American Public Education Q1 2025 Earnings Call Transcript

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Operator

Thank you for standing by. My name is Tina, and I will be your conference operator today. 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 speakers' remarks, there will be a question and answer session.

Operator

Thank you. And I would now like to turn the call over to Brian Prenovo. Please go ahead.

Brian Prenoveau
Managing Director at MZ North America

Thank you, and good afternoon, everyone. Welcome to American Public Education's conference call to discuss first quarter twenty twenty five 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 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.

Brian Prenoveau
Managing Director at MZ North America

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 10 ks 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 or 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, the 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 and 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.

Brian Prenoveau
Managing Director at MZ North America

Management believes that the presentation of non GAAP financial information provides useful supplemental information to investors regarding its results and 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. Now I'd like to turn the call over to APEI's President and CEO, Angela Selden. Angie, please go ahead.

Angela Selden
Angela Selden
President and CEO at American Public Education

Thank you, Brian. Good afternoon, and thank you for joining American Public Education's first quarter twenty twenty five earnings call. Overall, we are very pleased with our outperformance in the first quarter of twenty twenty five and are raising our full year adjusted EBITDA guidance by $2,000,000 and both the top and bottom ends of the range to $77,000,000 to $87,000,000 We have four areas to highlight during today's call. First, APEI outperformed first quarter twenty twenty five 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 twenty twenty four to greater profitability as enrollments and registrations continue to increase.

Angela Selden
Angela Selden
President and CEO at American Public Education

Our focus on stabilizing and growing enrollment at Rasmussen, and in particular growing our campus based nursing enrollment, is resulting in meaningful year over year improvement in profitability. Rasmussen contributed a positive $5,000,000 of adjusted EBITDA swing from a minus $2,600,000 loss in first quarter of twenty twenty four to a positive $2,400,000 in 1Q twenty five. Importantly, this trend is continuing into Q2 where Rasmussen is seeing an 8% year over year enrollment improvement with growth in both online and campus based enrollments. Net income to common shareholders increased a positive $500,000 from a negative $6,200,000 net loss. Next, we are improving operating leverage driven by increasing enrollment and focused disciplined cost management.

Angela Selden
Angela Selden
President and CEO at American Public Education

Revenue of $164,600,000 increased 6.6%, while adjusted EBITDA increased nearly 25%. Adjusted EBITDA margin expanded by nearly 200 basis points to 12.9 versus 11% in Q1 of twenty twenty four. We delivered net income of $7,500,000 in the first quarter, historically our lowest quarter as compared to a net loss of $1,000,000 in the first quarter of twenty twenty four. 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 accretive to net income and earnings per share, saving approximately $6,000,000 in dividend expense annually beginning in 2026.

Angela Selden
Angela Selden
President and CEO at American Public Education

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 twenty twenty five, 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 $20,000,000 from both, which are expected to close in Q3 of twenty twenty five. These steps should strengthen the balance sheet and cost structure resulting in significant net income and EPS growth in 2025 and beyond.

Angela Selden
Angela Selden
President and CEO at American Public Education

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 $23,000,000 and $30,000,000 and we are increasing adjusted EBITDA guidance expected to be between $77,000,000 and $87,000,000 We are maintaining the full year revenue expectation of $650,000,000 to $660,000,000 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 1Q twenty twenty five results, starting first with APEI's nursing and healthcare institutions. Rasmussen continues to produce strong results.

Angela Selden
Angela Selden
President and CEO at American Public Education

The three pronged strategy to improve outcomes, manage costs, and grow enrollments began bearing fruit in the second half of twenty twenty four and continues in the first half of twenty twenty five. Rasmussen's enrollment increased 7% in 1Q twenty five and eight percent in 2Q twenty five, representing the fourth consecutive quarter of year over year enrollment increases. As previously discussed, Rasmussen's fixed cost structure allows positive enrollment trends to significantly enhance the flow through margin leading to improved operating leverage and profitability. At Hondros, as previously reported, 1Q twenty twenty five enrollment was strong with 9.6% growth as compared to 1Q twenty twenty four. 2Q '20 '20 '5 enrollment continues a positive trend, increasing 13.5% year over year to 3,700 students.

