Earnings Call Transcript - APEI Q3 2022

Operator, Operator

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the APEI Reports Third Quarter 2022 Results 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 hand the conference over to Ryan Koren, Head of Investor Relations. Please go ahead.

Ryan Koren, Head of Investor Relations

Thank you, and good afternoon, everyone. Welcome to American Public Education's conference call to discuss third quarter 2022 financial and operating 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 conference call today are available under the Events and Presentations section of the APEI website. Please note that statements made during this conference call and any accompanying presentation materials regarding APEI and its subsidiaries that are not historical facts may be forward-looking statements based on current expectations, assumptions, estimates, and projections about APEI and the industry. In some cases, forward-looking statements may be identified by words such as anticipate, believe, seek, could, estimate, expect, can, may, plan, should, will, would, and similar words or their opposites. Forward-looking statements include, without limitation, statements regarding expected growth, registrations and enrollments, revenue, net income, earnings per share and adjusted EBITDA as well as other earnings guidance, expected benefits of the acquisition of Rasmussen University, plans with respect to recent, current and future initiatives, including with respect to synergies and head count and future demand or expectations for online enrollment and nursing education. 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 risks and uncertainties include, among others, risks related to the impacts of inflation, increases in labor costs and enrollment trends, the company's dependence on the effectiveness of its abilities to attract students who persist in its institutions programs, changing market demand, the effects of and the company's response to the COVID-19 pandemic and the reduction, elimination or suspension of tuition assistance programs, challenges with integrating acquisitions, regulatory matters, competitive pressures and those described in our presentation, today's press release, the company's Form 10-Q filed with the SEC today and other SEC filings. The company undertakes no obligation to update publicly any forward-looking statements for any reason unless required by law, even if new information becomes available or other events occur in the future. 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 our presentation and in our earnings release. Management believes that our presentation of non-GAAP financial information provides useful supplemental information to investors regarding our 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. I will now turn the call over to our CEO, Angela Selden. And Angie, please go ahead.

