American Public Education, Inc.

Good day and thank you for standing by. Welcome to the APEI Report 3rd Quarter 2021 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. I would now like to hand the conference over to your speaker today, Ryan Corrin. Thank you. Please go ahead.

Thank you and good afternoon, everyone. Welcome to the American Public Education's conference call to discuss third quarter 2021 financial and operating results. Joining me on the call today are Angela Seldin, President and Chief Executive Officer, Rick Sunderland, Executive Vice President and Chief Financial Officer, and Steve Summers, Senior Vice President, Chief Strategy and Corporate Development Officer. Materials for the conference call today are available under the events and presentation section of the APEI website. Please note that statements made during this conference call and any accompanying presentation materials regarding American Public Education, Inc. and its subsidiaries that are not historical facts may be forward-looking statements based on current expectations, assumptions, estimates, and projections about APEI and the industry. These forward-looking statements are subject to risk and uncertainty that could cause actual future events or results that differ materially from those expressed or implied by such statements. Forward-looking statements may be identified by words such as anticipate, believe, seek, could, estimate, expect, can, may, plan, should, will, would, and similar words or their opposites. Forward-looking statements include, without limitation, statements regarding the impact of recent disruptions to the Army's Tuition Assistance Program, expected growth, registrations and enrollments, revenue, net income, earnings per share, and EBITDA, expected benefits of the acquisition of Rasmussen University, future impacts of the COVID-19 pandemic, organizational changes, plans with respect to recent, current, and future initiatives, and future demand for online and nursing education. Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including risks related to actions taken by the Department of Defense or branches of the U.S. Armed Forces, including actions related to disruption and suspension of tuition assistance, the effects of an APEI's response to the COVID-19 pandemic, including impact on the demand environment as the pandemic abates, the acquisition of Rasmussen University, changes to and expectations regarding our enrollment, registrations, and the composition of our student body, and to risk factors described in the risk factors section and elsewhere in the company's quarterly reports on Form 10-Q filed with the SEC today and the company's most recent annual report on Form 10-K and in the company's other SEC filings. The company undertakes no obligation to update publicly any forward-looking statement for any reason unless required by law, even if new information becomes available or other events occur in the future. This presentation contains references to non-GAAP financial information that we use to measure our business. A reconciliation between the non-GAAP financial measures we use and the most directly comparable GAAP measures are located in the appendix to our presentation and in our financial statements. I will now turn the call over to our CEO, Angela Selden. Angie, please go ahead.

Thank you, Ryan, and thank you all for joining us today and for your interest in American public education. This earnings call is the first in which Rasmussen University is part of APEI, having closed the transaction on September 1, 2021. The acquisition of Rasmussen University represents a milestone in APEI's history, and we look forward to sharing with you the new financial composition of APEI with the inclusion of Rasmussen. However, before we discuss details of APEI's third quarter results, I'd like to spend a few minutes bringing to life APEI's mission, that of educating the service-minded student. and how our subsidiary institutions, which we refer to as education units, including our most recent quote-unquote soon-to-close acquisition of Graduate School USA, align with our mission for the benefit of our students and our shareholders. Educating the service-minded student is the common thread that knits together the missions of APUS, Pondros, Rasmussen, and Graduate School USA. From its founding as American Military University in 1991, APEI has been focused on solving big problems for society and for our select student population. AMU was founded with the express purpose of enabling active duty military to get access to the education to which they are entitled from their earned educational benefits. Rasmussen originally founded 120 years ago as a business college for women Today is a university that is focused on meeting the critical nursing and healthcare skills needs, as well as providing degrees in high-demand career fields like business and early education at very affordable rates. Likewise, Hondros College of Nursing is exclusively focused on meeting the need for nurses by creating new nurses through its PN and ADN pre-licensure programs. In an era where many of today's students do not fit into the traditional mold of traditional higher education, APEI strives to set adult learners on paths to achieving