Angela Selden
Angela Selden
President and CEO at American Public Education

We're building on the momentum of 2024 into 2025 at both Rasmussen and Hondros with 2Q twenty five 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 APUS. First, I would like to congratulate the over 18,000 students who received their diplomas from APUS last weekend. Here are some impressive statistics and a fun fact. 66 of APUS graduates are active duty military, National Guard or Reservists, nineteen percent are veterans and 4% are military spouses or dependents.

Angela Selden
Angela Selden
President and CEO at American Public Education

APUS 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 APUS 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 1Q twenty five for APUS. Overall net course registrations increased 3.5% year over year.

Angela Selden
Angela Selden
President and CEO at American Public Education

2Q 'twenty five 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 2024 and the sustained momentum in the first half of twenty twenty five, 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.

Angela Selden
Angela Selden
President and CEO at American Public Education

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

Angela Selden
Angela Selden
President and CEO at American Public Education

like

Angela Selden
Angela Selden
President and CEO at American Public Education

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 would like to turn the call over to APEI's CFO, Rick Sunderland.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

Thank you, Angie. Total revenue in the first quarter was $164,600,000 an increase of $10,100,000 or 6.6% from the prior year period. First quarter revenue growth was driven by increased revenue at Rasmussen, APUS and Hondros. 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 $152,300,000 a 2% increase compared to the first quarter of twenty twenty four.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

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 $7,500,000 compared to a net loss of 1,000,000 in the prior year. First quarter diluted net income per common share was $0.41 as compared to a loss per diluted share of $06 in the prior year period. First quarter adjusted EBITDA was $21,200,000 a 4,200,000 or 25% increase over the prior year. This was above the top end of the guidance range and represented an adjusted EBITDA margin of 12.9% as compared to 11% in the prior year period.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

The outperformance to guidance was due in part to military registrations at APUS, student retention at Rasmussen and the timing of approximately $1,400,000 of expenses. At APUS, first quarter revenue increased to $83,900,000 a 4.1% increase as compared to the prior year period. First quarter net course registrations increased 3.5%. For the quarter, APUS EBITDA was $25,200,000 and EBITDA margin was 30% as compared to 30.2% in the prior year period. At Rasmussen, first quarter revenue was $59,300,000 an increase of 11.5% as compared to the prior year.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

In the first quarter, online enrollment increased 11.1%, on ground enrollment increased 3.2%, and total enrollment grew 7.4% to 14,500 students as compared to the prior year period. In the first quarter, Ross Dawson delivered positive EBITDA of $2,100,000 as compared to an EBITDA loss of $2,700,000 in the prior year. At Hondros, first quarter revenue was up 7.5% to $17,700,000 as compared to the prior year period due to continued enrollment growth. For the quarter, Hondros total enrollment increased 10% to approximately 3,600 students. At Hondros, the first quarter EBITDA loss was $200,000 as compared to EBITDA of zero breakeven in the prior year period.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

Revenue at Graduate School included in corporate and other was $3,700,000 as compared to $4,200,000 in the prior year period. For the quarter, Graduate School EBITDA was a loss of $2,100,000 compared to an EBITDA loss of $1,100,000 in the prior year period. First quarter cash flow from operations was $37,000,000 compared to $20,700,000 in the prior year. At 03/31/2025, total cash, cash equivalents and restricted cash was $187,500,000 an increase of $28,600,000 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.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

CapEx in the first quarter was $3,900,000 compared to $6,200,000 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 $22,000,000 Principal and API's term loan at March 31 was unchanged at $96,400,000 and our $20,000,000 revolving credit facility remains fully available. With unrestricted cash of $161,600,000 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.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

For the second quarter twenty twenty five, 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 Hondros, second quarter student enrollments are actual because of the quarterly starts at these schools. At Rasmussen, second quarter total online enrollment increased 11.6% 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 twenty twenty four It is our fourth consecutive quarter of overall positive year over year enrollment growth at Rasmussen. At Hondros, second quarter's total student enrollment increased 14% year over year to approximately 3,700 students.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

