Q3 2023 American Public Education Inc Earnings Call
Ladies and gentlemen.
Thank you for standing by my name is Sharon and that'll be a conference operator today.
At this time I would like to welcome everyone to.
So the a P. I reports third quarter 2020 results conference call.
All lines have been placed on mute to prevent any background noise.
At those people are smart speakers remarks.
There'll be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on the telephone keypad.
If he would like to withdraw your question Press Star one again, thank you all.
I would now like to turn the call over to API Investor Relations Christopher Seminar ski. Please go ahead.
Thank you and good afternoon, everyone welcome to American Public Education Conference call to discuss third quarter 2023 financial and operating results.
Joining me on the call today are Angela Selden, President and Chief Executive Officer, Rick Sunderland Executive Vice President and Chief Financial Officer.
And Steve Summers, senior Vice President and Chief strategy, and corporate development Officer.
Materials for today's call are available under the events and presentations section of the API website.
Payments made during this conference call and any accompanying presentation regarding API and its subsidiaries that are not historical facts may be forward looking statements based on current expectations assumptions estimates and projections.
Forward looking statements may sometimes be identified by words like anticipate believe seek could estimate expect can may plan should will would and similar in opposite words.
Forward looking statements include without limitation statements regarding expectations for registration and enrollment revenue earnings and EBITDA and other earnings guidance recent.
Recent current and future initiatives to improve <unk> pass rates at RASM Hudson University, and reposition it for growth and profitability.
And other company initiatives, including with respect to leadership changes future competition and demand.
And our cost saving efforts forward looking statements are subject to risks and uncertainties that could cause actual future events to differ materially from those expressed or implied by such statements. These.
These include among others, the risks and uncertainties related to our ability to meet regulatory and a creditor requirements, including the 90 10 rule and the impacts thereof.
Our dependence and.
The effectiveness of our ability to attract students who persist and are likely to succeed.
Federal appropriations and other budgetary matters, including government shutdown.
Our ability to effectively market, our programs and expand into new markets.
The reduction or elimination suspension or disruption of tuition assistance changing market demands economic and market condition.
Challenges with acquisitions, our ability to meet our cost saving goals, our debt and preferred stock and other risks and uncertainties described in our presentation.
Today's press release, our Form 10-K for 2022, and our Form 10-Q filed earlier today and other SEC filings.
The company undertakes no obligation to update publicly any forward looking statement for any reason unless required by law.
This presentation contains references to non-GAAP financial information.
A reconciliation between the non-GAAP financial measures, we use and the most directly comparable GAAP measures is located in the appendix of our presentation and in our earnings release.
Management believes that our presentation of non-GAAP financial information provides useful supplemental information to investors regarding our results of operations.
And should only be considered in addition to not as a substitute for or superior to any measure of financial performance prepared in accordance with GAAP.
I will now turn the call over to our CEO Angela Selden Angy. Please go ahead.
Chris Good afternoon, and thank you for joining our call to discuss our third quarter 2023 results for American public education.
<unk> performance during this quarter reflects continued positive enrollment and positive revenue trends at Aps.
<unk> University online <unk> College of nursing and graduate School USA.
Also our previously announced operational improvements were completed in this quarter, including improved marketing efficiency and the right sizing of our cost structure.
Both now and better alignment with current levels of enrollment and revenue at <unk>.
With Q3, API revenue above the top end of the range at $150 8 million and adjusted EBITDA of $18 1 million, which exceeded the top end of guidance by nearly $8 million with.
We once again delivered on our guidance for revenue and adjusted EBITDA.
When combined with our outperformance in this quarter today, we are providing full year 2023, adjusted EBITDA guidance of approximately $50 million.
I'd like to start my detailed discussion about our education units by focusing first on Rasmussen.
From a management standpoint, <unk> is now operating with a complete management team for the first time since two Q of 2022.
This has brought much needed focus stability and leadership to the University.
The leadership team is focused on continuing the now five quarters of sequential enrollment growth at Ross, It's an online while also accelerating campus program growth and diversification.
