American Public Education, Inc.

Second quarter 2022 outlook. API's outlook. APUSnet course registrations are expected to be in the range of minus 2% to plus 1% year over year. At Rasmussen and Honduras, second quarter student enrollment is actual. At Rasmussen, second quarter enrollment decreased 2% year over year to approximately 8,200 students. Non-nursing total enrollment declined 10% for an aggregate rather than an enrollment decline of approximately 6% year-over-year to approximately 15,900 students. And high enrollment increased by 3% to 2,400 students. In the second quarter of 2022, consolidated revenue is expected to increase between 92% to 97% year-over-year, given the addition of RASMUS income to be between $0.1 million and $1.4 million, and earnings per diluted share of between zero and seven cents per diluted share. Adjusted EBITDA is expected to be between $14.3 million and $16.2 million for the second quarter of 2022. With that, I would like to turn it back to Angie for final comments.

Thank you, Rick. In summary, we remain confident as we continue to transform and diversify APEI's portfolio of career learning assets and fulfill our mission of educating the service-minded. Demand for nursing graduates is expected to remain strong for the foreseeable future as employers are clamoring for new nurses to supply the national shortage, and we believe we are well positioned to fulfill these needs. APUS continues to strengthen its number one position in education to the U.S. military and veterans. And overall, APEI continues to represent an exceptional return on educational investment for working adults by keeping tuition rates in check while providing books and materials at no cost and being one of the most friendly transfer credit institutions. We now ask the operator to open the line for questions.

Thank you. And as a reminder that if Star wants to ask a question, we will pause for a moment to compile the Q&A roster. And our first question will come from Toby Summer with Truth Securities. Please go ahead.

Hey, good afternoon. This is Jasper Midbond for Toby. Marketing expenses came in a bit higher than we were expecting in the first quarter. I was just hoping you could update us on what you're seeing with respect to student interest levels and managing the marketing yield there.

So Jasper, let me comment on the numbers, and then Angie can comment on student interest. You're right. Marketing numbers were up. At Rasmussen, we saw approximately a million dollars higher than what we were actually expecting when we gave guidance as they invest in student momentum. And at Hondros, when you look at the quarter, it was up about $400,000 year over year. So investing both to nursing-related businesses.

Sure. And what we're seeing in the conversion of those marketing dollars is very promising but hasn't necessarily led to this number of enrollments that would be equivalent to prior year periods. So we've seen double digit increases in applications. What we are seeing is a slower application to enrollment pace with a handful of students primarily focused in the Northern Territory of Rasmussen's business. But we are keenly focused on adding to our admissions reps to help support the questions and the curiosity that those prospective students have, certainly because they've taken the time to fill out an application. And we will continue to lean in and convert those students to enrolled students. The other thing that we are seeing is the, as we mentioned in the script, that we have had to increase the wages of our adjuncts and full-time faculty, specifically because the state of Minnesota has required Rasmussen to go back to in-person clinicals, whereas in the last two years since the beginning of COVID, Rasmussen had been given the opportunity to do clinical rotations virtually. And so consequently, we're now looking to ask both the part-time and full-time faculty to be present in hospital environments to support the clinical learning for the students.

And that's creating some scheduling and availability conflicts.

So we are looking at different kinds of incentives to ensure that we can fulfill the clinical placements that we need with our students with the appropriate adjunct faculty support.

Excellent. That makes sense. And then, you know, I understand you aren't guiding by Yon2Q yet, but with some of the trends you cited, do you think the second quarter would represent the low point for margins in 2022, or how should we?

Quickly, nor will the pressure on wages, particularly related to nursing faculty. Well, that's inside. So that inflationary environment with a particular inflation and nursing faculty cost impact on our nursing businesses through the remainder of this year.

We do believe it's an environment where it's our obligation to tighten our belt, and so we'll be looking for opportunities for cost savings across all of our education units in the coming quarters to profile, you know, in spite of inflation.

Okay. Got it.

And then with the APHIS enrollments, being down pretty significantly from 1Q in the second quarter guidance. Could you give a bit more color on what's driving that enrollment trend? Is that primarily the impact of the troop movements you cited in response to Russia-Ukraine, or is there anything else we should make?

Just for a trick, no, that's just seasonality. Year over year, we're seeing it was a 1% increase in the first quarter against prior year. and both quarters are tracking on a relative basis very consistent seasonality.

And I would add we did, as we mentioned in the script, the first month of the quarter in April because of the Ukraine conflict, but we are seeing momentum building again as The troops get deployed and they are waiting for their instructions and so able to kind of reengage in their education. The other thing that we do know about the second quarter is that we do have one less week of registration enrollment as compared to the prior year. So that will be factored into the second quarter as well.

All right. Last one for me. There have been a couple other services providers talking about students maybe taking less courses than they have in previous semesters. Is that something you're seeing at any of your portfolio of institutions?

Right. So, Jasper, you've got to break down the different units. In the nursing schools, it's a prescribed curriculum, right? So you sign up on a term or quarter basis, and the curriculum is prescribed. based upon the program that you're in. When you look at APIS, the military students have historically taken fewer courses. And so on average, we may see a very slight decline in average courses taken over the entirety of the university simply because of that mix shift. But I don't think we've observed any change in average course load at APIS by

I would put some numbers behind that.

At Rasmussen, the retention rates for students, so once they've defined a cohort and you're taking four classes each quarter, the retention is at an all-time high at Rasmussen. So once students have begun their educational journey, they're completing at an all-time high pace. And we're also very pleased to report that retention, meaning the concentration, of course, is that APWIS is up 8% year-over-year in the first quarter.

