage for healthy future growth for <unk> in both in nursing and in online education and student success.
Subsequent to the end of <unk> 'twenty, two rasmussen entered into a transition agreement with its marketing provider collegiate to and the marketing services agreement on January 31, 2023 versus the prior end date of September 32024.
Effective February 2023, API will now provide all marketing services to Rasmussen, allowing <unk> to more directly control its destiny with respect to marketing and enrollment.
<unk> has brought paid media buying into API in April of 2022, which has already resulted in improved marketing results. This further step will improve marketing effectiveness and ultimately enrollment results.
The transition related fees associated with the agreement are $6 $5 million.
$4 million of which will be incurred in <unk> 22, and the balance in <unk> 23.
And we will be added back to adjusted EBITDA in those periods.
We expect that the benefit that will accrue to rasmussen will be over $6 million in 2023 and $10 million on an annualized basis thereafter.
The amounts will be evaluated for marketing investment and or to increase EBITDA results.
This reflects the net benefit after the inclusion of additional resources being deployed to replicate certain marketing functions now in house.
It is important to note that these savings are in addition to the $13 $5 million and organizational simplification savings that were discussed earlier in my remarks.
Turning our attention to <unk>.
Tuition costs remains the primary consideration that deter some prospective students from enrolling and pre licensure nursing programs.
As we mentioned in our last quarter earnings call. We are focused on quote unquote flipping the script and establishing new partnerships with health care providers. We are pleased to announce that we have launched our first cohort with our first partner fully sponsoring an initial ADN program at our Toledo, Ohio campus and <unk>.
<unk> 22 with several additional partner sponsors in the pipeline for next year.
Our goal is to defray some or all of student tuition costs in exchange for those students entering a multiyear commitment.
Ultimately this is a win for all three parties involved our students are partners and hydro.
First our students' benefit from a low or no cost education and a guaranteed job after graduation.
Our partners benefit from being able to more effectively plan for hiring needs and at a less expensive rate than current recruitment costs.
And Honduras benefits from attracting students that otherwise would have been unlikely to attend given affordability concerns and can secure relevant clinical locations to jumpstart student employment readiness.
We truly do see this as a strong path to enhanced enrollment growth, while helping to fill the workforce shortage in the health care system, while simultaneously doing good for our students.
We expect to adopt a similar partnership operating model in Rasmussen beginning in 2023 as the healthcare partnership development becomes part of API as part of the collegiate marketing transition.
Finally, I would like to briefly mention that our graduate school. The first half of 2022 was negatively impacted by the integration and transition efforts. While in addition to COVID-19, having a more pronounced effect as the federal government workforce remained remote.
Additionally, the federal budget was finalized later in 'twenty, two than normal which impacted spending capabilities by our students.
However, we press forward in our efforts to reposition and return graduate school to positive enrollment and have seen significant momentum in open enrollment registration during the second half of the year. These positive recent trends, we will continue to help position graduate school to be API platform for career learning and workforce.
Raining.
I would now like to turn the call over to our CFO , Rick Sunderland to review, our third quarter results and fourth quarter outlook in further detail.
Thank you Angie for the third quarter of 2022 total revenue was approximately $150 million up approximately $51 million or 52% from the comparable prior year period due primarily to the addition of Rasmussen and graduate school revenue in the 2022 period.
No we acquired restaurants in on September one of last year and graduate school in January 2022, and therefore, the 2021 period includes only one month of restaurants and revenue and no revenue from graduate school.
<unk> revenue was $68 7 million, an increase of approximately $3 million or 4% as compared to the prior year period.
The revenue increase was due to a 3% increase in total net course registrations in the third quarter of 2022 compared to 2021 and the timing of registrations in the quarter. We are encouraged by the fact that new student registrations were up in all three all three of our channels active duty military.
Trends in other service minded students during <unk> 2022.
<unk> revenue was $61 5 million during the third quarter of 2022, a decrease of 7% when compared to the pro forma three Q2 thousand 21 period, driven by a decline in total enrollment compared to the prior year period.
<unk> revenue was one was $11 4 million, an increase of <unk> 2 million or 2% as compared to the prior year period. This increase is driven by the year over year enrollment growth. Additionally, consolidated revenue for the quarter includes approximately $8 million of graduate school USA revenue in corporate and other.
On a consolidated basis.
Adjusted EBITDA was $9 5 million for the current year quarter compared to approximately $9 3 million in the prior year period.
The current quarter results represent an adjusted EBITDA margin of six 3% as compared to an adjusted EBITDA margin of nine 2% in the prior year period.
