American Public Education, Inc.

At this time, I would like to welcome everyone to the APEI First Quarter Earnings 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 that's a 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. And I would now like to turn the call over to Brian Prinevo. Please go ahead.

Thank you and good afternoon, everyone. Welcome to American Public Education's conference call to discuss First Quarter 2025 results. Joining me on the call today are Angela Seldum, 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 presentations section of APEI's website. Statements made during this conference call and any accompanying presentations 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 are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such as those identified in our form 10K under the heading risk factors, including those related to potential impacts from government shutdowns or changing federal and state government politics or policies, practices and laws including impacts on revenues for the timing of receivables. Forward-looking statements may sometimes be identified by words like anticipate, believe, seek, could, estimate, expect, can, may, plan, potentially, project, should, will, would or 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. Our foundation for growth, combination of our institutions, campus and corporate center consolidation, the redemption of our preferred stock, future government and regulatory actions and our response to those actions, changing market demands and our ability to satisfy such demands in other company initiatives. This presentation contains references to non-GAAP financial information. A reconciliation between the non-GAAP financial measures we use in 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 and operations and should be only 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. Now I'd like to turn the call over to APEI's president and CEO Angela Seldon. Angie, please go ahead.

Thank you, Brian. Good afternoon and thank you for joining American Public Education's first quarter 2025 earnings call. Overall, we are very pleased with our outperformance in the first quarter of 2025 and are raising our full year adjusted EBITDA guidance by $2 million and both the top and bottom ends of the range to $77 million to $87 million. We have four areas to highlight during today's call. First, APEI outperformed first quarter 2025 financial guidance. In the first quarter, we outperformed guidance for revenue, adjusted EBITDA, adjusted EBITDA margin and net income, continuing the trend observed in the latter half of 2024 to greater profitability as enrollments and registrations continue to increase. Our focus on stabilizing and growing enrollment at Rasmussen and in particular growing our campus-based nursing enrollment is resulting in meaningful -over-year improvement in profitability. Rasmussen contributed a positive $5 million of adjusted EBITDA swing from a minus $2.6 million loss in first quarter of 24 to a positive $2.4 million in one Q25. Importantly, this trend is continuing into Q2, where Rasmussen is seeing an 8% -over-year enrollment improvement with growth in both online and campus-based enrollments. Net income to common shareholders increased a positive $0.5 million from a negative 6.2 million net loss. Next, we are improving operating leverage driven by increasing enrollment and focused discipline cost management. Revenue of $164.6 million increased .6% while adjusted EBITDA increased nearly 25%. Adjusted EBITDA margin expanded by nearly 200 basis points to .9% versus 11% in Q1 of 2024. We delivered net income of $7.5 million in the first quarter, historically our lowest quarter as compared to a net loss of a million dollars in the first quarter of 2024. Also, 2025 continues to be a year of simplification at APEI. We intend to redeem our preferred shares prior to the end of the second quarter, which would be accreted to net income and earnings per share, saving approximately $6 million in dividend expense annually beginning in 2026. In January, we announced a plan to combine our three degree granting institutions into a single consolidated institution. Last week, the Higher Learning Commission, our accreditor, confirmed that we are on their June agenda