Q4 2024 American Public Education Inc Earnings Call
Good afternoon and thank you for standing by. My name is Kelvin, and I will be a conference operator today. At this time, I would like to welcome everyone to the American Public Education Inc. for 4th quarter 2020 full results call. All lines have been placed in need to prevent any background noise.
After the speakers are marked, there will 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 your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Brian Prennevo, investor relations. Please go ahead.
Brian Prenoveau: Thank you, and good afternoon, everyone. Welcome to American Public Education's conference call to discuss fourth quarter and full year 2024 results.
Speaker Change: Joining me on the call today are Angela Selden, president and chief executive officer Rick Sunderland, executive vice president and chief financial officer.
Speaker Change: and Steve Somers, Senior Vice President, and Chief Strategy and Corporate Development Officer. Materials for the call today are available in the events and presentations section of APEI's website.
Speaker Change: Statements made during this conference call in any accompanying presentation regarding APEI and its subsidiaries that are not historical facts, may be forward-looking statements based on current expectations, assumptions, estimates, and projections.
Speaker Change: For looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements.
Speaker Change: such as those identified in our form at 10K under the heading risk factors in those related to potential impacts from government shutdowns or changing federal government policies and practices, including impacts on revenue or the timing of receivables.
Speaker Change: Board-looking statements may sometimes be identified by words like anticipate, believe, seek, could, estimate, expect, can, may, plan, potentially, reject.
should, will, would, and similar or opposite words.
Speaker Change: For looking statements include, without limitation, statements regarding expectations for registration and enrollments, revenue, earnings, and adjusted EBITDA, and other earnings guidance.
Speaker Change: Repositioning Rasmussen University for Growth, combination of our institutions, financing and spending plans, future governmental and regulatory actions, and our response to those actions.
Speaker Change: Changing market demands and our ability to satisfy such demands and other company initiatives including with respect to future competition and demand cost savings efforts [inaudible]
Speaker Change: This presentation contains references to non-GAAP financial information, a reconciliation between the non-GAAP financial measures we use in the most directly comparable GAAP measures .
Speaker Change: is located in the appendix to today's presentation in the earnings release.
Speaker Change: Management believes that the presentation of non-GAAP financial information provides useful supplemental information to investors regarding its results of operations. It should be only considered in addition to and not as a substitute for or superior to any measure of financial performance prepared in accordance with GAP.
Speaker Change: Now I'd like to turn the call over to APEI's president, CEO , Angela Selden. Angela, please go ahead.
Angela Selden: Thank you, Brian . Good afternoon and thank you for joining American Public Education's fourth quarter and full year 2024 earnings call. We are very pleased with our results in both the fourth quarter and full year 2024 and remain enthusiastic about our past forward.
We have four areas to highlight during today's call.
First, APEI outperformed 4th quarter 2024 financial guidance.
Angela Selden: In the fourth quarter, we exceeded guidance for revenue, net income and adjusted EBITDA. Importantly, as we signaled at the beginning of the year, Rasmussen in the fourth quarter delivered both positive EBITDA and positive enrollment growth.
Next, APEI outperformed full year 2024 Financial Guidance.
Angela Selden: We delivered on the full year guidance that we first established at the beginning of 24 and then raised.
Angela Selden: Revenue of $624 million exceeded the top end of the original guidance and met the midpoint of our raised revised guidance.
Angela Selden: Adjusted EBITDA of $72.3 million, exceeded both the high end of our original and revised guidance range, which was $65 million.
Capital expenditures were in line.
Angela Selden: Third, 2025 will be a year of simplification at APEI. In January , we announced a plan to combine our three degree-granting institutions into a single consolidated institution.
Angela Selden: This should provide simpler operations and an opportunity to find both revenue and cost synergies over the long term.
Angela Selden: Additionally, we intend to redeem our preferred shares prior to the end of the second quarter, which would be a creative to net income and earnings for share.
Angela Selden: We have closed some underperforming campuses, terminated expensive leases and contracts, and have two corporate buildings held for sale.
