American Public Education, Inc.

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 would like to ask a question during that 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 Chris Semenovsky, Investor Relations. You may begin your conference.

Great. Thank you, Operator. Good afternoon, everyone. Welcome to American Public Education's conference call to discuss fourth quarter 2023 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 the call today are available in the events and presentation section of APEI's website. Statements made during this conference call and in 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 such as anticipate, believe, seek, could, estimate, expect, can, may, plan, should, will, would, and similar or opposite words. Forward-looking statements include, without limitation, statements regarding expectations for registrations and enrollments, revenue, earnings and adjusted EBITDA and other earnings guidance, initiatives to improve NCLEX pass rates and reposition Rasmussen University for growth and other company initiatives, including with respect to future competition and demand and cost saving efforts. Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. These include, among other statements, the company's dependence on the effectiveness of its ability to attract students who persist and are likely to succeed, the ability to effectively market programs or expand in new markets, the reduction, elimination, suspension, or disruption of tuition assistance, changing market demands, economic and market conditions, the ability to meet regulatory and creditor requirements and the impacts thereof, challenges with acquisitions, the company's ability to meet cost savings goals, matters related to debt and preferred stock, and risks described in today's presentation, today's press release, APEI's Form 10-K for 2023, and other SEC filings. The company undertakes no obligation to update publicly any forward-looking statements 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 to today's presentation and in the earnings release. Management believes that the presentation of non-GAAP financial information provides useful supplemental information to investors regarding its results of operations and should only be considered in addition to and not a substitute for or superior to any measure of financial performance prepared in accordance with GAAP. Now I'd like to turn the call over to APEI's CEO, Angela Selden. Angie, please go ahead.

