American Public Education Q1 2025 Earnings Report

American Public Education EPS Results

• Actual EPS: $0.41
• Consensus EPS: $0.15
• Beat/Miss: Beat by +$0.26
• One Year Ago EPS: N/A

American Public Education Revenue Results

• Actual Revenue: $164.55 million
• Expected Revenue: $161.92 million
• Beat/Miss: Beat by +$2.63 million
• YoY Revenue Growth: N/A

American Public Education Announcement Details

• Quarter: Q1 2025
• Date: 5/12/2025
• Time: After Market Closes
• Conference Call Date: Monday, May 12, 2025
• Conference Call Time: 5:00PM ET

American Public Education (NASDAQ:APEI), together with its subsidiaries, provides online and campus-based postsecondary education and career learning in the United States. It operates through three segments: American Public University System, Rasmussen University, and Hondros College of Nursing. The company offers 184 degree programs and 134 certificate programs in various fields of study, including nursing, national security, military studies, intelligence, homeland security, business, health science, information technology, justice studies, education, and liberal arts; and career learning opportunities in leadership, finance, human resources, and other fields of study critical to the federal government workforce. It also provides nursing-and health sciences-focused postsecondary education, pre-licensure nursing programs, diploma in practical nursing, and an associate degree in nursing. The company was incorporated in 1991 and is headquartered in Charles Town, West Virginia.

American Public Education Q1 2025 Earnings Call Transcript

Key Takeaways

• Outperformed guidance in Q1 with revenue of $164.6M (+6.6%), adjusted EBITDA +25%, margin +200bps, and raised full year adjusted EBITDA guidance to $77–87M and net income guidance to $23–30M.
• Rasmussen delivered a $5M EBITDA swing from a $2.6M loss to a $2.4M profit and sees an 8% enrollment uptick in Q2, driving improved profitability.
• Operating leverage improved as revenue rose 6.6% while expenses grew only 2%, lifting adjusted EBITDA margin to 12.9% from 11% and generating $7.5M net income.
• Simplification efforts include redeeming preferred shares to save $6M annually, combining institutions by year‐end on track, and anticipated $20M+ asset sales in Q3.
• Graduate School USA faces headwinds from government budget uncertainty, prompting revenue guidance to remain flat and exploration of a new strategic path.

Presentation

[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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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 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 would like to turn the call over to APEI's CFO, Rick 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, Vice President Equity Research at Truist Securities]

Okay. Great. Thank you for taking the questions.

[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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, President and CEO at American Public Education]

Yes, there was.

[Richard Sunderland, EVP & CFO at American Public Education]

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

[Angela Selden, President and CEO at American Public Education]

No, go ahead,

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

[Richard Sunderland, EVP & CFO at American Public Education]

Not that dramatic. No.

[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, 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, 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, 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, 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, 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, President and CEO at American Public Education]

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

[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. Appreciate it.

[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, 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, 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, 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, President and CEO at American Public Education]

For 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, 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, Managing Director at Texas Capital]

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

[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, 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, 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, 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, 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, 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, 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, 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, Vice President Equity Research at Truist Securities]

I think Sorry. System.

[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, 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, President and CEO at American Public Education]

Student's ability to enroll. Yeah. It's what he was he meant to say. Yeah.

[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, 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, EVP & CFO at American Public Education]

you had a few years ago. Years ago.

[Angela Selden, President and CEO at American Public Education]

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

[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, Managing Director at Texas Capital]

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

[Angela Selden, President and CEO at American Public Education]

Thanks. Nice to hear from you, Raj.

[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, 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.

Participants

Executives

• Angela Selden, President and CEO
• 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