Angela Selden, CEO

Thank you, Ryan, and thank you for your interest in American Public Education and for joining us today for a discussion of our third quarter 2022 financial results. First, I want to express gratitude to all those APEI team members that mobilized in the aftermath of Hurricane Ian to assist our nearly 5,000 Florida-based Rasmussen and APUS students, along with the hundreds of faculty, staff, and their families. From the generosity of our APEI employees, nearly 500 purchases were made of essential items and $50,000 in emergency funds were mobilized to assist those students most impacted. A big shout out to the Rasmussen-Florida campus operations team, the APUS emergency management team and the APEI finance, HR, facilities and executive assistance team, which assisted in enabling our Fort Myers and Orlando campuses to provide warm meals and places of respite for staff, students and their families during the early critical days of the crisis. Although about 185 Florida-based students postponed their rates in education this quarter, we were pleased that we were able to fully resume educational operations in each of our 5 Florida markets this quarter. Turning to today's focus, 2022 continues to be a transformational year for APEI despite the headwinds faced by higher education. APEI is increasing the floor of our recent adjusted EBITDA range, increasing the minimum and narrowing the range to $55 million to $58 million, aligning with the full year adjusted EBITDA guidance we provided in our September 22, 2022, supplemental financial information presentation. As we move to some headlines, first, the Rasmussen team, including new President, NoFernandis, continued to deliver revenue growth for both Q3 '22 and year-to-date '22 for new and total student registrations and continues to expand margins due in part to cost savings delivered by last year's headcount reduction and the acquisition of Rasmussen, which provides new allocations of shared services costs. Our Army Ignite 2.0 migration has been substantially completed without significant incident, and we successfully built Army for October registrations in the new system. As we begin the second year of ownership of Rasmussen University, we have substantially completed its integration, both delivering our first year target of $10 million in run rate cost savings and accelerating the realization of the years 2 and 3 APEI enterprise savings with the recently completed cost reduction effort that resulted in $13.5 million in annual run rate savings. Additionally, as we look to 4Q '22, Rasmussen has achieved its first positive year-over-year student start in 6 quarters, driven primarily by the results of APEI bringing Rasmussen paid media marketing back in-house effective April of 2022. At Hondros, we saw a third consecutive quarter of year-over-year total student enrollment growth through 3Q '22 and set a record for a new all-time high of new and total enrollments in 4Q of '22. Hondros also began educating its first new student cohort in its Detroit, Michigan campus in October. We are continuing the integration of Graduate School USA and are pleased with its third-quarter registration momentum. Graduate School resumed its on-ground course delivery in this quarter, welcoming back its students to its Washington, D.C. Metro campus. Now let's take a closer look at the financial and enrollment highlights. At APEI, we beat Q3 '22, both top and bottom line versus guidance and expectations despite the challenging macroeconomic environment for our institutions. We are positioned to deliver on our full year 2022 adjusted EBITDA guidance that we issued in our September supplement, raising and narrowing the range to $55.2 million to $58 million. The organizational simplification at Rasmussen and cost savings implemented across all of APEI over the last 60 days are expected to have a long-term positive impact on both the quality of our education and the financial health of our company. At APUS, we have now experienced the third consecutive quarter of year-over-year net registration growth through Q3 '22, driven primarily by strong total active duty military registrations and new registration growth across all segments. We expect full year 2022 net registration growth of plus 1% to plus 2%. Overall, and as indicated on our last earnings call, our Q3 '22 total Rasmussen enrollment was down roughly 8% as both nursing and non-nursing faced tough prior year comps, where both of those enrollment segments had posted record high results compared to 2020. The 8% decline in nursing enrollment was partially affected by the self-imposed enrollment caps in the Twin Cities campuses due to previous faculty and clinical shortages, along with caps in Illinois due to the NCLEX pass rate declines primarily occurring as a result of COVID online educated cohorts now sitting for the exam, a trend that is occurring nationally. Non-nursing enrollments also saw an 8% decline in Q3 '22 as the tight labor market and higher wages made returning to education a less attractive option with our adult learner population and consistent with student