American Public Education - Earnings Call - Q1 2025

Executive Summary

• APEI delivered a clean top- and bottom-line beat: revenue $164.6M (+6.6% YoY) and diluted EPS $0.41 vs a loss in Q1’24; management raised FY25 net income and Adjusted EBITDA guidance while keeping revenue unchanged, citing strong enrollment and operating leverage at Rasmussen.
• Versus S&P Global consensus, APEI beat Q1’25 revenue by ~$2.8M and Primary EPS by ~$0.48, aided by APUS registrations, Rasmussen retention, and ~$1.4M expense timing shift to Q2; management also embedded a Q2 preferred redemption premium and combination costs into outlook.
• Guidance: FY25 net income to $23–30M (raised from $19–26M) and Adj. EBITDA to $77–87M (from $75–85M); FY25 revenue unchanged at $650–660M; Q2 guide includes expected GAAP diluted EPS loss from redemption premium and integration costs.
• Catalysts: confirmation of preferred redemption and HLC progress on consolidating APUS/Rasmussen/Hondros; sustained Rasmussen enrollment/EBITDA improvement; watch GSUSA headwinds tied to federal priorities (DOGE), which capped revenue guidance upside.

What Went Well and What Went Wrong

• What Went Well

  • Broad-based strength: revenue grew 6.6% YoY to $164.6M with contributions from APUS (+$3.3M), Rasmussen (+$6.1M), and Hondros (+$1.2M).
  • Profitability inflection: diluted EPS rose to $0.41 (from -$0.06), Adjusted EBITDA to $21.2M (+25% YoY), with management citing APUS registrations, Rasmussen retention, and disciplined costs; Adj. EBITDA margin expanded to ~12.9%.
  • Rasmussen leverage: total enrollment +7.4% YoY to ~14,500; delivered ~$2.1M EBITDA vs a loss in Q1’24, and management sees ~60% flow-through on incremental revenue.
  • Quote: “We exceeded…first quarter largely due to strong enrollment trends at Rasmussen…beginning to show the operating leverage benefits of greater enrollment and disciplined operations.” — CEO Angela Selden.

• What Went Wrong

  • GSUSA (Graduate School) headwinds: rising uncertainty around federal training demand (DOGE) led management to keep FY revenue unchanged despite raising profit metrics and to “explore the best path forward” for GSUSA.
  • Q2 optics: guidance embeds ~$2.9M preferred redemption premium and ~$1.7M combination costs, driving a guided GAAP diluted EPS loss in Q2 despite healthy underlying operations.
  • Mixed HCN profitability: despite +~10% enrollment (~3,600), HCN posted a small EBITDA loss, with mix shifting toward shorter LPN programs; management expects the APUS/Rasmussen/Hondros consolidation to broaden longer-duration offerings at HCN.

Transcript

Operator (participant)

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the APEI first quarter earning conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Brian Prenoveau. Please go ahead.

Brian Prenoveau (Director of Investor Relations)

Thank you, and good afternoon, everyone. Welcome to American Public Education's conference call to discuss first quarter 2025 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 during this conference call and any accompanying presentations 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, such as those identified in our Form 10-K under the heading Risk Factors, including those related to potential impacts from government shutdowns or changing federal and state government politics or policies, practices, and laws, including impacts on revenues or the timing of receivables. Forward-looking statements may sometimes be identified by words like anticipate, believe, seek, could, estimate, expect, can, may, plan, potentially, project, should, will, would, or similar or opposite words.

Forward-looking statements include, without limitation, statements regarding expectations for registrations and enrollments, revenue, earnings and adjusted EBITDA, and other earnings guidance, our foundation for growth, the combination of our institutions, campus and corporate center consolidation, the redemption of our preferred stock, future government and regulatory actions, and our response to those actions, changing market demands, and our ability to satisfy such demands and other company initiatives. 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 and 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 President and CEO, Angela Selden. Angie, please go ahead.

