Thank you for standing by. My name is Pam, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Public Education Inc. Third 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-and-answer session. I would now like to turn the conference over to Brian Prenoveau, Investor Relations. You may begin.

Thank you, Pam. And good afternoon, everyone. Welcome to the American Public Education's conference call to discuss third 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 and Presentations section of APEI's website. Statements made today during this conference call and any accompanying presentation regarding APEI and its subsidiaries that are not historical facts may be 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, and similar or opposite words. Forward-looking statements include, without limitation, statements regarding expectations for registration and enrollments, revenue, earnings and adjusted EBITDA and other earnings guidance, repositioning Rasmussen University for growth, changing market demands and our ability to satisfy such demands and other company initiatives, including with respect to future competition and demand and cost savings efforts. 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. 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, 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. Angela, please go ahead.

Thank you, Brian. Good afternoon. And thank you for joining American Public Education's third quarter 2024 earnings call. On today's call, we have four important areas to highlight. First, at APEI on all key metrics, we have met or beaten our third quarter 2024 guidance. Overall, APEI revenues increased 1.5% year-over-year to $153 million, the fourth consecutive quarter of year-over-year growth and within our guidance range. Adjusted EBITDA was above our guidance range at $12.9 million. Net income of $731,000 equaled $0.04 per diluted share and was at the high end of our guidance range. Second, in the third quarter of 2024, Rasmussen University posted its first year-over-year increase in total enrollment since the API acquisition. Next, our fourth quarter 2024 outlook is very strong. APUS total net course registrations are expected to grow 4% to 6% when compared to last year. At Rasmussen and Hondros, fourth quarter student enrollments are actuals because of the quarterly starts at these schools. At Rasmussen, fourth quarter total enrollment increased 4% when compared to the fourth quarter of '23, and is our second consecutive quarter of overall positive year-over-year enrollment growth. And earlier this year, we signaled this positive turn and are pleased that it is occurring. At Hondros, fourth quarter total student enrollment increased 19% year-over-year to approximately 3,700 students. And finally, because of these accomplishments and our overall progress, full year 2024 revenue guidance is $620 million to $625 million, which is 3% to 4% greater than 2023. Full year adjusted EBITDA guidance is $64 million to $67 million and 7% to 12% greater than 2023; both are within the 2024 annual guidance range we provided in first quarter '24. Now I'd like to provide more detail about the results and trajectory starting first with APEI's nursing and healthcare institutions. As discussed in previous calls, at Rasmussen, we have invested significant effort and resources to strengthen its foundation for long-term growth. These efforts are showing real dividends with continued improvement in student outcomes, increasing enrollment and positive financial performance. The third quarter of 2024 was the first quarter that Rasmussen experienced positive year-over-year enrollment growth since API's acquisition. And now in fourth quarter ‘24, the trend has accelerated as enrollments are up 4% when compared to the fourth quarter of last year. Notably, this enrollment growth has occurred even with the enrollment impact of Rasmussen's voluntary campus closing in Wisconsin. We are further encouraged by the underlying strength in enrollment momentum. Beyond enrollment, we signaled that Rasmussen would be EBITDA positive in the second half of 2024 and we affirm that we are on track to deliver on that promise. In terms of student outcomes, Rasmussen again produced strong NCLEX pass rates where year-to-date 23 of 25 programs are meeting the required state threshold. Additionally, Rasmussen received positive news regarding its campuses in Moorhead, Minnesota, and Overland Park, Kansas, where both received six-year continuing accreditation. Importantly, in Illinois, our Romeoville campus along with its off-campus instructional site in Aurora, Naperville, Mokena, Tinley Park, and Rockford received initial accreditation from the Accreditation Commission for Education in Nursing or ACEN following reviews and applications. From the underlying strength in enrollment trends and rebounding bottom-line financial performance to the continued improvement in student outcomes and accreditation results, we remain very optimistic about how Rasmussen is positioned for 2025 and beyond. At Hondros, as previously reported, the third quarter '24 enrollment remained strong with 10% growth versus the third quarter of 2023. Fourth quarter enrollments in 2024 continued this trend, increasing more than 19% year-over-year to 3,700 students. This marks the 19th consecutive quarter that Hondros posted year-over-year enrollment growth. Demand remains strong at Hondros for both the PN and ADN nursing program, and we received welcome news at several of our campuses. Our Detroit, Michigan campus accreditation was affirmed in July and at several Ohio campuses, we have improved overall retention above the 70% benchmark. With the positive results at both Rasmussen and Hondros, along with our efforts to simplify our healthcare platform, we underscore that these results reflect our continued belief that nursing and healthcare educational programs will meaningfully contribute to APEI's overall future growth. As we have previously shared, nursing and healthcare practitioners remain in high demand. It is estimated that there are over 200,000 nurses needed every year in this country. Our colleges educate approximately 10,000 nurses per year, so we expect significant growth as we continue to close the gap in the unmet market need. Now I'd like to turn our attention to APEI's online university serving the nation's military and veterans segment, APUS. In the third quarter '24, revenue at APUS was approximately 1% higher due to both the overall growth in registration as well as higher average revenue per registration due to modest tuition and fee increases implemented last year. As we mentioned last quarter, EBITDA margins at APUS declined modestly as the company has invested in 2024 to strengthen its online curriculum, IT infrastructure, and better align its marketing spend. In the fourth quarter, we are already experiencing increases in registration at APUS based on this work and expect fourth quarter '24 registrations to grow 4% to 6% versus fourth quarter '23. Additionally, we have seen some early returns on our extended family strategy to grow registrations in our military families market. Overall, at APEI, we have carved out a distinctive market position. American Military University or AMU is the number one provider of higher education to both the United States military and has been named the top choice nationwide for veterans using their GI Bill benefit. Both Hondros and Rasmussen continue to tackle the chronic nursing shortage by graduating thousands of new nurses each year, where the demand for nurses is expected to grow significantly for the foreseeable future. Overall, with Rasmussen and Hondros delivering revenue growth, margin expansion and student success, expansion of our nursing campus footprint in the coming years will allow us to strengthen our impact in addressing the large demand for nursing and other clinical roles in our overstretched healthcare system. We expect APUS to continue to grow at a steady rate where we can leverage our strong reputation and value proposition of return on educational investment with students. We fundamentally believe in our vision that education can transform lives, advance careers and improve communities. With higher education as one of the key factors in employment and advancement, we're proud of the value and affordability our programs provide to those in healthcare fields and military, veterans and government employees. Each of our education units were purpose-built to deliver on that vision by attracting and educating service-minded students, offering accessible and affordable higher education and training across a diverse range of subjects. And our learn-to-earn focus enables students to experience a strong lifelong return on their educational investment. With that, I will now turn the call over to APEI's CFO, Rick Sunderland.