The decrease in adjusted EBITDA margin is driven by several factors.
<unk> experienced improved margins year over year, driven by the year over year increase in total net course registrations and a reduction in professional fees, partially offset by higher marketing and information technology costs.
<unk> margins continue to be impacted by the factors discussed in our September 22nd supplemental financial information release, specifically the tuition price reduction on certain masters and early childhood education programs, plus higher faculty and educational delivery costs due in part to higher compensation costs by challenges.
During nursing faculty and clinical faculty in particular.
100, <unk> margins were impacted by higher faculty and non faculty compensation costs and the ongoing startup of the new campus in Akron, Ohio, which opened in April 2021.
Finally graduate school adjusted EBITDA was positive during the quarter due to seasonally high revenue.
Additionally, as Angie previously mentioned, we executed on a reduction enforce on November 2nd that resulted in the termination of non faculty employees. In addition to the elimination of a number of open positions that we do not plan to backfill. The reduction enforce included all education units and our corporate segment, but not graduate school and was focused on St <unk>.
Our operations to appropriately align our cost structure with current enrollment and the broader operating environment. We expect these actions to result in pre tax labor and benefits savings in <unk> 2022 of approximately $2 3 million and savings of approximately $13 5 million on an annualized basis.
Severance associated with this head count reduction is approximately $3 3 million all of which is expected to be incurred in the fourth quarter of 2022 and is not included in the savings figures discussed above net income per diluted share for the quarter was a loss of <unk> 20.
Versus a loss of <unk> in the prior year period.
Total cash and cash equivalents at the end of the third quarter was approximately $186 million an increase of approximately $36 million from year end 2021 restricted cash at September 30 was approximately $27 million and continues to be almost entirely comprised of a restricted certificate of deposit that secures a letter of credit for rasp.
And with the department of Education cash.
Cash provided by operating activities was approximately $52 million in the first nine months of 2022 compared to approximately $1 million in the prior year period. The increase in cash flow from operations was primarily due to payments received from army. During the first three quarters of 2022, which totaled approximately $48 million and the impact in.
2021 of the timing of the restaurants and acquisition.
During the quarter Army transition to army ignite Ed or E. Two point out soldiers are able to register and request tuition assistance in the new system and I'm happy to report that we are able to invoice army.
E. Two pointed out today, we have built army approximately $11 million for courses taken by soldiers in the new system. The.
Accounts receivable from Army was approximately $14 million at September 30, with approximately 6 million older than 60 days from course start date.
Data conversion for unprocessed and unpaid tuition assistance requests in AIE, one point, though continues with approximately $7 million of unprocessed accounts receivable. We continue to work with army to resolve discrepancies in the data compared to our systems.
With the increased unrestricted cash at the end of the third quarter Api's net debt was just $8 million at the end of September . Additionally, there were no borrowings under our $20 million revolving credit facility, which remains fully available at this time looking ahead, we continue to evaluate.
Excuse me uses of our increased unrestricted cash balance, including the pay down of debt.
<unk> 2022 outlook Api's outlook for the fourth quarter of 2022 is as follows.
Total net course registrations are expected to be in the range of minus 3% to plus 1% year over year.
At Rasmussen and Hydro's fourth quarter student enrollments are actual because of the quarterly starts at these schools.
Rasmussen, we're encouraged that new student starts for the fourth quarter up year over year. However, as previously mentioned, we expect the smaller nursing cohorts from 2021 and the first half of 2022, we will continue to impact total enrollment for the next three quarters or so as such fourth quarter total nursing student.
Enrollment decreased 12% year over year to approximately 7600 students non nursing total enrollment declined 5% for an aggregate rasmussen enrollment decline of approximately 9% year over year to approximately 15600 students.
I would like to reiterate as previously stated with the fourth quarter, New student enrollment increase we expect <unk> to return to total student enrollment growth in the back half of 2023.
At hundreds fourth quarter total student enrollment increased 4% year over year to approximately 2600 students our largest ever total enrollment figure driven by our largest ever new students start for the period.
In the fourth quarter of 2022 consolidated revenue is expected to be between $151 2 million to $154 2 million. The company expects net income to be a loss between minus $3 9 million and minus $2 4 million and earnings per diluted share between a loss of 20.
And 30 13.
<unk> 13 per diluted share adjusted EBITDA is expected to be between $13 9 million and $16 7 million for the fourth quarter of 2002 2022 translating to a full year adjusted EBITDA range of between $55 2 million and $58 million.
Operator at this time, please open the call for questions.
