Hello, and welcome to the American Public Education, Inc. Second Quarter 2024 Earnings 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 Instructions] I would now like to turn the conference over to Brian Prenoveau, Investor Relations. You may begin.

Thank you, Sarah, and good afternoon, everyone. Welcome to American Public Education's conference call to discuss second quarter 2021 results. Joining me on the call today are Angela Selden, President and Chief Executive Officer; Rick Sunderland, Executive Vice President and Chief Financial Officer; Steve Somers, Senior Vice President, Chief Strategy and Corporate Development Officer. Materials for the call today are available in the Quarterly Reports 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 considered forward-looking statements based on current expectations, assumptions, estimates and projections. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Forward-looking statements may sometimes be identified by words like 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. 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 be -- and should only be considered in addition to and not as a substitute 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, Angie. Please go ahead.

Thank you, Brian. Good afternoon, and thank you for joining American Public Education's second quarter 2024 earnings call. For those of you new to APEI, our four co-secondary institutions are among the largest in the country in educating adult learners with an emphasis on educating those in service to others, namely new nurses, active duty military, veterans, first responders and the federal workforce. On an annual basis, APEI provides online and campus-based postsecondary education and career learning to approximately 125,000 adult learners worldwide. Our mission is to power purpose, potential and prosperity to those in service to others. On today's call, we will cover in more detail the following good news highlight. First, in Q2 2024, this marked the seventh consecutive quarter where APEI's adjusted EBITDA has met or exceeded guidance. Overall, APEI revenue grew 3.9% year-over-year to $152.9 million. We saw a significant improvement in APEI's adjusted EBITDA, which grew 24% to $10.9 million, primarily driven by year-over-year operating expense -- at both Rasmussen and APEI corporate. Adjusted EBITDA margin expanded by 118 basis points to 7.2% when compared to 2Q 2023. Next, I'm pleased to report that Rasmussen has achieved its first year-over-year positive revenue and enrollment quarter since our acquisition in 2021 and as we had signaled earlier this year. And finally, we are reiterating our full year guidance of revenue between $620 million and $630 million in revenue and adjusted EBITDA between $60 million and $70 million. Now I'd like to provide more detail about the results and trajectory of our education units, starting first with Rasmussen. I'm very pleased with the progress we have made to stabilize and put Rasmussen back on a trajectory for revenue and enrollment growth and positive EBITDA. Second quarter enrollments, which we shared in our last earnings call were 13,600,…

Thank you, Angie. Total revenue in the second quarter was $152.9 million, up $5.7 million or 3.9% from the prior period. Second quarter revenue growth was driven by increased revenue at APUS, Hondros and Rasmussen, partially offset by a revenue decline at graduate school, which was approximately 1 million less than our guidance. Total cost and expenses in the second quarter decreased $61.8 million or 29.1% compared to the second quarter of 2023, which included a non-cash impairment charge of $64 million to reduce the carrying value of RE segment, goodwill and intangible assets and the corresponding tax impact. Cost and expenses for the second quarter as compared to the prior period, excluding loss on leases, severance costs and information technology transition services costs in 2024 and goodwill and intangible asset impairment charges in 2023, increased $0.7 million to primarily to increases in other technology and marketing expenses. Second quarter diluted loss for common share improved significantly and was a loss of $0.06 compared to an adjusted net loss of $0.25 in the prior quarter, which excludes the $64 million goodwill and intangible asset impairment. For the quarter, adjusted EBITDA increased 24% to $10.9 million compared to $8.8 million in the prior period. The second quarter results were at the high end of guidance and represented an adjusted EBITDA margin of 7.2% as compared to 6% in the prior quarter. At APUS, second quarter revenue increased 4.7% as compared to the prior year to $77 million due to a 1.7% increase in net course registrations driven by an increase in registrations by military-affiliated students utilizing VA benefits and tuition and fee increases in the second and third quarters of 2023. In total, EBITDA margin at APUS was 25% compared to 28% in the prior year. The change in margin was…

Thank you, Rick. During the quarter, we continued to execute our strategic initiatives to grow enrollment at APUS and stabilize and increase profitability at our other units. We're further encouraged by the performance at Rasmussen as enrollment numbers have stabilized and had the first year-over-year improvement since our acquisition. Market fundamentals continue to support our business strategy with increasing growth in higher education and online education markets and significant government education benefits for military investments. With our number one market position in active-duty military investments and focus on high-demand sectors like nursing, we are well positioned to capitalize on this growth. As we move ahead in 2024 and continue to execute on our key milestones, I believe that we have built the foundation of a business that can continue to deliver to its students' value to its stakeholders' value and to their community's value for years to come. And with that, I would now like to hand the call back to the operator, to begin our question-and-answer session, Operator?