Thank you, Angie. Total revenue in the third quarter was $153.1 million, up $2.3 million or 1.5% from the prior year period. Third quarter revenue growth was driven by increased revenue at APUS, Hondros, and Rasmussen, partially offset by a revenue decline at graduate school. Revenue for the quarter was within our guidance range. Total cost of expenses in the third quarter increased $4.6 million or 3.2% compared to the third quarter of 2023. Included in the quarter-over-quarter increase in costs is $1.1 million in information technology transition services costs, which are added back to adjusted EBITDA. Excluding information technology transition services costs, total cost of expenses increased $3.5 million or 2.4%, primarily driven by higher compensation costs, including variable compensation and professional fees. In the third quarter, diluted income per common share was $0.04 compared to an adjusted income per diluted share of $0.02 in the prior year quarter, which excludes a $5.2 million loss on equity investments. Third quarter adjusted EBITDA was $12.9 million, which is above the top end of the guidance range and represented an adjusted EBITDA margin of 8.4%. At APUS, third quarter revenue increased 0.8% as compared to the prior year to $77 million due to a 0.2% increase in net course registrations, driven by an increase in registrations by military-affiliated students utilizing veterans benefits and tuition and fee increases in the second quarter of 2024. For the quarter, EBITDA margin was 29% compared to 30% in the prior year period. At Rasmussen, third quarter revenue was $62.6 million, an increase of 1% compared to the prior year due to stabilized enrollment and tuition increases effective in the first quarter of 2023 and 2024 for select programs. It is important to note, Rasmussen will report growth in total enrollment in the second half of 2024 as compared to the prior year. In the third quarter, Rasmussen's EBITDA improved to a loss of $4.5 million compared to an EBITDA loss of $5.3 million in the prior year. As previously stated, we expect second half 2024 EBITDA at Rasmussen to be positive. At Hondros, third quarter revenue was up 12.8% to $15.5 million as compared to the prior year period due to continued enrollment growth. For the quarter, Hondros total enrollment grew 10.4% to approximately 3,100 students. At Hondros, the EBITDA loss was $0.3 million in both the third quarter of 2024 and 2023. We expect the continued enrollment growth at Hondros will lead to improved financial performance into 2025. Revenue in graduate school included in corporate and other was $8 million compared to $8.6 million in the prior year period. For the quarter, graduate school EBITDA was $1.3 million compared to EBITDA of $1.6 million in the prior year. At September 30, 2024, total cash, cash equivalents, and restricted cash was $162.2 million, an increase of $17.9 million from year-end 2023. For the nine months ended September 30, 2024, cash flow from operations was $47.3 million compared to $48.7 million in the prior year. CapEx for the nine months was $17.7 million and free cash flow for the nine months, defined as adjusted EBITDA less CapEx, was $23.2 million compared to $24.4 million a year ago. Principal on APEI's term loan at September 30th was $96 million, with unrestricted cash of $135 million, APEI continues to be net cash positive. Additionally, there are no borrowings under APEI's $20 million revolving credit facility, which remains fully available. Turning now to the fourth quarter 2024 outlook. APUS total net course registrations are expected to be between 94,400 to 96,100 registrations, representing a 4% to 6% increase when compared to last year. At Rasmussen and Hondros, fourth quarter student enrollments are actuals because of the quarterly starts at these schools. At Rasmussen, fourth quarter total online enrollment increased 9% to approximately 8,300 students, while total on-ground enrollment decreased 3% to approximately 6,300 students for an aggregate enrollment of approximately 14,600 students. This represents a 4% increase when compared to the fourth quarter of 2023 and is our second consecutive quarter of overall positive year-over-year enrollment growth at Rasmussen. At Hondros, fourth quarter total student enrollment increased 19% year-over-year to approximately 3,700 students. In the fourth quarter of 2024, consolidated revenue is expected to be between $159 million and $164 million. The company expects net income to common shareholders to be between $9 million and $11 million or between $0.47 and $0.56 per diluted share. Adjusted EBITDA is expected to be between $23 million and $26 million in the fourth quarter of 2024. We're updating full-year guidance with anticipated consolidated full-year 2024 revenue in a range of $620 million to $625 million. We expect our adjusted EBITDA to be between $64 million and $67 million for the full year of 2024 and capital expenditures to be between $19 million and $22 million. This translates to free cash flow expectations for the full year of at least $42 million. Seasonally, the fourth quarter tends to see a notable increase in adjusted EBITDA, including as Rasmussen continues to improve in the fourth quarter. I will now pass it back to Angie to offer some closing remarks after which we will begin our question-and-answer session.