At this time, if you'd like to ask a question simply press star followed by the number one on your telephone keypad. Our first question will come from the line of Tobey Sommer with <unk> Securities. Please go ahead.
Hey, good afternoon. This is jasper bibb on for Tobey.
You talked about improving student inquiries across the nursing programs.
What do you think is driving the higher interest levels. There and have you also started to see her.
Inquiry to enrollment conversion rates normalize higher too.
Hi, Jeff first Sanjay Thanks for the question well.
I will start by saying that we've taken a different approach to targeted marketing since we brought the paid media marketing in house in the second quarter of 2022, and specifically rather than.
Pouring marketing dollars cap down and looking for the next best lead independent of program or campus. What we've done instead is targeted bottoms up program in campus specific.
Plans and goals such that we align our paid media intentions and spend against those specific goals. As a result, we're able to very specifically focus and gain both leads and new students in the fall.
Both the markets and the programs that we intend to and for that reason, we have been able to convert at a higher rate.
Thanks, and then I know you aren't guiding for for 2023, and you did issue the targets for $70 million to $76 million in pro forma EBITDA. This year and then today, we talked about incremental cost savings beyond that how should we think about the earnings power of the company next year and is that 70 to 76.
$6 million pro forma target a reasonable base to grow from in the 23 or are there potential offsets we should think about it.
Hey, Jasper Steve Somers.
I think at this point, we're still in our planning process for 2023 in terms of budgeting.
When we when we issued that debt.
Supplemental information back on September 22nd right, we're trying to assist with some baseline as to where we think the business is today in terms of what pro forma is so I don't think its an unreasonable place in terms of a baseline, but we will refine that as we get through our planning process here and thinking about where we're investing for two.
Thousand 23.
Yes that makes sense.
Last question for me.
Speak to any expected impacts here financial responsibility score is that might result from the Rasmussen write down and.
As a result of that and would that change how you might deploy capital short term. Thank you.
Sure Jennifer it's Rick.
A positive score is impacted by that write down as you know, it's a three part calculation.
When we look at the company, we have $186 million in cash we have 52 million in operating cash flow, we have $9 million or $8 million and net debt I think we can conclude.
Really that we are financially sound.
If we end up in the zone, which will be between one point.
One four.
We can comfortably operate under the alternative rules.
Exists there so I'm not I'm not concerned about the financial.
Functioning of the company and that composite score calculation.
I appreciate it.
Hello, there thanks for taking my questions.
Your next question will come from the line of Stephen Sheldon with William Blair. Please go ahead.
Hey, thanks.
So a lot of moving pieces for rather sit on the nursing side over the next few quarters.
Can you help to help us frame the impact of some of the issues around enrollment caps and some of the limitations you put in place.
And what this can mean as we think about RASM for nursing enrollments at least in the first half of 2023 and then.
You talked about rasmuson enrollments I think returning to growth in the second half is that is that expectation for both nursing and non nursing or maybe just some more color on that.
Sure Steven Hi, Andy how are you.
First I want to say that what <unk>.
As I just answered on the previous question.
Not only are we looking with precision at the way we are deploying marketing dollars, but we're also looking at precision on program campus combinations and so for example, we are very pleased with the fact that Florida has five of our largest campuses without any encumbrances from a cap perspective.
And we have many programs that are not operating at their Max capacity in those markets. So we see a tremendous amount of upside.
Across the board in Florida, and as I mentioned at the top of my remarks, with really no impact from the hurricane that we're seeing from an enrollment momentum perspective. So.
Florida is a really important place for us in those markets, where we do have cap spin.
Specifically, we will start with the twin cities, we have other programs, where we can direct our students.
To enroll with with their interest in an RN program for example.
We're very proud to report that our BSN program in the twin cities market is in the top three of <unk> results in in all of Minnesota, and so those students who have the aptitude to be able to complete a four year degree we believe will.
<unk> seen interest in directing their attention and interest towards the BSN program.
Set of the.
As the ADN program at the same time students, who may not necessarily have the aptitude to be able to complete the ADN program in the past have oftentimes been turned away and instead, we will look to have those students begin their educational journey with us in the LPN program instead, and we have the same opportunity in the <unk>.
<unk> and Illinois, So what we have discovered.
Since the departure of the CEO .
In the second quarter of 'twenty, two is the opportunity to really with at with precision identify ways to grow campus program combination.
And be able to do that even in the face of some of these near term restrictions.
Okay got it and then just on the second part of that question I guess.
Given what you can see now do you think you can return to growth enrollment growth.
