American Public Education, Inc.

Good afternoon. My name is Christina, and I will be your conference operator today. At this time, I'd like to welcome everyone to the APEI first quarter results 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'd like to ask a question during that time, please press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. I will now turn it over to Mr. Chris Simonoski, Vice President of Investor Relations. Thank you. You may begin.

Thank you, operator. Good evening and welcome to American Public Education's first quarter 2021 conference call. Materials that accompany today's conference call are available in the events and presentation section of our website. Please note that statements made in this conference call and in the accompanying presentation materials regarding American public education, its subsidiaries, or Rasmussen University 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 those expressed or implied by such statements. Forward-looking statements may be able to be identified by words such as anticipate, believe, seek, could, estimate, expect, intend, may, plan, should, will, would, and similar words or their opposites. Forward-looking statements include, without limitation, statements regarding the impact of recent disruption to the Army's tuition assistance programs, expected growth, expected registrations and enrollments, expected revenues, expected earnings, income and EBITDA, benefits of the acquisition of Rasmussen University, the closing of the acquisition and its timing, expected financial results for APEI, assuming the acquisition of Rasmussen University, expected capital structure, net debt, the ability to deliver a return on learners' educational investment, the ability to maintain an attractive risk profile, plans with respect to recent, current, and future initiatives, including marketing expenditures, and future demand for nursing education. Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risks related to the loss of APEI's ability to receive funds under Department of Defense tuition assistance programs or the reduction, elimination, or suspension of tuition assistance, the effects of an APEI's response to the COVID-19 pandemic, moderation or decrease in demand as the pandemic abates, the acquisition of Rasmussen University and the risk factors described in the risk factor section, and elsewhere in the company's quarterly report on Form 10-Q filed with the SEC today. In addition, the company's most recent annual report on Form 10-K 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 Chief Executive Officer, and Rick Sunderland, our Executive Vice President and Chief Financial Officer. Also available for questions is Steve Summers, our Senior Vice President, Chief Strategy and Corporate Development Officer. I'll now turn the call over to Angela Selden. Angie?

Thank you, Chris. Good evening, everyone. We are very pleased with APEI's first quarter 2021 results. Both APUS and Hondros College of Nursing demonstrated robust enrollment momentum, resulting in strong financial performance. As highlighted on slide three, We reported very strong Q121 financial and operating results at both APUS and Hondros. For the sixth consecutive quarter, net course registrations at APUS increased year over year, primarily driven by active duty military student and graduate student enrollment. We also saw momentum from the continued demand for online education due in part to the COVID-19 pandemic. Net course registrations increased 10% year-over-year, driven by a 14% year-over-year increase in new net course registrations. At Hondros, new and total student enrollment increased 45% year-over-year in the first quarter of 21. Much of the improvement at Hondros is due to the key operational initiatives implemented and continuously being refined since 2019. These initiatives include a new direct entry ADN program and the implementation of Hondros' affordability grants, which limit student out-of-pocket costs to $200 per month. In addition, Hondros moved to a fully online admissions process, which facilitated student recruitment and onboarding. All of these initiatives were implemented prior to the pandemic. Additionally, we believe some growth continues to be attributed to an increase in demand for nursing education and a change in the competitive landscape in our markets due in part to the pandemic. I am also pleased to report that the National League for Nursing Commission for Nursing Education Accreditation, or NLNCNEA, granted accreditation to Honduras Indianapolis campus effective January 13th, 2021. Now I will turn the call over to Rick Sunderland, APEI CFO, to discuss our first quarter financial results.