Appreciate the call. Thanks for taking the questions.

Our next question will come from Stephen Sheldon with William Blair. Please go ahead.

Hi, everyone. This is Matt Feilek on for Stephen. Thank you for taking my questions. was wondering what impact are enrollment caps having on the business, and are there any campuses that are struggling to grow because of those enrollment caps?

Matt, thanks for the question. As we mentioned, we aren't seeing any growth restrictions because of enrollment caps across the Rasmussen campuses. We have no enrollment caps. among the other education units, we have what I would call a self-imposed limit on the number of students who are enrolling in the northern region of Rasmussen presently because of the lack of availability of the clinical faculty. But that is not anything other than our own obligation to make sure the students are getting a high-quality education and we have the right mix of faculty to students.

This is Rick. The limit there is based upon the availability of faculty, particularly in the clinical area. When we think about the physical space, the campuses, we have plenty of room to continue to grow enrollment within those. Once we solve the availability of faculty challenge, we have capacity within the physical spaces to continue to grow enrollments.

Great. Thank you. That's helpful. And then on the nursing faculty front, could you maybe just talk a little more about what actions you're specifically taking to address that? And how do you generally feel about your ability to build nursing faculty capacity to meet student demand over the remaining part of 2022?

Great question. We have a variety of the most acute. But as we mentioned, it was this very swift shift from a virtual clinical in the state of Minnesota back to in-person clinicals that has created a lack of availability of some of the adjunct faculty that we had been relying on in the past.

increase in some wages, either because of stay bonuses or increased faculty to now do these clinicals in person in hospitals rather than being able to do those virtually or their office.

So we do believe that we will see a continued pressure on our faculty wages in the coming quarter or two.

Thanks for that, Collin. I'll jump back in the queue.

And our next question will come from Raj Sharma with D Reilly. Please go ahead.

Raj?

Hi. Sorry about that. University marketing spend.

Is that on the non-nursing, non-working as well? I want to understand the enrollment declines about the early education accounting for quarter of the decline. Could you please talk about that and the longer-term sort of picturing with non-nursing?

Hi, Raj. Sorry, I'll let you finish your question.

No, I'm done. Go ahead, please.

Okay, sure. So we'll start by saying that there is positive news coming from some of the non-nursing segments in Rasmussen in quarter two, where we are seeing flat to growing enrollments there. And we believe that that's a return of interest of students wanting to take education benefits and continue their education. So we do believe that there is momentum in several of those, including the business school, health sciences, and in the justice studies program. We have also, as we noted in the 10-Q, terminated the media buying relationship that Rasmussen had with Collegius, which is allowing APEI to have more control over the choices being made about how we're going to generate leads and where we're going to invest those dollars. That will be fully terminated and APEI will be responsible for media buying direct-to-consumer media channel buying affected July 1 of 2022. And so we have confidence that we, with the ability to direct those efforts, will be able to create a balance around pre-licensure nursing leads and the key non-nursing businesses to generate more momentum across both of those segments.

So has the decline in enrollment largely been because of the economic type of labor markets that are keeping students away from enrolling, or have marketing dollars not been spent, or they have been spent and is not efficient?

Yeah, great question. Yeah, there's been a meaningful shift, as we've discussed on prior calls. of marketing dollars investing in pre-licensed or nursing leads and, you know, kind of being redirected away from the non-nursing businesses.

I have a degree of confidence that we'll be able to drive leads in both of them.

And what I will read forth again, as we mentioned in the script, is that It is really almost exclusively a northern region issue.

We're not seeing the same dilemmas in our markets in Florida or Illinois.

But that's also related to the faculty, right? Unavailability of the adjunct faculty. Yeah. Okay. My next question is on just an observation. Are Honduras' enrollment trends different from the nursing, rest, nursing? How does that same quarter and they seem a little different. Honduras seems to be doing a little better.

Hey, Raj, it's Rick. Yes, and I think that's a market-based view, right? It's what's going on in the Ohio market where they have their largest concentration versus the impact we see in the north-central region at Rasmussen.

Yeah, and fewer problems with access to faculty I think is primarily one of the things that isn't clouding the Honduras picture like it is in RASP.

Got it. And then on the APUS enrollment, it's essentially flat second quarter guidance. Is that despite the military enrollment sort of picking up, issues are kind of behind us? That is being helped. There was a lull because of Ukraine, but you saw a pick-up of interest, but the enrollment trends are guided to flat.

I think you got it right, Raj, and Angie in her comments noted that we continue to see strength in the military, some softness in May because of Eastern Europe recovery from that, and the other elements of the APIS business, military-affiliated and non-military, remain soft.

What I will say, Raj, is that we, as we mentioned on our prior call, have completed a significant portion of our CRM upgrade, and we are seeing a meaningful increase in the number of applicants at APUS, and much like the situation at Rasmussen where we want to make sure we have the right number of admissions reps able to process the applications, the interested student applications, we're also trying to work to appropriately size the APUS admissions team as well to make sure that we are converting every single one of those applications that we can into enrolled students. At APUS in particular, on the non-military side, we don't really see it being as much a top of the funnel issue as it is really being able to take those interested prospects and converting them into enrolled students. And Jeff Snow, our new CXO, is laser-focused on this in conjunction with the APUS management team.

Right. That's exciting. That's exciting. Thank you for answering my questions. I'll take it offline for me. Thank you.

Sure.

And with no further questions, that will conclude today's conference. Thank you for your participation, and you may now disconnect.