Thank you, Angie. [Operator Instructions] Your first question comes from the line of Raj Sharma with B. Riley. Your line is open. Q – Raj Sharma: Yeah. Thank you for taking my questions. I wanted to understand a little bit, maybe get some color on Rasmussen. I see the improvement in the enrollment is now almost flat and projected to be almost flat next quarter. Where can this business -- what can this business do and is capable of specifically not as much in the year-on-year growth from here but really on the EBITDA margins, you're getting -- you have negative 9% this quarter in the EBITDA margins. What could these get to in the second half and more sorts of longer-term fiscal 2025, 2026 relative to where they were when you purchased Rasmussen or what the original capability of the operation is? Thank you.

Raj, thank you very much, for that question. That's a lengthy question with many component parts to it. So let me start by saying, as we signaled, we believe 2024 is where Rasmussen will turn to positive adjusted EBITDA. And we see line of sight to that. We're excited about that. Several of the things that we believe will have a positive effect on 2025, include the completion of our exiting of the third-party IT agreement with creditors. And we expect to see meaningful savings on a full year run rate basis in 2025 as a result. And certainly as we turn the corner on the enrollment to positive momentum in the fourth quarter and in 2025, we believe that that will have a meaningful improvement in our adjusted EBITDA for each new dollar of revenue, we're now more than covering the fixed cost and that has a very significant effect on our adjusted EBITDA in 2025 and beyond. We're not presently giving guidance on 2025, but I'll turn it over to Steve with any other comments you'd like to share.

Yes, Raj, I'll just add some context around there, right? In the industry in general, nursing schools and school similar assets that operate in the 10%, 15%, and 15%-plus range. We're obviously working to improve that quarter-to-quarter. Angie signaled that we're going to be profitable in terms of EBITDA in the fourth quarter. So, I think it's reasonable to think that over time, we can get to 5% to 10% margins over the next one to two years as you think about us inside the industry, that would be very consistent. And I think as you look forward to the third -- I think you asked about the second half as well, the third quarter and then the fourth quarter, right, we'll still be negative in the third quarter, but on a 2H basis, we would expect it to be positive overall for the second half and the fourth quarter itself. So, whether that gives you a little bit of context around -- and I think the trend that has been in place for the last 12-plus months is sort of directing in that general zone. Q – Raj Sharma: Got it. And then could you talk a little bit about the APUS enrollment trends? And is this sort of flat to down a little expected? Is that seasonal? And where do you see overall those trends in enrollment?

I'll start, Raj, and then I'll have Rick provide more detail. In Rick's remarks, he did discuss the decision in the fourth quarter of 2023 to dial back investments in marketing in certain segments of APUS. And there's a two-quarter lag that we see in terms of those investments turning into enrollment. So, as we approach Q3, we are seeing the effect of that reduction in marketing spend, which has since been course-corrected and we expect in the future quarters for that enrollment momentum to return. So, Rick, I'm going to turn it over to you for more detail.

Yes, that's accurate, Raj, and there is that lag. So, I would suggest that if things function as we expect and we expect it will, the course-correction we're making now or have been making recently will play out in the numbers over to a two or three-quarter lag. That's just the way the business functions. We remain strong in my comments, I talked about the strength of the military affiliate. We remain strong in the veterans community and quite frankly, our market share in active--

Yes, I think what I'll also say is that the margin optimization efforts that were underway last year help us now understand the sensitivity around marketing spend. And so now that we understand that we can be a lot more thoughtful and how we invest our marketing against certain channels and segments going forward. And so we've tested that, and we now know where those foundries are. And we also are seeing in particular, growing strength in the veterans market. It's something that we've been leaning into and wanting to see momentum build. And so we're quite pleased with the results we're seeing with veterans.

Great. Thank you for answering my questions. That’s very helpful. I'll take it offline. Thank you.

Okay. Thanks, Raj.

[Operator Instructions] Your next question comes from the line of Stephen Sheldon with William Blair. Your line is open.

Great, team. You have Matt Flynn [ph] on for Steven. Thank you for taking my questions. I wanted to start with one on the full year guidance. Wondering if you could talk about some of the factors that would need to play out to push you towards the upper end of the guidance range, particularly for the revenue guide, which seems to assume a decent quarter-over-quarter step-up in the fourth quarter based on the 3Q guide. I know there's some seasonality at play there, but any additional color would be helpful.

Yes, I'll turn it over to Rick.

This is Rick. I'll start and then Angie can fill in.

You bet.