for review. As such, our combination plans remain on track and we expect to close by year end 2025, assuming all regulatory and accreditation steps have been completed. We have closed some underperforming campuses, terminated expensive leases and contracts, and have two corporate buildings held for sale with anticipated net proceeds of more than $20 million from both, which are expected to close in Q3 of 2025. These steps should strengthen the balance sheet and cost structure, resulting in significant net income and EPUS growth in 2025 and beyond. Finally, at Graduate School USA, due primarily to DOGE initiatives, including government employee headcount reductions and the uncertainty around future budgets for training and professional development, we have held constant APEI's full year revenue guidance and have begun to explore the best path forward for graduate school. Overall, we are increasing 2025 net income guidance, expected to be between $23 million and $30 million, and we are increasing adjusted EBITDA guidance, expected to be between $77 million and $87 million. We are maintaining the full year revenue expectation of $650 million to $660 million, moderated by the uncertainty at graduate school. Our CFO Rick Sunderland will give a deeper dive into updated 2025 guidance. Now I'll provide more details about 1Q25 results, starting first with APEI's nursing and healthcare institutions. Rasmussen continues to produce strong results. The three-pronged strategy to improve outcomes, manage costs, and grow enrollments began bearing through in the second half of 2024 and continues in the first half of 2025. Rasmussen's enrollment increased 7% in 1Q25 and 8% in 2Q25, representing the fourth consecutive quarter of -over-year enrollment increases. As previously discussed, Rasmussen's fixed cost structure allows positive enrollment trends to significantly enhance the flow-through margins, leading to improved operating leverage and profitability. At Hondros, as previously reported, 1Q25 enrollment was strong, with .6% growth as compared to 1Q24. 2Q25 enrollment continues a positive trend, increasing .5% -over-year to 3,700 students. We're building on the momentum of 2024 into 2025 at both Rasmussen and Hondros, with 2Q25 reported student enrollments as actuals because these quarterly starts have already begun. Now let's turn our attention to APEI's online university, educating our nation's military, veterans, and their families, currently called AP US. First, I would like to congratulate the over 18,000 students who received their diplomas from AP US last weekend. Here are some impressive statistics and a fun fact. 66% of AP US graduates are active duty military, national guard, or reservists. 19% are veterans, and 4% are military spouses or dependents. AP US conferred over 13,500 associate's or bachelor's degrees, 4,600 master's degrees, and 11 doctoral degrees. Over 4,200, or 23%, of AP US graduates this year are earning their second AMU or APU degree or certificate. And the fun fact, the oldest graduate is 81 years old and the youngest 17 years old. Now turning our attention to 1Q25 for AP US, overall net course registrations increase .5% year over year. 2Q25 registration guidance at the midpoint is 5.5%, showing a sequential improvement in year over year growth. In summary, building on our successful performance in 24 and the sustained momentum in the first half of 2025, we are optimistic about our future growth prospects and our capacity to convert that growth into enhanced profitability, both in terms of adjusted EBITDA and diluted EPS. We remain laser focused on educating service minded students offering classes, certificates, and degrees in fields that have high demand. APEI enables students to experience a valuable, lifelong return on their educational investment. Our mission remains to power purpose, potential, and prosperity for those in service to others. Each of our education units was purpose built to deliver accessible and affordable higher education and training across a diverse range of subjects. I'd like to take a moment to thank each of our approximately 6,000 employees and educators that work tirelessly to make our mission a reality each and every day. With that, I'd like to turn the call over to APEI CFO, Rick Sunderland.