Angela Selden: These steps should simplify the balance sheet and cost structure, resulting in significant earnings growth in 2025.
Angela Selden: Finally, 2025 will be another year of Revenue and Adjusted EBITDA growth.
Angela Selden: We're initiating 2025 guidance with revenue of $650,000,000 to $660,000,000 and adjusted EBITDA of $75,000,000 to $85,000,000.
Speaker Change: Rick Sunderland, APEI-CFO, will provide more details on guidance in his remarks.
Speaker Change: Now, I'll provide more detail about the fourth quarter and full year 2024 results, starting first with APEI's Nursing and Healthcare Institution.
Speaker Change: Much of the work over the past two years at Rasmussen has been focused on strengthening its foundation for long-term growth. We have made real progress, and in particular are pleased with the previously guided financial results in the second half of 24.
Speaker Change: 3Q24 was the first quarter in which Rathamson experienced positive year-over-year enrollment growth since API's acquisition.
Speaker Change: In 4Q24, the trend continued with a 4% year-over-year enrollment increase.
Speaker Change: In the first quarter of 2025, this momentum has accelerated with a 7% increase in enrollment compared to 1Q24, including positive enrollment in our on-ground nursing and healthcare programs.
Speaker Change: Beyond Enrollments, we signaled that Rasmussen would be adjusted even up positive in the second half of 2024, and we achieved that goal.
Speaker Change: with $6.4 million of adjusted EBDA in 4Q24 and positive $3.1 million for the second half of 24.
Speaker Change: A particular note is that this growth has been achieved even with the suspending of enrollments in two Wisconsin campuses and the Bloomington ADN program.
Speaker Change: These results support our belief that there remains significant upside to racism, growth, and profitability.
Speaker Change: In 2024, 23 of our 25 nursing reporting entities met the state and collect pass rate thresholds.
Speaker Change: At Hondros, as previously reported, 4Q24 enrollment was very strong with 19% growth as compared to 4Q23.
Speaker Change: 1Q25 enrollment continues a positive trend, increasing 9.6% year-over-year to 3600 students.
Speaker Change: This marks the 20th consecutive quarter that Hondras has posted year-over-year enrollment growth.
Speaker Change: We're building on that momentum of 24 into 2025 at both Rasmussen and Andros with one Q25 reported student enrollment as actual because these quarterly starts have already begun.
Speaker Change: We believe our nursing schools can continue to be a significant driver of growth and margin expansion going forward. The higher fixed cost base of these businesses allows for increased EBITDA flow through as we fill existing spaces in classes and on campuses.
Speaker Change: Further, the market dynamics present for new nurses remains as we, as when we acquired Rouse Assistant in 2021.
Speaker Change: With an annual shortage of approximately 200,000 nurses each year, and with Hondras and Rassassin currently educating over 9,000 students per year, there remains significant runway for further growth and expansion.
Speaker Change: Now I'd like to turn our attention to APEI's online university, educating our nation's military, veterans and their families, currently called APUS.
In 4Q24, overall net course registrations increased 7% year-over-year.
Speaker Change: As announced in January of this year, we are planning to combine a P. U S Rasmussen and Handros into one consolidated institution American public University system, which we are now referring to as the system.
Speaker Change: We are targeting the fourth quarter of 2025 for the combination to be completed assuming all regulatory and accreditation steps have been satisfied.
Speaker Change: This system will have a healthcare division, which will include Rasmussen University and hydro <unk> College of nursing, combining and expanding our nurses nursing campus footprint will allow us to strengthen our ability to address the growing demand for nursing and other clinical roles in the healthcare ecosystem.
Speaker Change: We're very excited that Mark Arnold <unk>, new president will be leaving that division.
Speaker Change: The system will also have a military and veteran division called <unk> Global. We are also very pleased that Nuno Fernandez will continue to lead that division.