Thank you, Angie. Going on to slide four. As Angie noted, the net course registration growth at APUS and enrollment growth at Hondros drove strong increases in revenue at both operating units and drove a 19% increase in consolidated revenue. This strong top-line performance translated into strong margin expansion for the business, with operating income margin rising to 12% from 3.6% a year ago. Adjusted EBITDA increased 87% to $15.9 million from $8.5 million, while adjusted EBITDA margin improved by 700 basis points to 18% from 11%. In our API segment, APUS revenue increased 15%, and in our HCN segment, revenue increased 48% compared to the prior year quarter. Cost of expenses for the three months ended March 31, 2021 were 77.9 million, an increase of 6.0 million, or 8.3%, compared to 71.9 million in the prior year period. The increase in costs and expenses were primarily due to increases in employee compensation costs, advertising costs, information technology costs, and professional fees in our API segment, and increases in employee compensation costs, bad debt expense, and instructional materials costs in our HCM segment. Instructional costs and services expenses increased 3.1 million, or 10.6%, to 32.3 million, and as a percentage of revenue, decreased to 36.5% from 39.2% in the prior year period. The increase in instructional costs and services expenses was primarily due to an increase in employee compensation costs in our API segment, and increases in instructional materials costs and employee compensation costs in our HCN segment. Selling and promotional expenses increased 1.2 million, or 6.7%, to 19.4 million, and as a percentage of revenue decreased to 21.9% from 24.4% in the prior year period. Advertising costs increased a total of 0.7 million in our API and HCN segments compared to the prior year period. The increase in selling and promotional expenses was primarily due to increases in advertising costs, employee compensation costs, and marketing support materials costs in our API segment, and an increase in advertising costs in our HCN segment. General and administrative expenses increased $2.5 million, or 12.0%, to $23.5 million and, as a percentage of revenue, decreased to 26.6% from 28.1% in the prior period. The increase in general and administrative expenses was primarily the result of increases in employee compensation costs, information technology costs, and professional fees in our API segment, and increases in bad debt expense and employee compensation costs in our HCN segment. First quarter consolidated bad debt expense was $1.5 million, or 1.7% of revenue, compared to $1.0 million, or 1.3% of revenue, in the prior period. Results for the first quarter 2021 include the following costs on a pre-tax basis. $1.8 million in information technology costs related to our multi-year technology transformation project and $0.5 million in professional fees associated with the Rasmussen acquisition in our API segment and a $0.7 million increase in advertising costs in our API and HCN segments. Results for the three-month-ended March 31, 2020 include included the following costs on a pre-tax basis. 0.9 million of information technology costs related to our multi-year technology transformation program, and 0.6 million associated with strategic opportunities in our API segment. Depreciation and amortization expense decreased approximately 0.6 million to 2.7 million, and as a percentage of revenue decreased to 3% of revenue from 4.5% of revenue in the prior period. Operating income for the first quarter of 2021 increased by $7.9 million to $10.6 million compared to operating income of $2.7 million in the prior year period. Consolidated net income for the quarter increased to $8.1 million or $0.49 per diluted share compared to net income of $2.4 million or $0.16 per diluted share in the prior year period. As noted, adjusted EBITDA for the three months ended March 31, 2021 with $15.9 million compared to $8.5 million in the prior period. Adjusted EBITDA excludes non-cash compensation expense, loss on disposals of long-lived assets, and M&A-related professional fees, most of which was related to integration planning for Rasmussen. A reconciliation of EBITDA and adjusted EBITDA to net income, the comparable GAAP financial measure is included in the table of our earnings release under the caption, GAAP Net Income to Adjusted EBITDA. During the first quarter of 2021, API closed its previously announced underwritten public offering of common stock. APEI sold 3,680,000 shares of its common stock in the offering, resulting in 86.2 million in net proceeds. In addition, API completed the syndication of its committed financing facility, comprising 175 million term loan B to fund a portion of the purchase of Rasmussen University and a $20 million revolving line of credit. The facility is expected to close in connection with the acquisition of Rasmussen. In conjunction with the debt syndication, APEI received debt ratings of B1 from Moody's and WB- from S&P. Cash at March 31, 2021 was $320.8 million compared to $227.7 million at December 31. At this time, I will turn the call back to Angie. Thanks, Rick. Now moving to page 5.