Pn and BSN nursing program growth along with other Allied health program growth begins to mitigate and almost exclusive historical concentration and AVN nursing.
More targeted programmatic marketing is starting to pay dividends as we have greater visibility and improve processes and efficiencies and identifying and attracting new students.
The efforts are yielding promising results.
In addition to the Q4 non nursing enrollments, increasing overall by 5% BSN starts are up over 20% in the quarter and campus based Allied health starts are up over 30%.
While the nursing program growth is measured against smaller basis. The early signs are encouraging.
As has been the case for several quarters, our primary enrollment challenge at <unk> has been the decline in AVN nursing enrollments, which had been the majority of nursing students that Rasmussen with this peak occurring in <unk> of 2021 <unk>.
Despite the positive pn and BSN trends AVN nursing enrollments were down in the quarter to 4000 students from 5800 in the prior year, which was the primary contributor to the overall year over year decline of 10% in enrollments to 14100 students.
As discussed extensively in prior calls much of the decline in AVN nursing enrollments has stemmed from both voluntary and imposed enrollment caps for the ADN program in large part brought on by <unk> scores below state standards, which resulted primarily from educational obstacles brought about by Coke.
<unk>.
I am pleased to report however that we continue to make meaningful progress on improving <unk> results.
Based on the Q3 <unk> scores.
<unk> reported that 20 of 24 of its nursing programs were above the state threshold pass rates incur.
Including eight of 10 ADN program.
Seven of seven BSN programs and five of seven Pn program.
This reflects the second sequential quarter of an <unk> score improvements.
We believe that this marked improvement is a direct result of some new actions and initiatives put in place by the new <unk> leadership team, including new nursery faculty Onboarding and continuing development.
Student success coaches installed at campuses and faculty champions assigned to recent grads to support their <unk> preparation.
We also believe that by diversifying our pre licensure nursing student enrollments across the Pn and ADN and BSN program, along with the institutional focus on strong and clicks exam outcomes.
<unk> and can return to overall pre licensure nursing enrollment growth and a more balanced less concentrated way.
And although we are not providing specific 2024 guidance, we still anticipate that Rasmussen enrollments will continue to stabilize and we expect year over year overall enrollment growth in the second half of 2024.
At April.
Growth from active duty military and veterans is driving overall net registration results mill.
Military registrations were up 12% in the third quarter and veterans were up 5%, which reflects the continuation of our military registration growth that began in mid 2022.
We attribute this not only to the strong franchise that AMU has built over many years, but also in particular to our unwavering service to the U S Army through its two registration portal transitions in 2021 and 2022.
We partnered with its army soldiers students to continue to provide their education, when many other schools, where operationally or financially unable to comply and.
And we believe this commitment has resulted in some of the growth and market share gains we are experiencing.
The increase and <unk> enrollments and revenue combined with 2020 to cost reductions and improvements in marketing efficiencies have resulted in improved margins once again in the third quarter.
Overall, <unk> delivered Q3, EBITDA of $23 $3 million, resulting in a 30% margin in the quarter.
At Handros, we enrolled nearly 3100 students for the first time in <unk> history in the fourth quarter of 2023, as we continued to see strong demand for its pn and ADN nursing programs in this market.
We remain pleased with the performance of our new Detroit campus.
Also see growth in most of our legacy campuses and are seeing new growth in Indianapolis as cap there have been raised.
Despite the strong enrollment and revenue growth at <unk> has exhibited over the last two to three years profitability has not kept pace, primarily due to sharp increases in nursing faculty pay and new campus startup costs.
As previously discussed <unk> implemented a tuition increase in early 2023, and also reduced head count in Q3 in order to rightsize its operating costs.
Despite past cost challenges, we expect a positive fourth quarter EBITDA contribution from Honduras.
We are also pleased to report continued improvement in Honduras as RN and collect scores now within a half point of the Ohio standard.
Turning our attention to graduate school it has experienced 10% revenue growth in the third quarter, driven by higher enrollments and an increased number of signed contracts. However, the government's continuing resolution or CR in response to the threat of the September government shutdown caused some training to be cancer.