their dreams by providing the skills necessary to maximize their return on their higher education investment. Slide 4 highlights how APEI offers a variety of learning solutions and delivery models. such as fully online, one course at a time, asynchronous learning at APUS, and purpose-built career-minded programs, such as nursing at Rasmussen and Hondros. With the inclusion of Graduate School USA, APEI will now offer training and continuing professional education, also in support of the mission of educating the service-minded students. On slide five, at APEI, affordable, high-quality, and outcome-focused education remain key tenants. APEI aims to support our students' lifetime career ambitions with a well-thought-out curriculum that translates to added skills and degrees to boost their success over their entire lifetime journey of career advancement. We are focused on meeting any student wherever he, she, or they are in that journey, whether it is in the beginning as he enters a new career as a first-time nurse, in the middle of a career as he tries to transition out of the military, or later in life as they advance their skills to obtain a specific promotion, APEI is committed to helping each student achieve their purpose. Let me bring this to life with some examples from each of the APEI education units. At APUS, over 300,000 military personnel have utilized their military tuition assistance benefits at AMU and APU. For those active duty military today, APUS's total out-of-pocket costs for nearly all courses are priced no higher than the allowable military tuition assistance benefit. As a matter of fact, the combined undergraduate full-time tuition, fees, and book costs at APUS have been approximately 30% lower than the average in-state costs at public institutions offering bachelor's degrees. APUS's per credit hour cost has increased by less than 1% in the last 20 years, barely a blip in comparison to the greater than 150% increase in higher education tuition and fees more broadly over that time. APUS has ensured our active duty military and veterans are able to utilize our programs to complete a degree without incurring any APUS student loan debt. This value proposition has made APUS the institution of choice for active duty military, with 22% of total service members that are using their education benefit today take courses with AMU and APU. APU has subsequently extended its educational focus to veterans and a broader array of service-minded students, including law enforcement, firefighters, teachers, public health, and other populations that all serve for the common good. Affordability is also a pillar of the educational offerings at Rasmussen. For example, it recently lowered the price of each of the master's degrees it offers, which are now less than $10,000, including the MSN or Master's of Science in Nursing. It is important to note that both APUS and RASISN serve a nontraditional student. Only approximately 4% of APUS students enrolled in 2020 and approximately 8% of Rasmussen students fit the Department of Education's definition of first-time, full-time student. Thus, many of the comparative traditional higher education success measures apply to a very small portion of those student populations. Also worth noting is that recently, both APUS and Ratheson's accreditations have been reaffirmed by the Higher Learning Commission and operate now within the HLC's open pathway accreditation option, which gives APUS and Ratheson the unique opportunity to pursue improvement projects geared toward current needs and aspirations. Each of APUS, Rasmussen, and Hondros' programs are all focused on helping students advance their job and career opportunities. In particular, Hondros is measured by its accrediting body, ABHES, on student placement rates once students have graduated. Hondros is proud to report that each program at each campus has achieved or surpassed the ABHES placement standard for the most recent measurement period. All of this translates to APEI being the largest educator of active duty military and veterans through two brands, APU and AMU, and being the largest educator in pre-licensure nursing education through Rasmussen School of Nursing and the Hondros College of Nursing. The addition of RASISN has resulted in a more diversified APEI portfolio with now roughly equal parts, one-third nursing, one-third military and veteran education, and one-third other online education. With our inclusive, high-quality, affordable, and outcomes-focused education, APEI is setting its sights on being the best value in adult education for the service-minded students. Turning to slide six, we believe the same principle of educating the service-minded student holds true for the nation's nurses and healthcare workers, whose importance in our society was made abundantly clear over the past 20 months. Today there are just over 3.1 million registered nurses in the U.S. and the Bureau of Labor Statistics predicts this will grow to over 3.3 million over the next decade as the aging of the U.S. population is expected to drive a demand for health care both in hospitals and at home health care services. Furthermore, with the Journal of Nursing Regulation indicating a growing increase in nurse retirements, the gap for