Hondros' second quarter 2021 enrollment momentum continues with new student enrollment increasing 37% and total student enrollment increasing 36% to 2,378 students, another record for Hondros. Additionally, beginning in 2Q21, we welcomed the first cohort of students at Hondros' new Akron, Ohio campus, the seventh Hondros campus. Hondros' momentum, combined with our pending acquisition of Rasmussen University, will help accelerate our growth and create a scale platform in nursing education to address the shortage of registered nurses in the U.S. On a pro forma basis, in the last 12 months ending in March 2021, Hondros and Rasmussen have $183 million of nursing revenue. The acquisition will add a number one market position in pre-licensure nursing to the two existing number one positions in active duty military and veterans education at APUS today. Today, pre-licensure nursing education, or the curriculum to create new nurses, is roughly half of the $28 billion total nursing education market. With the shortage of registered nurses in the United States, Growth in the demand for nursing education is expected to accelerate, particularly for pre-licensure education. As we look toward closing the acquisition of Rasmussen University in late summer 2021, I am pleased to report that Rasmussen's accrediting body, the Higher Learning Commission, or HLC, conducted focused site visits relating to the change in ownership application. The HLC is expected to consider this matter at their June 2021 meeting, which is consistent with our timeline to complete the RAPIS and acquisition in the third quarter of 2021. Additionally, we have been keenly focused on executing a high-quality integration process. This includes best practice identification, process analysis across all shared services functional areas, detailed sequencing and timing of integration activities, as well as an emphasis on aligning culture and establishing clear communication. We have engaged third parties to assist us in these efforts and to help ensure that we provide a high quality experience for all constituencies, students, faculty, staff, and shareholders. This acquisition will be an important milestone in the history of our company. As we've discussed since announcing the transaction, Rasmussen is a high-quality institution with an attractive regulatory profile that has seen impressive gains in recent years as a result of continued enrollment growth in its nursing school and a focus on operating efficiency. Importantly, Rathison is strongly aligned with our APEI mission, helping learners of all backgrounds maximize their higher education return on investment, or HGROI. As we turn to page six, and as Rick will discuss in more detail shortly, APUS's outlook for net course registrations in the second quarter is expected to be impacted by the temporary delay and suspension of the Army's new registration portal, Army IgniteEd. Active duty Army soldiers are APUS's largest student segment, representing about one quarter of all APUS registrations in 2020. The Army preannounced that the registration portal Go Army Ed would go offline on February 11th with a March 8th Go Live date for the new portal Army Ignite Ed. The new portal came online on March 8th and after a few hours was taken down due to technical challenges. The Army did not make and has not made available the prior Go Army Ed portal. Following Army's continuing challenges in activating its new registration portal, APUS registrations from the Army in the month of April 2021 declined meaningfully year over year. As of today, the portal is currently undergoing a limited user test. However, the Army has given no assurance when it will be fully operational. Our best assessment at this stage is that the portal is expected to reopen in June 21, but we can't confirm when the new portal will be fully available. While this was an unexpected disruption to the strong momentum and growth that we have been experiencing, we believe that this is a temporary issue. Even with the disruption in Army TA registration, APUS shows Q221 total enrollment levels higher than pre-COVID levels in 2019, with a 7% two-year CAGR. Excluding Army, and based on the midpoint of our guidance, total net course registrations for all other student segments combined are expected to be positive in Q221 compared to Q2 of 20. I will now turn the call back over to Rick to provide more detail and discuss what this means for our second quarter outlook.

Thank you, Angie. Going on to page seven, API's outlook for the second quarter of 2021 is as follows. While the ongoing transition to Army IgniteEd did not adversely affect registrations and revenue for the quarter ended March 31, Army enrollments subsequent to March 31 have been adversely impacted by this transition. We expect the continued disruption to Army TA and resulting decreases in Army registrations to have an adverse impact on the second quarter. Because of the uncertainty created by this disruption, we will not be giving new student registration guidance this quarter, and we will provide a wider range on total net course registrations in our guidance. In making that decision, we are also taking into account the general uncertainty in demand levels as a result of the pandemic. We believe that as the pandemic abates, demand will moderate, and we expect our growth rate to slow. Second quarter total net course registrations at APUS are expected to decrease by between minus 8% and minus 4% year over year. All institutions serving the active duty military rely on the ability of the Army and the other branches of the Armed Forces to process service members' tuition assistance, or TA, through portals like Army IgniteEd. And from time to time, changes to processes and systems have impacted service members' ability to request TA. Please note that this is not the first time we have experienced disruptions in TA utilization by active duty military. For example, in 2019, the Navy suspended TA funding from late May until September 30th of that year. Despite these periodic disruptions, APUS and AMU have grown market share over the long run and remain the number one provider of higher education to active duty military. Also note that although Army TA represented approximately 17% of total API revenue in 2020, looking ahead we anticipate Army TA would represent approximately 10% of total revenue on a pro forma basis with the acquisition of Rasmussen. Turning to Hondros, at Hondros, second quarter new student enrollment increased 37% and total student enrollment increased 36% year over year. In the second quarter of 2021, consolidated revenue is expected to decline between minus 5% and minus 3% year over year. The company expects net income to be between a loss of 0.8 million and positive 0.6 million in income or on an earnings per share basis, a loss of $0.04 per share and a positive of $0.03 per share on the range, fully diluted earnings per share. The outlook for second quarter net income includes approximately $3 million to $4 million in integration planning costs related to the RAS Plus and acquisition, or approximately $0.12 to $0.16 per diluted share. Adjusted EBITDA is expected to be between $7.2 million and $9.2 million in the second quarter of 2021. Now I will turn the call back to Angie to discuss our priorities for 2021 and to provide closing comments.