Angela Selden (President and CEO)

Thank you, Brian. Good afternoon, and thank you for joining American Public Education's first quarter 2025 earnings call. Overall, we are very pleased with our outperformance in the first quarter of 2025 and are raising our full-year adjusted EBITDA guidance by $2 million and both the top and bottom ends of the range to $77 million-$87 million. We have four areas to highlight during today's call. First, APEI outperformed first quarter 2025 financial guidance. In the first quarter, we outperformed guidance for revenue, adjusted EBITDA, adjusted EBITDA margin, and net income, continuing the trend observed in the latter half of 2024 to greater profitability as enrollments and registrations continue to increase. Our focus on stabilizing and growing enrollment at Rasmussen and, in particular, growing our campus-based nursing enrollment is resulting in meaningful year-over-year improvement in profitability.

Rasmussen contributed a positive $5 million of adjusted EBITDA swing from a minus $2.6 million loss in first quarter of 2024 to a positive $2.4 million in 1Q 2025. Importantly, this trend is continuing into Q2, where Rasmussen is seeing an 8% year-over-year enrollment improvement with growth in both online and campus-based enrollments. Net income to common shareholders increased a positive $0.5 million from a negative $6.2 million net loss. Next, we are improving operating leverage driven by increasing enrollment and focused discipline cost management. Revenue of $164.6 million increased 6.6%, while adjusted EBITDA increased nearly 25%. Adjusted EBITDA margin expanded by nearly 200 basis points to 12.9% versus 11% in Q1 of 2024. We delivered net income of $7.5 million in the first quarter, historically our lowest quarter, as compared to a net loss of $1 million in the first quarter of 2024.

Also, 2025 continues to be a year of simplification at APEI. We intend to redeem our preferred shares prior to the end of the second quarter, which would be accretive to net income and earnings per share, saving approximately $6 million in dividend expense annually beginning in 2026. In January, we announced a plan to combine our three degree-granting institutions into a single consolidated institution. Last week, the Higher Learning Commission, our accreditor, confirmed that we are on their June agenda for review. As such, our combination plans remain on track, and we expect to close by year-end 2025, assuming all regulatory and accreditation steps have been completed. We have closed some underperforming campuses, terminated expensive leases and contracts, and have two corporate buildings held for sale with anticipated net proceeds of more than $20 million from both, which are expected to close in Q3 of 2025.

These steps should strengthen the balance sheet and cost structure, resulting in significant net income and APUS growth in 2025 and beyond. Finally, at Graduate School USA, due primarily to DOGE initiatives, including government employee headcount reductions and the uncertainty around future budgets for training and professional development, we have held constant APEI's full-year revenue guidance and have begun to explore the best path forward for Graduate School. Overall, we are increasing 2025 net income guidance, expected to be between $23 million and $30 million, and we are increasing adjusted EBITDA guidance, expected to be between $77 million and $87 million. We are maintaining the full-year revenue expectation of $650 million-$660 million, moderated by the uncertainty at Graduate School. Our CFO, Rick Sunderland, will give a deeper dive into updated 2025 guidance.

Now, I'll provide more details about 1Q 2025 results, starting first with APEI's nursing and healthcare institutions. Rasmussen continues to produce strong results. The three-pronged strategy to improve outcomes, manage costs, and grow enrollments began bearing fruit in the second half of 2024 and continues in the first half of 2025. Rasmussen's enrollment increased 7% in 1Q 2025 and 8% in 2Q 2025, representing the fourth consecutive quarter of year-over-year enrollment increases. As previously discussed, Rasmussen's fixed cost structure allows positive enrollment trends to significantly enhance the flow-through margin, leading to improved operating leverage and profitability. At Hondros, as previously reported, 1Q 2025 enrollment was strong, with 9.6% growth as compared to 1Q 2024. 2Q 2025 enrollment continues a positive trend, increasing 13.5% year-over-year to 3,700 students.