Speaker Change: We have upcoming process steps with our creditor higher learning Commission and the U S Department of Education, we will provide updates in future earnings calls as we complete key milestones.
Overall, we're very proud of our results and achievements in 2024, we believe in our future growth and opportunities in 2025 and beyond.
Speaker Change: Each of our education units with purpose built to deliver accessible and affordable higher education and training.
Speaker Change: A diverse range of subjects by Amy to educate service minded students and their families and by offering classes certificates and degrees and skills that will continue to have high demand.
Speaker Change: <unk> enables students to experience a valuable lifelong return on their educational investment.
Speaker Change: Our mission reflects those priorities.
Speaker Change: Power purpose potential and prosperity for those in service to others.
Speaker Change: We're proud of the foundation for growth, we have built and we remain focused on setting clear achievable goals for 2025 and beyond.
Speaker Change: With that I will now turn the call over to <unk>, Chief Financial Officer, Rick Sunderland.
Rick Sunderland: Thank you Angie total revenue in the fourth quarter was $164 1 million up $11 3 million or seven 4% from the prior year period.
Rick Sunderland: Fourth quarter revenue growth was driven by increased revenue at all of our education units hydrous in particular delivered a 20% increase in revenue compared to the fourth quarter of 2023.
Rick Sunderland: Fourth quarter revenue exceeded the top end of our guidance range.
Rick Sunderland: Total cost of expenses in the fourth quarter increased $5 7 million or four 2%.
Rick Sunderland: Prior to the fourth quarter of 2023.
Rick Sunderland: Greece was primarily driven by increases in employee compensation costs and bad debt expense, partially offset by a decrease in advertising and depreciation and amortization expenses.
Rick Sunderland: In the fourth quarter diluted net income per common share was <unk> 63.
Rick Sunderland: As compared to 64 cents in the prior year period.
Fourth quarter, adjusted EBITDA was $31 4 million, which is above the top end of the guidance range and represented an adjusted EBITDA margin of 19, 1% as compared to 16, 8% in the prior year period.
Rick Sunderland: Fourth quarter adjusted EBITDA represented a $5 7 million or 22, 2% increase as compared to the prior year.
Rick Sunderland: Fourth quarter revenue increased to $82 4 million, an increase of three 8% as compared to the prior year period.
Rick Sunderland: Fourth quarter net course registrations increased 7%, which was above the top end of our guidance range.
The increase in fourth quarter net course registrations was driven by both military and military affiliated net course registrations for the quarter.
Rick Sunderland: EBITDA was $28 4 million and EBITDA margin was 34, 5% as compared to 35% in the prior year period.
Speaker Change: Hey, Ross Watson fourth quarter revenue was $57 5 million, an increase of nine 3% as compared to the prior year.
Speaker Change: In the fourth quarter online enrollment increased 9% as compared to the prior year and total enrollment increased 4% to approximately 14600 students.
Speaker Change: On ground enrollment continues to stabilize with first quarter 2025 on gas on ground enrollment, increasing three 2% as compared to the prior year period.
Speaker Change: In the fourth quarter <unk> delivered positive EBITDA of $5 5 million as compared to EBITDA of zero point $6 million in the prior year as previously discussed <unk> reported positive EBITDA of $3 1 million in the second quarter and the second half of 2020 for delivering on our promise.
Speaker Change: A positive two H 2020 for EBITDA.
Speaker Change: And hydro's fourth quarter revenue was up 20% to $18 9 million as compared to the prior year period due to continued enrollment growth for the quarter Congress enrollment Honduras total enrollment increased 19, 3% to approximately 3700 students at <unk> EBITDA was $1 3 million.
Speaker Change: In the fourth quarter of 2024 compared to $1 2 million in the prior year.
Speaker Change: Revenue in graduate school included in corporate and other was $5 4 million as compared to $5 million in the prior year period for the quarter Graduate School EBITDA was a loss of <unk> 7 million compared to an EBITDA loss of $1 1 million in the prior year period.