They're postponed by agencies, which softened strong enrollment momentum we experienced earlier in the quarter.
Graduate schools should still deliver higher revenue and margin for the full year 2023, as compared to 2022, which given its highly seasonal nature is how we evaluate its business performance.
Yeah.
On a consolidated basis with the continued growth profile of Aps Rasmussen online Honduras College of nursing and graduate school USA, we generated $15 million of free cash flow and increased our cash position to $155 million in the quarter.
The continued growth in both cash flow and cash is due largely to lower advertising spend and in part due to the right sizing of the cost structure at Rasmussen, Honduras and API to better align with the current revenue profile of the businesses.
These actions are expected to reduce run rate expenses by $15 $5 million per year, which should provide us the opportunity to continue to reverse the profit declines at Rasmussen and increase overall profit and margin in API.
With an intentional focus of returning rasmus into profitability and growth while delivering continued results improvements at the other entities.
As Rick will discuss shortly and as I mentioned in my opening remarks, combining our Q3 outperformance with our guidance for the fourth quarter implies a full year 2023, adjusted EBITDA of approximately $50 million.
Overall, I am grateful for the tremendous work our leaders and our teams are doing across our institutions to deliver on our educational promise to <unk> more than a 106000 students, including active duty military veterans, new nurses and other students while also driving strong revenue growth.
We look forward to building on the many successes of this quarter as we strive to achieve excellence for all stakeholders.
With that I would like to turn the call over to <unk> CFO Rick Sunderland.
Thank you Angie third quarter 2023 financial results.
Looking at third quarter 2023 financial results total revenue for the quarter was $150 8 million up $1 $3 million or 1% from the prior year period due to increases in revenue at three of our four education units.
The net loss per diluted common share of <unk> 27.
Includes a $5 2 million noncash investment loss on a minority equity investment made by API in 2012.
The loss is the result of the inverse the entering into an agreement to be sold at a price that does that result in no proceeds to the equity holders excluding.
Excluding the $5 2 million noncash investment loss net income available to common shareholders was positive 400000.
Compared with guidance of a loss of $5 7 million to $4 3 million, while adjusted net income per diluted share was <unk> <unk> compared to guidance of a loss per diluted share of 32.
To 2000 <unk>.
For the quarter API adjusted EBITDA is well above our previously issued guidance on a consolidated basis adjusted EBITDA was $18 1 million compared to $9 5 million in the prior year period.
The current quarter results represent an adjusted EBITDA margin of 12% compared to 6% in the prior year quarter, reflecting the strong revenue growth at <unk>, Honduras and graduate school as well as improvements in operations, particularly around marketing spend.
Obviously announced efforts to right size, our overall cost structure are leading to improved profitability.
The reduction in force for example is expected to reduce pre tax labor and benefits costs by $6 2 million net of severance in 2023 and is expected to reduce labor costs by $15 $5 million on an annualized basis.
<unk> revenue was $76 4 million for the third quarter up 11, 2% compared to the prior year due primarily to continued growth in net course registrations for military students utilizing ta and VA and the impact of the April and July tuition and fee increases.
<unk> continued to do more with less achieving registration growth of 8% year over year with advertising spend that was $1 7 million lower than the prior year.
Year to date at <unk> advertising expense is $4 4 million lower than the prior year period.
EBITDA for the quarter was $23 3 million compared to $14 1 million in the prior year, an increase of 65%.
EBITDA margin for the quarter increased to over 30% compared to 21% in the prior year period.
As a result of the delay in army payments in 2021, and 2022 and 2023 HOS collected approximately $18 million in payments related to these earlier years.
With the recent changes to the department of Educations method of calculating 90 10. This additional $18 million of cash collections. In this year I will note because we were accommodating the army and the department of defense will likely make it harder for us to meet the 90 10 threshold in 2023.
We understand the importance of complying with the regulation and we are taking actions and working to satisfy the 90 10 standard in 2023.
The calculation of 90 10 requires a complicated cash basis analysis with many inputs and for 2023, we currently project it will be close however.