In the second quarter of twenty twenty five, consolidated revenue is expected to be between $160,000,000 and 162,000,000 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 Doge, which have resulted in uncertainty related 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 $2,500,000 and $700,000 or between a loss of $0.13 and $04 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 $2,900,000 and expected costs related to our previously announced combination of APUS, Rasmussen and Hondros of approximately 1,700,000.0 Second quarter 20 20 5 adjusted EBITDA is expected to be between $11,500,000 and $14,000,000 For the full year 2025, there is no change to our anticipated consolidated revenue of between $650,000,000 and $660,000,000 We are increasing our full year 2025 adjusted EBITDA guidance to be between $77,000,000 and $87,000,000 and net income available to common shareholders to be between $23,000,000 and $30,000,000 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 $3,000,000 in 2025 and $6,000,000 annually thereafter.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

This full year adjusted EBITDA guidance translates to free cash flow expectations for the full year defined as adjusted EBITDA less CapEx to be between $55,000,000 and 69,000,000 I will now pass it back to Angie to offer some closing remarks, after which we will begin our question and answer session. Angie?

Angela Selden
Angela Selden
President and CEO at American Public Education

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 APUS, Rasmussen and Hondros into one consolidated institution, APUS 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 footprint.

Angela Selden
Angela Selden
President and CEO at American Public Education

It will also allow us to accelerate growth in our military, veteran, and families division to be called APUS Global. And with that, I'd like to hand it back to the operator to begin our question and answer session. Operator?

Operator

Thank you, And our first question comes from the line of Jasper Bibb with Truist Securities. Please go ahead.

Jasper Bibb
Jasper Bibb
Vice President Equity Research at Truist Securities

Hey, good evening, everyone. Really strong margin for APIS in the quarter, and I think you're actually dealing with some downtime on the Army and Air Force tuition assistance portals too. So I was 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 as the system should be back online for the the full quarter.

Angela Selden
Angela Selden
President and CEO at American Public Education

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

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

Okay. Thank you. Hey, Jasper. Actually, the team really organized at APUS 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?

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

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 want to piece the two quarters together, you can see registrations increased about 3.5% in the first quarter. And we're guiding to roughly 5%, five point five % 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 APUS in the second quarter in terms of registration guidance.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

So all in all, you have to be very proud of the team at APUS for working with the various ESOs, education service officers, to get their students registered, which is a real benefit to the students.

Jasper Bibb
Jasper Bibb
Vice President Equity Research at Truist Securities

Thanks. And then, you mentioned the the higher graduate school drag on the EBITDA guide and then also the dose impact there. Right? I know there's some seasonality in the business, so maybe that one q loss is maybe not representative of what you're expecting for the full 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?

Angela Selden
Angela Selden
President and CEO at American Public Education

Thanks for the question, Jasper. Certainly, it's a developing matter. As we know, there is talk that the Doge office is potentially even sunsetting, 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 $2,000,000 is something that we are confident includes what we believe is the downside of graduate school.

Angela Selden
Angela Selden
President and CEO at American Public Education

And the fact that we have maintained the revenue guidance also includes what we believe is the downside of graduate school. So we you know, are 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're also looking at different options and considerations for the path forward for graduate school.

Jasper Bibb
Jasper Bibb
Vice President Equity Research at Truist Securities

Makes sense. Last one for me. Really impressive enrollment growth at at Brassos in the quarter, and I apologize if I missed it. But you did did you give the number of, nursing campuses that met the state NCLEX thresholds in the first quarter?

Angela Selden
Angela Selden
President and CEO at American Public Education

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 that 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.

Jasper Bibb
Jasper Bibb
Vice President Equity Research at Truist Securities

Okay. Great. Thank you for taking the questions.

Angela Selden
Angela Selden
President and CEO at American Public Education

Thanks, Jasper.

Operator

And our next question is from Eric Martinucci with Lake Street Capital Markets. Please go ahead.