Thank you again, Rick. APEI's growing educational platform is uniquely affordable, flexible, and inclusive, which we believe will drive sustainable growth and operating leverage. Our 2021 priorities are focused on driving the platform's growth while staying keenly focused on student outcomes and academic quality. These priorities are deeply aligned with our mission, setting adult learners on the path toward achieving their dreams while maximizing the return on their higher education investment, or H-E-R-O-I. We have aligned resources and management attention against three key pillars of value creation in 2021. Driving sustainable growth in our core businesses where there are large addressable markets and where we enjoy defensible leadership number one market positions acquiring and successfully integrating Rasmussen University to diversify our revenue sources and continue to capitalize on the secular growth in nursing and healthcare education, and bolstering our digital transformation to create a distinctive student experience. In summary, at APEI, we are pleased with the high-quality scale platform we are building and look forward to updating you on the progress of our 2021 priorities on our next earnings call. Before we open the line for questions, I would like to personally thank Chris Simonoski, our Vice President of Investor Relations, for over 14 years of service and contribution to APEI. who will be leaving us after this earnings release. Since our IPO in 2007, Chris has led our corporate communications and investor relations activities and has done so with the professionalism and accuracy we all expect. We wish him all the best in his next endeavor. Operator, please now open the line for questions.

At this time, I'd like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And your first question comes from Jeff Silver with BMO.

Thank you so much. Excuse me. Thank you so much. I wanted to talk about this Army disruption issue. You mentioned some dates in there. I'm assuming this was something that you were not aware of when you reported your fourth quarter numbers?

Hi, Jeff. I'm going to turn that question over to Rick.

Jeff, we did learn a couple weeks before the February 11th start of the transition that that was the date that Army would be transitioning. The period, the blackout period was stated as February 11th to March 8th. And so the go-live then essentially coincided with our year-end earnings announcement. So they were right on top of each other as it relates to when the portal was announced to go back online.

Okay, and you mentioned that these unfortunately happened in the past, and I completely understand that. You used the example, I think it was of the Navy in 2019. Can you remind us, you know, what the impact was from these kind of disruptions? If you happen to have, you know, some ranges, that would be great.

Well, let me tell you this. When you look at Army registrations and you compare those to Navy Army registrations, Looking at 2020, we're about two and a half times the size of the Navy. So while the Navy outage existed for a period probably similar to what we're seeing here, the impact was smaller just because of the relative size of the two branches.

Yeah, I just was referring to maybe the impact on the Navy, if you happen to have that handy. If not, I could follow up. On your Navy enrollment or course registrations.

Well, Jeff, they just stopped funding. So the impact was 100%. We lost every single Navy registration during that period. And here we're still seeing Army registrations. The Army has something called an exception to policy. We are not allowed under the DOD MOU to, quote, unquote, voucher students. They have to be approved for TA before we can let them in the classroom. And so what the Army has done is made an exception to that policy where they've said, you know, all students can register with us and that the Army will retroactively process that TA, right? So we're submitting monthly lists of students that we're serving, and the Army will then match that up with students that are requesting TA once the – once the portal goes live. I would also say, similar to the Navy experience back in 2019, these are matters that affect all schools that are a party to the DOD MOU and serving students under the Tuition Assistance Program, right? So the impact on us as the number one provider is larger than others, but everyone else is going to be experiencing the same matters that we are.