We're building on the momentum of 2024 into 2025 at both Rasmussen and Hondros, with 2Q 2025 reported student enrollments as actuals because these quarterly starts have already begun. Now, let's turn our attention to APEI's online university, educating our nation's military, veterans, and their families, currently called APUS. First, I would like to congratulate the over 18,000 students who received their diplomas from APUS last weekend. Here are some impressive statistics and a fun fact. 66% of APUS graduates are active duty military, National Guard, or reservists. 19% are veterans, and 4% are military spouses or dependents. APUS conferred over 13,500 associate's or bachelor's degrees, 4,600 master's degrees, and 11 doctoral degrees. Over 4,200, or 23% of APUS graduates this year are earning their second AMU or APU degree or certificate. The fun fact: the oldest graduate is 81 years old, and the youngest 17 years old.

Now, turning our attention to 1Q 2025 for APUS, overall net course registrations increased 3.5% year-over-year. 2Q 2025 registration guidance at the midpoint is 5.5%, showing a sequential improvement in year-over-year growth. In summary, building on our successful performance in 2024 and the sustained momentum in the first half of 2025, we are optimistic about our future growth prospects and our capacity to convert that growth into enhanced profitability, both in terms of adjusted EBITDA and diluted EPS. We remain laser-focused on educating service-minded students, offering classes, certificates, and degrees in fields that have high demand. APEI enables students to experience a valuable lifelong return on their educational investment. Our mission remains to power purpose, potential, and prosperity for those in service to others. Each of our education units was purpose-built to deliver accessible and affordable higher education and training across a diverse range of subjects.

I'd like to take a moment to thank each of our approximately 6,000 employees and educators that work tirelessly to make our mission a reality each and every day. With that, I would like to turn the call over to APEI's CFO, Rick Sunderland.

Rick Sunderland (EVP and CFO)

Thank you, Angie. Total revenue in the first quarter was $164.6 million, an increase of $10.1 million, or 6.6%, from the prior year period. First quarter revenue growth was driven by increased revenue at Rasmussen, APUS, and Hondros. Revenue growth at Rasmussen and APUS outpaced enrollment and registration growth due to tuition and fee increases implemented last year. Total cost of expenses in the first quarter were $152.3 million, a 2% increase compared to the first quarter of 2024. The increase was primarily driven by increases in employee compensation costs and advertising costs, partially offset by a decrease in information technology costs and depreciation and amortization expenses. In the first quarter, net income available to common shareholders was $7.5 million compared to a net loss of $1 million in the prior year.

First quarter diluted net income per common share was $0.41, as compared to a loss per diluted share of $0.06 in the prior year period. First quarter adjusted EBITDA was $21.2 million, a $4.2 million, or 25% increase over the prior year. This was above the top end of the guidance range and represented an adjusted EBITDA margin of 12.9%, as compared to 11% in the prior year period. The outperformance to guidance was due in part to military registrations at APUS, student retention at Rasmussen, and the timing of approximately $1.4 million of expenses. At APUS, first quarter revenue increased to $83.9 million, a 4.1% increase as compared to the prior year period. First quarter net course registrations increased 3.5%. For the quarter, APUS EBITDA was $25.2 million, and EBITDA margin was 30%, as compared to 30.2% in the prior year period.

At Rasmussen, first quarter revenue was $59.3 million, an increase of 11.5%, as compared to the prior year. In the first quarter, online enrollment increased 11.1%, on-ground enrollment increased 3.2%, and total enrollment grew 7.4% to 14,500 students, as compared to the prior year period. In the first quarter, Rasmussen delivered positive EBITDA of $2.1 million, as compared to an EBITDA loss of $2.7 million in the prior year. At Hondros, first quarter revenue was up 7.5% to $17.7 million, as compared to the prior year period, due to continued enrollment growth. For the quarter, Hondros' total enrollment increased 10% to approximately 3,600 students. At Hondros, the first quarter EBITDA loss was $0.2 million, as compared to EBITDA of zero, break-even in the prior year period. Revenue at Graduate School, included in corporate and other, was $3.7 million, as compared to $4.2 million in the prior year period.