Thank you, Rick. During the quarter, we continued to execute on our initiatives to grow enrollment at APUS and stabilize and increase profitability at Rasmussen and at Hondros. We're further encouraged by the performance at those two institutions as enrollment numbers, student outcomes, and financial performance continue to increase. Market fundamentals continue to support our business strategy with increasing demand in higher education and the online education markets, alongside significant government education benefits for military veterans. With our number one market position in active duty military veterans and a focus on the high-demand sectors like nursing, we are well positioned to capitalize on this growth. We continue to execute against our key milestones and I believe that we have strengthened the foundation of a business that can deliver value to its students, stakeholders and their communities for years to come. With that, I'd now like to hand the call back to the operator to begin our question-and-answer session.

Thank you, Angie. We will now begin the question-and-answer session. And your first question comes from Raj Sharma of B. Riley Securities.

Congratulations on the improvements that you had talked about earlier. I have a question on the profitability of APUS which is significantly higher than all the other divisions. In the last four quarters on $314 million of APUS, you had about $96 million of EBITDA, and then the rest of the businesses, about $300 million, there's a loss of $42 million on EBITDA. Just want to understand again, is there fundamentally something different in the businesses? And can the rest of the businesses, even though they are at a revenue run rate of $300 million, can they ever get closer to the APUS profitability? Just your thoughts on that would be great and then I've got just a follow-on question.

Let me start and then I'll let others add. Well, first of all on the $40 million you referenced, that includes corporate and other unallocated corporate costs, right? You can see that in the segment reporting. And so that doesn't, in total, reflect the other businesses other than the fact that we do have a corporate element to our consolidated reporting. When we talked about the profit margin at APUS and you're looking at the other businesses, those are different operating models, right? You have campus-based operations versus the fully online at Hondros and the blended model at Rasmussen. I think we've talked in the past about not only the direction and the current momentum we see but also what we could expect from those other campus-based businesses. So when you look back, which is what you were referring to, we were having a period of challenge in Rasmussen, right? And as we've demonstrated through this year and I think you noted the fact that the end of the year is performing in line with what we had previously described to the market, we're going to see improved margins. We are seeing improved margins and you'll see improved margins in the fourth quarter. We think that represents a good jumping-off point for 2025. So with that, I'll stop and let either Steve or Angie add to my answer.