interest at similar levels seen in the broader higher education sector. Positive momentum is occurring, as indicated in our September supplement, where Rasmussen has seen positive new student momentum for Q4 '22 and achieved our internal enrollment target. While this will still result in total enrollment declines in Q4 '22 as compared to the prior year period of plus 12% for nursing and plus 5% for non-nursing, these improved stats are in line with our expectations, and this growth momentum keeps Rasmussen on track for second half 2023 total enrollment growth, as described in our last earnings call. Pre-licensure nursing enrollment momentum remains strong at Hondros as student interest in our 3 newest campuses in Detroit, Indianapolis, and Akron, along with continued solid enrollment in our 5 legacy Ohio campuses has led to year-over-year enrollment growth of 4% to 2,410 students in Q3 '22 versus the prior year period. Further, Hondros is experiencing its highest ever start number for the Q4 '22 term and its highest ever total earning enrollment during the same period with approximately 2,600 students. In addition to the improved student momentum across our education units and better financial performance in the quarter, APEI's balance sheet remains strong with over $158 million of unrestricted cash on hand and approximately $8 million of net debt at quarter end. We continue to explore additional capital allocation options, including the paydown of debt. Let me now share some other areas of note. At APUS, delivering exceptional education at an affordable price continues to be at its core, and recent third-party publications validate our contributions to student success and achievement. APUS ranked in the top 10% in the United States for best return on educational investment out of 4,500 colleges and universities nationwide according to the Georgetown University Center on Education and the Workforce report. According to a recent study published in university business, APUS ranks in the top 5% in the United States for starting salaries for bachelor's degrees, ranking at #26 overall and ahead of many well-known traditional nonprofit universities while charging substantially less than their tuition. Since the departure of Rasmussen's former CEO, we have worked intensely to stabilize enrollments and simplify the organizational design at Rasmussen to put it on a path for growth and return to the performance it had experienced leading up to the acquisition. We have taken steps to align our clinical site and faculty requirements to our forecasted enrollments as well as increasing support for our student NCLEX exam preparation, both of which are assisting with growth and enrollment at Rasmussen in Q4 '22 and beyond. First, we have operationalized an educational readiness center starting in our Twin Cities market, where the nursing faculty shortage is most acute. The Writing Center is focused on projecting by program and by campus, the clinical site needs, the associated faculty requirements on a rolling 3-term forward basis. It also aims to identify and resolve other student and faculty preparedness requirements and gaps. This will allow for proactive hiring and action planning to ensure we have the correctly credentialed faculty and more market-aligned wage rates. In addition, Rasmussen established a center for nursing excellence that is dedicated to helping its students pass the NCLEX exam the first time. State Boards of Nursing evaluated an educator's program efficacy based on first-time rather than total NCLEX pass rates, unlike most other licensure requirements. Programs and campus combinations that experienced first-time NCLEX pass rates below their applicable state thresholds recently at Rasmussen's Minneapolis Twin Cities location, primarily in Bloomington and in Illinois. This Nursing Center of Excellence will, first, pinpoint student-specific challenge areas and provide customized tutoring support to shore up gaps. Second, it will integrate additional NCLEX testing simulation and prep tools throughout the curriculum. Third, we will initiate an overall curriculum assessment to identify areas of improvement to better enable student mastery and success. While Rasmussen's programs have largely demonstrated historical success on NCLEX exam first-time pass rates, we believe that shifts in the underlying Rasmussen's student preparedness demographics, along with the prior shift to primarily online delivery for several quarters due to COVID have driven recent pass rates to lower levels. In Q2 '22, as we've previously discussed, we brought Rasmussen paid media marketing in-house and APEI and as a result, we have seen an increase in overall lead generation, contributing to new student start growth in Q4 '22. Leads and start growth are important leading indicators of our ability to return Rasmussen to total enrollment growth. As we enhance faculty facilities and student educational readiness, operationalize the nursing center of excellence to improve NCLEX first-time pass rates, and bring paid media marketing in-house, we expect these improvements will take a few quarters