American Public Education, Inc.

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the APEI Report's third quarter 2022 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 this time, simply press star and the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to hand the conference over to Ryan Korn, Head of Investor Relations. Please go ahead.

Thank you and good afternoon, everyone. Welcome to American Public Education's conference call to discuss third quarter 2022 financial and operating results. Joining me on the call today are Angela Seldon, President and Chief Executive Officer, Rick Sunderland, Executive Vice President and Chief Financial Officer, and Steve Summers, Senior Vice President and 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 APEI 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. In some cases, 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 expected growth, registrations and enrollments, revenue, net income, earnings per share, and adjusted EBITDA, as well as other earnings guidance, expected benefits of the acquisition of Rasmussen University, plans with respect to recent, current, and future initiatives, including with respect to synergies and headcount, and future demand or expectations for online enrollment and nursing education. Forward-looking statements are subject to risks and uncertainty that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include, among others, risks related to the impacts of inflation, increases in labor costs, and enrollment trends, the company's dependence on the effectiveness of its ability to attract students who persist in its institution's programs, changing market demands, the effects of and the company's response to the COVID-19 pandemic, and the reduction, elimination, or suspension of tuition assistance programs, challenges with integrating acquisitions, regulatory matters, competitive pressures, and those described in our presentation, today's press release, the company's Form 10-Q file with the SEC today, and 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. A reconciliation between the non-GAAP financial measures we use and the most directly comparable GAAP measures is located in the appendix to our presentation and in our earnings release. Management believes that our presentation of non-GAAP financial information provides useful supplemental information to investors regarding our results of operations and should only be considered in addition to and not as a substitute for or superior to any measure of financial performance prepared in accordance with GAAP. I will now turn the call over to our CEO, Angela Seldin. Angie, please go ahead.

Thank you, Ryan, and thank you for your interest in American public education. and for joining us today for a discussion of our third quarter 2022 financial results. First, I want to express gratitude to all those APEI team members that mobilized in the aftermath of Hurricane Ian to assist our nearly 5,000 Florida-based Rasmussen and APUS students, along with the hundreds of faculty, staff, and their families. From the generosity of our APEI employees Nearly 500 purchases were made of essential items, and $50,000 in emergency funds were mobilized to assist those students most impacted. A big shout out to the Rasmussen Florida Campus Operations Team, the APUS Emergency Management Team, and the APEI Finance, HR, Facilities, and Executive Assistance Team, which assisted in enabling our Fort Myers and Orlando campuses to provide warm meals and places of respite for staff, students, and their families during the early critical days of the crisis. Although about 185 Florida-based students postponed their Rasmussen education this quarter, we were pleased that we were able to fully resume educational operations in each of our five Florida markets this quarter. Turning to today's focus, 2022 continues to be a transformational year for APEI. Despite the headwinds faced overall by higher education, APEI is increasing the floor of our recent adjusted EBITDA range, increasing the minimum and narrowing the range to 55.2 million to 58 million, aligning with the full-year adjusted EBITDA guidance we provided in our September 22nd, 2022 supplemental financial information presentation. As we move to some headlines, first, the APUS team, including new president Nuno Fernandez, continue to deliver revenue growth for both Q3 22 and year-to-date 22 for new and total student registrations and continues to expand margins due in part to cost savings delivered from last year's headcount reduction and the acquisition of Rasmussen which provides new allocations of shared services costs. Our Army Ignite Ed 2.0 migration has been substantially completed without significant incident, and we successfully build Army for October registrations in the new system. As we begin the second year of ownership of Rasmussen University, we have substantially completed its integration, both delivering our first-year target of $10 million in run rate cost savings and accelerating the realization of the year's two and three APEI enterprise savings with a recently completed cost reduction effort that resulted in $13.5 million in annual run rate savings. Additionally, as we look to 4Q22, Ratheson has achieved its first positive year-over-year student start in six quarters, driven primarily by the results of APEI bringing Ratheson paid media marketing back in-house effective April of 2022. At Hondros, we saw a third consecutive quarter of year-over-year total student enrollment growth through 3Q22 and set a record for a new all-time high of new and total enrollments in 4Q22. Hondros also began educating its first new student cohort in its Detroit, Michigan campus in October. We are continuing the integration of Graduate School USA and are pleased with its third quarter registration momentum. Graduate School resumed its on-ground course delivery in this quarter, welcoming back its students to its Washington, DC, metro campus. Now let's take a closer look at the financial and enrollment highlights. At APEI, we beat Q3 22, both top and bottom line, versus guidance and expectations despite the challenging