Thank you, Chris. Good afternoon, and thank you for joining American Public Education's fourth quarter 2023 earnings call. Today, I am pleased to share details about three key themes. First, APEI has outperformed fourth quarter 2023 guidance on all financial metrics with better than expected performance from American Public University System, Rasmussen University, and Hondros College of Nursing. Second, Rasmussen and Hondros both have meaningfully improved pre-licensure NCLEX student outcomes for Q4 and full year 2023. Third, we are initiating full year revenue and adjusted EBITDA guidance for 2024, a reflection of our confidence in the outlook for 2024 and with investment areas that prioritize growth, academic quality, and student success. Before I provide more details on those three key themes, I would like to first recognize the extraordinary efforts of our faculty and staff across each of our education units and at APEI. They are delivering on our vision of transforming lives, advancing careers, and improving communities. I am particularly proud of our entire team's ability to respond to the year's difficult challenges and their relentless efforts to improve student outcomes. These efforts have resulted in remarkable improvements in 2023 and set the course for continued growth in 2024 and beyond. Now turning our attention to fourth quarter 2023 results, APEI's financial and operating performance exceeded guidance on all metrics. APEI's revenue exceeded the top end of our guidance range reaching $152.8 million, and adjusted EBITDA exceeding our guidance by more than 50%, reaching $25.7 million, which is $8.8 million above the high end of the range, and marking the second consecutive quarter of meaningful adjusted EBITDA outperformance. I am particularly proud of how our education units have contributed to the outperformance. with APUS achieving record EBITDA margins and both Rasmussen and Hondros delivering positive EBITDA results. Earnings per share also saw significant growth, rising from a loss of $0.35 in the prior year period to a gain of $0.64 per diluted share in the fourth quarter. This 4Q23 financial and operating performance also reflects our continuous improvement efforts, driven by operational changes we implemented throughout 2023. These changes include enhancing our marketing efficiency across all EUs, right-sizing of the cost structure to our revenue base, and in particular within Rasmussen, and successfully executing on the APEI shared services transformation that we began a year ago. Now let's turn our attention to APEI's education units, starting with APUS. In 4Q23, overall net course registrations increased 4% year over year to 90,700 registrations, which was at the top of our guidance range. APUS's strength with the military resulted in active duty registrations increasing by 5%, while veteran registrations showed continued momentum with 13% year over year growth, a continued testament to the strong military franchise that AMU has built. Non-military registrations continue to be soft in both the competitive labor and higher ed markets for those students. The 4% increase in registrations in the quarter, combined with the positive impact of pricing actions earlier in 2023, partially offset by the mixed shift to lower revenue military enrollment resulted in an 8% increase in revenue at APUS. However, this strong revenue performance, coupled with cost containment and lower marketing spend, resulted once again in strong margin improvement in the fourth quarter, with EBITDA increasing to $27.7 million from $20.6 million just a year ago. This resulted in a 35% margin for the quarter, as compared with 28% in the prior year period. Looking ahead to the first quarter of 2024, we expect total registrations at APUS to again increase year over year, but at a slightly slower pace than 2023's very strong performance. I am proud to report that last month AMU was named the 2024 Institution of the Year by the Council of College and Military Educators, CCME, for its dedication to educating active duty service members and their families. AMU was selected from over 2000 institutions. This is the second time in 12 years that AMU has been honored with this award. From a regulatory perspective, APUS met the Department of Ed's 90-10 rule for 2023 with a ratio of 89%. As a reminder, 2023 was the first year that military tuition assistance and veterans education funding were included in the 90 portion of the calculation. Turning our attention to Rasmussen, the team delivered in 4Q23 the best bottom line performance in a year, with positive EBITDA of $409,000, even while enrollments decreased 10% in the quarter. Additionally, on-ground nursing and health ed programs showed strong growth, including the BSN program, up over 20%. RASIS enrollments are finalized for the first quarter of 2024, and overall enrollment decreased just 6%, as compared with double-digit declines for each of the last four quarters. Online enrollments were slightly positive, while on-ground health care enrollments declined 11%, driven primarily by declines in Rasmussen's ADN program. Please note that to more closely align our public reporting with how Rasmussen has been operating the university internally, since the reorganization in late 2022, we will discontinue our public reporting of nursing versus non-nursing, effective next quarter, and shift to campus healthcare versus online reporting instead. For compatibility, we've included a table in the appendix of our 4Q23 earnings presentation. As for Rasmussen's 4Q23 NCLEX results, based on final scores reported for all states except Wisconsin, which has not yet reported, but where Rasmussen expects all four programs to pass, Rasmussen's on-ground pre-licensure nursing programs achieved or surpassed the respective state threshold for 26 of 29 programs, or 90% of all programs, in the fourth quarter 2023. This was up from about 80% in the third quarter and considerably up from 60% a year ago. For the entire year 2023 measurement period, 20 of 29 programs, or about 70%, passed, which includes the preliminary results for Wisconsin, and that is over 20 points higher than a year earlier. Importantly, the trend has improved steadily each quarter since 1Q23. Even as Rasmussen has delivered much better scores over the past year, Rasmussen's Bloomington, Minnesota ADN program has continued to perform below state standards. As a result, Rasmussen has taken the difficult decision to voluntarily close the ADN program at this campus effective in 1Q24 and has received approval from the Minnesota Board of Nursing to teach out this program by the end of 2Q24. Rasmussen had already stopped enrolling new students in the Bloomington ADN program as of the last quarter, and we expect minimal impact on enrollments and revenue given that fewer than 50 students will still be in the program upon closing. While this has been a difficult decision to make, Rasmussen remains committed to offering strong nursing programs in the Twin Cities. As such, Rasmussen will focus on attracting BSN students to that location instead, where Rasmussen has reported an over 90% NCLEX pass rate for BSN in the most recent quarter. This pivot to BSN also reflects the high demand for BSN nurses in the Twin Cities health care market relative to ADN nurses. Rasmussen expects further growth in its non-ADN health ed campus-based programs and the institution's more targeted programmatic marketing efforts are helping to drive improved enrollment in these areas by streamlining processes for identifying and attracting new students. At Hondros, it delivered record enrollment of 3,300 students in the first quarter of 2024. surpassing 3,000 enrolled students for the second consecutive quarter. Demand remains strong for its PN and ADN nursing programs, with the new Detroit campus continuing to perform very well. Legacy campuses, including Indianapolis, while still operating with enrollment caps as a new program, also contributed to growth. This robust enrollment growth has driven a strong top line with revenue growing 25% in the fourth quarter 23, and 21% for the full year 2023. During 2023, Hondros implemented a modest price increase in the second quarter, reduced headcount to optimize operating costs, and delivered positive EBITDA of $1.1 million in the fourth quarter, compared to a loss of $700,000 in the prior year period. This represented a 7% margin, and with that strong fourth quarter performance, Hondros delivered positive adjusted EBITDA for the year of $400,000 as compared to a loss last year. Hondros maintained its track record of achieving high NCLEX scores in its PN program in 2023, and for the first time since 2014, has also reached the passing criterion for its RN program in Ohio. This achievement sets the stage for Hondros to have the opportunity to expand its ADN RN program to Indianapolis and Detroit, where that program is not currently offered. Additionally, in 2024, Hondros plans to begin offering a medical assisting program at all Hondros Ohio campuses. This will increase utilization of both these locations and prospective student leads and will lead to increased access to health care education for the local community population, which will also improve profitability. I would now like to turn our attention briefly to 2024. We are pleased to provide full year 2024 guidance for revenue and adjusted EBITDA. For revenue, We expect a range of $610 to $620 million, and for adjusted EBITDA, we expect a range of $55 to $65 million. In 2024, we are investing in several initiatives that we believe will strengthen our market position, set the stage for improved student experience and success, and will lead to additional growth. These areas include APUS, which is both investing in curriculum modernization to improve the student experience and satisfaction, and has announced the first part-time faculty wage increase in 14 years. Hondros is relocating two campuses and has plans to add programs to increase access and to better meet the needs of its students and health partners in the local communities. APEI, which is modernizing and optimizing our enterprise technology platform to improve student experience, includes the technology transition for Rasmussen from Collegius and the upgrade of the training platform at USUSA. In closing, it remains my top priority to attract and retain strong leaders across APEI and our education unit. to drive operational enhancements, and to foster a culture of excellence and trust among our internal and external stakeholders to uphold the educational promises we make to over 107,000 students each year. Before turning the call over to Rick Sunderland, our CFO, I'd like to summarize by saying, while challenges remain and our efforts to address them are ongoing, Our 1Q24 guidance, coupled with the fourth quarter's outperformance, signifies a return to year-over-year growth and profitability and improved visibility. Tangible proof points, whether enrollment trends, profitability metrics, or NCLEX scores, reflects the steps we have taken to strengthen our schools and the overall enterprise. Having exceeded our revenue and adjusted EBITDA outlook, for each of the last two quarters, we are well positioned as we enter 2024. Our entire APEI team recognizes the significance of the challenges we have faced and are energized by how we have come together to strengthen our organization to prepare for the next phase of our journey. As we begin 2024, we do so from a position of stability with a large and growing addressable market, a committed leadership team, a distinctive value proposition, and a well-established franchise among service-minded adult learners. With that, let me turn the call over to APEI CFO, Rick Sunderland.