Okay, that's really helpful. I really appreciate the color. Keeping the conversation down in D.C., President Biden released the Americans Families Plan, I guess it was a few weeks ago, talking about funding to community colleges. I know that's not your exact competition, but do you think any of the things in his plan in terms of funding more toward nonprofit entities will impact your business going forward?

I'll start, and then, Rick, if you want to add some details, that would be great. So one of the questions that we've received in the past is about the Navy Community College and what the Navy Community College may do to enrollment at APUS. And what we're actually seeing is positive momentum in our Navy registration, even with the announcement of the Navy Community College. So as we've discussed before in that matter, and I think is also true with you know, with the broader community college initiative announced by the Biden administration, we see community college education as a pathway to completing their degree with APUS. We offer a highly affordable way to complete their four-year degree. And furthermore, we also see that the community college process helps students prepare for the completion of their four-year degree. And so oftentimes if we have a student who may enroll with APUS without a significant amount of prior higher education experience, they don't always persist at the same rate. So we actually warmly embrace community college students because we really do believe that they've demonstrated persistence in their educational endeavors.

Yeah, so besides that, about 18% of our registrations are at the associate's level. And so it's not, you know, bachelors are the majority. And so I've always been thinking about it as it's just opening pathways for students. And as Angie said, when students come to us with an associate's degree, they've got that experience at the associate's level, right, college level. and they tend to be better students in terms of persistence and completion. So we don't know what the impact of a community college or the Navy is going to be, but we are, as Andy said, we are seeing some current momentum in the Navy. And if it opens pathways for students to come to us with an associate's degree, we find those to be good students for us.

Thanks, Jeff. And once again, that is star one for any questions. And your next question comes from the line of Toby Sommer with Tourist Securities.

Thanks. Just to delve into the technology disruption, do you have – Any prior experiences to know whether you'll have a sort of a surge in enrollments? You know, if this system is up and running in June, or do you just kind of perhaps go back to where you were before? I'm really just trying to get a sense of where you think there's pent-up demand accumulating as a result of this.

Yeah, Toby, good question. We do have prior experience. And the good news is with our monthly starts, service members, in this case soldiers, who have been disrupted, and many are still taking classes, but there is obviously a disruption of a meaningful nature, have the opportunity to process their TA once the system goes live and start with us the first Monday of the following month. So that's the good news. We don't have a quarterly system where if you're locked out the first month of a quarter, you've got to wait two months to start. I don't think you're going to see a surge in demand if you were going to take one course and you were unable to do so or chose not to do so. It's unlikely you're going to take two courses once the system comes back online. So we would see soldiers who were unexpectedly and unfortunately delayed begin that registration process. but it's unlikely that they would increase the number that they would be taking immediately just because they were unable to take a class. That's our experience.

I will say, Toby, the one thing that we did see in Q1 was that there was meaningful momentum in our Army segment. And so just returning to a level similar to what we saw in Q1 would have a very favorable result for the business when those soldiers are able to fully engage with the new portal.

Thanks. And at a localized level, can you give us an update on changes in the competitive environment at Honduras in the Ohio marketplace, how the community colleges and other kind of local competitors there have evolved and maybe gotten a little bit better at delivering their services as the pandemic has worn on.

Sure. Actually, in many ways, we're seeing the opposite. For example, we continue to see the four-year state institutions turning away students once they've completed their general education and not admitting them directly into the nursing program. And so consequently, we have been able to attract many students who – and that was that program we call the Direct Entry ADN program – students who have some prior education who don't have to begin with a practical nursing degree but can come in and start their registered nurse progression. That's become a very popular onboarding track or pathway, as Rick described it. you know, to attract a new class of students into Hondros that are not being able to access other educational opportunities to become a new nurse in the state of Ohio. So we continue to see significant favorable momentum as a result of those limits that still exist both at the community college level as well as at the four-year state schools.

Yeah, I would add, I mean, the second quarter guidance is strong, right? And that's actual numbers because of the quarterly start system. And Harry keeps reminding us that he's going to be comping against his own numbers. So he continues to perform well, even against the numbers he was able to put up last year.

Thanks. And I just kind of wanted to ask a longer-term question. With respect to the company's ability at Honduras to attract and retain educators. That seems to be an area of bottleneck within the healthcare education market. Could you maybe speak to that and any thoughts you have on new initiatives you could put in place to continue to grow that resource?

