American Public Education, Inc.

on you to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to APEI Investor Relations, Christopher Semenovsky. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to American Public Education's conference call to discuss third quarter 2023 financial and operating results. Joining me on the call today are Angela Selden, 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 today's call are available under the events and presentation section of the APEI website. Statements made during this conference call and any accompanying presentation regarding APEI and its subsidiaries that are not historical facts may be forward-looking statements based on current expectations, assumptions, estimates, and projections. Forward-looking statements may sometimes be identified by words like anticipate, believe, seek, could, estimate, expect, can, may, plan, should, will, would, and similar and opposite words. Forward-looking statements include, without limitation, statements regarding expectations for registration and enrollment, revenue, earnings and EBITDA, and other earnings guidance, recent current and future initiatives to improve NCLEX pass rates at Rasmussen University and reposition it for growth and profitability, and other company initiatives, including with respect to leadership changes, future competition and demand, and our cost-saving efforts. Forward-looking statements are subject to risks and uncertainties that could cause actual future events to differ materially from those expressed or implied by such statements. These include, among others, the risks and uncertainties related to our ability to meet regulatory and accreditor requirements, including the 90-10 rule and the impacts thereof, our dependence and the effectiveness of our ability to attract students who persist and are likely to succeed, federal appropriations and other budgetary matters, including government shutdown, our ability to effectively market our programs and expand into new markets, the reduction, elimination, suspension, or disruption of tuition assistance, changing market demands, economic and market conditions, challenges with acquisitions, our ability to meet our cost-saving goals, our debt and preferred stock, and other risks and uncertainties described in our presentation, today's press release, our Form 10-K for 2022, and our Form 10-Q filed earlier today, and other SEC filings. The company undertakes no obligation to update publicly any forward-looking statement for any reason unless required by law. 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 of 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, 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 Seldon. Angie, please go ahead.

Thank you, Chris. Good afternoon and thank you for joining our call to discuss our third quarter 2023 results for American Public Education. APEI's performance during this quarter reflects continued positive enrollment and positive revenue trends at APUS, Rasmussen University Online, Hondros College of Nursing, and Graduate School USA. Also, our previously announced operational improvements were completed in this quarter, including improved marketing efficiency and the right sizing of our cost structure, both now in better alignment with current levels of enrollment and revenue at Rasmussen. With Q3 APEI revenue above the top end of the range at $150.8 million and adjusted EBITDA of $18.1 million, which exceeded the top end of guidance by nearly $8 million, we once again delivered on our guidance for revenue and adjusted EBITDA. When combined with our outperformance in this quarter, today we are providing full year 2023 adjusted EBITDA guidance of approximately $50 million. I'd like to start my detailed discussion about our education unit by focusing first on Rasmussen. From a management standpoint, Rasmussen is now operating with a complete management team for the first time since 2Q of 2022. This has brought much needed focus, stability, and leadership to the university. The leadership team has focused on continuing the now five quarters of sequential enrollment growth at Rasmussen Online, while also accelerating campus program growth and diversification. PN and BSN nursing program growth, along with other allied health program growth, begins to mitigate an almost exclusive historical concentration in ADN nursing. More targeted programmatic marketing is starting to pay dividends as we have greater visibility and improved processes and efficiencies in identifying and attracting new students. The efforts are yielding promising results, In addition to the Q4 non-nursing enrollments increasing overall by 5%, BSN starts are up over 20% in the quarter, and campus-based allied health starts are up over 30%. While the nursing program growth is measured against smaller bases, the early signs are encouraging. As has been the case for several quarters, our primary enrollment challenge at Rasmussen has been the decline in ADN nursing enrollments. which had been the majority of nursing students at Rasmussen with its peak occurring in 3Q of 2021. Despite the positive PN and BSN trends, ADN nursing enrollments were down in the quarter to 4,000 students from 5,800 in the prior year, which was the primary contributor to the overall year-over-year decline of 10% in enrollments to 14,100 students. As discussed extensively in prior calls, much of the decline in ADN nursing enrollments has stemmed from both voluntary and imposed enrollment caps for the ADN program, in large part brought on by NCLEX scores below