AMERICAN PUBLIC EDUCATION INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• APEI met or beat third quarter 2024 guidance with revenues up 1.5% y-o-y to $153 million, adjusted EBITDA at $12.9 million (above guidance range), and net income at $0.04 per diluted share.
• Rasmussen University had first year-over-year enrollment increase since API acquisition, with 4% y-o-y enrollment growth in Q4 2024 despite campus closing in Wisconsin. Expected to be EBITDA positive in second half of 2024. Saw strong NCLEX pass rates and received positive accreditation news.
• Hondros had 19th consecutive quarter of y-o-y enrollment growth, with Q4 2024 enrollment up 19% y-o-y to ~3,700 students. Received accreditation affirmations and improved retention at several campuses.
• APUS revenue up 0.8% y-o-y to $77 million due to registration growth and tuition/fee increases. Expecting 4%-6% growth in Q4 2024 net course registrations.

Segment Performance

• APUS: Third quarter revenue was $77 million, up 0.8% year-over-year. EBITDA margin was 29% compared to 30% in the prior year period. Net course registrations increased 0.2% due to more military affiliated students using veterans benefits and tuition/fee increases.
• Rasmussen: Third quarter revenue was $62.6 million, up 1% year-over-year. EBITDA improved to a loss of $4.5 million compared to a loss of $5.3 million in the prior year. Saw first year-over-year enrollment growth since API acquisition and expects EBITDA positive in second half of 2024.
• Hondros: Third quarter revenue was up 12.8% to $15.5 million due to continued enrollment growth. Enrollment grew 10.4% to approximately 3,100 students. EBITDA loss was $0.3 million in both third quarters of 2024 and 2023.
• Graduate School: Revenue was $8 million compared to $8.6 million in the prior year period. EBITDA was $1.3 million compared to $1.6 million in the prior year.

Guidance

• Full year 2024 revenue guidance: $620 million to $625 million (3%-4% growth vs 2023).
• Full year adjusted EBITDA guidance: $64 million to $67 million (7%-12% growth vs 2023).
• Q4 2024 consolidated revenue expected: $159 million to $164 million.
• Q4 2024 net income to common shareholders expected: $9 million to $11 million ($0.47 to $0.56 per diluted share).
• Q4 2024 adjusted EBITDA expected: $23 million to $26 million.
• APUS net course registrations expected to grow 4% to 6% y-o-y in Q4 2024.

Risks

• No specific risks detailed in the transcript, but forward-looking statements are subject to risks such as market competition, enrollment fluctuations, and regulatory changes that could affect actual results.

Question and Answer

• Q: Profitability of APUS vs other divisions, and reason for corporate cost increase.

A: Rick and Steve discussed differences in operating models, corporate shared services expenses, and that Rasmussen is moving to EBITDA positive. Corporate costs increased due to factors like technology transition services and compensation changes.

• Q: EBITDA margin on Rasmussen in Q4.

A: Rick mentioned Rasmussen is on track to be EBITDA positive in H2 2024 and Q4 performance shows acceleration in enrollment and EBITDA contribution.

• Q: Enrollment growth at Rasmussen in 2025 and EBITDA margins.

A: Angela and Steve discussed expected continued online enrollment growth, campus enrollment rebound, and margins moving to 5%-10% range over 1-2 years as on-ground enrollment normalizes.

• Q: APUS marketing strategy progress.

A: Angela talked about upleveling marketing team, improved yield, strengthened admissions/enrollment processes, leading to expected 4%-6% registration growth in Q4 2024.

• Q: Hondros enrollment capacity, program expansions.

A: Angela discussed optimizing Hondros' campus footprint, expected improved profitability from campus moves, and intent to apply successful playbook to new campuses.