American Public Education, Inc.

Ladies and gentlemen, thank you for signing by and welcome to the APEI Report Second Quarter 2020 Results Conference Call. At this time, all participants are in a 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 to our first speaker for today, Chris Semenovsky. Thank you. Please go ahead, sir.

Thank you, operator. Good evening, and welcome to American Public Education's discussion of financial and operating results for the second quarter of 2020. 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, plan, should, will, and would. These forward-looking statements include without limitation statements regarding expected growth, registrations, Enrollments, Revenues, Expenses, Earnings, and Plans with Respect to Recent, Current, and Future Initiatives, including Marketing Initiatives, Efforts to Grow Honduras College of Nursing, and Information Technology Replacements and Upgrades. Furthermore, these forward-looking statements include, without limitation, statements regarding investments and partnerships and the future impacts of and the company's response to the COVID-19 pandemic and the economy. 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 related to the COVID-19 pandemic and the risk factors described in the risk factors section and elsewhere in the company's most recent annual report on Form 10-K and quarterly report on Form 10-Q filed with the SEC, as well as the company's other SEC filings. The company undertakes no obligation to update publicly any forward-looking statements for any reasons 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 CEO, and Rick Sunderland, our Executive Vice President and CFO. Now, at this time, I'd like to turn the call over to Angela Selden. Angie?

Thank you, Chris. Good evening, everyone. I'd like to begin our call today first by expressing my gratitude to the faculty and staff of American Public University System, APUS, Congress College of Nursing, HCN, and American Public Education, Inc., APEI. Our heritage of serving those who serve has never been more crucial in these unprecedented times. During our second quarter, Our faculty and staff have selflessly mobilized to continue to safely serve our students. APUS students continue to benefit from our fully online operating model while to a modified learning environment with virtual coursework supplemented by On Brown's labs and clinicals. Please know that the health and well-being of our students faculty and staff remain a top priority. We are pleased to report that enrollment momentum continues, reflecting the ongoing transformation that has been taking place at APEI. APUS delivered double-digit increases in registrations from both new and returning students. At Hondros, both new and total enrollment increased meaningfully. Overall, we are pleased that our second quarter financial results are ahead of expectations. Today, we will also share news on our ongoing enterprise transformation, including new leadership, new board members, as well as positive progress on our technology modernization initiatives. We are incredibly grateful that a growing number of adult learners are seeking affordable Thank you. Thank you. Thank you. fulfill their purpose and obtain the skills they need to maximize their higher education return on investment, a term we call H-E-R-O-I. Since our founding by a retired Marine Corps officer, APUS has strived to create a more efficient and effective student value proposition online at a cost far less and many traditional on-ground institutions. We have been pioneers in making online learning affordable and have continued to improve the student experience since our founding. We do this by focusing on core education and separating coursework from other expensive, non-core aspects of traditional higher education, such as dorms, dining halls and stadiums. This unbundling enables APUS to provide well-designed, long-established, quality online programs without passing bundled costs on to learners. Furthermore, it has ensured our students receive the same successful academic experiences today as they had before the pandemic. We continue to invest in enhancing the student experience As evidenced by our ongoing technology modernization program at APUS, our online learning platform enables a high degree of collaboration and engagement with quality academic content. Our academic teams bring decades of know-how in applying learning theory, instructional design, and communities of inquiry with faculty to student, student to student, and student to content interactions. All wrapped in effective technologies, adaptive learning, and tested principles. And our active outreach program aims at educating learners about the affordability and the potential value of an APUS experience. Our proven track record and the success of more than 98,000 APUS alumni speak for themselves. APUS has been committed to affordability since its inception. Our undergraduate tuition has only increased $35 per credit hour since 2001. Second, no cost course materials have been a hallmark of our offerings to undergraduate, doctoral, and military tuition grant eligible students. The APUS Book Grant has provided students over $142 million in book grant savings since 2001. Number three, we have helped reduce the time