American Public Education, Inc.

Education Inc's second quarter 2024 earnings 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. And if you would like to ask a question at that time, please press star one on your telephone keypad. I would now like to turn the conference over to Brian Pernovo, Investor Relations. You may begin.

Thank you, Sarah, and good afternoon, everyone. Welcome to American Public Education's conference call to discuss second quarter 2024 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 call today are available in the quarterly reports section of APEI's website. Statements made during this conference call and any accompanying presentation regarding APEI and its subsidiaries that are not historical facts may be considered forward-looking statements based on current expectations, assumptions, estimates, and projections. 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. Forward-looking statements may sometimes be identified by words like anticipate, believe, seek, could, estimate, expect, can, may, plan, potentially project, 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. Repositioning Rasmussen University for Growth changing market demands, and our ability to satisfy such demands and other company initiatives, including with respect to future competition and demand cost savings efforts. 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 as 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 CEO, Angela Seldon. Angela, Angie, please go ahead.

Thank you, Brian. Good afternoon, and thank you for joining American Public Education's second quarter 2024 earnings call. For those of you new to APEI, our four post-secondary institutions are among the largest in the country in educating adult learners, with an emphasis on educating those in service to others, namely new nurses, active duty military, veterans, first responders, and the federal workforce. On an annual basis, APEI provides online and campus-based post-secondary education and career learning to approximately 125,000 adult learners worldwide. Our mission is to power, purpose, potential, and prosperity to those in service to others. On today's call, we will cover in more detail the following good news highlights. First, in Q2 2024, this marked the seventh consecutive quarter where APEI's adjusted EBITDA has met or exceeded guidance. Overall, APEI revenue grew 3.9% year-over-year to $152.9 million. We saw significant improvement in APEI's adjusted EBITDA, which grew 24% to $10.9 million. primarily driven by year-over-year operating at both Rasmussen and APEI corporate, adjusted EBITDA margin expanded by 118 basis points to 7.2% when compared to 2Q23. Next, I'm pleased to report that Rasmussen has achieved its first year-over-year positive revenue and enrollment quarter since our acquisition in 2021. And as we had signaled earlier this year. And finally, we are reiterating our full year guidance of revenue between 620 and $630 million in revenue and adjusted EBITDA between 60 million and $70 million. Now I'd like to provide more detail about the results and trajectory of our education unit starting first with Rasmussen. I'm very pleased with the progress we have made to stabilize and put Rasmussen back on a trajectory for revenue and enrollment growth and positive EBITDA. Second quarter enrollments, which we shared in our last earnings call, were 13,600, down just 2%. More importantly, Third quarter enrollments, which we are sharing for the first time today, grew slightly on a year-over-year basis to 13,500 students, powered by double-digit growth in our nursing and health sciences online programs, and is the positive turn in the business toward which we've been working. This is particularly noteworthy as Rasmussen decided to suspend new enrollment in its two Wisconsin campuses, which operate in small markets, while it continues to optimize the campus footprint to improve profitability and to strengthen margins. While we don't typically report starts, I think it's important to note that start growth was nearly 10% in the quarter and reflected positive year-over-year start growth in both the Rasmussen Online and Rasmussen Campus portions of the business. The continued momentum in enrollments also corresponds with growth in revenue, where Rasmussen revenue was up 2%, which is also the first time since APEI's acquisition and is indicative of the path to continued growth and profitability. EBITDA for the Rasmussen segment was negative in the quarter, but the loss narrowed to minus $4.7 million from minus $7.1 million in the prior year period. In conjunction with the expected growth in enrollments in the second half, we continue to expect Rasmussen to move into positive EBITDA territory in the fourth quarter of 2024, which sets us up for a much stronger profit picture in 2025. In terms of student outcomes, we again produced strong NCLEX pass rates in the second quarter, where 22 of 25 programs are meeting the required thresholds year-to-date. Now I'd like to turn our attention to API's online university serving military and veterans, APUS. In 2Q24, Overall net course registrations increased 1.7% year over year, reflecting the strong retention of returning students. Revenue at APUS was higher due to the overall growth in registrations as well as higher average revenue per registration from last year's tuition and fee increases. As APUS has invested in 2024 to strengthen its online curriculum, implement a faculty pay increase for part-time faculty, invest in IT infrastructure optimization, and better align its marketing spend, 2Q EBITDA margin was slightly lower year over year. Looking ahead to the third quarter, we would expect EBITDA margins at APUS to be similar given those same factors. At Hondros, as previously reported, 2Q24 enrollment remains strong. We also saw growth continue in 3Q24, with enrollment increasing more than 10% year-over-year to 3,100 students, even against a strong 17% comp a year ago. Demand remains strong for both the PN and ADN nursing programs, with the new Detroit campus performing very well. Legacy Campus also contributed to growth, including Indianapolis, where we still operate with enrollment cap as a new program, despite exceptional NCLEX pass rates. Starts at Hondros remain robust, and we continue to be pleased with the growth we are seeing. Hondros has relocated one of its Ohio campuses and has experienced some unexpected infrastructure setbacks in that location, which we expect will result in some temporary but limited impact to enrollment at that one location. Overall, with the stabilization of enrollment and continued improvement in EBITDA at Rasmussen, at APEI, we are now delivering positive growth in revenue, adjusted EBITDA, and margins on a consolidated basis. Before turning the call over to Rick Sunderland, APEI CFO, I'd like to frame where we are as an enterprise and provide some specificity as to where we're headed. With the stabilization of Rasmussen well underway, including line of sight to continued enrollment and revenue growth from that unit, we see margins at Rasmussen shifting from negative to positive in the fourth quarter, setting the stage for 2025 and beyond. Rasmussen also expects to expand its campus footprint for the first time in over five years once the Department of Education growth restrictions are lifted, which will allow us to expand our impact in addressing the large demand for nursing and other clinical roles in our overstretched healthcare system. We fundamentally believe in our vision that education can transform lives, advance careers, and improve communities. Our four education units were built for service-minded students, offering accessible and affordable higher education and training across a diverse range of subjects. At APEI, we have carved out distinctive market positions. American Military University, or AMU, is the number one provider of higher education to the US military. and has been named the top choice nationwide for veterans using their GI Bill benefits. Hondros College of Nursing focuses on educating pre-licensure nursing students at eight campuses and is the number one provider of pre-licensure PN education in the state of Ohio. Both Hondros and Rasmussen continue to tackle the chronic nursing shortage by graduating thousands of new nurses each year, where the demand for nurses is expected to grow significantly. to 3.3 million in 2031, an increase of 195,000 and an additional 203,000 job openings each year when retirement and workforce exits are factored in. Overall, higher education remains a critical accelerator for anyone seeking employment in the U.S. with an increasing amount of working adult students driving the higher education market, which is expected to reach approximately $173 billion by 2030. We are proud that APEI's affordable, learn-to-earn focus enables students to experience a strong, lifelong return on their educational investment. With that, let me turn the call over to APEI's CFO, Rick Sunderland.