However, the calculation will not be made until they until after the end of the year based on annual numbers I would also refer you to our disclosures in the 10-Q.
At <unk> the rate of decrease in revenue is less in the third quarter than it was in the second quarter.
<unk> third quarter revenue was $52 1 million a decrease of 15, 4% compared to a decrease of 18, 7% in the second quarter.
This decline was primarily due to a 10% decrease in total enrollment and the ongoing shift in student mix toward lower cost online courses, which was partially offset by tuition increases and certain programs earlier this year.
On a percentage basis revenue declined more than enrollment due to the mix shift away from nursing, which is at a higher revenue per enrollment.
Racehorses EBITDA loss for the quarter was a loss of $5 3 million compared to an EBITDA loss of $1 9 million in the prior year quarter. However, while restaurants still operated at a loss in the quarter the loss, excluding goodwill impairment charges decreased on a sequential basis from $7 1 million in.
The second quarter and $6 9 million in the first quarter of 2023, while EBITDA margin for the quarter for the third quarter was negative 10% compared to negative 14% in the second quarter, excluding the impairment charge.
The reduction in restaurants, it's EBITDA and EBITDA margin is due to the decrease in enrollment and revenue and the fixed cost structure of its campus based operations.
Included in <unk> third quarter EBITDA loss is 800000 of severance expense related to our previously disclosed reduction in force. We don't anticipate further severance related expense in the fourth quarter of 2023 and should get the full benefit of a full quarter of labor savings in the fourth quarter.
At <unk> revenue was $13 7 million, an increase of 24% compared to the prior year period, driven by higher total enrollment at higher tuition levels, Honduras EBITDA was negative 300000, compared with negative $1 1 million a year ago, while still negative 2%.
EBITA margin at Honduras improved by over 750 basis points year over year.
Increased bad debt expense and ongoing startup costs from new campuses impacted Honduras, Honduras as EBITDA in the quarter.
Graduate School revenue included in corporate and other was $8 7 million up 10% compared to the prior year, while EBITDA was positive $1 6 million in the quarter.
Graduate school is highly seasonal with the second and third quarters delivering the strongest results.
The threatened government shutdown in September negatively impacted revenue momentum at the end of the third quarter and has continued into the fourth quarter pending a resolution to ongoing government funding despite that.
Uncertainty, we still expect revenue growth positive EBITDA and margin expansion on a full year basis in 2023, compared with 2022, a graduate school.
Total cash and cash equivalents at September 32023 was $155 2 million, an increase of $25 7 million from year end 2022 <unk>.
Restricted cash at September 30 was $27 3 million and continues to be almost entirely comprised of a restricted certificate of deposit the secures a letter of credit for Rasmussen with the department of education.
We believe we have satisfied the department of Ed requirements for release of the letter of credit, but it has not yet been released and there is no known timeline for the release by Ed at this time.
The increase in cash was due primarily to payments from army received during the nine months, which increased to $51 3 million in 2023 of which approximately $18 million related to periods. Prior to 2023 offset partially by the use of cash at restaurants and in Honduras and to other chain.
And working capital.
Apis remaining principal on the term loan is approximately 99 million at September 30 with unrestricted.
<unk> had cash of approximately $128 million API is net cash positive. Additionally, there were no borrowings under API 20 million revolving credit facility, which remains fully available at this time.
Turning now to the fourth quarter 2023 outlook.
Our final question comes from the line of Raj Sharma with B Riley Ross Your line is open.
Yes. Thank you.
Taking my questions.
Yes.
Could you talk a little bit about a little bit more about.
You said the changes the <unk> score has been really good improvement.
And the self imposed enrollment caps.
I know you talked about great from the second half.
Can you talk about these measures and when do you think those caps could be lifted.
I know you also addressed that in your commentary, but also when do you think we could expect to see profitability.
Is there a timeline for resolution on profitability.
Hi Raj.
Yes, Brian.
Answer all of your questions, but you may have some comp because you had several bundled into that question. There. So let's start with <unk> results. We're really pleased with the 'twenty 'twenty four nursing program and click.
Score improvement.