to have the full positive impact. To ensure that we deliver on our commitments to student success and regulatory compliance over the nearer term, we have voluntarily limited the number of new nursing students at the Twin Cities ADN program for our Q1 '23 January starts in a manner similar to what was mentioned regarding the Q3 '22 and Q4 '22 starts on our last earnings call. We will, however, work to add BSN enrollments in the Twin Cities to somewhat offset the short-term enrollment caps in the ADN program. To define our new capability centers and deliver on our projected savings, Rasmussen has simplified its academic and campus operations into 2 divisions: Rasmussen University campuses and Rasmussen University Online. We have streamlined leadership and established clear accountabilities and reporting lines so that the RU campus operations can be 100% focused on enrolling, educating, and providing support and job placement in on-ground nursing and clinical health programs, along with supporting NCLEX first-time pass rate success. Meanwhile, RU Online now leads enrollment, retention, and student success for all programs. The result is a single streamlined academic structure and clarity and accountability for campus executive directors who are now responsible for enrollment, operations, and quality student outcomes, including NCLEX pass rates. This change was essential to ensure Rasmussen can operate more efficiently and effectively going forward and to set the stage for healthy future growth for Rasmussen both in nursing and online education and student success. Subsequent to the end of Q3 '22, Rasmussen entered into a transition agreement with its marketing provider Caligus, to end the marketing services agreement on January 31, 2023, versus its prior end date of September 30, 2024. Effective February 2023, APEI will now provide all marketing services to Rasmussen, allowing Rasmussen to more directly control its destiny with respect to marketing and enrollments. Rasmussen has brought paid media buying into ATI in April of 2022, resulting in improved marketing results. This further step will enhance marketing effectiveness and ultimately, enrollment results. The transition-related fees associated with the agreement are $6.5 million, $4 million of which will be incurred in Q4 '22 and the balance in Q1 '23 and will be added back to adjusted EBITDA in those periods. We expect that the benefit that will accrue to Rasmussen will be over $6 million in 2023 and $10 million on an annualized basis thereafter. These amounts will be evaluated for marketing investment and/or to increase EBITDA results. This reflects the net benefit after the inclusion of additional resources being deployed to replicate certain marketing functions now in-house. It is important to note that these savings are in addition to the $13.5 million in organizational simplification savings discussed earlier in my remarks. Turning our attention to Hondros. Tuition cost remains the primary consideration that deters some prospective students from enrolling in pre-licensure nursing programs. As we mentioned in our last quarter earnings call, we are focused on establishing new partnerships with health care providers. We are pleased to announce that we have launched our first cohort with our first partner fully sponsoring an initial ADN program at our Toledo, Ohio campus in Q4 '22, with several additional partner sponsors in the pipeline for next year. Our goal is to defray some or all student tuition costs in exchange for those students entering a multiyear work commitment. This is a win for all 3 parties involved: our students, our partners, and Hondros. First, our students benefit from a low or no-cost education and a guaranteed job after graduation. Our partners benefit from being able to plan for hiring needs effectively and at a less expensive rate than current recruitment costs. Hondros benefits from attracting students who otherwise would have been unlikely to attend due to affordability concerns and can secure relevant clinical locations to jump-start student employment readiness. We see this as a strong path to enhanced enrollment growth while helping fill the workforce shortage in the health care system, simultaneously doing good for our students. We expect to adopt a similar partnership operating model in Rasmussen beginning in 2023 as health care partnership development becomes part of APEI as part of the Collegia marketing transition. Finally, the first half of 2022 for Graduate School was negatively impacted by integration and transition efforts, along with COVID having a more pronounced effect as the federal government workforce remained remote. The federal budget was finalized later in '22 than normal, impacting students' spending capabilities. However, we press forward in our efforts to reposition and return Graduate School to positive enrollment and have seen significant momentum in open enrollment registrations during the second half of the year. These positive recent trends will continue to help position Graduate School to be APEI's platform for career learning and workforce training.

