American Public Education, Inc. (NASDAQ:APEI) Q1 2024 Earnings Call Transcript May 7, 2024
American Public Education, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. My name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Public Education Inc. First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question. [Operator Instructions] Thank you. I would now like to turn the conference over to Brian Prenoveau, Investor Relations. You may begin.
Brian Prenoveau: Thank you, operator, and good afternoon, everyone. Welcome to American Public Education’s conference call to discuss first quarter 2024 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 Somers, Senior Vice President and Chief Strategy and Corporate Development Officer. Materials for the call today are available in the Events & Presentations section of APEI’s website. Statements made during this conference call and in any accompanying presentation regarding APEI and its subsidiaries that are not historical facts maybe forward-looking statements based on current expectations, assumptions, estimates and projections.
Forward-looking statements may sometimes be identified by words such as anticipate, believe, seek, could, estimate, expect, can, may, plan, potentially, project, should, will, would and similar or opposite work. Forward-looking statements include, without limitation, statements regarding expectations for registrations and enrollments, revenue, earnings and adjusted EBITDA and other earnings guidance, repositioning Rasmussen University for growth, change in market demands and our ability to satisfy such demand and other company initiatives, including with respect to future competition and demand and cost-saving efforts. 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.
These include among other risks, failure to comply with regulatory and accrediting agency requirements or to maintain institutional accreditation and any actions taken to prevent or correct such failure. And on the effectiveness of the Company’s ability to attract students, who persist as institutional programs, changing market demands, declines in enrollments at the company’s education units, the enactment of legislation that adversely impacts the company for its education units, inability to effectively brand or market its education units or their programs or expand into new markets, inability to maintain strong relationships with military, the loss or disruption of the ability to receive funds under tuition assistance programs for reduction, elimination, suspension or disruption of tuition assistance.
Adverse effects of changes to improve the student experience and enhance the ability to identify and enroll students who are likely to succeed, loss of eligibility to participate in title four programs or ability to process title four financial aid, economic and market conditions, challenges with acquisitions, matters related to indebtedness or preferred stock, company’s technology infrastructure, inability to recognize the anticipated benefits of the company’s cost savings efforts and risks described in today’s presentation, in today’s press release APEI’s Form 10 K for 2023 and other SEC filings. The company undertakes no obligation to update publicly any forward-looking statement for any reason unless required by law. This presentation contains references to non-GAAP financial information.
A reconciliation between the non-GAAP financial measures we use and the most directly comparable GAAP measures is located in the appendix to today’s presentation and in the earnings release. Management believes that the presentation of non-GAAP financial information provides useful supplemental information to investors regarding its results of operations and should only be considered in addition to and not as a substitute for or superior to any measure of financial performance prepared in accordance with GAAP. Now, I’d like to turn the call over to APEI’s CEO, Angela Selden. Please go ahead.
Angela Selden: Thank you, Brian, and good afternoon and thank you for joining American Public Education’s first quarter 2024 earnings call. With the release of our first quarter results, this is now the fifth consecutive quarter where we have exceeded our adjusted EBITDA guidance and expectations. By delivering results from the hard work of the Rasmussen turnaround, we have put Rasmussen back on a trajectory for growth and positive EBITDA. This has included a strong focus on improving student retention, preparing students for success on NCLEX exams and enrolling a more balanced mix of campus-based nursing and health education programs, while reducing our concentration in the ADN program. At the same time, at both APUS and Hondros we have delivered continued student enrollment growth and margin expansion.
Overall in this past year, by addressing the operational challenges at Rasmussen and rightsizing the cost structure across APEI, we have positioned APEI for long-term growth, driven by strong education units and an enterprise with strong financial standing. Let me share some highlights from the quarter. APEI’s first quarter 2024 revenue was $154 million, representing a 3% increase when compared to 1Q 2023 and ahead of the guidance range. We saw a significant improvement in overall adjusted EBITDA, which totaled $17.1 million in the first quarter of 2024 representing a 143% increase, over 1Q 20s23. And notably, the adjusted EBITDA for this quarter was roughly $7 million or 71% above the top end of our guidance range. Adjusted EBITDA margin expanded by 600 basis points in 1Q 2024 to 11%, compared to 5% in 1Q 2023.
Collectively, margin improvements are being driven by a combination of Optimize marketing, improved retention and modest pricing actions and cost control initiatives implemented in 2023 including, staffing realignments and reductions. With our strong first quarter outperformance, we are increasing our full year 2024 guidance for revenue and adjusted EBITDA with Rick Sunderland, APEI’s Chief Financial Officer will detail in his comments shortly. With that context, I’d now like to spend some time sharing the progress of our education units, starting with our core online military and veterans segment APUS. In 1Q 2024, overall net course registrations increased 3% year-over-year to 99,000 registrations. The most in eight years, reflecting the strong reputation upon which we continue to build and the compelling value proposition we offer.