Eric Martinuzzi
Senior Research Analyst at Lake Street Capital

Yeah. I was, pleased to see the 8% enrollment growth at RAS, and it looks like, that kind of goes in line with the 7% from q one. Just wondering what your thoughts are for 2025. Is this a kind of a we can expect 5% to 10% range? Is that are you comfortable with that?

Angela Selden
Angela Selden
President and CEO at American Public Education

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.

Angela Selden
Angela Selden
President and CEO at American Public Education

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.

Eric Martinuzzi
Senior Research Analyst at Lake Street Capital

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

Angela Selden
Angela Selden
President and CEO at American Public Education

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 q two of twenty twenty four 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.

Eric Martinuzzi
Senior Research Analyst at Lake Street Capital

Okay. And then Rick, curious on the CapEx. I think your guidance is unchanged here at 18,000,000 to 22,000,000 If I was to spread that across the year, 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?

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

Eric, we don't spread that. It depends on facility and 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 I don't I'm sorry.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

I don't wanna I don't wanna spread that. We feel confident that we'll get, you know, comfortably within that range, and you did calculate it correctly. I think I think for purposes of the modeling, I 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 as a numbers matter.

Eric Martinuzzi
Senior Research Analyst at Lake Street Capital

Gotcha. Okay. Thanks for taking my questions, and good luck on the rest of the year, and good luck on q two.

Angela Selden
Angela Selden
President and CEO at American Public Education

Thanks very much.

Operator

Our next question comes from the line of Stephen Sheldon with William Blair. Please go ahead.

Stephen Sheldon
Research Analyst - Technology, Media & Communications at William Blair & Company, L.L.C

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?

Angela Selden
Angela Selden
President and CEO at American Public Education

Stephen. Thanks for the question. I'll start and then ask Rick to add some commentary. So you know, 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 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.

Angela Selden
Angela Selden
President and CEO at American Public Education

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 sort changing the programs that we have the opportunity to expand enrollments in and 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 programs. And we are seeing the improvement in lead to start conversion as a result of the improvement in the effectiveness of marketing.

Angela Selden
Angela Selden
President and CEO at American Public Education

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.

Stephen Sheldon
Research Analyst - Technology, Media & Communications at William Blair & Company, L.L.C

Great. Thanks. And then a higher level follow-up. There's typically been counter cyclicality in higher ed enrollments. So how how are you thinking about APEI's ability and 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?

Stephen Sheldon
Research Analyst - Technology, Media & Communications at William Blair & Company, L.L.C

And and have you seen any signs that top of funnel, I guess, applications are picking up? So, yeah, how you're positioning to benefit from it if it does happen. Are you seeing it all yet?

Angela Selden
Angela Selden
President and CEO at American Public Education

Mhmm. Well, as I think you're well aware, the two businesses that we have, our military business and our health care business, both have natural moats around them. You know, the military business continues to see improvement in growth and growing our share of the students in active duty who are taking classes with APUS. So we continue to see expansion there, but we think that's somewhat insulated. APUS 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.

Angela Selden
Angela Selden
President and CEO at American Public Education

At RADS and Hondros, we are seeing continued as you can see, high single digit case of Hondros q two, 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 is can be attributed to our successful marketing effectiveness improvement and the counter cyclicality of of, in particular, a nursing job, which we know will have durability for the next forty years.

Stephen Sheldon
Research Analyst - Technology, Media & Communications at William Blair & Company, L.L.C

Makes sense. Thank you.

Angela Selden
Angela Selden
President and CEO at American Public Education

Thanks very much.

Operator

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

Alexander Paris
President & SMD at Barrington Research Associates

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

Angela Selden
Angela Selden
President and CEO at American Public Education

Thanks Alex.

Alexander Paris
President & SMD at Barrington Research Associates

A couple of clarifying questions please. Rick, I think you said something about net income in the quarter that was partially attributed to a $1,400,000 in timing of expenses. Could you give us a little color on that?