Rick Sunderland, CFO

Thank you, Angie. For the third quarter of 2022, total revenue was approximately $150 million, up approximately $51 million or 52% from the comparable prior year period due primarily to the addition of Rasmussen and Graduate School revenue in the 2022 period. Note, we acquired Rasmussen on September 1 of last year and Graduate School in January 2022. Therefore, the 2021 period includes only 1 month of Rasmussen revenue and no revenue from Graduate School. At APUS, revenue was $68.7 million, an increase of approximately $3 million or 4% as compared to the prior year period. The revenue increase was due to a 3% increase in total net course registrations in the third quarter of 2022 compared to 2021 and the timing of registrations in the quarter. We are encouraged by the fact that new student registrations were up in all 3 of our channels: active duty military, veterans, and other service-minded students during Q3 2022. Rasmussen's revenue was $61.5 million during the third quarter of 2022, a decrease of 7% when compared to the pro forma Q3 2021 period, driven by a decline in total enrollment compared to the prior year period. Hondros revenue was $11.4 million, an increase of $0.2 million or 2% as compared to the prior year period. This increase is driven by year-over-year enrollment growth. Additionally, consolidated revenue for the quarter includes approximately $8 million of Graduate School USA revenue in Corporate and Other. On a consolidated basis, APEI's adjusted EBITDA was $9.5 million for the current year quarter compared to approximately $9.3 million in the prior year period. The current quarter results represent an adjusted EBITDA margin of 6.3% as compared to an adjusted EBITDA margin of 9.2% in the prior year period. The decrease in adjusted EBITDA margin is driven by several factors. Rasmussen experienced improved margins year-over-year driven by the year-over-year increase in total net course registrations and a reduction in professional fees, partially offset by higher marketing and information technology costs. Graduate Schools' margins continue to be impacted by the factors discussed in our September 22 supplemental financial information release, specifically the tuition price reduction on certain master's and early childhood education programs plus higher faculty and educational delivery costs due in part to higher compensation costs by challenges hiring nursing and clinical faculty in particular. Hondros' margins were impacted by higher faculty and non-faculty compensation costs and the ongoing start-up of the new campus in Akron, Ohio, which opened in April 2021. Finally, Graduate School's adjusted EBITDA was positive during the quarter due to seasonally high revenue. Additionally, as Angie previously mentioned, we executed a reduction in force on November 2 that resulted in the termination of non-faculty employees in addition to the elimination of several open positions that we do not plan to backfill. The reduction in force included all education units in our corporate segment, but not Graduate School, and was focused on streamlining our operations to appropriately align our cost structure with current enrollment and the broader operating environment. We expect these actions to result in pre-tax labor and benefit savings in Q4 2022 of approximately $2.3 million and savings of approximately $13.5 million on an annualized basis. Severance associated with this headcount reduction is approximately $3.3 million, all of which is expected to be incurred in the fourth quarter of 2022 and is not included in the savings figures discussed above. Net income per diluted share for the quarter was a loss of $0.20 versus a loss of $0.01 in the prior year period. Total cash and cash equivalents at the end of the third quarter was approximately $186 million, an increase of approximately $36 million from year-end 2021. Restricted cash at September 30 was approximately $27 million and continues to be almost entirely comprised of a restricted certificate of deposit that secures a letter of credit for Rasmussen with the Department of Education. Cash provided by operating activities was approximately $52 million in the first 9 months of 2022 compared to approximately $1 million in the prior year period. The increase in cash flow from operations was primarily due to payments received from Army during the first 3 quarters of 2022, which totaled approximately $48 million and the impact in 2021 of the timing of the Rasmussen acquisition. During the quarter, Army transitioned to Army Ignite Ed or AIE 2.0. Soldiers are able to register and request tuition assistance in the new system, and I'm happy to report that we are able to invoice Army in AIE 2.0. To date, we have built Army approximately $11 million for courses taken by soldiers in the new system. Accounts receivable from Army was approximately $14 million at September 30 with approximately $6 million older than 60 days from course start date. Data conversion for unprocessed and unpaid tuition assistance requests in AIE 1.0 continues with approximately $7 million of unprocessed accounts receivable. We continue to work with Army to resolve discrepancies in the data compared to our systems. With the increased unrestricted cash at the end of the third quarter, APEI's net debt was just $8 million at the end of September. Additionally, there were no borrowings under our $20 million revolving credit facility, which remains fully available at this time. Looking ahead, we continue to evaluate uses of our increased unrestricted cash balance, including the paydown of debt. 4Q 2022 outlook. APUS's outlook for the fourth quarter of 2022 is as follows: APUS total net course registrations are expected to be in the range of minus 3% to plus 1% year-over-year. At Rasmussen and Hondros, fourth quarter student enrollments are actual because of the quarterly starts at these schools. At Rasmussen, we are encouraged that new student starts for the fourth quarter are up year-over-year. However, as previously mentioned, we expect the smaller nursing cohorts from 2021 and the first half of 2022 will continue to impact total enrollment for the next 3 quarters or so. As such, fourth quarter total nursing student enrollment decreased 12% year-over-year to approximately 7,600 students. Non-nursing total enrollment declined 5% for an aggregate Rasmussen enrollment decline of approximately 9% year-over-year to approximately 15,600 students. I would like to reiterate, as previously stated, with the fourth quarter new student enrollment increase, we expect Rasmussen to return to total student enrollment growth in the second half of 2023. At Hondros, fourth quarter total student enrollment increased 4% year-over-year to approximately 2,600 students, our largest-ever total enrollment figure, driven by our largest ever new student start for the period. In the fourth quarter of 2022, consolidated revenue is expected to be between $151.2 million to $154.2 million. The company expects net income to be a loss between minus $3.9 million and minus $2.4 million and earnings per diluted share of between a loss of $0.20 and $0.13 per diluted share. Adjusted EBITDA is expected to be between $13.9 million and $16.7 million for the fourth quarter of 2022, translating to a full year adjusted EBITDA range of between $55.2 million and $58 million.

Operator, Operator

At this time, please open the call for questions.

Jasper Bibb, Analyst

This is Jasper Bibb on for Tobey. You talked about improving student inquiries across the nursing programs. What do you think is driving the higher interest levels there? And have you also started to see your inquiry to enrollment conversion rates normalize higher too?

Angela Selden, CEO

We'll start by saying that we've taken a different approach to targeted marketing since we brought the paid media marketing in-house in the second quarter of 2022. Specifically, rather than pouring marketing dollars and looking for the next best lead independent of program or campus, we have targeted bottoms-up program and campus-specific plans and goals such that we align our paid media intentions and spend against those specific goals. As a result, we're able to very specifically focus and gain both leads and new students in both the markets and the programs that we intend to. For that reason, we have been able to convert at a higher rate.