Thank you, Angie. Total revenue in the first quarter was 164.6 million, an increase of 10.1 million or .6% from the prior year period. First quarter revenue growth was driven by increased revenue at Rasmussen, APUS, and Honduras. Revenue growth at Rasmussen and APUS outpaced enrollment and registration growth due to tuition and fee increases implemented last year. Total cost of expenses in the first quarter were 152.3 million, a 2% increase compared to the first quarter of 2024. The increase was primarily driven by increases in employee compensation costs and advertising costs, partially offset by a decrease in information technology costs and depreciation and amortization expenses. In the first quarter, net income available to common shareholders was 7.5 million, compared to a net loss of 1 million in the prior year. First quarter diluted net income per common share was 41 cents as compared to a loss per diluted share of 6 cents in the prior year period. First quarter adjusted EBITDA was 21.2 million, a 4.2 million or 25% increase over the prior year. This was above the top end of the guidance range and represented an adjusted EBITDA margin of .9% as compared to 11% in the prior period. The outperformance to guidance was due in part to military registrations at APUS, student retention at Rasmussen, and the timing of approximately 1.4 million of expenses. At APUS, first quarter revenue increased to 83.9 million, a .1% increase as compared to the prior year period. First quarter debt course registrations increased 3.5%. For the quarter, APUS EBITDA was 25.2 million and EBITDA margin was 30% as compared to .2% in the prior year period. At Rasmussen, first quarter revenue was 59.3 million, an increase of .5% as compared to the prior year. In the first quarter, online enrollment increased 11.1%, on-ground enrollment increased 3.2%, and total enrollment grew .4% to 14,500 students as compared to the prior year period. In the first quarter, Rasmussen delivered positive EBITDA of 2.1 million as compared to an EBITDA loss of 2.7 million in the prior year. At Honduras, first quarter revenue was up .5% to 17.7 million as compared to the prior year period due to continued enrollment growth. For the quarter, Honduras total enrollment increased 10% to approximately 3,600 students. At Honduras, the first quarter EBITDA loss was 0.2 million as compared to EBITDA of zero, break even in the prior year period. Revenue at graduate school included in corporate and other was 3.7 million as compared to 4.2 million in the prior year period. For the quarter, graduate school EBITDA was a loss of 2.1 million compared to an EBITDA loss of 1.1 million in the prior year period. First quarter cash flow from operations was 37 million compared to 20.7 million in the prior year. At March 31, 2025 total cash, cash equivalents and restricted cash was 187.5 million, an increase of 28.6 million from year end 2024. The increase in cash flow from operations and cash was driven by the collection of tuition assistance or TA accounts receivable at APUS and a reduction in operating losses at Rasmussen. CapEx in the first quarter was 3.9 million compared to 6.2 million in the prior year. Looking ahead, we expect to complete the sale of two buildings in Charlestown, West Virginia in the third quarter with proceeds from the sale of approximately 22 million. Principal and API's term loan at March 31 was unchanged at 96.4 million and our 20 million revolving credit facility remains fully available. With unrestricted cash of 161.6 million, API continues to be net cash positive. As disclosed on our last earnings call, we intend to redeem all of our series A senior preferred stock in the second quarter. Turning now to our second quarter and full year outlook, which covers forward-looking statements subject to the various risks noted earlier. For the second quarter 2025, APUS total net course registrations are expected to be between 93,500 to 96,100 registrations representing a 4% to 7% increase when compared to last year. At Rasmussen and Honduras, second quarter student enrollments are actual because of the quarterly starts at these schools. At Rasmussen, second quarter, total online enrollment increased .6% to approximately 8,300 students, while total on-ground enrollment increased 3% to approximately 6,400 students for an aggregate enrollment of approximately 14,700 students. This represents an 8% increase when compared to the second quarter of 2024. It is our fourth consecutive quarter of overall positive -over-year enrollment growth at Rasmussen. At Honduras, second quarter, total student enrollment increased 14% -over-year to approximately 3,700 students. In the second quarter of 2025, consolidated revenue is expected to be between 160 million and 162 million. I will note that second quarter and full year revenue guidance is negatively impacted by the increasing headwinds at graduate school due to changing federal priorities and policies and including actions taken by the Department of Government Efficiency, or DOJ, which have resulted in uncertainty relating to the provision of career learning and contract training to the federal workforce. The company expects second quarter net loss available to common shareholders to be between a loss of 2.5 million and 0.7 million, or between a loss of 13 cents and four cents per diluted share. Our second quarter guidance for net loss available to common shareholders includes a redemption premium on the planned redemption of our series A senior preferred stock of approximately 2.9 million and expected costs related to our previously announced combination of APUS, Rasmussen, and Honduras of approximately 1.7 million. Second quarter 2025 adjusted EBITDA is expected to be between 11.5 million and 14 million. For the full year 2025, there's no change to our anticipated consolidated revenue of between 650 million and 660 million. We are increasing our full year 2025 adjusted EBITDA guidance to be between 77 million and 87 million and net income available to common shareholders to be between 23 million and 30 million. Our full year net income guidance assumes the redemption of our preferred equity in the second quarter, which will reduce preferred dividend payments by approximately 3 million in 2025 and 6 million annually thereafter. This full year adjusted EBITDA guidance translates the free cashflow expectations for the full year defined as adjusted EBITDA less capex to be between 55 million and 69 million. I will now pass it back to Angie to offer some closing remarks after which we will begin our question and answer session. Angie.