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

Yes. Thank you, Alex. There were approximately $1,400,000 of expenses that we anticipated incurring in the first quarter that were not due to some timing matters. So they've they've been moved to the second quarter, for purposes of of that guidance. There were things that were we we thought would process in the quarter that just ended up being delayed.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

And so it's a variety of things, Alex. Some course materials at Rasmussen being a being a large matter. And then there were some event related expenses in the that we expected at APUS that ended up to they were delayed and delayed in the second quarter. So it's it's a one large thing in materials cost at RAS and bunch of little things that all aggregate to about $1,400,000.

Alexander Paris
President & SMD at Barrington Research Associates

And and that's a pretax number, 1,400,000.0 that that

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

is a pretax. Yes, should have said that out. Thank you.

Alexander Paris
President & SMD at Barrington Research Associates

Yes. 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.

Alexander Paris
President & SMD at Barrington Research Associates

The second quarter guide includes a redemption premium of $2,900,000 and that's in the adjusted EBITDA and net income guidance for Q2?

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

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

Alexander Paris
President & SMD at Barrington Research Associates

Okay. Yes. That's below the line. And then, the $1,700,000 of expected costs related to the combination, was that an impact on full year or was that an impact on Q2?

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

I'm sorry, Alex, repeat the question.

Alexander Paris
President & SMD at Barrington Research Associates

You said that guidance included two things. One, the redemption premium for 2.9, and then expected cost related to the combination of 1,700,000.0.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

That's correct. That's a pretax number. And we are if you go to the If you go to the guidance In

Angela Selden
Angela Selden
President and CEO at American Public Education

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

Alexander Paris
President & SMD at Barrington Research Associates

So I would assume that these sorts of expenses would occur in q three and q two, maybe not this magnitude, but but more spending on, on combination?

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

No. Don't assume that, Alex. If you we've we guided to 4,000,000 to 5,000,000 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 get all the required approvals.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

And as Angie said, we're on track to do that. So, I think you would see that tail off in the in the fourth quarter.

Alexander Paris
President & SMD at Barrington Research Associates

Okay. Fair enough. And then last question regarding both of those 2,900,000.0 and 1,700,000.0 together that's $4,600,000 So net income available to common guidance for Q2 would have been $4,600,000 higher had it not been for the redemption and these expected costs related to the combination?

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

After tax effect.

Alexander Paris
President & SMD at Barrington Research Associates

Yes, okay. After tax effect. Okay. Thank you. Oh, Last question on graduate school.

Alexander Paris
President & SMD at Barrington Research Associates

You reported revenue of $3,200,000 versus 4,200,000.0 Was there any impact from those or contract cancellations in the Q1 number?

Angela Selden
Angela Selden
President and CEO at American Public Education

Yes, there was.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

Yes. It was very limited. Yes. Go ahead Angie.

Angela Selden
Angela Selden
President and CEO at American Public Education

No, go ahead,

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

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

Alexander Paris
President & SMD at Barrington Research Associates

Mhmm.

Alexander Paris
President & SMD at Barrington Research Associates

And

Alexander Paris
President & SMD at Barrington Research Associates

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

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

Not that dramatic. No.

Angela Selden
Angela Selden
President and CEO at American Public Education

No. There are 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 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 and those enrollments between now and the end of the year.

Alexander Paris
President & SMD at Barrington Research Associates

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.

Angela Selden
Angela Selden
President and CEO at American Public Education

Correct. Correct. Yes. So you can see, you know, we've got positive registration growth at APUS, at RAS, at Hondros. Right?

Angela Selden
Angela Selden
President and CEO at American Public Education

And so just offset by what we are conservatively anticipating at at graduate school. So it is not zero for the rest of the year.

Alexander Paris
President & SMD at Barrington Research Associates

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

Angela Selden
Angela Selden
President and CEO at American Public Education

Of course. Thank you, Alex. Thank you very much.

Operator

Our next question comes from Griffin Boss with B. Riley Securities. Please go ahead.

Griffin Boss
Equity Research Analyst at B.Riley Securities

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 health care side of the business?

Angela Selden
Angela Selden
President and CEO at American Public Education

Hi, Griffin. It's Angie. Welcome to the call. Thank you very much for your question. We have not provided revenue synergies specifically.