Active-duty invention registrations delivered continued momentum with year-over-year growth, partially offset by lower non-military registrations. The overall increase in registrations in the quarter combined with the impact of tuition and fee increases in 2023, resulted in a 9% increase in revenue at APUS. This solid revenue performance, coupled with cost containment and lower marketing spend drove very strong bottom-line results for APUS, with EBITDA increasing 31% to $24.3 million, as compared with $18.5 million in 1Q 2023. EBITDA margin was 30% in the quarter, compared with 25% in the prior year period. On a student success note, this week, at its 28th Annual commencement APUS will celebrate its over 16,700 Graduates and Associates, Bachelor’s and Master’s Degree.
Turning to Rasmussen, I am very pleased with the progress we have made and continue to make with it stabilization and turnaround. First quarter enrollments which we shared in our last earnings call were 13,500 which was a 6% decrease from a year earlier. Today we are sharing Second Quarter 2024 enrollments, which continue that improving trend with 13,600 students down just 2% from a year ago. This is now the fourth quarter in a row, where total enrollment trends have continued to improve year-over-year. For the second quarter, Rasmussen online enrollments increased 4% while campus-based nursing and health education enrollments declined by 9%. As has been the case for the last several quarters, the overall decline in enrollments has been driven predominantly by Rasmussen campus-based ADN program.
But those declines are moderating and we are increasingly offsetting some of those declines with growth in our BSN and other campus-based health education programs, moving closer to our goal of having a much more balanced portfolio of nursing and campus-based health education offerings Over time the increase in BSN enrollments should also lead to higher average lifetime value per student because of the longer length of this program soon. And as we move into positive enrollment territory for campus enrollments, the highly leveraged nature of the campus base business should lead to improved profitability. In terms of student outcomes, we again produced strong and collect pass rates in the first quarter where 20 of 24 programs at Rasmussen met the required threshold.
Worth noting is that two of the four programs that did not meet the threshold had very low numbers of test takers this quarter and which we think will move into passing territory as more students sit for the exam. While past rates are only officially evaluated by state nursing boards annually, we track progress quarterly. We are pleased that this is the third quarter in a row where the vast majority of our programs are meeting the state standards. Overall at Rasmussen, we continue to expect to achieve positive enrollment growth at some point in the second half of 2024 and a return to positive EBITDA resulting in stronger financial footing for the University exiting 2024 and into future years. Turning our attention to Hondros. As reported 1Q 24 enrollment remained strong, showing a 22% increase when compared to 1Q 2023.
We also saw growth continue in 2Q 2024 with enrollment increasing another 10% year over year to 3,300 students which we view as particularly encouraging given the comparison to a very strong enrollment quarter in 2Q 2023. Demand remains strong for its PN and ADN nursing programs with the new Detroit campus performing very well. Legacy campuses also contributed to growth including Indianapolis where we still operate with enrollment caps as a new program despite exceptional and collect pass rates. Starts at Hondros remain robust and we remain very pleased with the growth that we are seeing. Also in 3Q, Hondros will be relocating two of its Ohio campus locations and expect some temporary but limited impact to enrollment in those locations. As for end class pass rates all programs at all Hondros campuses met the 1Q 204 state benchmarks.
Overall at APEI, our financial results continue to show significant improvement and in particular our return to adjusted EBITDA growth which has exceeded our guidance now for the last five quarters. With the stabilization of enrollment and continued improvement in EBITDA at Rasmussen coupled with strong top and bottom line performance at APUS and Hondros, we are now delivering positive growth in revenue, adjusted EBITDA and margins across APEI. In summary we are confident in our strong position to provide online and campus-based postsecondary education and career learning opportunities to large and growing addressable markets. The improvements we have implemented and the return of momentum we have delivered have very energized leadership faculty and staff across the enterprise.
We believe we are in a strong position to achieve long-term success both operationally and financially and as always guided by our vision mission and values that reward our students, employees and stakeholders. With that let me turn the call over to APEI CFO, Rick Sunderland.
Rick Sunderland: Thank you, Angela. Total revenue in the first quarter was $154.4 million up $4.7 million or 3.2% from the prior period and exceeded our first quarter guidance. First quarter revenue growth was driven by increased revenue at APUS and Hondros partially offset by revenue declines at Rasmussen and graduate school. Total cost of expenses in the first quarter decreased 3.7% compared to the first quarter of 2023 and include a $2.9 million loss on leases at Rasmussen. This period-over-period reduction was primarily driven by lower selling and promotional costs in the first quarter as compared to the prior year. For the quarter, advertising and marketing support costs decreased $6.6 million. Prior year selling and promotional costs include $2.4 million in marketing transition service fees related to the termination of the Collegiate marketing contract at Rasmussen.