Speaker Change: At December 31, 2020 for total cash cash equivalents and restricted cash was $158 9 million an increase of $14 6 million from year end 2023.
Speaker Change: For the year ended December 31, 2024 cash flow from operations was $48 9 million compared to $45 5 million in the prior year Capex.
Speaker Change: Capex in 2024 was $21 1 million and free cash flow for the year defined as adjusted EBITDA less Capex was $51 2 million compared to $45 7 million in 2023.
Speaker Change: Principal on Api's term loan at December 31 was $93 million.
Speaker Change: With unrestricted cash of $132 million API continues to be net cash positive. Additionally, there are no borrowings under our $20 million revolving credit facility, which remains fully available.
Speaker Change: I am going to turn now to our outlook, which covers forward looking statements subject to the various risks noted.
Speaker Change: For the first quarter 2025.
Speaker Change: Total net course registrations are expected to be between 100500 to 102000 registrations, representing a one 5% to 3% increase when compared to last year.
Speaker Change: The first quarter guide.
Speaker Change: Guidance is negatively impacted by the scheduled maintenance maintenance of the army and Air Force Ta portals that extended.
Speaker Change: It's planned downtime the outage lasted approximately two weeks, resulting in an overlap with the March session enrollment period.
Speaker Change: <unk> first quarter student enrollments are actual because of the quarterly start to these schools.
Speaker Change: Rasmussen first quarter total online enrollment increased 11, 1% to approximately 8000 students while total on ground enrollment increased three 2% to approximately 6500 students for an aggregate enrollment of approximately 14500 500 students.
Speaker Change: This represents a 7% increase when compared to the first quarter of 2024 and is our third consecutive quarter of overall positive year over year enrollment growth at restaurants.
Speaker Change: And hydro's first quarter total student enrollment increased nine 6% year over year to approximately 3600 students.
Speaker Change: In the first quarter of 2025 consolidated revenue is expected to be between $161 million and $163 million.
Speaker Change: The company expects net income available to common shareholders to be between $1 7 million and $3 1 million.
Speaker Change: Or between income of nine.
Speaker Change: <unk> 17 per diluted share.
Speaker Change: Adjusted EBITDA is expected to be between $13 5 million and $15 5 million in the first quarter of 2025.
Speaker Change: We are providing full year guidance with anticipated consolidated full year 2025 revenue to be between $650 million and $660 million, we expect full year adjusted EBITDA to be between $75 million and $85 million and net income available to common shareholders.
Speaker Change: To be between 19 million and $26 million.
Speaker Change: Our net income guidance assumes the redemption of our preferred equity prior to the end of the second quarter, which will reduce preferred dividend payments by approximately $3 million in 2025, if redeemed mid year and $6 million annually, we anticipate 2025 capital expenditures to be between $18 million.
Speaker Change: And $22 million this translates to free cash flow expectations for the full year defined as adjusted EBITDA less capex to be between $53 million and $67 million.
Speaker Change: With that operator, please open the line for questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
During the Q&A session. We ask that you. Please limit your input to one question and one follow up.
Speaker Change: At this time I would like to remind everyone to ask a question press the star button, followed by the number one on your telephone keypad.
Speaker Change: We'd like to withdraw your question Press Star one again, one moment. Please for your first question.
Speaker Change: Yeah.
Speaker Change: Your first question comes from the line of Stephen Sheldon. Please go ahead.
Stephen Sheldon: Hey, Thanks, and nice work here.
Stephen Sheldon: So within Apu, it's great to see the strong acceleration in <unk> I think portal timing headwind.
Stephen Sheldon: Two enrollments in the first quarter I guess, how big of an impact was that in.
Is that kind of why enrollment growth is going to slow in <unk> and then I guess, how should we think about enrollment trends potentially over the rest of the year.
Stephen Sheldon: Right so.
Stephen Sheldon: We don't have the exact impact because we are still late registering students we've built in the anticipated impact.
Stephen Sheldon: Which is in the mid single digits.
Stephen Sheldon: <unk> wise.