I think another important point, as you're highlighting the differences in the EBITDA, is that there's a meaningful corporate and shared services expense. So that's an element. So the other units are not as negative as you described. So I just want to point that part out.

I noticed that the corporate costs appear to be running at about $30 million a year now. They seem to have increased significantly from last year. Am I interpreting this correctly? Can you explain the reason for the increase?

So Raj, we discussed the reasons for the increase. We had technology transition service costs, which we add back. I'm not sure if you're reviewing the segment reporting before the add-backs, but that's a factor. I also mentioned the year-over-year rise in costs, particularly related to compensation. The change in variable compensation, which you can find in note two of the 10-Q, is significant at $2.4 million, primarily at the corporate level. We're investing in our people, and I believe we're meeting our expectations well. I want to confirm your figure regarding the $30 million, but I can follow up later. Additionally, in the segment reporting, Graduate School USA is included, so you'll need to separate that out to understand the associated costs. I apologize for not pointing that out earlier.

Is there an estimate on the EBITDA margin for Rasmussen in Q4? I understand you mentioned it would be positive. From the overall EBITDA, what is the EBITDA margin for Rasmussen in Q4?

Let me put it this way. You know what the EBITDA and EBITDA margin were in Q3, and we've indicated that the second half of the year will be positive. I won't provide a specific percentage, but we've turned things around, moving Rasmussen from an EBITDA loss to positive. To keep it straightforward, the profit in the fourth quarter will need to exceed the loss from Q3 to show a favorable outcome for the second half of the year. Typically, we don’t provide specific guidance related to individual operating units.

Your next question comes from Jasper Bibb with Truist Securities.

I saw the note in the 10-Q about going back to $250 a credit hour for the military rate at APUS master's programs. I was just hoping you could speak to the change in your pricing there. And does that change have any implications for APUS revenue per student or margin in 25% that you comped tuition increases that were put in place earlier this year?

Let me start by saying that the distribution of degrees at our institution shows that graduate-level students represent a small segment, while the majority are at the bachelor's level. This trend is also seen in the military, which is the largest single student segment at APUS and constitutes a relatively small population. Earlier this year, around April, we increased the price for graduate-level programs, believing that this population would accept it. However, we recognized that our commitment to the military is to have no out-of-pocket costs. Jim Etter, the founder of American Military University, emphasized that military students using tuition assistance should be able to attend and complete their studies without incurring costs. To maintain this core value, we reverted to the previous pricing level. Regarding your specific question, this change does not significantly impact revenue per student for APUS, either positively or negatively, so you won’t see a notable fluctuation because of it. I’ll pause now to see if Angie would like to add anything.

I wouldn't add anything to that. I agree with what Rick had to say. Thank you.

And the next question comes from Stephen Sheldon with William Blair.

You have Matt Filek on for Stephen Sheldon. Looking into 2025, do you expect enrollment growth at Rasmussen to be roughly balanced between in-person and online enrollments or perhaps skewed more toward one? Secondly, can you provide some more detail on the EBITDA margins for in-person enrollment compared to online enrollment at Rasmussen?

We have signaled in the past few earnings calls that we are seeing positive enrollment momentum at the Rasmussen online business, and that has not changed. So we will expect to continue to see positive online growth in enrollments in 2025. We have seen the campus enrollment rebound. We're very pleased with the improvements that are occurring there. We believe that a portion of that is tied to our improvements in NCLEX scores and the confidence that our students and prospects have in the nursing education we can offer them. We have a lot of confidence in the campus-based enrollment growth at Rasmussen in 2025. I'll turn the second question over to Rick or to Steve.

Steve, do you want to comment on how we might look at margin between our business models?

Yes, I think given that the on-ground is heavily fixed-cost structure, we would expect to see a rebound in that. Matt, I think we've talked that over the next one to two years, we would see overall margins at Rasmussen move to the 5% to 10% range over that period of time. We're at kind of a pivot point on the on-ground moving from slightly negative enrollments to positive. We would expect to see that margin accelerate over time, while we're already in a positive situation with the online component of it. So I think it's more about seeing a normalization in the on-ground. In the short term, you might see an improved faster improvement in the on-ground as we grow our scale. In general, we don't anticipate wide variances between the two populations.