to completion for a majority of our graduates by providing learners with approximately 3.5 million transfer credits since 2001. Number four, undergraduate degrees are 60% lower The average four-year public in-state tuition and fees, not including any incremental savings students may enjoy from the recognition of transfer credits. Number five, as of December 31, 2019, 72% of our alumni have graduated with no APUS-incurred student loan debt. and finally, 48% of APUS students were referred by other APUS students or alums, which we believe underscores that our students recognize the importance of our value proposition of access to affordable, inclusive, high-quality, flexible education experiences. High Grove College of Nursing is intensely focused on its student-first approach as it continues the training and education of nearly 2,000 frontline healthcare personnel so that they can serve those in need. The demand for nurses is outpacing supply, making the work of Hondros all that more important to the healthcare community. Now with hospitalizations in Ohio recently reaching the highest level since the pandemic began, Hondros is serving an even more critical role in the fight against COVID-19 as a campus-based pre-licensure nursing educator, conferring degrees which prepare students to become licensed practical or registered nurses. Even though Honros itself incurred expenses to move all operations online in the second quarter due to the COVID-19 pandemic, Honros distributed 100% and let me underscore this to be sure that there is no confusion. Condros distributed not just the 50% required to be distributed, but the full 100% of the $3.12 million received in CARES Act emergency relief aid. 100% went directly to 1,687 eligible nursing students who are not studying online at Hondros prior to the COVID-19 pandemic. Already, 123 of these nursing student recipients are working on the job, having since graduated with nursing degrees with RN or LPN eligibility. We took this step because it was the right thing to do to help our nursing students through a time of need. According to HONDROS student Shirley Arrington, now in LPN, the aid came at a time of true necessity because I was able to buy the things I needed to take my online courses. She added, I am so grateful. As we shared in a prior earnings call, HONDROS offers an institutional affordability grant to serve underserved communities by matching funds to reduce enrollment costs. Additionally, Hondros has over 45 employer partnerships providing tiered pricing to maximize employer tuition reimbursement. In the second quarter of 2020, new and total net course registrations at APUS increased year over year by 30% and 18% respectively. We believe that the increase in net course registrations was driven Not only by increased interest in online education, but also by our implementation of the Freedom Grant, which extended our textbook and tuition grants to military students at the master's level, and by our positive message of affordability resonating with the many communities we serve. Net course registrations by students at APUS increased year over year in each primary funding category. including federal student aid, or FSA, which increased 1.8% year-over-year. This first year-over-year increase since the second quarter of 2012. Net course registrations by new students utilizing cash and other sources increased 42.5% year-over-year, albeit as compared with a smaller number. We believe increased interest in online education particularly among those in military communities and our message of affordability helped drive year-over-year increases. Net course registrations by new students utilizing tuition assistance or TA and veterans benefits or VA increased 42.3% and 12.3% respectively compared to the prior year period. We experienced a year-over-year increase in net course registrations by new students from each branch of the military, including the Navy, which was adversely impacted last year by limitations on TA course approval. We believe the increase in registrations among active duty military at ATUS was driven in part by the launch of the AMU Freedom Grant and our focused effort to continue serving this community with honor. Active duty military students are experiencing many of the same disruptions as non-military learners and we think that has contributed to our results so far this year. Uncertainty regarding higher education options in the fall continues to make online education an attractive option. We believe the overall number of active duty service members utilizing the tuition assistance program remains steady with growing percentage of them seeking online options and an increasing number of them are selecting AMU as a trusted higher education brand. This further illustrates the durability of the franchise we have created over the years. We plan to continue building on our nearly three decades of service to military, military affiliated and veteran communities and pursuing our goal of increasing the number of military learners with minimal or no out-of-pocket cost for their higher education. Our academic operations and technology teams have worked tirelessly over many years to improve the student experience and learning outcomes. I am pleased to report on our continued