Thank you, Rick. Recent financial and operating results show that we have strengthened our institutions and have established a solid foundation for growth this year and for years to come. We are also prioritizing simplification in 2025 and there will be financial benefits that will be realized across 2025 and beyond. As announced in January, we are planning to combine AP US, Rasmussen and Hondros into one consolidated institution, AP US or American Public University System, which now we're referring to as the system. Combining and expanding our nursing campus footprint will allow us to strengthen our ability to address the growing demand for nursing and other clinical roles in the healthcare ecosystem by allowing Rasmussen programs to be offered at Hondros campuses and for us to think about and expand our campus footprints. It will also allow us to accelerate growth in our military, veteran and families division to be called AP US Global. And with that, I'd like to hand it back to the operator to begin our question and answer session.

Operator. Thank you, Angie. As a reminder, to ask a question, simply press star followed by the number one on your telephone keypad and we'll pause for just a moment to compile the Q&A roster. And our first question comes from the line of Jasper Bibb with Truest Securities. Please go ahead.

Hey, good evening, everyone. Really strong margin for AP US in the quarter and I think you're actually dealing with some downtime on the army and the Air Force tuition assistance for those two. So just hoping you could outline if there was a margin or enrollment headwind from the TA downtime in the first quarter and maybe if you're expecting any catch up in the second quarter there is the system should be back online for the full quarter.

Hi Jasper, great question. Thank you for that. I'm gonna shoot that to Rick, please.

Okay, thank you. Hey Jasper. Actually, the team really organized, at AP US really organized and through a variety of communication channels was really able to minimize the impact of the portal outage. The outage ended just prior to the end of the quarter, right? And so they were able to pick up the registrations that otherwise would have been lost. And so you can see from the margin that we reported, it had really no effect on the margin. So if you wanna piece the two quarters together, you can see registrations increased about .5% in the first quarter. And we're guiding to roughly .5% in the second quarter. So really the effect if there was any was minimal in the first quarter and we're seeing a slight improvement at AP US in the second quarter in terms of registration guidance. So all in all, you have to be very proud of the team at AP US for working with the various ESOs, education service officers to get their students registered, which is a real benefit to the students.

Thanks, and then you mentioned the higher graduate school drag on the EBITDA guide and then also the Doge impact there. I know there's some seasonality in the business. So maybe that one few losses maybe not representative of what you're expecting for the whole year. But if you held back the guidance increase for graduate school, is there any way you could maybe frame for us what guidance now assumes for EBITDA losses at graduate school in 25?

Thanks for the question, Jasper. Certainly it's a developing matter. As we know, there is talk that the Doge office is potentially even sun setting and the leader may be going back to other businesses that he has responsibility for. So the graduate school downside is something that we are not able to give guidance on right now and predict. What we do believe is that the adjusted EBITDA guidance that we gave here for the full year by raising $2 million is something that we are confident includes what we believe is the downside of graduate school and the fact that we have maintained the revenue guidance also includes what we believe is the downside of graduate school. So we are confident in the guidance that we've given and we look forward to seeing what unfolds in the next couple of quarters related to graduate school. So in addition to very aggressively managing our cost to graduate school to line up with that reduced revenue, we are also looking at different options and considerations for the path forward for graduate school.

Makes sense. Last one for me, really impressive enrollment growth at Brass was in the quarter. And I apologize if I missed it, but did you give the number of nursing campuses that met the state NCLEX thresholds in the first quarter?

We're doing such a good job on NCLEX that we are not reporting on that any longer, but I can tell you that we had all but one campus program combination. So 24 of 25 now meeting those benchmarks. And so we believe that given the consistent reporting success that we've had in the last really four quarters, we have chosen not to continue to report that. Since it does seem to be behind us in terms of any kind of NCLEX issues that we have.

Okay, great. Thank you for taking the questions.

Thanks,

Jasper. And our next question is from Eric Martin, new chief with Lake Street Capital Markets. Please go ahead.

Yeah, I was pleased to see the 8% enrollment growth at Brass and it looks like that kind of goes in line with the 7% from Q1. Just wondering what your thoughts are for 2025. Is this a kind of a, we can expect a five to 10% range? Are you comfortable with that?

Hi, Eric and welcome. Thanks for joining the call today. We don't give individual institution guidance beyond the next quarter. What we do is we give full year guidance for the enterprise overall. But I can tell you that we continue to be pleased with the momentum that we see at Rasmussen. This is now, Q2 is now the fourth consecutive quarter of positive enrollment growth. And we don't see any headwinds as it relates to Rasmussen's enrollment in the back half of the year.

Got it, understand. And then you've submitted for approval on that, getting Rasmussen cleared for potential expansion. Any update there from the Department of Ed?

Great question. Last week I had the opportunity to meet with a senior member of the Department of Education. And we discussed the matter of getting our second year of audited financials, which we submitted in really early Q2 of 2024 approved. And he has taken that matter upon himself to get resolved. And we're expecting to hear some outcome on that in the near term.

Okay, and then Rick curious on the CAPEX. I think your guidance is unchanged here at 18 to 22. If I was to spread that across the year, it would seem like Q1 was a little bit light. What's the expectation for kind of quarter by quarter how we should think about CAPEX?