Jasper Bibb, Analyst

And then I know you aren't guiding for 2023, you did issue the target for $70 million to $76 million in pro forma EBITDA this year. And then today, we talked about incremental cost savings beyond that. So how should we think about the earnings power of the company next year? And is that $70 million to $76 million pro forma target a reasonable base to grow from in the '23, or are there potential offsets we should think about?

Steve Somers, Senior VP, Strategy and Corporate Development

I think at this point, we're still in our planning process for 2023 in terms of budgeting. When we issued that supplemental information back on September 22, we were trying to assist with some baseline as to where we think the business is today in terms of what pro forma is. So I don't think it's an unreasonable place in terms of a baseline, but we'll refine that as we get through our planning process here and think about where we're investing for 2023.

Jasper Bibb, Analyst

Last question from me. Could you just speak to any expected impacts to your financial responsibility scores that might result from the Rasmussen write-down? And as a result of that, would that change how you might deploy capital short term?

Rick Sunderland, CFO

The composite score is impacted by that write-down. As you know, it's a 3-part calculation. When we look at the company, we have $186 million in cash. We have $52 million in operating cash flow. We have $9 million or $8 million in net debt. I think we can conclude reasonably that we are financially sound. If we end up in the zone, which would be between 1.0 and 1.4, we can comfortably operate under the alternative rules that exist there. So I'm not concerned about the financial functioning of the company and that combined score calculation.

Stephen Sheldon, Analyst

So a lot of moving pieces for Rasmussen and on the nursing side over the next few quarters. Can you help us frame the impact of some of the issues around enrollment caps and some of the limitations you put in place? And what these could mean as we think about Rasmussen nursing enrollment at least in the first half of 2023? And then you talked about Rasmussen enrollment, I think returning to growth in the second half. Is that expectation for both nursing and non-nursing, or maybe just some more color on that?

Angela Selden, CEO

So first, I want to say that not only are we looking with precision at the way we're deploying marketing dollars, but we're also looking at precision on program-campus combinations. For example, we are very pleased with the fact that Florida has 5 of our largest campuses without any encumbrances from a cap perspective. We have many programs that are not operating at their max capacity in those markets. We see a tremendous amount of upside across the board in Florida. And as I mentioned at the top of my remarks, with really no impact from the hurricane that we're seeing from an enrollment momentum perspective. So Florida is an important market for us. For those markets where we have caps, specifically, starting with the Twin Cities, we have other programs where we can direct students to enroll with their interest in our RN program, for example. We are very proud to report that our BSN program in the Twin Cities market is among the top 3 in NCLEX results in all of Minnesota. So students who have the aptitude to complete a 4-year degree, we believe will be keenly interested in directing their attention towards the BSN program instead of the ADN program. At the same time, students who may not necessarily have the aptitude to complete the ADN program in the past have often been turned away. Instead, we will look to have those students begin their educational journey with us in the LPN program. We see the same opportunity in the campuses in Illinois. After the departure of the CEO in the second quarter of '22, we discovered the opportunity to identify ways to grow campus program combinations even in the face of some of these near-term restrictions.

Stephen Sheldon, Analyst

And then just on the second part of that question, given what you can see now, do you think you could return to growth, enrollment growth, in the second half of both nursing and non-nursing, or was that focused more on one than the other?

Angela Selden, CEO

Right now, the signal we sent last earnings call, as well as this one, is the combined enrollment momentum for Rasmussen in the second half of '23. We will, as we get closer to that period of time, be able to further refine which areas we believe will contribute to that. Remember that the challenge we have with pre-licensure nursing, not just at Rasmussen, but at Hondros as well is that when you start a smaller cohort, as Rick mentioned in his remarks, you live with that smaller cohort throughout their educational journey. We can't go out and find a second quarter ADN nursing student unless they've suspended their progress with us and want to come back. We will have to work through the system for the next 5 quarters. As those roll off and those students graduate, we can re-enroll students at the higher cohort levels and that will allow us to return to growth. At the same time, we can grow in the LPN program, increase the BSN program, and continue our focus on post-licensure nursing programs that we have in our ladder. We have some favorable green shoots in other online programs that mirror overall enrollment trends in the United States where on-campus enrollment is declining but online enrollment is growing. Rasmussen is seeing similar momentum in its online non-nursing programs as well.