Angela Selden
Angela Selden
President and CEO at American Public Education

We have talked about categories, where one of the exciting benefits of combining Rasmussen and Hondros together is that Hondros will be able to offer not just, you know, the the nursing curriculum that that Rasmussen 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 Rasmussen 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.

Griffin Boss
Equity Research Analyst at B.Riley Securities

No. Actually, that's great. That's what I was looking for. So I appreciate the color there, Angie. And just yeah.

Griffin Boss
Equity Research Analyst at B.Riley Securities

Final one for me. I I I noticed in your EBITDA schedule in the eight k, 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.

Angela Selden
Angela Selden
President and CEO at American Public Education

Hey, Rick. Can you Yes. Address that, please? Yeah.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

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

Griffin Boss
Equity Research Analyst at B.Riley Securities

Okay. Alright. Got it. Great. Thank you for, answering my questions.

Griffin Boss
Equity Research Analyst at B.Riley Securities

Appreciate it.

Angela Selden
Angela Selden
President and CEO at American Public Education

Yeah. That'll be a one time hit. So yep. Thank you very much, Griffin. Thanks for the call.

Griffin Boss
Equity Research Analyst at B.Riley Securities

Sure thing. Thanks.

Operator

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

Raj Sharma
Raj Sharma
Managing Director at Texas Capital

Hi. Thank you for taking my questions. Great execution. You know, you've been talking about growing Rasmussen enrollment, and that momentum is very positive. Positive EBITDA, just trying to get a sense of the fixed versus the variable cost at Rasmussen.

Raj Sharma
Raj Sharma
Managing Director at Texas Capital

And for every dollar increase in revenues from here, how much of that you've seen drops down to the EBITDA level from these levels, especially given you know, your nice enrollment growth at at Rasmus and trying to get a sense of the magnitude of the EBITDA profits that Rasmus can generate.

Angela Selden
Angela Selden
President and CEO at American Public Education

Hi, Raj. Welcome. Hey. Great to talk to you.

Alexander Paris
President & SMD at Barrington Research Associates

You're saying good.

Angela Selden
Angela Selden
President and CEO at American Public Education

For

Angela Selden
Angela Selden
President and CEO at American Public Education

these for these positive revenue enrollment now at Rasmussen, we're seeing about 60% flow through. We do believe we do believe as we continue to optimize our marketing spend and, as I said, you know, 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 of RADS systems campuses. As as you well know, you've been following the story for quite a while. Once we turn that corner, that Right. Flow through has a very significant positive impact on the profitability of Rasmussen.

Raj Sharma
Raj Sharma
Managing Director at Texas Capital

Got it. And that's that's very positive, and thank you for that. Thanks for the clarification. Just overall in the operating costs, I know you've got some marketing in house and then you outsourced certain IT functions that gave you cost cuts. In the current year, fiscal twenty five, does you know, is this OpEx level, could that be assumed to be to stay, you know, at current levels?

Raj Sharma
Raj Sharma
Managing Director at Texas Capital

Is is this a stable OpEx level for the entire organization?

Angela Selden
Angela Selden
President and CEO at American Public Education

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 cost, 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.

Angela Selden
Angela Selden
President and CEO at American Public Education

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 bottom line as we spend less and get more. So we are we are actively pursuing the use of advanced technologies and AI to help us streamline and reduce our overall technology footprint cost.

Raj Sharma
Raj Sharma
Managing Director at Texas Capital

Great. Great. Thank you. That's very helpful. And then just on hundreds, there's a rise in revenues, but we you know, year over year, there's the that resulted in a lower EBITDA level.

Raj Sharma
Raj Sharma
Managing Director at Texas Capital

Anything happening on the expenses side, or it's just a sort of a blip? How are you thinking what's going on?

Angela Selden
Angela Selden
President and CEO at American Public Education

That's an astute that's an astute question, Raj. Thank you for asking that. We you know, we've seen a a of a mix shift of the programs back to the LPN program, which is an, you know, 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 Hondros campuses and Hondros Students.