Depreciation and amortization expenses decreased year-over-year due to the full amortization of Rasmussen, definite live intangible assets in 2023. These decreases were partially offset by higher general and administrative costs. Current quarter, general and administrative costs include $1.9 million in information technology transition service costs added back to adjusted EBITDA. Excluding information, technology transition service costs, general and administrative expenses increased less than 3% as compared to the prior year period. First quarter diluted loss per common share was a loss of $0.06 compared to a loss of $0.38 in the prior quarter and again exceeded first quarter guidance. For the quarter, adjusted EBITDA was $17.1 million compared to $7 million in the prior year period.
The first quarter results exceeded guidance and represented an adjusted EBITDA margin of 11% compared to 4.7% in the prior year quarter, reflecting the revenue growth and lower operating expenses. We exceeded first quarter guidance primarily due to actual expenses being lower than forecasted as follows: compensation and benefits costs lower by $2 million. Advertising costs at $1 million lower than forecast and $3 million of lower information technology and other general and administrative costs. At APUS, first quarter revenue increased 9% as compared to the prior year to $80.7 million due to a nearly 3% increase in net course registrations and roughly 6% due to tuition and fee increases implemented in the second and third quarters of last year.
For the quarter, net course registrations increased 2.8% despite lower advertising and marketing support costs compared to the prior year quarter. In total, EBITDA margin at APUS increased 5% to 30% for the quarter. The increase in margin is primarily due to increased revenue and lower advertising and marketing support costs. At Rasmussen, first quarter revenue was $53.1 million, a decrease of 7.5% compared to the prior year due to lower average enrollment during the quarter, partially offset by tuition increases in the first quarter of 2023 and 2024. As Angie mentioned, the year-over-year enrollment decreases have narrowed for the past four quarters. We continue on our path to show positive enrollment trends in late 2024. We again saw improvement in Rasmussen’s EBITDA loss for the quarter after adjusting for last year’s marketing transition costs and this year’s lease termination expense.
First quarter Rasmussen’s EBITDA loss was — was a loss of $2.6 million compared to an EBITDA loss in the prior year period of $4.5 million, an approximate 40% improvement year-over-year. The first quarter EBITDA loss improvement was driven by lower advertising costs and marketing support costs as well as labor savings from the 2023 cost realignment. At Hondros, first quarter revenue was $16.4 million, up 25% as compared to the prior year period due to continued growth in enrollment and the 2023 tuition increase. For the quarter, Hondros total enrollment grew 22% to approximately 3,300 students, the second consecutive record-setting quarter for enrollments. The increased revenue combined with effective cost management delivered positive EBITDA of $300,000 for the first quarter compared to an EBITDA loss of $1 million in the prior year period.
Revenue at Graduate School, included in Corporate and Other was $4.3 million compared to $5.2 million in the prior year period primarily due to lower enrollments in the quarter and did a slower start to the year, in part caused by delays in approval of the US federal budget. At March 31, 2024, total cash, cash equivalents and restricted cash was $153.2 million, an increase of $8.9 million from year end 2023. For the first quarter of 2024, cash flow from operations was $20.7 million, an increase of $8 million or 63% as compared to the prior year. CapEx for the quarter was $6.2 million. Free cash flow defined as adjusted EBITDA, less CapEx was $10.8 million compared to $3.8 million a year ago. Principal on API.s term loan at March 31 is unchanged from year end at $99 million, with unrestricted cash of $125 million.
API continues to be net cash positive. Additionally, there are no borrowings under API’s $20 million revolving credit facility which remains fully available. During the quarter, we repurchased 251000 shares of common stock for an aggregate purchase price of 2.8 million. Turning now to the second quarter 2024 outlook. APUS total net course registrations are expected to be between 89500 to 92200 registrations, an increase of between plus 1.5% and plus 4.5% over the prior year period. At Rasmussen and Hondros second quarter student enrollments are actual because of the quarterly starts at these schools. At Rasmussen, second quarter total on-ground healthcare enrollment decreased 9% to approximately 6200 students, while total online student enrollment increased 4% year-over-year to approximately 7400 students for an aggregate enrollment of 13600 students, which is a 2% decrease when compared to the second quarter of 2023.
At Hondros, second quarter total student enrollment increased 10% year-over-year to approximately 3300 students, the highest enrollment ever at Hondros. In the second quarter of 2024, consolidated revenue is expected to be between $153 million to $155 million. The company expects net loss to common shareholders to be between a loss of $2 million, an income of 800000 or between a loss of $0.11 and positive $0.05 per diluted share. Adjusted EBITDA is expected to be between $8 million and $12 million for the second quarter of 2024. For the full year 2024, as Andy shared, we anticipate consolidated full year 2024 revenue in a range of $620 million to $630 million. We are also increasing our adjusted EBITDA guidance and now expected to range between $60 million to $70 million for the full year 2024.
Our CapEx estimate of between $17 million and $20 million for the year is unchanged. With that operator we would like to open the line for questions.
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