Well, if you want to push up to that range, things that would have to go favorably would be a quicker, a call it, uptake on the marketing spend at APUS, right? We talked about what has been observed as a typical lag between altering a spend, be it total dollars or allocation among segments and then the resulting improvement in registration. If that accelerates, then, of course, that would push revenue up higher in the range. We're seeing strength at RADCO [ph], right? We've got to turn a slight improvement year-over-year, and that momentum will continue. And I think Andy commented on the strength of the start numbers, right, which is a leading indicator as it relates to total enrollment, and that strength could accelerate or build on itself to push us up. Then you drop down the Hondros. They've got a new program that they're introducing as a new program. We don't have any observable experience in medical assisting as to how that enrollment pattern will ultimately play out that could go up or go down, right? It's a new program. And then graduate school, we've got Steve Somers, who's in the room here, he's back. And while it's a smaller piece of the overall enterprises certainly had an impact on the Q2 reported results. And then, of course, the apposite could be true, an uptake of $1 million or two there in the federal workforce who obviously be very helpful against the range. And so I'll pause there and let Angie add to the comments.

So I think that's a pretty good synopsis. The last thing I would say is that we passed on price increases certain segments across APUS, Hondros and [indiscernible] and assuming that those price increases continue to hold without degradation in our student enrollments that will also play favorably in the overall revenue that we would expect for the full year.

Got it. That's helpful color. Thank you, Angie and Rick. And then I had another one on NCLEX scores. I imagine this is tougher to call, but do you have any rough estimate on when you might have all of your nursing programs with first time NCLEX pass rates that exceed state nursing board standards. I know you continue to make good progress on that with a variety of initiatives you have underway, but any sense of timing on completely resolving those first time NCLEX pass rate issues at the remaining campuses...

Sure. The on campus that we are paying attention to is in Illinois, where we have done a significant amount of renewing of faculty that we're upgrading the curriculum that campus was operating with an older version of the curriculum that was not aligned with the next-gen NCLEX testing. And so, we believe that the turn on NCLEX scores in Illinois will be slower than the two other remaining campuses. So, we -- but we are incredibly happy with the NCLEX results that were that we're posting now all of our BSN programs, all of them are above the state standards, all but one in our ADN program, which had been an area of challenge for us in the past and two of our PN programs. And so we're just very, very pleased with the incredible turn that Rasmussen demonstrated in terms of improving NCLEX, NCLEX pass rate.

Matt, this is Steve. Let me just add one more comment to that. If you went back, in terms of the number of programs that are passing today year-to-date 2012, 2025, that is now higher than it was in the prior two years before we acquired the business. So we've obviously made a lot of improvement in the near term, but now we are on a path to a better result on a longer-term basis as well.

Perfect. That's great color, and yes, great to see the continued progress there. Thank you.

Thank you.

Your next question comes from the line of Jasper Bibb with Truist Securities. Your line is open.

Hey, everyone. Apologies if anything has been answered already. I joined a little bit late from another call. Just wanted to ask about Rasmussen, I guess, is there any update on the Florida RU campuses from last quarter? And I think there's also potentially a bill in Illinois. I think to help you a bit with the caps you mentioned on the last answer, any change there?

Sure. So Jasper, I'm not exactly sure what specifically you mean relative to the Florida campuses. So I'll start with NCLEX results, where we have all program campus combinations, meeting the state standard for the year-to-date measurement period. So we're very, very pleased with the incredible turnaround that we've had in NCLEX performance in Florida. Can you repeat the -- if that doesn't answer your question, is there something more specific here you had in mind?

No, no, that's helpful. I think last quarter, there was basically a technical thing where you had a really old cohort that triggered some of those campuses going on formation and it sounded like everything was…

Yes. We've been really happy with the results of pushing through and putting every single program campus combination in the green.

Okay. Great. And second part of the question was, I think there was a bill in Illinois that could give you some relief on -- you mentioned a campus, a little bit longer turnaround plan there. I think that build might have afforded you look more patent to that at the relevant threshold. Just kind of curious if there's any update there or that's still kind of in the works through their legislature.

Yes, that still remains in place. And so that relief affords us a 2-year measurement period. We certainly aren't going to wait until the end. We're working very aggressively. And as I did mention, I think before you joined the call here, we've done 2 major things in Illinois to accelerate our performance in those campuses, including basically a replacement revitalization of the -- several of the faculty there. And importantly, we are modernizing the curriculum Illinois for a technical reason, Board nursing reason, had required us to be operating with a curriculum that was older than the version of curriculum we had been offering in our other campuses. We were able to work with the Board of Nursing to allow them or have them allow us to modernize that curriculum. So now we are moving that curriculum to the next-gen version, which is a version for the new exam. And we have a high degree of confidence that the new faculty, the dedicated attention from our nursing leadership and the new curriculum will allow us to see significant improvements in our Illinois campuses in the future.

That's very helpful. Thanks for taking the questions.

Thank you.

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

Thank you, operator. I'd like to thank each of you for joining our earnings conference call. We look forward to continuing to update you on our ongoing progress and growth, as we continue our rapid pace of operational execution. If we were unable to answer any questions, please reach out to our IR firm, MZ [ph] Group, who would be more than happy to assist.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may now disconnect your lines, and have a wonderful day.