American Public Education Inc. Q1 2023 Earnings Call

Overall, we expect to see strong revenue substantial cash generation and improving EBITDA margins throughout 2023 for us.

At <unk> 23 set another all time high total enrollment record with 2700 students and delivered a 10% increase compared to the prior year period.

During two Q23, all but one of the Honduras campuses had year over year enrollment growth leading to another all time high total Hangzhou student enrollment of approximately 3000 students or plus 22% above the prior year period.

<unk> strong <unk> 23 enrollment reflects our successful efforts to re enroll approximately 300 students who returned to <unk> to continue their pursuit of an LPN degree after having previously paused their education in many cases due to COVID-19 related disruption.

<unk>.

I am also pleased to announce that Honduras, Detroit campus, which opened in <unk> 'twenty. Two has been a strong success as we are enrolling LPN students on the back of strong word of mouth demand with over 100 students enrolled in <unk> 'twenty three and over 200 enrolled in <unk> 23.

This demonstrates the acute need for nursing programs in the Michigan region, and we expect this campus to continue to grow rapidly during 2023.

Also yesterday, Honduras opened its newly relocated Dayton campus to a more central location to serve a larger portion of the Dayton market.

We are working on initiatives to increase enrollment at each Honduras campus, which may include launching additional programs to increase campus utilization and drive down total cost per student.

As we mentioned last quarter, we expect revenue growth EBITDA increases and margin expansion during 2023 at <unk>.

Graduate School USA has also started 2023 with solid enrollment momentum, which translated to over $5 million in revenue an increase of more than 60% compared to the prior year period.

For 2023, we still expect mid to high teen percentage revenue growth year over year and improved adjusted EBITDA.

Given the continued inflationary pressures on API overall cost structure, including at each of the education units. We have implemented select tuition increases. This includes certain tuition increases implemented in January at Rasmussen and increases at Apus and Handros that took effect in April with <unk>.

Additional planned fee increases in the coming months.

<unk> and a meaningful increase in revenue and margin in two H 'twenty three.

We are committed to providing affordable high quality education to our students.

But also recognize the heightened inflationary pressures and believes the tuition increases are both prudent and reasonable.

As stated on our previous earnings call 2023 will be a year of rebuilding at Rasmussen to replenish leadership and drive enrollment momentum for long term sustainable growth and profitability.

I am pleased to announce that we are making progress towards these goals with the hiring of policies <unk> as president.

Additionally, Paula has brought in two senior leaders to assist in the Rasmussen transformation.

Nearly 25 year veteran of laureate education to lead finance and transformation and an industry veteran to lead nursing education as associate Provost and Vice President for the school of nursing.

Paul a deeply believes in the rest of the submission the talent of its teams and the ability for RASK NUCYNTA create great educational outcomes for students.

Together, Paula and these two new executives round out our Ras system leadership team.

This new leadership team with the expressed goal of returning Rasmussen excellence has establishes priorities and is executing on key initiatives.

Turning to Rasmus and enrollment we have seen the third consecutive quarter of growth for our Rasmussen online segment, which represents over half of <unk> total enrollment.

However, Rasmus is on ground nursing enrollment declined due to tightened admissions policies and enrollment caps in Illinois, and the twin cities, which represented over 50% of the enrollment decline.

The new leadership team has put several initiatives in place to help mitigate these challenges and positioning the university for overall future growth and success.

One initiative is to more fully utilize rasmussen campuses to increase enrollments with both nursing and Allied health programs that are already approved on those campuses.

Our analysis has shown that on most campuses rasmuson has 25% to 50% more student capacity as compared to what is being utilized today.

Additionally, with the restructured operating model of Rasmussen online and Rasmussen campuses. Each segment can focus on its unique growth and value levers.

Even though the COVID-19 pandemic is behind US we're still educating a large portion of pre licensure nursing students who began their program during the nine quarters from <unk> through <unk> 'twenty, two when Rasmussen chose to educate student.

It's exclusively online.

We have seen an <unk> results decreased as a result of this online education experience and even though we have moved back to on ground delivery of labs, Clinical's and most nursing courses, we are not yet consistently and predictably seen and <unk> improvements.