RN job vacancies is expected to be approximately 175,000 each year for the next 10 years, according to the BLS. We believe strongly that the nursing shortage is a critical societal crisis as nurses represent the backbone of our healthcare system. As part of our efforts to educate the service-minded student, APEI today is addressing the societal nursing shortage through our two nursing-focused institutions. Collectively, Hondros College of Nursing and Rasmussen School of Nursing educate approximately 11 pre-licensure nurses, thereby helping create the new nurses the country needs to help fill the growing nursing shortage. Together, Hondros and Rasmussen provide nursing education at 30 campuses in eight states across the mid and upper Midwest and Florida, including in some of the states with the most severe nursing shortages. Beyond the benefit of serving society and the public good, nursing offers a long-term career path with attractive annual salaries to our students and their families. Taking into account their affordable tuition costs, Hondros and Rasmussen work to deliver high return on educational investment. Lastly, many of our nursing students come from disadvantaged communities. With our accessible, inclusive education, it allows us to be a destination to help our local students thrive and positively contribute to their communities and their families. Let's move to slide seven. In the third quarter, we also announced an agreement to acquire Graduate School USA. Graduate School, or GSUSA, is one of the leading providers of training to the federal workforce. GSUSA's extensive portfolio of government agency contracts and customers is tightly aligned to APEI's focus on educating the service-minded students and represents a strong adjacency to APUS's core military and veteran student populations. This acquisition further accelerates our focus on career training and degrees that help provide pathways to employment and career advancement. Graduate School USA was established in 1921 as part of the U.S. Department of Agriculture and is celebrating its centennial anniversary this year. Today it provides training to the federal workforce through a catalog of over 300 courses specializing in foundational and continuing professional development in the areas of human resources, government auditing, federal financial budgeting and management, as well as leadership training to advance the performance of government agencies through the competency and career progression of their employees. GSUSA is accredited by the Accrediting Council for Continuing Education and Training, ASET, and delivers its training both in person and through virtual learning. Graduate school serves the federal workforce through two channels, customized contracted training to federal agencies, or B2G, and open enrollment to government professionals, or B2C. With a broad set of over 120 government agency customers, including the Department of Defense and many of its branches, the Departments of Homeland Security, Health and Human Services, Interior, Justice, and State Department, Graduate School USA represents a strong complement to APUS's primary student population. Graduate School USA is a non-Title IV training provider that further diversifies APEI with a foothold in the workforce training marketplace. We believe its portfolio of short-form courses offers meaningful opportunities to create new stackable credentials. Additionally, we see opportunity to further serve the federal workforce marketplace beyond the core Washington, D.C. market and by extending into other workforce training segments. GSUSA has generated more than $20 million in average annual revenue over the past three fiscal years. It is approximately a break-even business today, and we believe that by leveraging APEI shared services, and in particular IT, curriculum development, and in-house marketing expertise, Graduate School USA could generate margins similar to other training businesses over the next few years. APEI is acquiring substantially all of GSUSA's assets for a purchase price of $1 million, and it will be a new standalone subsidiary education unit of APEI. The transaction is anticipated to close at the start of the new year, subject to certain closing conditions. Now let's move to enrollment momentum and business performance by turning to slide 9 in the next section. First, at APUS. Total net registrations of 83,100 in the third quarter were down 8% versus the same period in 2020, which is at the high end of the guidance we provided last quarter. These results are favorable as compared to 2019 and up roughly 8%. When looking at just the combined August and September periods of this year compared to the August and September periods of 2020, net registrations were down just 3%, reflecting the Army IgniteEd portal partially coming back online toward the end of July. Other military and non-military enrollments continued to see some moderation in demand as some students have slowed their academic endeavors in favor of resuming other life activities that have been paused by the COVID pandemic. On a year-to-date basis, net course registrations through the third quarter are down only 2% as compared with 2020, which had been the best registration year for APUS since 2015. It's