I can ask about nursing and non nursing or is that one more than the other.
Sure.
Now the signal that we sent last earnings call as well as this one.
Is the combined enrollment momentum for assets in the second half of 'twenty three.
We will as we get closer to that period in time be able to.
Further refined which areas, we believe will contribute to that.
Remember that the challenge, we have with pre licensure nursing not just at <unk>, but at <unk> as well is that when you start a smaller cohort as Rick mentioned in his remarks, you live with that smaller cohort two the entire time that those students are progressing through their educational journey that we can't.
I'll go out on the street and find the second quarter.
AVN nursing student unless they happen to suspend there.
<unk> with us and want to come back and so.
So these.
Self imposed limits that we've put in Bloomington.
Particular, we will have to work through the system for the next five quarters, so as those roll off and those students graduate and we can re enroll students at the higher cohort levels.
What we will see on the nursing side, allowing us to return to growth, but at the same time as I mentioned, we have the opportunity to grow in the LPN program grown the BSN program and certainly we will continue to focus.
Now with our new online attention on the <unk>.
<unk> licensure nursing programs that we have in our ladder as well. So so nursing, we will be working very aggressively to grow our overall nursing enrollments at the same time.
We will be looking at our Allied health and other healthcare clinical health programs to continue to enhance our enrollment momentum in our campuses and we have seen some really favorable green shoots in our other online programs that I think are mirroring some of the.
The overall enrollment trend in the United States, where.
On campus.
<unk> is declining but online enrollment is growing and so ras as soon as <unk>.
Some of that similar momentum in its online non nursing programs as well.
Got it that makes sense.
And then on the $13 5 million of annualized cost savings I guess are you at the full run rate now it sounds like a lot of those decisions have been made and are in place, but just as we think about 2023 is that going to be there's going to be fully realized for the full year.
All $13 $5 million has been executed.
And so that will be that is.
Well to be operationalized, right now and through the full year of 2023.
Okay, Perfect and then just last one.
I guess, how are you thinking about providing guidance moving forward.
Would you expect to provide annual guidance when you report fourth quarter results and 2023 year.
And then return back to kind of more quarter forward guidance I don't know if you made a decision there yet, but I'm just going to go.
Sure.
Yes, Hi, Steve It's Steve again, I think our intention is to try to put out something bit longer term than our previous quarterly guidance.
But we're still working through that but we certainly understand that you all.
We'd like to have improved visibility to where we land and so we're striving to deliver on that.
Good evening. Thank you.
Your next question will come from the line of Raj Sharma with B Riley. Please go ahead.
Raj you may be on mute.
Yes, I'm sorry, thank you for taking my questions.
Can you talk about the on the ignite I just wanted to get clarity.
It seems like the army.
Ed disruption it seems like.
2.0.
Is working really well, but one point.
Still backed up.
And still got issues.
And then of course, they were E R issues.
Ipod.
The two <unk> version.
What is going to be significantly better than one point.
Except for of course, the delay in the collection, but so can.
Can you. Please provide some clarity on where we are on that.
In that hole.
Transition the new transition.
Yes, Raj, it's Rick let me talk to to point out first and then we can go back to one point.
I would.
I think we're pleased with the transition to two point I know we've talked in the past about the third party provider.
For the new system, the <unk> system being the same provider that works with Air Force. So they have a record of providing the service to our military branch and also we have.
The history of working with them because of their relationship with.
With the Air Force.
You couple that with the fact that the army selected us as one of the testing providers for the new system I think we had.
Some some input and good visibility going into the launch of the new system.
You may remember at one point they turned the system on.
In March of 'twenty, one and it didn't work and they turned it off until July .
Anyone in this case they turned the system on in August of 'twenty, two and it worked.
Rogers, we're immediately able to register and request tuition assistance.
There was a delay in the invoicing function that was recently enabled and as Angie said in her comments October was built I can report that August and September were also recently built so now we've built three months a total of approximately $11 million, we haven't seen any payments under the new system yet.
But those buildings recently occurred and there is processing time on the army side, but I am encouraged that we were able to bill.
So quickly.
Particularly when you compare to the prior system and the expectation is that the army will.
Process and make those payments.
I would say relatively quickly also.
So if you think about the system as a system to register in our system to process payments.
I think we can say that the 2.0 system meets both of those requirements. There is some ongoing technical.
Work, that's being done to further integrate our systems with army ignite Ed to point out.
We have deep integrations, we had it with the prior army Gaumy Ed system, and we have it with the other military branches and so our it team we should.
Flawed them are working.
Now to create those integrations with the vendor for.