Angela Selden
Angela Selden
President and CEO at American Public Education

And we believe that that will allow us to rebalance that mix so that we can, you know, enroll students who will have a longer tenure with us than than where the mix shift had moved in the first quarter of twenty twenty five.

Raj Sharma
Raj Sharma
Managing Director at Texas Capital

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 global outage?

Angela Selden
Angela Selden
President and CEO at American Public Education

Yeah. I'll start and then turn it over to Rick. So funny enough, it wasn't army this time. It was air force.

Jasper Bibb
Jasper Bibb
Vice President Equity Research at Truist Securities

I think Sorry. System.

Angela Selden
Angela Selden
President and CEO at American Public Education

So, there was a blip there. But, Rick, do you wanna talk about, the receivables?

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

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

Angela Selden
Angela Selden
President and CEO at American Public Education

Student's ability to enroll. Yeah.

Angela Selden
Angela Selden
President and CEO at American Public Education

It's what

Angela Selden
Angela Selden
President and CEO at American Public Education

he was he meant to say. Yeah.

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

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

Angela Selden
Angela Selden
President and CEO at American Public Education

It was not nearly as extensive. It was 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 matters But

Richard Sunderland
Richard Sunderland
EVP & CFO at American Public Education

you had a few years ago. Years ago.

Angela Selden
Angela Selden
President and CEO at American Public Education

Yeah. Not not no. No. No. Not at all.

Raj Sharma
Raj Sharma
Managing Director at Texas Capital

That's right. So I I guess my I I was too fixated on that. I'm like, oops. Great. That's super helpful.

Raj Sharma
Raj Sharma
Managing Director at Texas Capital

Thank you. Thank you again for answering my questions. Again, great execution. Great results. Congratulations.

Angela Selden
Angela Selden
President and CEO at American Public Education

Thanks. Nice to hear from you, Raj.

Raj Sharma
Raj Sharma
Managing Director at Texas Capital

Yeah. Thank you. Same to you. Thanks. Bye.

Operator

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

Angela Selden
Angela Selden
President and CEO at American Public Education

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

Operator

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

Executives
    • Angela Selden
      Angela Selden
      President and CEO
    • Richard Sunderland
      Richard Sunderland
      EVP & CFO
Analysts
    • Brian Prenoveau
      Managing Director at MZ North America
    • Jasper Bibb
      Vice President Equity Research at Truist Securities
    • Eric Martinuzzi
      Senior Research Analyst at Lake Street Capital
    • Stephen Sheldon
      Research Analyst - Technology, Media & Communications at William Blair & Company, L.L.C
    • Alexander Paris
      President & SMD at Barrington Research Associates
    • Griffin Boss
      Equity Research Analyst at B.Riley Securities
    • Raj Sharma
      Managing Director at Texas Capital

Key Takeaways

  • Guidance raised after Q1 outperformance: American Public Education reported Q1 revenue of $164.6 million (+6.6%) and adjusted EBITDA of $21.2 million (+25%), and raised full-year adjusted EBITDA guidance by $2 million to $77 million–$87 million.
  • Rasmussen turnaround gains momentum: Rasmussen swung from a $2.6 million loss in Q1 2024 to $2.4 million in positive adjusted EBITDA this quarter, with Q2 enrollment up 8% year-over-year and roughly 60% flow-through on incremental revenue.
  • Simplification and consolidation initiatives: The company plans to redeem preferred shares in Q2 (saving $6 million annually), combine three degree-granting institutions into one consolidated system by year-end, and close underperforming campuses.
  • Balance sheet strengthening: Cash balances rose to $187.5 million, with two corporate buildings held for sale expected to generate over $20 million in Q3 proceeds, keeping APEI net cash positive and its $20 million revolver fully available.
  • Graduate School headwinds: Doge-related federal budget uncertainty has capped Graduate School revenue, prompting APEI to hold full-year revenue guidance at $650 million–$660 million and explore strategic options for that unit.
AI Generated. May Contain Errors.
Earnings Conference Call
American Public Education Q1 2025
00:00 / 00:00

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