I would just add that the difference between the enrollment in Q3 and the enrollment in Q4 is showing the acceleration of our EBITDA contribution as the business has hit that inflection point and is growing in both the online and the campus-based businesses.

I had one on APUS. Last quarter, you talked about increasing marketing spend there to spur enrollment growth, and was just curious if you could further elaborate on progress with that revised marketing strategy at APUS.

I'm happy to start and others can join. We kind of leveled up our marketing team and our marketing leadership last year. One of the things that that team did was pay careful attention to our global market strategy where we're spending our marketing dollars and increasing yield, and we see that really taking hold here. As we signaled in the fourth quarter, our APUS net worth registrations we anticipate are going to grow between 4% and 6%. As those marketing improvements take hold, we really are seeing the corresponding effect now with APUS in the fourth quarter. We are very confident about those strategies and believe that we have found the balance in terms of lead generation. The second thing that we have done in these last two quarters at APUS is also strengthened our admissions and enrollment processes. We have added talent to ensure we have sufficient workforce to tackle all the additional leads that are coming in. We have looked at our policies and our processes to make sure that each of our staff is well trained to be able to handle those leads in a high-quality way and be sure to answer the specific questions that each of our prospects are asking. We believe with that additional training and workforce that we have been able to get after the leads in a higher quality way. We also believe that that's part of the 4% to 6% registration growth we're seeing in the fourth quarter, and we don't anticipate that to subside.

And Matt, the only thing to add is that 4% to 6% is on a pretty challenging comp. I think if you go into the fourth quarter of last year, registration growth at APUS was 4%, right? So we're not coming off an easy comp and we're putting up a really solid number in Q4.

Your next question comes from Jasper Bibb again of Truist Securities.

Just wanted to ask about the Hondros segment. The enrollment growth there has been really impressive. How do you think about maybe over a longer term period bringing that segment up to profitable margin or kind of the target mid-teens margin that you've outlined for Rasmussen and given what you're doing from an enrollment perspective?

Great question, and certainly something we pay careful attention to. There are a few things that Hondros tackled this year, namely a few of its locations were getting end of life on their leases and needed to move. So there were some investments needed to be made in order to be able to move to more favorable locations. We are seeing the positive enrollment growth that we talked about, 19% year-over-year, as a result of moving those what were 10 year leases to new and more favorable locations. The second thing that we are focusing on is adding both programs. We talked in the earlier quarter about the launch of the MA program at some of the Ohio campuses. As we turn our attention to 2025, we're looking at the potential for new campus locations and other new programs across some of the Hondros campuses. Overall, the key focus area for Hondros profitability is ensuring that we are paying careful attention to student success. We talked about retention rates at several of our Ohio campuses being above the 70% benchmark, and that in particular for a short form course like an LPN program means a lot, because that retention ensures that the students persist and complete, they graduate, and they pass the NCLEX exam. Each quarter that they progress certainly is revenue we don't have to replace by spending marketing dollars and all the corresponding costs associated with it. Those are some of the key things that we've been focused on Hondros. We expect EBITDA improvement at Hondros in 2025.

Last one from me, also on Hondros. You mentioned some planned potential program expansions and campus expansions. Is there anywhere to frame where you're at from an enrollment perspective now versus the maximum capacity in the existing Hondros footprint? How much more room do you have to grow within the existing footprint before layering on campus and program expansions?

It's a good question. As we've moved these locations, we've really been looking to optimize the footprint, making sure that we have the right mix of the way in which the space is configured so that we're building out a profitable campus footprint. We expect that as we see the full effect of those campus moves take effect in 2025, we expect to see improved profitability at those locations. As we open new campuses, we fully intend to apply that playbook to each of our new locations.

There are no more questions. I will now turn the conference back over to Angela Selden for closing remarks.

Thank you, operator. And thanks to all of you today for joining our call. As we conclude, I want to reiterate our commitment to driving growth and delivering value to our students, to our stakeholders, and to our communities. The positive trends in enrollment, financial performance, and student outcomes across our institutions are a testament to the hard work and dedication of all our faculty and staff. I'm very appreciative of the outcomes that they have helped our students achieve. We are confident in our strategic direction and the opportunities ahead. We look forward to updating you on our progress and our 2025 outlook on our next call. Thank you all for your continued support and for joining us today.

Ladies and gentlemen, that does conclude today's conference call. Thank you for your participation. You may disconnect. Thank you.