Good idea.

Yeah.

Great question. Certainly something that is top of mind for us, making sure that we can create that great educational experience for our students. As the number of students that we serve is growing and the social distancing requirements have diminished somewhat but still create a different capacity maximum for some of our labs and practicums. So we continue to take advantage of the ability for students to take some of their coursework online, which has given us some leverage with our existing faculty. We've created some creative solutions, which includes allowing us to have some of our full-time nurses work part-time as an educator. The third thing that we're seeing certainly is that as the pandemic starts to subside, there are practicing nurses who are really looking to take a pause and perhaps provide an education experience for students for a period of time rather than being on the front line. It's not to say that we're... We're fully staffed. We're in constant recruiting mode across all of our campuses. But we've done, I think, a very admirable job of putting great faculty in front of our students, even with the growing enrollment that we've seen over the last six quarters.

Thank you very much.

Thanks, Toby. Your next question comes from Greg Pendi with Sidoti.

Hey, guys. Thanks for taking my question. Can you just talk specifically about the military environment, I guess, given the disruption that's going on right now and kind of market shares, how that might be impacted? Because you mentioned, obviously, that other people serving that industry, that market will also be impacted. So can you just give us a little bit of color on that, how it will impact?

Yeah. Sure, I'll start. I'm sorry, I didn't mean to cut you off, Greg. Do you want to finish your question?

No, no. I just wanted to, I mean, obviously, I was going to say you're very levered to that vertical, but just kind of how it'll impact the landscape and maybe your personal, or your market share.

Sure. So, first of all, I just really want to make sure that, for clarity purposes, the portal only is Army. So it's not all branches of the military. And we saw really meaningful positive momentum in all other branches of the military. in Q2 of 21 so far, based on what we've seen so far in the forecast. We do know, based on publicly available information, that we are the number one provider of education to active duty military. So that's the umbrella of all the different branches. But we do not have transparency around our position serving and educating Army soldiers specifically. So we don't know where we rank, but we do know overall among all military branches that we are the number one educator. I did mention that, you know, it is nearly a quarter of our student enrollment in 2020, so you can deduce that it's a very meaningful part of our business. And as Rick mentioned, It is different from the Navy disruption where the Navy essentially shut off funds completely and no Navy soldiers could take courses without using a different kind of funding source. If they wanted to use a different funding source like FSA, they could do so, but their TA was not available. In this case, we still have Army soldiers taking courses, but not nearly at the level that we've experienced in the last several quarters.

Yeah, Greg, and I would add, as I said earlier, the portal applies to every institution. And so I wouldn't expect it would rearrange the order of the chairs, you know, on the deck. Everyone's being impacted, and maybe to your point, there could be – variations in the level of disruption, but we have no indication of such. As we talk to our peer institutions, we're all going through the same thing.

I think the other thing I would just add to this is one of the things we described when we announced the RASIS and acquisition in October was the importance of diversification. We are known as the number one provider of active duty and veterans education. We also want to make sure, while preserving those number one positions, that we, on behalf of the shareholders, offer diversification. And that's why we believe the momentum that we're seeing in nursing and the acquisition of Rasmussen will help us have a diminished reliance on any branch of the military, you know, in the period of time after we have completed the acquisition of Rasmussen.

That's very helpful. Thanks a lot.

Thanks for your question, Greg. Your next question comes from the line of Raj Sharma with B Reilly.

Hi. Good afternoon, guys. My questions all relate to the portal right now. So what has been gathered is the problem with the portal. Anything that the portal administration is communicating to the schools?

Hey, Raj, it's Rick. The communication is thin, but what we can discern from the various communications and some verbal communication, right, we have contacts periodically, is it's a data conversion issue, that the data conversion was somehow incomplete As we said earlier, the new portal did come online for a few hours and then was taken down. And to the best of our understanding, it was a data conversion issue. We've actually started exchanging files with the Army in advance of this limited user test, but I think they're still working on just the fundamentals of transferring data from the old system to the new system.

And I would just add, Russ, that I think what's adding complexity to this process is it's also a change in providers. There is one provider providing Go Army Ed, and that is sunsetting, and a new provider is standing up Army Ignite Ed. And so that, I think, is adding complexity to this data conversion process.