Stephen Sheldon: Into the first quarter guidance, and then of course, Matt including in the first quarter guidance. It's included.
Stephen Sheldon: In the full year guidance, but the good news is while the outage.
Stephen Sheldon: Extended longer than was expected it was expected to be somewhere around a week and it lost at slightly over two weeks and it did to that extent impact first quarter guidance.
It is now behind US the portal is working we are continuing to late registered students that would've otherwise registered during that outage period.
Stephen Sheldon: And because of the full functioning of the quarter portal students that want to register for.
Stephen Sheldon: Future sessions April and beyond we're able to do so.
Stephen Sheldon: Yeah.
Stephen Sheldon: Got it Thats helpful.
Stephen Sheldon: And then great to see you turn the corner on profit and RASM in this quarter.
Stephen Sheldon: I'm just curious generally how long are you thinking.
Stephen Sheldon: But it might take for RASM seem to get back to a double digit adjusted EBIT margin profile.
Stephen Sheldon: The thing that.
Stephen Sheldon: We're expecting kind of consistent improvement as we think about the next couple of years and is generally when do you think you could get back to that stronger market profile.
Stephen Sheldon: Hey, Stephen it's right I said that and Andy corrected me by writing it off a piece of paper. My My apology go ahead I just wanted to take that Ajay give us given how are you.
Stephen Sheldon: So we certainly arent, giving multiyear guidance presently, but we are really pleased with the acceleration in enrollment momentum were seeing at <unk>.
Stephen Sheldon: And it includes both our online unit as well as our campus based unit. So we believe that we will see a significant flow through of that incremental revenue to the bottom line and we're very excited about what we're seeing our assets in right now.
Speaker Change: Good to hear and then just one more quick one if I could as you think about the profit guidance for the first quarter you are expecting revenue to grow kind of mid single digits, you're expecting adjusted EBITDA to be down a decent amount year over year can you talk about what's driving that EBITDA kind of contraction year over year and whether there are timing of one off issues, we should be thinking about.
Speaker Change: You want me to take that Steven it's Rick.
Speaker Change: So we looked at first quarter of <unk> 25, compared to first quarter of 'twenty four.
Speaker Change: We're investing more in advertising as we've really kind of hit the accelerator on the impact and effectiveness of advertising, so advertising's up about $2 1 million.
Speaker Change: We do have higher labor costs in Q1 this year.
Speaker Change: That we do.
Speaker Change: Did Q1 of last year, we invested as the marketing.
Speaker Change: Function.
<unk> continues to deliver.
Speaker Change: And even better results, we invested in student facing.
Speaker Change: SaaS admissions advising.
Speaker Change: <unk> support too.
Speaker Change: Two really.
Speaker Change: Care for the needs of the prospects in new new students that were coming in so it's advertising, it's labor that's driving that year over year change.
Speaker Change: Makes sense. Thank you for the color and nice work.
Speaker Change: Thank you very much.
Speaker Change: Your next question comes from the line of Jasper Bibb of tourist Securities. Please go ahead.
Jasper Bibb: Hey, good evening everyone.
Speaker Change: I wanted to ask about.
Speaker Change: Portfolio concept consolidations in the one institution I know.
Speaker Change: No.
Speaker Change: It's going to close in the fourth quarter.
Speaker Change: Glenn but.
Speaker Change: I guess as of now is there any way you could help frame for us. If you are expecting G&A savings associated with that how large they might be the potential timing in 2026 or beyond.
Speaker Change: Thank you.
Jasper Bibb: Thanks for the questions Jasper.
Speaker Change: The.
Speaker Change: We anticipate both revenue synergies and I'll talk about why that is as well as cost synergies and our belief is that will close in the fourth quarter of 'twenty five.
Speaker Change: We have some important process steps coming up in the next few weeks that will finalize that timeline for us.
Speaker Change: I wanted to talk about the revenue synergies first because one of the things we're quite excited about is offering.