For the quarter, Graduate School EBITDA was a loss of $2.1 million, compared to an EBITDA loss of $1.1 million in the prior year period. First quarter cash flow from operations was $37 million, compared to $20.7 million in the prior year. At March 31, 2025, total cash, cash equivalents, and restricted cash was $187.5 million, an increase of $28.6 million from year-end 2024. The increase in cash flow from operations and cash was driven by the collection of Tuition Assistance, or TA, accounts receivable at APUS, and a reduction in operating losses at Rasmussen. CapEx in the first quarter was $3.9 million, compared to $6.2 million in the prior year. Looking ahead, we expect to complete the sale of two buildings in Charlestown, West Virginia, in the third quarter, with proceeds from the sale of approximately $22 million.

Principal and APEI's Term Loan at March 31 was unchanged at $96.4 million, and our $20 million revolving credit facility remains fully available. With unrestricted cash of $161.6 million, APEI continues to be net cash positive. As disclosed on our last earnings call, we intend to redeem all of our Series A senior preferred stock in the second quarter. Turning now to our second quarter and full-year outlook, which covers forward-looking statements subject to the various risks noted earlier. For the second quarter 2025, APUS total net course registrations are expected to be between 93,500-96,100 registrations, representing a 4%-7% increase when compared to last year. At Rasmussen and Hondros, second quarter student enrollments are actual because of the quarterly starts at these schools.

At Rasmussen, second quarter total online enrollment increased 11.6% to approximately 8,300 students, while total on-ground enrollment increased 3% to approximately 6,400 students for an aggregate enrollment of approximately 14,700 students. This represents an 8% increase when compared to the second quarter of 2024. It is our fourth consecutive quarter of overall positive year-over-year enrollment growth at Rasmussen. At Hondros, second quarter total student enrollment increased 14% year-over-year to approximately 3,700 students. In the second quarter of 2025, consolidated revenue is expected to be between $160 million and $162 million. I will note that second quarter and full-year revenue guidance is negatively impacted by the increasing headwinds at Graduate School USA due to changing federal priorities and policies, and including actions taken by the Department of Government Efficiency, or DOGE, which have resulted in uncertainty relating to the provision of career learning and contract training to the federal workforce.

The company expects second quarter net loss available to common shareholders to be between a loss of $2.5 million and $0.7 million, or between a loss of $0.13 and $0.04 per diluted share. Our second quarter guidance for net loss available to common shareholders includes a redemption premium on the planned redemption of our Series A senior preferred stock of approximately $2.9 million, and expected costs related to our previously announced combination of APUS, Rasmussen, and Hondros of approximately $1.7 million. Second quarter 2025 adjusted EBITDA is expected to be between $11.5 million and $14 million. For the full year 2025, there is no change to our anticipated consolidated revenue of between $650 million and $660 million.

We are increasing our full year 2025 adjusted EBITDA guidance to be between $77 million and $87 million, and net income available to common shareholders to be between $23 million and $30 million. Our full year net income guidance assumes the redemption of our preferred equity in the second quarter, which will reduce preferred dividend payments by approximately $3 million in 2025 and $6 million annually thereafter. This full year adjusted EBITDA guidance translates the free cash flow expectations for the full year, defined as adjusted EBITDA less CapEx, to be between $55 million and $69 million. I will now pass it back to Angie to offer some closing remarks, after which we will begin our question-and-answer session. Angie?

Angela Selden (President and CEO)

Thank you, Rick. Recent financial and operating results show that we have strengthened our institutions and have established a solid foundation for growth this year and for years to come. We are also prioritizing simplification in 2025, and there will be financial benefits that will be realized across 2025 and beyond. As announced in January, we are planning to combine APUS, Rasmussen, and Hondros into one consolidated institution, APUS, or American Public University System, which now we are referring to as the system. Combining and expanding our nursing campus footprint will allow us to strengthen our ability to address the growing demand for nursing and other clinical roles in the healthcare ecosystem by allowing Rasmussen programs to be offered at Hondros campuses and for us to think about and expand our campus footprints.

It will also allow us to accelerate growth in our Military, Veteran, and Families Division to be called APUS Global. With that, I'd like to hand it back to the operator to begin our question-and-answer session. Operator?

Operator (participant)

Thank you, Angie. As a reminder, to ask a question, simply press Star, followed by the number one on your telephone keypad, and we'll pause for just a moment to compile the Q&A roster. Our first question comes from the line of Jasper Bibb with Truist Securities. Please go ahead.

