American Public Education, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the American Public Education third quarter 2019 results conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today. and Chris Szymanowski, Vice President, Investor Relations. Thank you. Please go ahead.

Thank you, operator. Good evening and welcome to American Public Education's discussion of financial and operating results for the third quarter of 2019. 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 registration and enrollments, expected revenues, expenses and earnings, and plans with respect to recent, current and future partnerships, investments and initiatives, including efforts to rebuild the nursing platform as well as information technology replacements and upgrades. 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 factor section and elsewhere in the company's most recent annual report on form Tinkay, filed with the SEC, and the company's other SEC filings. The company undertakes no obligation to update publicly any forward-looking statements for any reason unless required by law, even if new information becomes available or other events occur in the future. This evening, it's my pleasure to introduce Angela Selden, our President and CEO, and Rick Sunderland, our Executive Vice President and CFO, At this time, I'd now like to turn the call over to Angela Selden. Angie?

Thank you, Chris, and good evening, everyone. It's a pleasure to speak with all of you. This evening, I will comment at a high level on both the recent quarter and my first impressions after 50 days about the strengths and opportunities at APEI. The skills gap and the high cost of higher education are creating a national crisis. Workers can no longer afford to learn the skills that employers need. According to a Wiley Education Services annual survey, 64% of the 600 HR leaders surveyed said there is a skills gap in their company. Pair that with a $1.4 trillion outstanding student loan debt, and these two forces are colliding to create unmatched opportunity for those positioned to provide today's workers with access to high quality, flexible, and career relevant degree programs and workforce training that is either affordable or debt free. It is important for our key stakeholders to understand that my priority is to grow APEI's core business with an emphasis on addressing this national need for affordability to upskill America's workforce. While the third quarter results met or slightly exceeded the company's outlook, the performance does not reflect the strong foundation and the market potential for APEI. As we move forward, our primary focus will be to grow the core business through increased learner and course enrollments across all brands and to accelerate our reach to provide affordable, accessible, relevant, and high-quality post-secondary education and training to new learner markets. In the third quarter of 2019, net course registrations by new and total learners at APUS declined 5% year over year. The decline was primarily driven by an 11.9% decline in net course registrations by new learners utilizing military tuition assistance, or TA. The decline in net course registrations by new learners utilizing TA was largely impacted by the temporary exhaustion of Navy TA program funds. As previously noted, the U.S. Navy announced that TA benefits available to sailors were expected to be exhausted by the end of May and effective May 28, 2019, the Navy ceased approving TA program funds until the start of the new government fiscal year on October 1, 2019. APUS anticipated that this development would result in a loss of 4,300 net course registrations during the third quarter. However, actual results were better than that anticipated loss by approximately 630 net course registrations. Net course registrations by new learners utilizing federal student aid, or FSA, were also slightly better than expected. That said, APUS did experience a 7.7% decline in net course registrations by new learners utilizing FSA compared to the prior year period. The declines were partially offset by a 9.6% increase in net course registrations by new learners utilizing Veterans Benefits, or VA, and a 5.4% increase in net course registrations by new learners utilizing cash or other sources. I believe APUS remains one of the best kept secrets in higher education. One of the key reasons I joined APEI is to accelerate the positive impact that APUS can have on delivering higher education with low debt or no debt to working adult learners. As of May 2019, approximately 72% of the 90,000 APUS alumni graduated with no APUS-incurred student loan debt. demonstrating leadership in our national mission to provide affordable, accessible, and relevant higher education to adult learners of all kinds. In pursuit of that mission, APUS recently announced an increase in tuition grants for active duty soldiers who pursue undergraduate and master's level courses. The APUS book grant was also extended to now include active duty military learners at the master's level. Previously, active duty learners pursuing master's level courses at APUS paid for their textbooks and either financed or paid out of pocket any differences between the Department of Defense TA benefit and the higher per credit hour cost of the graduate tuition. We believe the new tuition grants and the extension of the book grant may increase the number of active duty military learners at APUS with no out-of-pocket costs, especially at the master's level. The extension of grants to benefit more military students continues to fulfill our commitment to service members and reflects our intention to expand our presence within our core military community. Ushering in a new period of sustained enrollment growth at APUS must be supported first by leveraging APUS capability in our core military and military affiliated markets. As APUS was founded on the principle of assisting military learners who face barriers to degree completion, going forward we will work to assist new learner populations with similar characteristics where APUS can have meaningful impact on their success. Historically, the message of affordability in advertising at APUS has been subtle. I believe, especially given this national conversation about rising tuition and student loan debt in higher education, there are opportunities to create large-scale awareness and attract college-ready students with a primary message of affordability and value. At my direction, and with the support of APEI's Board of Directors We recently began a detailed review of our operations and current market opportunities for the APEI businesses. With my prior experience in large-scale business transformation, these efforts may help discover and prioritize important growth areas and lead to streamlined processes, improved capabilities, and better tools. The recent modest tuition increase at APUS The FIRST, since 2015, is intended to support new investments in academic learning and student operations. We recently completed an evaluation of our information technology ecosystem, which resulted in a plan to upgrade and replace our learning management system in 2020 to modernize the APUS campus for students and faculty. Also, we intend to improve the operational effectiveness of each department and many of the major functions within the university, beginning with the replacement of the CRM systems for both APUS and Hondros, which is already underway. We believe this technology transformation program, which is anticipated to cost between $6 and $8 million in 2020, will enable APUS to better accommodate new flexible learning modalities such as credential seekers, dual degrees, and custom programs for partnerships to serve new market segments, improve the operational effectiveness of our enterprise, and enhance the learning experience for students and faculty. In addition to having met many enthusiastic employees at APUS during my first 50 days at APEI, I have spent time with the management team at the Hondros College of Nursing, visiting campus locations, speaking with students and reviewing HONDROS Enrollment Growth Recovery Plan. As part of their comprehensive plan, HONDROS, or HCN, has taken steps to build a strong pipeline of practical nursing, or PN, students, which serves as the primary feeder to HONDROS Associate Degree in Nursing, or ADN, program. Although student enrollment in HONDROS PN program declined 9% year-over-year in the fourth quarter of 2019. The enrollment decline has lessened, representing a dramatic improvement compared to the more precipitous declines of the last several quarters. Overall, HCN's new and total enrollment increased by 53% and 13% sequentially, or compared to the third quarter of 2019. In addition, HCN or HONDROS team reported improved student retention compared to last year, success with the deployment of the new Salesforce CRM software, and continued progress with its new Indianapolis campus that is scheduled for opening in 2020, pending regulatory approval. In short, we are pleased with the positive momentum building at Hondros. In summary, it is an important priority for me to strengthen all aspects of the APEI core business, in part by unleashing the potential that currently exists within the organization. The initiatives we discuss today are really just the beginning of our growth story. Yesterday was Veterans Day, and it was a clear reminder about what attracted me to APEI, fulfilling our mission to bring affordable, accessible, relevant, high-quality educational experiences to learners who are driven to succeed. Frankly, I believe APEI is one of the best platforms available today that can continue to have a positive impact on providing workers access to affordable upskilling and have a voice in the national conversation around low debt and no debt in higher education. as learners pursue their dreams of improving the lives of their families and of themselves. It is the highest honor for me to lead APEI through this important part of its history. And now I will turn the call over to our CFO, Rick Sunderland.