state standards, which resulted primarily from educational obstacles brought about by COVID. I am pleased to report, however, that we continue to make meaningful progress on improving NCLEX results. Based on the Q3 NCLEX scores, Rasmussen reported that 20 of 24 of its nursing programs were above the state threshold pass rates, including 8 of 10 ADN programs, 7 of 7 BSN programs, and 5 of 7 PN programs. This reflects the second sequential quarter of NCLEX score improvements. We believe that this marked improvement is a direct result of some new actions and initiatives put in place by the new Rasmussen leadership team, including new nursing faculty onboarding and continuing development, student success coaches installed at campuses, and faculty champions assigned to recent grads to support their NCLEX preparations. We also believe that by diversifying our pre-licensure nursing student enrollments across the PN, ADN, and BSN programs, Along with the institutional focus on strong NCLEX exam outcomes, Rasmussen can return to overall pre-licensure nursing enrollment growth in a more balanced, less concentrated way. And although we are not providing specific 2024 guidance, we still anticipate that Rasmussen enrollments will continue to stabilize and we expect year-over-year overall enrollment growth in the second half of 2024. At APUS, Growth from active duty military and veterans is driving overall net registration results. Military registrations were up 12% in the third quarter and veterans were up 5%, which reflects the continuation of our military registration growth that began in mid 2022. We attribute this not only to the strong franchise that AMU has built over many years, but also in particular, to our unwavering service to the U.S. Army through its two registration portal transitions in 2021 and 2022. We partnered with its Army soldier students to continue to provide their education when many other schools were operationally or financially unable to comply. And we believe this commitment has resulted in some of the growth and market share gains we are experiencing. The increase in APUS's enrollments and revenue, combined with 2022 cost reductions and improvements in marketing efficiencies, have resulted in improved margins once again in the third quarter. Overall, APUS delivered Q3 EBITDA of $23.3 million, resulting in a 30% margin in the quarter. At Hondros, We enrolled nearly 3,100 students for the first time in HONDRO's history in the fourth quarter of 2023, as we continue to see strong demand for its PN and ADN nursing programs in its markets. We remain pleased with the performance of our new Detroit campus, also see growth in most of our legacy campuses, and are seeing new growth in Indianapolis as caps there have been raised. Despite the strong enrollment and revenue growth that Hondros has exhibited over the last two to three years, profitability has not kept pace, primarily due to sharp increases in nursing faculty pay and new campus startup costs. As previously discussed, Hondros implemented a tuition increase in early 2023 and also reduced headcount in Q3 in order to right-size its operating costs. Despite past cost challenges, We expect a positive fourth quarter EBITDA contribution from Hondros. We are also pleased to report continued improvement in Hondros' RN NCLEX scores, now within a half point of the Ohio standard. Turning our attention to graduate school, it has experienced 10% revenue growth in the third quarter, driven by higher enrollments and an increased number of signed contracts. However, The government's continuing resolution or CR in response to the threat of the September government shutdown caused some training to be canceled or postponed by agencies, which softened strong enrollment momentum we experienced earlier in the quarter. Graduate schools should still deliver higher revenue and margin for the full year 2023 as compared to 2022, which given its highly seasonal nature is how we evaluate its business performance. On a consolidated basis with the continued growth profile of APUS, Rasmussen Online, Hondros College of Nursing, and Graduate School USA, we generated $15 million of free cash flow and increased our cash position to $155 million in the quarter. The continued growth in both cash flow and cash is due largely to lower advertising spend and in part due to the right sizing of the cost structure at Rasmussen, Hondros, and APEI to better align with the current revenue profile of the businesses. These actions are expected to reduce run rate expenses by $15.5 million per year, which should provide us the opportunity to continue to reverse the profit declines at Rasmussen and increase overall profit and margin at APEI. With an intentional focus of returning Rasmussen to profitability and growth, while delivering continued results improvements at the other entities. As Rick will discuss shortly, and as I mentioned in my opening remarks, combining our Q3 outperformance with our guidance for the fourth quarter implies a full year 2023 adjusted EBITDA of approximately $50 million. Overall, I'm grateful for the tremendous work our leaders and our teams are doing across our institutions to deliver on our educational promise to APEI's more than 106,000 students, including active duty military, veterans, new nurses, and other students, while also driving strong revenue growth. We look forward to building on the many successes of this quarter as we strive to achieve excellence for all stakeholders. With that, I would like to turn the call over to APEI's CFO, Rick Sunderland.