Got it. And then so the way I'm looking at it is 23% of your business is the 2020 was Army, and the month of April saw a 25% decline in the registrations. So the guidance, the down eight, is that the 25% of 23, that's what 6% decline, and that's the revenue decline? Is that the impact? And if it reopens back in June, do you expect an impact in the following quarter at all? on enrollment?

Well, on the last part, Raj, it certainly depends on when it comes back online. Our first start after June 30th is the first Monday of July, and we'll have a calendar up. And obviously, students register in advance of that start. So we really don't have any visibility at this point whether it's going to come up the first week in June or the third week in June. And that would have a meaningful impact on the July registrations. You know, in theory, if it comes back in June, partial recovery and then, you know, full recovery after that.

Right. And then is it that right away I'm looking at it as 23% of the business basically half quarter of that business did not enroll or is not expected to enroll?

I think your math is directionally correct, Raj.

Okay. And then how does the cash flow get impacted? I think you said that they can enroll and then you can apply for tuition assistance. Do you collect the tuition on the spot or do you have to wait, I guess? And has any funding occurred on this sort of application from April, for example?

That's correct. So we bill. Each of the services has its own portal, and the processing is different based upon the portal and the third party that is processing the invoices. In the case of the Army, we bill in arrears, so it's after the start. And the processing time is typically around 30 days. We've got a backlog in the invoicing because the system is down. And it does affect cash flow. But we feel comfortable with $321 million in cash. We're going to be able to work our way through that. Once it comes back online, we don't have any experience with processing through Army IgniteEd. That's number one. So what I said about, you know, the cadence of payment may be altered. And we also know that it would take more time to process a backlog of than it would concurrent processing, right? So we would expect a cash flow impact related to the Army, you know, and, you know, the portion of the business that is for some period of time. But we have plenty of cash cushion, and we do believe that, you know, processing will materially result, right? There may be some bad debt expense above what we normally see. But right now, we don't view that as a significant matter.

Got it. And then just my last question is on the debt syndication. So the cash balance does not include any – because the debt's not been funded yet, right? It will be funded concurrent with the acquisition. That's correct. We have the commitment. Right. And all these funds are deferred.

Well, we still have the option to replace the $29 million in preferred with cash. But as it relates to the cash associated with the debt, we have not funded that, right? And as we said in the queue, there's really two commitments we've made. Number one, there's the OID, right? So there's an underwriter fee. That will come out of the net proceeds, and then there are what we call ticking fees. There are amounts that have to be – that are committed, if you will, as advance interest that will be paid at closing. Right.

And then any sort of thoughts on – there's going to be a substantial cash balance post-acquisition. Any thoughts on that or –

Right. So I think you can do some math on that. So we've got $321 million. We've got roughly a quarter and a half to go. We're going to add $175 million, and then we'll either pay $300 million or $329 million in cash. And so I think if you do the pluses and minuses, you'll find that we retain a lot of cash. Right. So purposefully you want to manage the business on that basis.

Right. Okay. Thank you so much. I'll take my questions offline.

Thank you, Raj.

Thank you, Raj. And your last question comes from Toby Selmer with Tourist Securities.

Just a follow-up question. Thank you for taking it. With respect to the Army portal, are there any expense impacts we should think of if the timing plays out as you currently envision sort of with June normalizing, such as, for example, potentially a spike in marketing as you kind of rev the courses back up and alert everybody that they can get back to their educational

Toby, I don't think it would be a material amount. What we're really doing, we've got our military outreach folks. There's roughly 25 of those that interact with ESOs, educational service officers. And then we've got our student-facing teams. And so what we're planning is a communication effort that would include those individuals that are already on staff. I've heard from Beth LaGuardia, our CMO, of any outside spending at the immediate launch of the program. Of the portal.

Nor have I. Okay. Thank you very much.

Thanks again, Toby.

There are no further questions at this time. Mr. Semenovsky, I will now turn the call back over to you.

Thank you, operator. That will conclude our call for today. We wish to thank you for listening and for your continued interest in American public education. Good evening, everyone.

And this concludes today's conference call. Thank you for participating, and you may now disconnect.