macroeconomic environment for our institutions. We are positioned to deliver on our full year 2022 adjusted EBITDA guidance that we issued in our September supplement, raising and narrowing the range to $55.2 million to $58 million. The organizational simplification at Rasmussen and cost savings implemented across all of APEI over the last 60 days are expected to have long-term positive impacts to both the quality of our education and to the financial health of our company. At APUS, we have now experienced the third consecutive quarter of year-over-year net registration growth through 3Q22, driven primarily by strong total active duty military registrations and new registration growth across all segments. We expect full year 2022 net registration growth of plus one to plus 2%. Overall, and as indicated on our last earnings call, our 3Q22 total RASISN enrollment was down roughly 8% as both nursing and non-nursing faced tough prior year comps, where both of those enrollment segments had posted record high results compared to 2020. The 8% decline in nursing enrollment was partially affected by the self-imposed enrollment cap in the Twin Cities campuses due to previous faculty and clinical shortages along with CAPS in Illinois due to the NCLEX pass rate declines primarily occurring as a result of COVID online educated cohorts now sitting for the exam, a trend that is occurring nationally. Non-nursing enrollments also saw an 8% decline in 3Q22 as the tight labor market and higher wages made returning to education a less attractive option with our adult learner population and consistent with student interest at similar levels seen in the broader higher education sector. Positive momentum is occurring, as indicated in our September supplement, where Rasmussen has seen positive new student momentum for 4Q22 and achieved our internal enrollment target. While this will still result in total enrollment decline in 4Q22, as compared to the prior year period of plus 12% for nursing and plus 5% for non-nursing, these improved starts are in line with our expectations, and this growth momentum keeps Rasmus on track for second half 2023 total enrollment growth as described in our last earnings call. Pre-licensure nursing enrollment momentum remains strong at Hondros. As student interest in our three newest campuses in Detroit, Indianapolis, and Akron, along with continued solid enrollment in our five legacy Ohio campuses, has led to year-over-year enrollment growth of 4% to 2,410 students in 3Q22 versus the prior year period. Further, Hondros is experiencing its highest ever start number for the 4Q22 term. and its highest ever total earning enrollment during the same period with approximately 2,600 students. In addition to the improved student momentum across our education units and better financial performance in the quarter, APEI's balance sheet remains strong with over $158 million of unrestricted cash on hand and approximately $8 million of net debt at quarter end. We continue to explore additional capital allocation options, including the pay down of debt. Let me now share some other areas of note. At APUS, delivering exceptional education at an affordable price continues to be at its core. And recent third-party publications validate our contributions to student success and achievement. APUS, again, ranked in the top 10% in the United States for best return on educational investment out of 4,500 colleges and universities nationwide, according to the Georgetown University Center on Education and the Workforce report. And according to a recent study from Optimal published in University Business, APUS ranks in the top 5% in the United States for starting salaries for bachelor's degrees ranking at number 26 overall and ahead of many well-known traditional nonprofit universities while charging substantially less than their tuition. Since the departure of Rasmussen, former CEO, we have worked intensely to stabilize enrollment and simplify the organizational design at Rasmussen to put him on a path for growth and return it to the performance it had experienced leading up to the acquisition. We have taken steps to align our clinical site and faculty requirements to our forecasted enrollment as well as increasing support for our student NCLEX exam preparation, both of which are assisting with growth and enrollment at Rasmussen in 4Q22 and beyond. First, we have operationalized an educational readiness center starting in our Twin Cities market where the nursing faculty shortage is most acute. The Readiness Center is focused on projecting, by program and by campus, the clinical site needs, the associated faculty requirements on a rolling three-term forward basis. It also aims to identify and resolve other student and faculty preparedness requirements and gaps. This will allow for proactive hiring and action planning to ensure we have the correctly credentialed faculty and more market-aligned wage rates. In addition, Rasmussen established a Center for Nursing Excellence that is dedicated to helping its students pass the NCLEX exam the first time. State boards of nursing evaluate an educator's program efficacy based on first time rather than total NCLEX pass rates, unlike most other licensure requirements. Where program campus combinations experience first time NCLEX pass rates below their applicable state threshold, recently at Rasmussen's Minneapolis Twin Cities location, primarily in Bloomington, and in Illinois, this nursing center of excellence will, first, pinpoint student-specific challenge areas and provide customized tutoring support to shore up gaps. Second, will integrate additional NCLEX testing simulation and prep tools throughout the curriculum And third, we'll initiate an overall curriculum assessment to identify areas of improvement to better enable student mastery and success. While Rasmussen's programs have largely demonstrated historical success on NCLEX exam first-time pass rates, we believe that shifts in the underlying Rasmussen student preparedness, demographics, along with prior shifts to primarily online delivery for several quarters due to COVID have driven recent pass rates to lower