Jasper Bibb (VP of Equity Research)

Hey, good evening, everyone. Really strong margin for APUS in the quarter, and I think you're actually dealing with some downtime on the Army and the Air Force Tuition Assistance for those two. Just hoping you could outline if there was a margin or enrollment headwind from the TA downtime in the first quarter, and maybe if you're expecting any catch-up in the second quarter there, as the system should be back online for the full quarter.

Angela Selden (President and CEO)

Hi, Jasper. Great question. Thank you for that. I'm going to shoot that to Rick, please.

Rick Sunderland (EVP and CFO)

Okay, thank you. Hey, Jasper. Actually, the team really organized at APUS, really organized, and through a variety of communication channels, was really able to minimize the impact of the portal outage. The outage ended just prior to the end of the quarter, right? They were able to pick up the registrations that otherwise would have been lost. You can see from the margin that we reported, it had really no effect on the margin. If you want to piece the two quarters together, you can see registrations increased about 3.5% in the first quarter, and we're guiding to roughly 5-5.5% in the second quarter. Really, the effect, if there was any, was minimal in the first quarter, and we're seeing a slight improvement at APUS in the second quarter in terms of registration guidance.

All in all, you have to be very proud of the team at APUS for working with the various ESOs, education service officers, to get their students registered, which is a real benefit to the students.

Jasper Bibb (VP of Equity Research)

Thanks. You mentioned the higher Graduate School drag on the EBITDA guide, and also the DOGE impact there. I know there is some seasonality in the business, so maybe that Q1 loss is maybe not representative of what you are expecting for the full year. If you held back the guidance increase for Graduate School, is there any way you could maybe frame for us what guidance now assumes for EBITDA losses at Graduate School in 2025?

Angela Selden (President and CEO)

Thanks for the question, Jasper. Certainly, it's a developing matter. As we know, there is talk that the DOGE office is potentially even sunsetting, and the leader may be going back to other businesses that he has responsibility for. The graduate school downside is something that we are not able to give guidance on right now and predict. What we do believe is that the adjusted EBITDA guidance that we gave here for the full year by raising $2 million is something that we are confident includes what we believe is the downside of graduate school, and the fact that we have maintained the revenue guidance also includes what we believe is the downside of graduate school. We are confident in the guidance that we've given, and we look forward to seeing what unfolds in the next couple of quarters related to graduate school.

In addition to very aggressively managing our cost at Graduate School to line up with that reduced revenue, we're also looking at different options and considerations for the path forward for Graduate School.

Jasper Bibb (VP of Equity Research)

Makes sense. Last one for me. Really impressive enrollment growth at Rasmussen in the quarter. I apologize if I missed it, but did you give the number of nursing campuses that met the state NCLEX thresholds in the first quarter?

Angela Selden (President and CEO)

We're doing such a good job on NCLEX that we are not reporting on that any longer, but I can tell you that we had all but one campus program combination. So 24 of 25 now meeting those benchmarks. And so we believe that given the consistent reporting success that we've had in the last really four quarters, we have chosen not to continue to report that since it does seem to be behind us in terms of any kind of NCLEX issues that we have.

Jasper Bibb (VP of Equity Research)

Okay, great. Thank you for taking the questions.

Angela Selden (President and CEO)

Thanks, Jasper.

Operator (participant)

Our next question is from Eric Martinuzzi with Lake Street Capital Markets. Please go ahead.

Eric Martinuzzi (Senior Research Analyst)

Yeah, I was pleased to see the 8% enrollment growth at Rasmussen, and it looks like that kind of goes in line with the 7% from Q1. Just wondering what your thoughts are for 2025. Is this a kind of a we can expect 5-10% range? Are you comfortable with that?

Angela Selden (President and CEO)

Hi, Eric, and welcome. Thanks for joining the call today. We do not give individual institution guidance beyond the next quarter. What we do is we give full-year guidance for the enterprise overall. I can tell you that we continue to be pleased with the momentum that we see at Rasmussen. This is now Q2, is now the fourth consecutive quarter of positive enrollment growth, and we do not see any headwinds as it relates to Rasmussen's enrollment in the back half of the year.