Eric, we don't spread that. It depends on facility and IT investments, right? And those projects, they have anticipated start dates, but sometimes the timing changes due to, call it a permitting issue at one of the facilities or a reprioritization of projects within the IT department. So I'm sorry, I don't wanna spread that. We feel confident that we'll get comfortably within that range and you did calculate it correctly. I think for purposes of the modeling, I would do it equal across the orders, if you will, for the remainder, because it probably won't vary much above or below that as a kind of just as a numbers matter.

Gotcha, okay. Thanks for taking my questions and good luck on the rest of the year and good luck on Q2.

Thanks very much. Our next question comes from a line of Stephen Sheldon with William Blair, please go ahead.

Hey, thanks and really nice job in the quarter. First one here, just as we think about the profit trajectory at Rasmussen, are there more levers that you could pull to accelerate the profit trajectory or at this point, will it mainly be about continued leverage of fixed cost as you continue to grow the top line?

Hi, Stephen, thanks for the question. I'll start and then ask Rick to add some commentary. So as you know, when you think about a half of the revenue at Rasmussen is campus based revenue, a big focus for us continues to be what we call filling the back row, making sure that each of the classes and sections is maxing out the capacity at our current campuses. And so that will allow us to expand the margin and grow the revenue at the same time. We have with our new president there, Mark Arnold, a focus on the right program mix by campus to be sure that the program mix that we offer aligns with both the TAM of students available to take those courses as well as employer demand for those programs. So we'll be making some tweaks to ensure that we're not shortchanging the programs that we have the opportunity to expand enrollments in and also rededicating space that may be dedicated to programs where we have less addressable markets. So we're really focused on optimization within the campuses. We also continue to see great success in the effectiveness of our marketing related to our nursing program. And we are seeing the improvement in lead to start conversion as a result of the improvement in the effectiveness of marketing. And so we think those levers will all help us deliver a better profitable revenue mix in 2025 and see top line growth as well.

Great, thanks. And then a higher level follow up. There's typically been counter cyclicality in higher ed enrollments. So how are you thinking about APEI's ability and I guess competitive positioning to capture enrollment share across your institutions if we are in a backdrop where unemployment moves higher over the rest of this year and into next? And have you seen any steps signs that top of funnel applications are picking up? So yeah, your positioning to benefit from it if it does happen, are you seeing it all yet?

Well, as I think you're well aware, the two businesses that we have are military business and our healthcare business, both have natural moats around them. The military business continues to see improvement and growth and growing our share of the students in active duty who are taking classes with APUES. So we continue to see expansion there, but we think that's somewhat insulated. APUES is somewhat insulated from the cyclicality of the market because it's really focused on the number of military and veteran students who are taking courses. At RAS and Hondros, we are seeing continued, as you can see, high single digit case of Hondros Q2 mid double digit in enrollment growth. And so we continue to see people coming to the nursing profession as an important way for them to have long-term job security and a great ROI on their educational investment. So we do believe that our momentum there can be attributed to our successful marketing effectiveness improvement and the counter cyclicality of in particular a nursing job, which we know will have durability for the next 40 years.

Make sense, thank you.

Thanks very much.

And our next question comes from Alex Paris with Barrington Research, please go ahead.

Hi guys, thanks for taking my questions and congratulations on the strong start to the year.

Thanks, Alex.

Couple of clarifying questions, please. Rick, I think you said something about net income in the quarter that was partially attributed to a $1.4 million in timing of expenses. Could you give us a little color on that?

Yeah, thank you, Alex. So there were approximately 1.4 million of expenses that we anticipated incurring in the first quarter that were not due to some timing matters. So they've been moved to the second quarter for purposes of that guidance. There were things that we thought would process in the quarter that just ended up being delayed. And so it's a variety of things, Alex. Some course materials at Rasmussen being a large matter. And then there were some event related expenses that we expected at APOS that ended up, they were delayed and delayed in the second quarter. So it's one large thing, the materials cost at RAS and a bunch of little things that all aggregate to about $1.4 million.

And that's a pre-tax number, 1.4 million. It is

a pre-tax, yeah, I should have said that. Thank you.

Yeah, I started my question by saying net, so I just wanted to be clear. And then second question with regard to your guidance, I believe you're talking about the second quarter. The second quarter guide includes a redemption premium of $2.9 million and that's in the adjusted EBITDA and net income guidance for Q2.

It's in the net income guidance, Alex, not the adjusted EBITDA.