levels. In 2Q22, as we've previously discussed, we brought RASIS and paid media marketing in-house at APEI, and as a result, have also seen an increase in overall lead generation, which has substantially contributed to new student start growth in 4Q22. As you know, leads and starts growth are important leading indicators of our ability to return RASISN to total enrollment growth. As we have enhanced faculty facilities and student educational readiness, have operationalized the Nursing Center of Excellence to improve NCLEX first-time pass rates, and have brought paid media marketing in-house, we expect these improvements will take a few quarters to have the full positive impact. As such, To ensure that we deliver on our commitment to student success and to regulatory compliance over the nearer term, we have voluntarily further limited the number of new nursing students at the Twin Cities ADN program for our one Q23 January start in a manner similar to what was mentioned regarding the three Q22 and four Q22 starts on our last earnings call. We will, however, work to add BSN enrollments in the Twin Cities to somewhat offset the short-term enrollment caps in the ADN program. To fund our new capability centers and deliver on our projected savings, Rasmussen has simplified its academic and campus operations into two divisions, Rasmussen University Campuses and Rasmussen University Online. We have streamlined leadership and established clearer accountabilities and reporting lines so that the RU campus operations can be 100% focused on enrolling, educating, and providing support and job placement in on-ground nursing and clinical health programs, along with supporting NCLEX first-time pass rate success. At the same time, RU Online now leads enrollment, retention, and student success for all of the programs. The result is a single, streamlined academic structure and clarity and accountability for campus executive directors who are now responsible for enrollment, operations, and quality student outcomes, including NCLEX pass rates. This change was essential to ensure Rasmussen can operate more efficiently and effectively going forward and to set the stage for healthy future growth for Rasmussen both in nursing and in online education and student success. Subsequent to the end of 3Q22, Rasmussen entered into a transition agreement with its marketing provider, Collegius, to end the marketing services agreement on January 31st, 2023 versus its prior end date of September 30th, 2024. Effective February 2023, APEI will now provide all marketing services to Rasmussen, allowing Rasmussen to more directly control its destiny with respect to marketing and enrollment. Rasmussen has brought paid media buying into APEI in April of 2022, which has already resulted in improved marketing results. This further step will improve marketing effectiveness and ultimately enrollment results. The transition related fees associated with the agreement are $6.5 million, $4 million of which will be incurred in 4Q22, and the balance in 1Q23 and will be added back to adjusted EBITDA in those periods. We expect that the benefit that will accrue to Rasmussen will be over $6 million in 2023 and $10 million on an annualized basis thereafter. The amounts will be evaluated for marketing investment and or to increase EBITDA results. This reflects the net benefit after the inclusion of additional resources being deployed to replicate certain marketing functions now in-house. It is important to note that these savings are in addition to the $13.5 million in organizational simplification savings that were discussed earlier in my remarks. Turning our attention to HONDROS, tuition costs remains the primary consideration that deter some prospective students from enrolling in pre-licensure nursing programs. As we mentioned in our last quarter earnings call, we are focused on, quote unquote, flipping the script and establishing new partnerships with healthcare providers. We are pleased to announce that we have launched our first cohort with our first partner fully sponsoring an initial ADN program at our Toledo, Ohio campus in 4Q22. with several additional partner sponsors in the pipeline for next year. Our goal is to defray some or all of student tuition costs in exchange for those students entering a multi-year work commitment. Ultimately, this is a win for all three parties involved, our students, our partners, and Hondros. First, our students benefit from a low or no cost education and a guaranteed job after graduation. Our partners benefit from being able to more effectively plan for hiring needs and at a less expensive rate than current recruitment costs. And Hondros benefits from attracting students that otherwise would have been unlikely to attend given affordability concerns and can secure relevant clinical locations to jumpstart student employment readiness. We truly do see this as a strong path to enhanced enrollment growth while helping to fill the workforce shortage in the health care system, while simultaneously doing good for our students. We expect to adopt the similar partnership operating model in Rathison beginning in 2023 as the health care partnership development becomes part of APEI as part of the collegiate marketing transition. Finally, I would like to briefly mention that at graduate school, the first half of 2022 was negatively impacted by the integration and transition efforts, while in addition to COVID having a more pronounced effect as the federal government workforce remained remote. Additionally, the federal budget was finalized later in 22 than normal, which impacted spending capabilities by our students. However, we pressed forward in our efforts to reposition and return graduate schools to positive enrollments and have seen significant momentum in open enrollment registrations during the second half of the year. These positive recent trends will continue to help position graduate school to be APEI's platform for career learning and workforce training. I would now like to turn the call over to our CFO, Rick Sunderland, to review our third quarter results and fourth quarter outlook in further detail.