American Public Education, Inc.

Good afternoon. My name is Josh, and I will be your conference operator today. At this time, I would like to welcome everyone to APEI's fourth quarter and full year 2018 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star, then the number one on your telephone keypad. If you would like to withdraw your question, you may press the pound key. Thank you. Chris Simonowski, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good evening and welcome to American Public Education's discussion of financial and operating results for the fourth quarter and full year 2018. Materials that accompany today's conference call are available in the events and presentation section of our website and are included as an exhibit to our current report on Form 8K furnished with the SEC earlier today. Please note that statements made in this conference call and in the accompanying presentation materials regarding American public education or its subsidiaries that are not historical facts may be forward-looking statements based on current expectations, assumptions, estimates, and projections about American public education and the industry. These forward-looking statements are subject to risks and uncertainties that could cause actual future events or results to differ materially from such statements. Forward-looking statements can be identified by words such as anticipate, believe, seek, could, estimate, expect, intend, may, should, will, and would. These forward-looking statements include, without limitation, statements regarding expected growth, expected registrations and enrollments, expected revenues, expected earnings, and plans with respect to recent, current, and future initiatives, investments, and partnerships. Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described in the risk factors section and elsewhere in the company's most recent annual report on Form 10-K filed with the SEC and the company's other SEC filings. The company undertakes no obligation to update publicly for any forward-looking statements for any reason unless required to by law. Even if new information becomes available or other events occur in the future. This evening, it's my pleasure to introduce Dr. Wallace Boston, our President and CEO, and Rick Sunderland, our Executive Vice President and Chief Financial Officer. Now, I'll turn the call over to Dr. Boston.

Thanks, Chris. Starting with page two, I'll begin our call today by discussing APEI's recent operational successes. including robust growth of net course registrations by new students at APUS in the first quarter of 2019. Our CFO, Rick Sunderland, then will discuss APEI's fourth quarter and full year financial results as well as our outlook for the first quarter of 2019. In the fourth quarter of 2018, net course registrations by new students utilizing Military Tuition Assistance, or TA, increased by 11.0% compared to the prior year period. Total net course registrations and net course registrations by new students at APUS each declined by approximately 1% year over year. The strong increase in new students utilizing TA was offset by a 4.5% decline in net course registrations by new students utilizing cash and other sources, an 8.3% decrease in net course registrations by new students utilizing Veterans Benefits, or VA, as well as an 11.5% decrease in net course registrations by new students utilizing Federal Student Aid, or FSA. While net course registrations by students utilizing FSA declined, the first course pass and completion rate, a measure of student persistence, for APUS undergraduate students utilizing FSA increased by 8.4% for the three months ended November 30th, 2018, compared to the same period last year. Tuition Assistance, or TA, continues to be the largest pay type category at APUS. representing approximately 48% of new registrations in the fourth quarter of 2018. We believe the strong increase in net course registrations by new students utilizing TA was due in part to extended student advising and admission hours and outreach effectiveness. For the three months ended December 31st, 2018 or the fall term of 2018, total enrollment at Honduras College of Nursing or HCN was flat year over year and new student enrollment decreased 4% compared to the prior year period. As previously discussed, HCN has implemented multiple changes to its curriculum, course retake policies and admissions requirements in order to improve the overall first-time NCLEX pass rates for graduates of its ADN program. We believe certain changes had an adverse impact on student enrollment, particularly in the January or winter 2019 term. Beginning with the April or spring 2019 term, HGN has moved an ADN interest exam requirement used for benchmarking the academic status of the incoming student class to a first course requirement. As HGN works to identify the appropriate balance of admissions requirements and attracting college-ready students, there may continue to be a negative impact on their enrollments. We anticipate HGN revenues will be approximately 10% of APEI's consolidated revenues in the first quarter of 2019. In addition to addressing these important matters, the management team at HCN continues to focus on its growth initiatives, including the successful launch of its new Medical Laboratory Technology, or MLT, program, the implementation of a new branding campaign, and preparation for a new campus, which we expect to open in 2020. Because today's earnings call is being conducted after the last add-drop date of the March start, API is able to provide actual net course registration results for APUS and HCN, not estimates in our first quarter 2019 outlook. I'm very pleased to report that total net course registrations at APUS increased by 1% in the first quarter of 2019 compared to the prior year period. The growth was driven by an 8% year over year increase in net course registrations by new students. This year over year growth in net course registrations is certainly welcome news. The increase in net course registration by new students was largely driven by a double digit year over year increase and NET course registrations by new active duty military students. We also observed a strengthening of NET course registrations by new civilian students despite headwinds from the partial government shutdown in February. In fact, the year-over-year growth in NET course registrations by new students was particularly strong in the months of January and March. This exciting result represents the first year-over-year quarterly increase in NET course registrations by new students at APUS since the third quarter of 2012. We believe the improvement in net course registrations at APUS is largely a result of recent upgrades to our enrollment management processes and improved marketing efficiency, as well as a result of offering expanded student services hours. We believe it is also a result of our multiyear effort to stabilize enrollment at APUS through product and process enhancements implemented throughout the entire enterprise. As we discussed last quarter, our marketing team has been adjusting advertising spend in favor of our most productive channels, with an even greater emphasis on military, veteran, and other most likely to persist communities. To become more productive, we have utilized new lead scoring methodologies, enhanced geographic recruiting focus, and deployed new lead nurturing strategies to increase engagement and enhance the prospective student's decision process. In addition, we have worked very hard to create a more seamless and personalized onboarding experience for students that we believe has led to improved conversion rates. This combined with our multi-year effort to create a more engaging classroom experience and attract students with greater academic intent and college readiness has led to higher student persistence rates, especially among undergraduate students utilizing FSA. I believe our first quarter outlook for a year-over-year increase in net course registrations at APUS validates our approach to utilize and leverage our unique core strengths without drastic changes to our business model. As we move forward, we will continue to embrace quality Thank you, Wally. Going on to page three, financial results. American Public Education's fourth quarter 2018 consolidated revenue decreased by 1% to $76.9 million compared to $78.1 million in the prior period. The revenue decrease was due to a $1.1 million or 1.6%