also important to note that compared to 2019, on a year-to-date basis, course registrations are up over 9%. For the fourth quarter, we anticipate registrations to decline by 2% to 5% to between 84,000 and 86,600, reflecting that same general student behavioral trend and compared to a somewhat inflated comparable period in 2020 that saw that increased course interest as normal social activities remained on hold during the COVID pandemic. Finally, touching on the Army IGNITE-Ed portal more generally, while many improvements have been made, important challenges remain. As mentioned on the last earnings call, the portal became partially operational on July 19th. Soldiers are now able to use the portal to register, but many continue to do so through an exception to policy, or ETP. Overall, August and September saw much improved course registrations compared to the sharp declines experienced from March through the July timeframe, but we believe the portal issues continue to stymie soldier registration. We and our APUS soldier students are experiencing three remaining challenges with the Army IgniteEd portal and understand that these are common across all other education providers to the Army. Number one, system latency and performance issues which have impacted the speed of the portal and its usability. Number two, remaining system and data defects such as students unable to access accurate degree plans, course enrollments, and education paths that the developer Deloitte continues to resolve as they surface, but those defects continue to present challenges. and more manual nature to the entire process for the education providers where manual approvals have been interjected along certain points of the process where never before, which has made it cumbersome for education providers, especially those such as APEI, which process thousands of education requests. Despite the ongoing challenges from the Army portal, registrations from the Army have stabilized, and we expect positive registration growth year over year from soldiers in the fourth quarter. Finally, we announced last week that Dr. Wade Dyke has left APUS as president to pursue a new endeavor, and that Dr. Catherine Zatz, most recently chairwoman of the APUS Board of Trustees, has been appointed acting president. She holds a doctorate in higher and adult education and two master's degrees from Teachers College, Columbia University. Dr. Zapps was first appointed to the APUS board in 2004. We thank Wade for his contributions over the past 15 months and look forward to filling the role permanently via an ongoing nationwide search. Moving to slide 10. Nursing enrollment at Rasmussen continues to grow, up 13% in the third quarter of 2021 compared to the prior year period, and to a new historic enrollment high for the university. This positive growth was offset by a decline in non-nursing enrollment by 13% in the current quarter, in part due to the deliberate shift in marketing dollars away from those channels which generate non-nursing leads. Overall, enrollment was down roughly 2% in 3Q compared to 2020, a year that benefited from a bump in enrollments due to the COVID pandemic. When compared to the third quarter of 2019, RASIS in total enrollment is up roughly 3% on a two-year CAGR basis. For the fourth quarter of this year, we anticipate a similar trend as the third quarter with nursing enrollments expected to increase by roughly 8% to 8,800. Yet another new enrollment record at Rasmussen. On the non-nursing side, we anticipate a decrease of roughly 13% to 8,700 enrollments. Overall, this translates to expected total enrollment of roughly 17,500 for the fourth quarter. As we turn to slide 11, demand for nursing at Hondros continues to generate strong overall enrollment growth, up 19% in 3Q21 versus the comparable prior year period to a level of over 2,300 students. We believe that HONDRO's focus on student support services, its favorable reputation in its communities, and ability to deliver good educational outcomes that lead to jobs allows it to meet the needs of students and hospital systems. Both the PN and ADN programs saw growth, and our 1 plus 1 PN to ADN Gateway program offers students a chance to quickly enter the workforce and then come back to increase their skills and earning power with an ADN degree that provides credit for their PN work. We expect these trends to continue in the fourth quarter of 2021 and are anticipating the highest level of PN starts ever and the highest total PN and RN enrollment ever, translating to 17% growth over the comparable 4Q 2020 period and over 2,500 total students enrolled. The uncertainty surrounding COVID, its impact on our students' ability to attend clinicals, find child and elder care, and concerns about vaccine mandates have all led to changes in perspective and at times existing student behaviors. For example, Hondros is seeing some of its highest enrollment demand ever, and yet at the same time experiencing higher rates of deferrals or drops as students cope with an ever-changing environment. Despite all that, Hondros remains on pace to have another record-setting 4Q in 2021. I would now like to turn the call over to Rick to review our third quarter financial results and fourth quarter outlook in further detail.