Speaker Change: Our Honduras students, who have only access to pre licensure nursing programs today, the full ladder a post licensure curriculum that exists at <unk> also we believe that the online.
Speaker Change: Modality for students at both <unk> and <unk> are.
Speaker Change: In that one offers a monthly start one offers a quarterly start and we believe that students who may find one of those institutions.
Speaker Change: And may not like that.
Speaker Change: Start pattern, we can offer them the alternative of our sister institution at the other institutions. So we believe there's a lot of revenue synergies, we're going to see as a result of this combination.
Speaker Change: As it relates to costs, we certainly see in the long term an opportunity too.
To streamline some of the services that we have that overlap between the institutions today, but I think in the short term the primary areas of.
Speaker Change: Cost synergies will be a few.
Speaker Change: Leadership positions at at <unk>, and then importantly, we will be aligning our accreditation then.
Speaker Change: And other academic teams to the to the system level, so but by and large this is not a cost reduction that is not what this is intended to be it's really about building. These platforms to allow us to accelerate the growth in our both our military business as well as in our nursing and health care business.
Speaker Change: Thanks for that.
Speaker Change: The online growth for Rasmussen has been really strong it looks like you are looking for double digits in the first quarter.
Speaker Change: Can you frame some of the drivers of that growth and then also what youre seeing from a <unk>.
Speaker Change: Our marketing yield perspective, that's allowing you to generate these new starts.
Speaker Change: Yes, I'll start and then Rick please jump in so one of the things that we're particularly pleased with is the.
Speaker Change: The optimization of the marketing spend we've turned our attention to.
Speaker Change: Organic.
Speaker Change: Lead generation as opposed to paid leads and as those leads have increased substantially the flow through on those leads has been very material and so we actually saw a reduction in marketing spend at <unk> last year and an increase in conversion rate. So.
Speaker Change: That has had a substantial positive effect in particular on our online.
Speaker Change: Enrolment, but certainly also on our campus based enrollments as well.
Speaker Change: The.
Speaker Change: Can you remind me with the second part of your question was I don't remember what you said.
Speaker Change: Yes.
Speaker Change: Enrollment strength in marketing yield.
Speaker Change: Okay, Yes, and so what.
Speaker Change: What we're also finding from a marketing perspective is that we turned our attention to what I would call hyper local marketing for our campuses and that has had a significant positive effect on our campus based enrollment growth.
Speaker Change: We we have returned to some fairly traditional methods radio and some other very local market activities and for the student demographic that we educate it has been highly effective and so.
Speaker Change: We're really treating those two businesses two business segments as part of <unk> with.
Speaker Change: With different marketing strategies and that separation marketing strategy is really paying off for us.
Speaker Change: Okay.
Speaker Change: Typically some seasonality in the reference margin but.
Speaker Change: $5 5 million for Q.
Speaker Change: The EBITDA as a decent margin.
Speaker Change: Looking ahead, I guess, just hoping you could frame for US you expect referencing contribution is in your 25 EBITDA guidance and how you expect that to look on a quarterly basis through the year.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: We as you know, Jeff we don't breakout those larger contributions by education unit presently, but we.
Speaker Change: As I said before the revenue.
Speaker Change: Improvements that we're seeing at <unk> and certainly on a year over year basis are going to have a substantial flow through to the bottom line for a minute.
Speaker Change: EBITDA and margin improvement in all of 2025.
Speaker Change: Yeah.
Speaker Change: Thanks, so much.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: This concludes our Q&A session.
Andy: With that I will now turn the call back over to Andy for closing remarks. Please go ahead.
Andy: Thank you all for joining American public Education's fourth quarter, and full year 2024 earnings and guidance call.
Andy: We appreciate all that you do for.
Andy: Our students and for API and look forward to our next call with you coming up shortly thank you very much.
Speaker Change: Ladies and gentlemen, this does conclude today's teleconference.
Speaker Change: Thank you for your participation you may disconnect. Your lines at this time have a wonderful day.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: <unk>.