Okay, yeah, that's below the line. And then the 1.7 million of expected costs related to the combination, was that an impact on full year or was that an impact on Q2?

I'm sorry, Alex, repeat the question.

You said that guidance included two things, one, the redemption premium for 2.9 and then expected costs related to the combination of 1.7 million.

That's correct, that's a pre-tax number. And if you go to the guidance. In Q2,

Alex, in Q2. And obviously then it'll be part of the full year, but it'll occur in the second quarter.

So I would assume that these sorts of expenses would occur in Q3 and Q2, maybe not this magnitude, but more spending on combination.

No, don't assume that Alex. If you, we guided to 4 million to 5 million of costs, I think for the entire year for the combination, right? And so the combination is expected to close in the third quarter, assuming we get all the required approvals. And as Angie said, we're on track to do that. So I think you would see that tail off in the fourth quarter.

Okay, fair enough. And then last question regarding both of those, 2.9 and 1.7, together that's 4.6 million. So net income available to common guidance for Q2 would have been 4.6 million higher had it not been for the redemption and these expected costs related to the combination.

After you tax effect.

Oh, yeah, okay, after tax effect.

Okay,

thank you. Oh, wait, last question on graduate school. So you reported revenue of 3.2 million versus 4.2 million. Was there any impact from DOES or contract cancellations in the Q1 number?

Yes, there was.

It was very limited. Yeah, go ahead, Angie.

No, go ahead,

Greg. I was gonna say it was very limited, Alex, in the first quarter. Revenue year of the year was only down 500,000 in the first quarter at graduate school. When you look at it, it's really largely started in the second quarter.

And is it sort of that we're expecting zero from here on out or not that dramatic?

Not that

dramatic. No,

no, no. There are contracts that have full year revenue associated with them that are continuing to run. There are additional basically cohort-based programs that are continuing to run. And we are seeing individual students continuing to enroll in courses, albeit at a lower pace than what we had seen in the past. And so it is just now in the second quarter where we're starting to see the effect of that third stream, which is students who individually enroll. We are seeing a slight pickup from the beginning of the quarter. So we're being very conservative about how we're forecasting the full year revenue for graduate school presently. And we're keeping a careful eye on all that we can do to continue to scoop up all that revenue in those enrollments between now and the end of the year.

But whatever your expectation is, it's incorporated into the aggregate revenue guidance for the full year, hence the reason that you didn't increase that in the quarter here.

Correct, correct. Yeah, so you can see we've got positive registration growth at AP US, at RAS, at Hondros, right? And so just upset by what we are conservatively anticipating at graduate school. So it is not zero for the rest of the year.

Gotcha, and I spent a lot of time on it. I mean, the more important things are AP US, RAS, and Hondros, which have continued to do very well. So thank you very much for that additional color. I appreciate it.

Of course, thank

you, Alex. Thank you very much. Our next question comes from Griffin Boss with B. Riley Securities. Please go ahead.

Hi, good evening, and thanks for taking my question. So just to start off, you mentioned it in the prepared remarks, but just curious if you can remind us what the revenue synergies you expect to see from this consolidation are, particularly on the healthcare side of the business?

Hi, Griffin, it's Angie. Welcome to the call. Thank you very much for your question. We have not provided revenue synergies specifically. We have talked about categories, where one of the exciting benefits of combining RAS and Hondros together is that Hondros will be able to offer not just, you know, the nursing curriculum that RASLISN has, which includes the early nursing curriculum, as well as the post licensure, but it also allows Hondros to be able to offer the catalog that RASLISN offers online as well. So we have talked about categories of synergies, but we have not attributed numbers yet to what we believe the revenue synergies will be.

No, actually, that's great. That's what I was looking for. So I appreciate the color there, Angie. Yeah, final one for me. I noticed in your EBITDA schedule in the 8K, you have the interest expense line, which seems to be outsized in 2Q, and I apologize if I missed this, if it was discussed earlier. I'm just curious what's driving the heavy interest expense in the second quarter. I wouldn't expect it to be related to the redemption of the preferred stock, but maybe correct me if I'm wrong, or if that's coming from somewhere else.

Hey, Rick, can you address that, please?

Yeah, sure. It includes the preferred redemption premium, which is why it's a higher

number. Okay, all right, got it. Great, thank you for answering my questions. Appreciate it.