There has been a lot of work done by our new.
Lee Vice president of nursing, including strengthening the faculty Onboarding and the faculty training.
We've installed student success coaches at campuses, specifically focused on <unk> preparation, we have introduced specific remediation strategies for students who have already graduated.
And as you may or May not know, we also know that the national averages for enclosed scores have gone up with it with the new sandwiches.
Implemented in April. So overall, we are pleased with how we're pacing.
The national averages, so I think theres been a lot of great.
Really systematic operational improvements that have been made to help us see improvements in our overall <unk> pass rates at each of our campuses and programs.
Your second question was about enrollment cap.
As we mentioned I believe it was in the queue.
We had in past years talked about the concentration of avian enrollment in the Bloomington campus.
And today that campus now represents less than 2% of our all of our enrollments that campus that continues to experience self imposed cap.
We are working.
Tirelessly to be sure that we can demonstrate improved <unk> scores. Unfortunately Bloomington is one of the two ADN programs that did not have.
Passing score in the quarter and so we continue to.
Be sure that we are not enrolling more students in the Bloomington campus until we know that we've got an engine that allows us to deliver a high quality educational experience for students and one that will allow them capacity Sam.
As it relates to Illinois.
The other place where we have enrollment caps.
As we discussed briefly on our last call.
We're very pleased with.
Legislation that was recently enacted in Illinois. It takes effect in January of 'twenty four.
Allows.
Our Illinois program to remove be removed from any probationary status from in <unk>.
Prospective for three years. So we believe that that's going to help us with accreditation state approvals and as a result will allow us to both.
<unk> continued to enroll students in the ADN program and also allow us to add new programs to our Illinois campuses.
And you had another question about progress, but I don't.
Remember what the third one so if you could repeat it I really appreciate it yes sure of course, I know you mentioned that enrollment.
For <unk>, we're going to be up year on year second half is that only.
Is that.
Only nursing or also non nursing and then my next question was could you could you tell us when you would be profitable in rescue mission.
Alright, okay. So.
So we are seeing.
Improved enrollment in all categories, except for ADM.
In all <unk>.
We're seeing except for AVN in all of our Allied health. So those are all of our campus based programs and we're seeing positive growth in our online and our online program. So only the AVN remains the area of <unk> that is not yet growing.
As it relates to your question.
We still see and expect to have positive overall enrollment growth in the second half of 'twenty four.
And we would expect profitability to follow that and that positive enrollment growth.
Certainly we wanted to make sure that depending upon when that occurs we take into consideration seasonality, but we expect.
We expect to see profitability following that.
Don.
Back to positive enrollment momentum.
Got it. Thank you and then just.
Last question on Honduras.
Although you will almost profitable in the quarter and then.
Last quarter.
And then you were not profitable.
This one is there any expectation that we should.
200, <unk> being profitable sometime soon or.
What is holding you back or what is holding us back in.
In achieving profitability on a segment basis.
Good question I'll start and then Rick I'll, let you.
Follow on.
As I mentioned in my comments, we do expect <unk> to be profitable in the fourth quarter.
We want to be sure that we can offset the cost of opening new campuses.
<unk>.
And as a result, we really believe that as we enter 2024 and beyond that.
Focus on marketing spend and the savings from a head count perspective will help us with the.
With the predictability around.
Continued profitability at <unk>. The other thing I will say is that.
Where we had had to recalibrate our nursing.
Faculty.
Salaries in the last year, we do not expect to see that continuing to grow at the pace that it has in prior years, we are not experiencing the same challenges around recruiting and retaining nursing faculty that we saw a year ago and so we believe that that stabilization will occur.
Allow us to create more predictability around what our nursing faculty costs are going to be.
Great. Thank you for asking the questions I'll take it offline. Thanks.
There are no further questions at this time I would like to turn the call back over to Christopher Szymanowski Investor Relations.
Thank you operator that will conclude our call for today. Thank you for your participation and your interest in American public education, Good evening everyone.
Ladies and gentlemen that ends today's conference call you may now disconnect.
Okay.
Yeah.