Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• American Public Education Inc (NASDAQ:APEI) reported a 1.5% year-over-year increase in revenue to $153 million, marking the fourth consecutive quarter of growth.
• Rasmussen University posted its first year-over-year increase in total enrollment since its acquisition by APEI.
• APEI's fourth-quarter 2024 outlook is strong, with expected growth in net course registrations and student enrollments across its institutions.
• APEI's nursing and healthcare institutions, Rasmussen and Hondros, are showing positive enrollment trends and financial performance improvements.
• APEI's American Military University is the top provider of higher education to the U.S. military and veterans using G.I. Bill benefits.

Negative Points

• APEI's total costs and expenses increased by 3.2% compared to the third quarter of 2023, driven by higher compensation costs and professional fees.
• APEI's corporate and shared services expenses have increased significantly, impacting overall profitability.
• APEI's graduate school revenue declined compared to the prior year, contributing to a loss in that segment.
• APEI's EBITA margins at Rasmussen University have been negative, although improvements are expected.
• APEI's marketing spend at APUS has increased to spur enrollment growth, which may impact short-term profitability.

Q & A Highlights

• Warning! GuruFocus has detected 6 Warning Signs with APEI.

Q: Can you explain the significant difference in profitability between APUS and other divisions, and whether the other divisions can achieve similar profitability levels? A: Rick Sunderland, CFO, explained that the differences are due to the distinct operating models, with APUS being fully online and others having campus-based operations. The corporate and shared services expenses also impact the profitability of other units. Improvements are expected in the margins of other divisions, particularly Rasmussen, which is on track for positive EBITDA in the second half of 2024.

Q: What is the reason for the increase in corporate costs, and are they expected to remain at this level? A: Rick Sunderland, CFO, noted that the increase in corporate costs is partly due to technology transition service costs and higher compensation costs, including variable compensation. The company is investing in its people, and while the exact figure needs verification, the increase is aligned with performance expectations.

Q: How does the recent pricing change for military rates at APUS Master's programs affect revenue and margins? A: Rick Sunderland, CFO, stated that the change to $250 per credit hour for military students is in line with the company's core value of no out-of-pocket costs for military students. This adjustment is not expected to significantly impact overall revenue per student or margins at APUS.

Q: What are the expectations for enrollment growth at Rasmussen in 2025, and how do margins compare between in-person and online enrollments? A: Angela Selden, CEO, expects continued positive enrollment growth in both online and campus-based programs at Rasmussen. Steve Summers, SVP, added that on-ground enrollments have a fixed cost structure, and margins are expected to improve as enrollments grow, with overall margins moving to the 5-10% range over the next 1-2 years.

Q: Can you elaborate on the progress of the revised marketing strategy at APUS and its impact on enrollment growth? A: Angela Selden, CEO, highlighted that the marketing team has optimized their strategy, leading to anticipated net course registration growth of 4-6% in Q4. The company has also strengthened admissions and enrollment processes, contributing to the expected growth, which is not anticipated to subside.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.