Yeah, that'll be a one-time hit. So yeah, thank you very much, Griffin. Thanks for the call.

Sure, thank you.

And our final question comes from the line of Raj Sharma with Texas Capital Bank. Please go ahead.

Ty, thank you for taking my questions. Great execution. You've been talking about growing Rasmussen enrollment, and that momentum is very positive. Positive even, just trying to get a sense of the fixed versus the variable cost at Rasmussen, and for every dollar increase in revenues from here, how much of that do you think drops down to the EBITDA level from these levels, especially given your nice enrollment growth at Rasmussen, trying to get a sense of the magnitude of the EBITDA profits that Rasmussen can generate.

Hi, Raj, welcome. Great to talk to you. Thank you. For these positive revenue enrollment now at Rasmussen, we're seeing about 60% flow through. We do believe as we continue to optimize our marketing spend, and as I said, fill the back row of the classroom, we could expect to see something higher potentially, but for now, it's a really positive accelerator to the profitability of Rasmussen's campuses. As you well know, you've been following the story for quite a while. Once we turn that corner, that flow through has a very significant positive impact on the profitability of Rasmussen.

Yeah, that's very positive, and thank you for that. Thanks for the clarification. Overall in the operating costs, I know you've got the marketing in-house, and then you've outsourced certain IT functions that gave you cost cuts. In the current year, fiscal 25, is this OPEX level, could that be assumed to be, to stay at current levels? Is this a stable OPEX level for the entire organization?

I'll start, and then Rick can jump in. So first I would say, where we are seeing positive enrollment momentum, we are gonna invest behind the marketing to continue to accelerate the growth. So that's something we'll continue to invest behind. As it relates to the technology costs, there are a couple of things that we've signaled. One is that we are actively pursuing different AI initiatives, both to reduce the cost of development, as well as some operational improvements. And we'll see those take hold later on in 2025. And so we may be redirecting some of our technology spend in a manner that will drop more profitability to the bond line as we spend less and get more. So we are actively pursuing the use of advanced technologies and AI to help us streamline and reduce our overall technology footprint costs.

Great, great, thank you. That's very helpful. And then just on hundreds, there's a rise in revenues, but year over year, but that resulted in a lower EBITDA level. Anything happening on the expensive side, or is just sort of a blip? Yeah, that's

an astute question, Raj. Thank you for asking that. We've seen a bit of a mixed shift of the programs back to the LPN program, which is a shorter program than the ADN program. And as a result, you have to enroll students more often in order to be able to refill the revenue. So again, one of the significant benefits of the combination is allowing us to have those longer programs, the BSN program and some of the other non-nursing degree programs be available to Honduras campuses and Honduras students. And we believe that that will allow us to rebalance that mix so that we can enroll students who will have a longer tenure with us where the mixed shift has moved in the first quarter of 2025.

Thank you, that's very helpful. And just lastly on the portal issues at the army, I know Rick mentioned no impact on the registration. That's excellent. Do you foresee any impact on the accounts receivable collection or any working capital impact from the portal outage?

Yeah, I'll start and then turn it over to Rick. So funny enough, it wasn't army this time, it was air force. So there was a blip there, but Rick, you wanna talk about the receivables?

Yeah, so Raj, the portal outage affected the students ability to impact. It really didn't affect the timing of how we invoiced. So we had some catch up collections in the first quarter that really related to the fourth quarter, but we're seeing normal invoicing and collections from all the branches, including air force.

Students ability to enroll. Yeah, is what he meant to say.

Yeah, that was really impacting the enrollment. Really didn't have much impact on invoicing or collections.

Was not nearly as extensive. It was an upgrade. It was a maintenance upgrade that took longer than they had originally forecasted. It wasn't anything like the army Ignite Ed matter. That you had a few years ago. Yeah, not even, no, no, no, not at all.

That's right. So I guess I was too fixated on that. Great, that's super helpful. Thank you again for answering my questions again. Great execution, great results, congratulations.

Thanks, nice to hear from you, Raj. Yeah,

thank you. Thank you.

And this concludes our question and answer session. I'd now like to turn the call back over to Angie for closing remarks.

Sure, thank you, operator. And I'd like to thank each of you for joining our earnings conference call for Q1 2025. Hope you each have a very wonderful evening. Take care.

This concludes today's conference teleconference. You may now disconnect your lines. Thank you everyone for joining and have a wonderful day.