We anticipate that improvements are on the horizon and we remained focused on providing enhanced support to our nursing students through our center for nursing excellence and with the leadership of our new VP school of nursing and associate Provost.

Turning our attention to API. We also wanted to highlight that effective March 28, 2023, Michael Brainer, a managing partner of $3 25 capital, which is one of <unk> larger common shareholders was appointed to the API Board of directors.

Michael has significant experience partnering with management teams to enhance long term value creation, which aligns well with <unk> priorities. We're excited for him to have joined the API Board.

As we indicated publicly after our <unk> 22 earnings call. There was a remaining $8 million share repurchase authorization under our existing share repurchase program.

From the end of March to the end of April 2023, we exhausted that $8 million by repurchasing over one 3 million shares in the open market.

I would now like to turn the call over to Rick Sunderland.

<unk> CFO to review, our first quarter results and second quarter outlook in further detail.

Angie total revenue for the first quarter was one $149 7 million down 3% from the prior year period.

$9 6 million or 14% decline in revenue at Rasmussen, partially offset by increases in revenue in each of the other three education units at <unk> revenue was approximately $74 million for the first quarter up <unk> 9 million compared to the prior year due to higher net course registrations for <unk>.

Military students utilizing ta, which is at a lower revenue per net course registration.

Congress first quarter 2023 revenue was approximately $13 million, which is a 14% increase compared to the prior year period, driven by higher total enrollment.

Climate and <unk> first quarter revenue was primarily due to a 12% decrease in total enrollment and a slight change in student mix to more online students with generally pay lower tuition than restaurants on ground nursing students graduate school revenue included in corporate and other was $5 2 million for the first quarter 'twenty.

23 up $2 million from the prior year period, where greater than 60%.

On a consolidated basis.

Adjusted EBITDA was $7 million.

$7 million for the current quarter compared to $17 4 million in the prior year period. The current quarter results represent an adjusted EBITDA margin of 5% as compared to an adjusted EBITDA margin of 11% in the prior year period. The decrease in adjusted EBITDA margin is driven by the significant decline in margin at Rasmussen.

Due to lower revenue and its fixed cost campus based operating model the margin decline in <unk> and was partially offset by a margin improvement at <unk> driven.

Driven by the increase in revenue and a year over year decrease in advertising costs.

Net loss per diluted share for the current quarter was a loss of <unk> 38.

Compared to income per diluted share of <unk> 28 in the prior year period.

Total cash and cash equivalents at March 31, 2023 was approximately $136 million an increase of approximately $7 million from year end 2022 restricted cash at March 31 was approximately $27 million and continues to be almost entirely comprised of a restricted certificate of deposit.

The secured a letter of credit for Rasmussen with the department of education the.

The increase in cash was due primarily to payments from army received during the first quarter, which reduced the total accounts receivable due from army to $19 2 million compared to $26 million at year end 2022, a decrease of $6 8 million in particular, there was an improvement in accounts receivable from <unk>.

Older than 60 days from core start date Army past due accounts receivable was reduced by $6 5 million to.

To $10 million at March 31.

Overall cash provided by operating activities was $12 8 million during the current year period compared to $25 3 million in the prior year. The decrease in cash flow from operations was principally due to the loss at Rasmussen in the current year period.

<unk> Apis remaining principal on the term loan is approximately 99 million at March 31, with unrestricted cash of approximately 109 million net debt remains at zero.

Additionally, there were no borrowings under our $20 million revolving credit facility, which remains fully available at this time.

Finally, as Angie mentioned earlier, we completed the remaining authorized $8 million of share repurchases subsequent to quarter end.

In total API.

We purchased approximately one 3 million shares.

<unk> outlook for the second quarter of 2023 is as follows.

Net course total net course registrations are expected to be in the range of 85300 to 88700 at Rasmussen in Honduras second quarter student enrollments are actual because of the quarterly starts at these schools.

At Rasmussen second quarter total nursing student enrollment decreased 22% year over year to approximately 6400 students non nursing total enrollment declined 3% for an aggregate restaurants, an enrollment decline of approximately 12% year over year to approximately 13009.

Hundreds of students.

At <unk> second quarter total student enrollment increased by 22% year over year to approximately 3000 students Honduras is largest total enrollment figure ever.