Stephen Sheldon, Analyst

And then on the $13.5 million of annualized cost savings, I guess, are you at the full run rate now? It sounds like a lot of those decisions have been made and are in place. But just as we think about 2023, are those going to be fully realized for the full year?

Angela Selden, CEO

All $13.5 million has been executed. So that will be operationalized right now and through the full year of 2023.

Stephen Sheldon, Analyst

And then just the last one. I guess, how are you thinking about providing guidance moving forward? Would you expect to provide annual guidance on your fourth quarter results in 2023 or are you going to return back to more quarter-forward guidance? I don't know if you made a decision there yet, but just any color.

Steve Somers, Senior VP, Strategy and Corporate Development

I think our intention is to put out something a bit longer term than our previous quarterly guidance, but we're still working through that. We certainly understand that you all would like to have improved visibility to where we land, so we're striving to deliver on that.

Raj Sharma, Analyst

Can we talk about the Army Ignite? I just wanted to get clarity. It seems like the Army Ignite ad disruptions, it seems like AIE 2.0 is working really well, but 1.0 is still backed up and still has issues. And then, of course, there were AIE issues. I thought the 2.0 version was going to be significantly better than 1.0, except for the delay in the A/R collection. Can you please provide some clarity on that transition?

Rick Sunderland, CFO

Let me talk to 2.0 first, and then we can go back to 1.0. I think we're pleased with the transition to 2.0. We've talked about the third-party provider for the new system being the same provider that works with the Air Force. They have a record of providing service to a military branch. The Army has chosen us as one of the testing providers for the new system. As I mentioned, we were able to bill Army approximately $11 million for courses taken by soldiers in the new system. In the legacy 1.0 system, there are remaining data conversion and reconciliation challenges, and we're working with Army and the vendor as it relates to those matters. While they're not resolved, I'm encouraged and confident that we will ultimately work those matters out.

Raj Sharma, Analyst

In September, you had issued the pro forma EBITDA sort of number of cost savings of $15 million and then another $2 million from the in-house marketing. Did I hear that $13.5 million of that was in the bag or most of them have been operationalized? If most of these have been enacted upon, is it not reasonable to expect 2023 EBITDA levels at that pro forma EBITDA range?

Rick Sunderland, CFO

We think it's a reasonable baseline. We're working through our process now to refine things. We're certainly aware of the desire for improved visibility for 2023 guidance. The $13.5 million of cost savings has been integrated into the calculation, so that is a reasonable place to size up for 2023.

Alex Paris, Analyst

I got a couple of quick ones. When you gave the second half guidance and the supplemental filing in September, there was some implied fourth quarter guidance. Did Q3 borrow a bit from Q4?

Steve Somers, Senior VP, Strategy and Corporate Development

The second half guidance superseded the initial third quarter guidance. There are some timing differences, and it wasn't necessarily third quarter borrowing from fourth quarter, but rather how the timing played out. However, we are on the path we laid out to achieve the approximately $56 million target that we discussed back in September.

Alex Paris, Analyst

My last question is more on the regulatory side. A couple of final rules were published last week, including 90-10 and borrowers defense to repayment. Do you have any comment on either of those, especially 90-10? What are your thoughts regarding how to calculate that number? Or is it still a work in progress?

Rick Sunderland, CFO

The rules met our expectations in that we expected and confirmed that TA and VA would be included in those calculations. The calculation will cover the entire year 2023 and begins on January 1. No material surprises, as we anticipated. As for borrower defense to repayment, we haven't had any particular comment. We've had many conversations about quality and affordability, and all those indicators establish us as a good player with respect to anything that comes from borrower defense to repayment.

Alex Paris, Analyst

Last one, looking for a little specific, though, on APUS. Given a lot of military in general, are you still comfortable under the new calculation that you'll be below 90%?

Rick Sunderland, CFO

We've run the pro formas. We remain below the 90%.

Operator, Operator

Ladies and gentlemen, that will conclude our call for today. Thank you all for joining. You may now disconnect.