Army ignite two pointed out so things are looking favorable there in terms of the one point, though.
System, there are remaining data, let's call it conversion and reconciliation challenges there is theres legacy data in that system that needs to be moved to the new system and thats in process.
What everyone has discovered and should expect there were data integrity issues in that prior system that has to be corrected before the data can be brought over that will cause a delay in the final processing of transactions in that system, but I can tell you we've worked with both army and the vendor.
As it relates to those matters and while they are not resolved yet.
I believe given our working relationship and the forward progress that we're making that they will ultimately be resolved.
So.
Right now we continue to work on that one point of system to cleanup reconcile and ultimately get transactions that are yet unprocessed unpaid processed and paid.
And I don't have a timeline necessarily yet to tell you when thats going to occur but I am.
Encouraged and confident that we will ultimately work those work those matters out related to the prior system.
Okay great.
Thank you and then just my.
My other question is on <unk> in.
September you had issued the pro forma EBITDA sort of number.
Cost savings of $15 million and then another $2 million from the in house marketing.
And I'm, sorry, I may have missed it but did I hear that $13 5 million of that was in the bag or most of them have been operationalized and you said.
If most of these are have been enacted upon is it not reasonable to expect.
2023.
EBITDA levels at that pro forma EBITDA range.
I understand you haven't given guidance yet.
It's real.
We expect.
You should be able to reach that.
Level.
Hey, Ross I think your question similar to the one posed earlier, which is.
We think it's a reasonable baseline.
Going through our process right now to refine things.
Certainly.
Aware of desire to sort of have visibility going forward for 2023.
And as we.
Worked through the changes.
<unk> come through the organization.
Organizational realignment, we will see how that completely plays out but the $13 5 million of cost savings is something that we've already worked into the calculation and so I think.
That's a reasonable.
We will place to size up for 2023.
Okay got it thank you.
I'll take my questions offline. Thank you for answering my questions.
Thanks Raj.
Our final question will come from the line of Alex Paris with Barrington Research. Please go ahead.
Hi, guys. Thanks for taking my question.
I've got a couple of quick ones.
First of all when you gave the <unk>.
Second half guidance in the supplemental filing in September .
And because you already had given third quarter guidance. There was some implied fourth quarter guidance Q3 was above expectations Q4 is going to result in bringing down our estimates a little bit.
I haven't done the math, but.
Q3, borrow a bit from Q4.
Hey, Alex it's Steve I think the way to interpret that as our second half guidance really superceded. The initial third quarter guidance. So there are some timing differences and so I don't know necessarily third quarter barred from fourth quarter. So much as.
A matter of how the timing played out because we did not give out specific.
Fourth quarter guidance at that time, but.
I mean from a mathematical standpoint, you're right the consensus number would shift a little bit but from our perspective right. We're on the we're on the path that we laid out to achieve the approximately $56 million target that we.
Issued back in September .
Great. Thank you.
Either way Q3 was.
Certainly welcome that isn't expected in our full year guidance is raised for revenues and adjusted EBITDA.
My last question is more on the regulatory side I think.
A couple of final rules were published last week 90 10.
And as well as borrowers defense to repayment do you have any comment on either of those especially 90 10 I was wondering what your thoughts were with regard to more specific guidance on how to calculate that number or is it still a work in progress.
Yes.
Hey, Alex it's Rick.
The rules is published.
<unk> met our expectation in that.
We expected and it was confirmed that Ta and VA would be included in those calculations.
The calculation.
We will cover the entire year 2023, so it does begin on January one.
So.
I wouldn't say that there was any.
Materials surprise, there versus what we expected you probably recall that.
Some of that I guess, the broad contours were settled via legislation and then it was turned over to the department of education.
Our defense to repayment.
Don't have any particular comment on we've had many conversations over the year about about quality and affordability.
And I think Angie and her remarks commented on being in the top 10% of return on higher education investment in the Georgetown study I think all of those are indicators of first of all what are our core mission is and.
And how we deliver on the promise but also.
Establishes us as a.
As a as a good player as it relates to anything that would come from borrowed defense to repayment.
Yeah, No I would agree with that.
Last one looking for a little specifics, though.
Yes.
Obviously has a lot of Ta and VA are a lot of military in general are you still comfortable under the new calculation that you'll be below 90%.
We've run the pro forma is Alex I think we've talked about that over time and we are we remain below the 90%.
Perfect Alright, thank you very much congratulations on the quarter.
Okay. Thanks, Alex.
Ladies and gentlemen that will conclude our call for <unk>.