In the second quarter of 2023 consolidated revenue is expected to be between $145 5 million to $147 5 million the company expects to loss the net loss available to common shareholders to be between a loss of $6 4 million and a loss of $5 million and the law.

Loss per diluted share of minus 36 to minus <unk> 28 per diluted share.

Adjusted EBITDA is expected to be between $4 4 million and $6 4 million for the second quarter of 2023.

With that operator, we would like to open the line for questions.

At this time I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad again Thats Star one for your question. Your first question comes from the line of Raj Sharma with B Riley. Please go ahead.

Okay.

Hi, Thank you for taking my question I guess.

Just wanted to delve into resolution and the developments there.

Firstly.

Do you think the management lineup has been fully.

<unk> revitalized.

After the departures.

Hi, Ross Angie here, yes, we have a fully staffed.

<unk> leadership team now at Rasmussen with a complement of Advair.

<unk> seasoned executives that we will be able to jump in and have impact very quickly.

Okay, and then just in terms of the outlook, we're asking is since it seems like the hits.

Continue.

While other divisions performed really well the recognition.

Kind of underperformed.

Some of these actions that you had taken the nursing enrollment issues.

The <unk> scores youre, saying and the marketing efficiency can you comment on those and how they are progressing.

And whether you'd be able to kind of how soon would you be able to stem the.

Nursing enrollment.

Losses.

Sure I'll start and then Rick please feel free to jump in and supplement.

So what interesting about the nursing enrollments.

Enrollment momentum that Ross as soon as the following as you remember.

From our last discussion we saw a significant increase in nursing enrollment when <unk> went online in <unk> of 'twenty to begin educating.

Licensure nursing students online and that created an influx of additional students and access to faculty that allowed us to log rasmussen to educate a larger number of students than it had historically we are now seeing those students completing their education, and graduating which is key.

<unk>.

Inverse trend in terms of our total enrollment during that period of time, we had.

New students grew.

Growing every quarter and fewer students, graduating and now we have the inverse occurring here. So as we work that large number of students through the pipe.

We will we will begin to see stabilization as we mentioned just a few minutes ago. We are pleased with the online enrollment at <unk>, which is 50% of <unk> total enrollment and has grown to three quarters.

As it relates to your question on <unk>.

We've done three things in the last several weeks and months in order to be able to improve our <unk> performance first you will see in the in the eight campuses in the twin cities and in.

In Illinois, specifically, we've tightened our entrance requirements.

Across all of our campuses, we've improved our test bank.

<unk> increased our integrity of our student assessments, along their educational journey and we have enhanced the alignment of the curriculum across each one of the courses to improve the overall success rate of our students.

With those two dynamics that I just described.

As these cohorts continue to move through the education and graduate.

We will still as I mentioned, a few minutes ago be focused on growing other programs in our campuses and many of our campuses. We have three four or five additional programs, where we can enroll students that have no caps associated with them and so we've been working with each one of the campus.

Executive directors and the regional leaders to.

Marketing resources and local energy to enrolling students in those uncapped programs. So let me stop there and see Rec, if you have anything you'd like to add.

Raj, It's Rick I would like to add.

A really important event that took place in the first quarter, which was the completion of in source and sourcing of the collegiate marketing agreement.

Which we began in the fourth quarter and completed in January .

So.

I think it's really important that we control that marketing engine when you combine that with.

With the new management team in place I think it really sets the foundation to.

To really achieve that.

Sort of intermediate and long term enrollment growth.

And that marketing efficiencies that you were going to obtain from the menu marketing and just taking it in house how is that progressing.

Right. So significant efficiencies in terms of spend and then the result, what results from that spend in terms of let's say lead generation, but the important thing to note and I think we've said this in earlier.

Calls as we are able to reinvest those funds to add additional fuel to that marketing engine.

Great. Thank you and then congratulations on strong results.

The military the Grad School ponderous.

And I'll take I'll take my questions offline. Thank you.

And once again, if you do have a question. Please press star followed by the number one on your telephone keypad.

And im showing there are no further questions at this time.

And this does conclude today's conference call you may now disconnect.

Yeah.