progress. The undergraduate persistence rate at APUS, as measured by the first course pass and completion rate of students utilizing FSA, improved in May 2020 to its highest level since 2009. a tremendous milestone that is particularly noteworthy given the severity of the current recession and the fact that we are only just beginning to implement our strategy for non-military communities. I'm also pleased to welcome new senior management team members. The APOS Board of Trustees recently appointed Dr. Wade Dike as the university's president. Dr. Dike was a former president of Kaplan University and more recently served as the CEO of Great Hearts Academy. We look forward to his starting in his official role in two days. Steve Summers, also formerly of Kaplan and formerly of Rosetta Stone, is our new SVP of Strategy and Corporate Development. And Amy Manning has joined as SVP of Human Resources, most recently serving as Vice President of HR at Cisco Systems. We are also delighted to welcome two recently appointed APEI board members, Bernetta Blevins, a business advisor who has served in a number of executive leadership capacities, including CFO, COO, and Chief of Staff for education and educational technology companies, and Daniel Pienko, who brings more than two decades of investment experience and is a trusted education expert frequently featured by national media outlets. All of these new management and board members represent fresh leadership and additional bench strength that will be tremendously helpful in accelerating our enterprise transformation and scaling our adult learning platform. I'm committed to ensuring that we have the best team in place to achieve our goals and further strengthen our core enterprise. To that end, I am pleased that our technology modernization project at APUS remains on track. with our goal of completing our migration to a new learning management system or LMS by early 2021. As of the August start, we have successfully transitioned approximately 42% of our unique courses to the new LMS with no unscheduled downtime. We have begun to expand the functionality and integration of our new CRM system Salesforce with other systems and before the end of this year, We intend to accelerate our initiatives aimed at moving most of our infrastructure to the cloud, which we believe will further improve our student experience. Our systems and processes continue to scale well with the increased enrollment at APUS. Our team continues to operate successfully under difficult conditions while addressing increased demand for online learning and nursing programs. Our learning platform at APUS is robust. with the capacity to serve thousands of additional students. Under conditions of fully remote working and high student demand, our critical service functions continue to operate successfully. Our leadership team has evaluated the eventual phase in reopening of our administrative offices with the health and safety of our workers as our primary consideration. We currently anticipate the full opening of our offices in Charlestown, West Virginia, starting in early 2021. As discussed at the beginning of this call, I would like to, in particular, applaud the efforts of HONDRO's hardworking, mission-driven employees who earlier this year, under emergency conditions and in support of nursing students, created virtual courses lectures and clinicals while keeping campuses open for advising, labs, and other hands-on portions of the curriculum. HONDROS has since fully reopened at six campuses using small in-person classes and screening, social distancing, and masking requirements while continuing to offer virtual courses. Of note, through the reporting year ended June 30, 2020, HONDROS program satisfied its primary accrediting body's threshold requirements for retention rates, placement rates, and mandatory licensure and credentialing examination pass rates. For the three months ending September 30, 2020, new student enrollments at Hondros increased 88%, and total student enrollment increased 38% compared to the prior year period. As I mentioned earlier, we believe the increase is the result of Hondros' student-first approach and the flexibility and quality of its nursing program, as well as the result of the increases in the demand for nurses in the battle to save lives during the pandemic. As we have illustrated today, we believe in creating shared value. This is reflected in everything we do, including environmental sustainability. We remain committed to linking business strategy and social responsibility. with examples such as APUS's online learning platform and solar arrays powering the LEED Platinum Building in Charlestown, allowing us to fulfill our mission with a relatively small impact on the environment. And while our nation's path to post-COVID-19 conditions and economic recovery remains uncertain, APUS and Hondros are grateful to be the institutions of choice for many learners, including nurses, First Responders, Veterans, and Active Duty Military. Now, more than ever, at APEI, we remain committed to providing learners of all backgrounds access to obtain the skills they need to achieve their purpose while maximizing their higher education return on investment. Now, I will turn the call over to our CFO, Rick Sunderland.