Eric Martinuzzi (Senior Research Analyst)

Got it. Understand. Then you've submitted for approval on that, getting Rasmussen cleared for potential expansion. Any update there from the Department of Education?

Angela Selden (President and CEO)

Great question. Last week, I had the opportunity to meet with a senior member of the Department of Education, and we discussed the matter of getting our second year of audited financials, which we submitted in really early Q2 of 2024, approved. He has taken that matter upon himself to get resolved, and we're expecting to hear some outcome on that in the near term.

Eric Martinuzzi (Senior Research Analyst)

Okay. And then, Rick, curious on the CapEx. I think your guidance is unchanged here at $18-$22. If I was to spread that across the year, it would seem like Q1 was a little bit light. What's the expectation for kind of quarter by quarter how we should think about CapEx?

Rick Sunderland (EVP and CFO)

Eric, we do not spread that. It depends on facility and IT investments, right? And those projects, they have anticipated start dates, but sometimes the timing changes due to, call it a permitting issue at one of the facilities or a reprioritization of projects within the IT department. I am sorry, I do not want to spread that. We feel confident that we will get comfortably within that range, and you did calculate it correctly. I think for purposes of the modeling, I would do it equal across the quarters, if you will, for the remainder, because it probably will not vary much above or below that as a kind of just as a numbers matter.

Eric Martinuzzi (Senior Research Analyst)

Gotcha. Okay. Thanks for taking my questions, and good luck on the rest of the quarter and good luck on Q2.

Angela Selden (President and CEO)

Thanks very much.

Operator (participant)

Our next question comes from Stephen Sheldon with William Blair. Please go ahead.

Stephen Sheldon (Partner and Equity Research Analyst)

Hey, thanks. Really nice job in the quarter. First one here, just as we think about the profit trajectory at Rasmussen, are there more levers that you could pull to accelerate the profit trajectory, or at this point, will it mainly be about continued leverage of fixed cost as you continue to grow the top line?

Angela Selden (President and CEO)

Hi, Stephen. Thanks for the question. I'll start and then ask Rick to add some commentary. As you know, when you think about half of the revenue at Rasmussen is campus-based revenue, a big focus for us continues to be what we call filling the back row, making sure that each of the classes and sections is maxing out the capacity at our current campuses. That will allow us to expand the margin and grow the revenue at the same time. We have, with our new president there, Mark Arnold, a focus on the right program mix by campus to be sure that the program mix that we offer aligns with both the TAM of students available to take those courses as well as employer demand for those programs.

We'll be making some tweaks to ensure that we're not shortchanging the programs that we have the opportunity to expand enrollments in and also rededicating space that may be dedicated to programs where we have less addressable markets. We're really focused on optimization within the campuses. We also continue to see great success in the effectiveness of our marketing related to our nursing programs, and we are seeing the improvement in lead to start conversion as a result of the improvement in the effectiveness of marketing. We think those levers will all help us deliver a better profitable revenue mix in 2025 and see top-line growth as well.

Stephen Sheldon (Partner and Equity Research Analyst)

Great. Thanks. Then a higher-level follow-up. There's typically been countercyclicality in higher-ed enrollments. How are you thinking about APEI's ability and, I guess, competitive positioning to capture enrollment share across your institutions if we are in a backdrop where unemployment moves higher over the rest of this year and into next? Have you seen any signs that top-of-funnel, I guess, applications are picking up? Yeah, you're positioning to benefit from it if it does happen. Are you seeing it at all yet?

Angela Selden (President and CEO)

As I think you're well aware, the two businesses that we have, our military business and our healthcare business, both have natural moats around them. The military business continues to see improvement in growth and growing our share of the students in active duty who are taking classes with APUS. We continue to see expansion there, but we think that's somewhat insulated. APUS is somewhat insulated from the cyclicality of the market because it's really focused on the number of military and veteran students who are taking courses. At Rasmussen and Hondros, we are seeing continued, as you can see, high single-digit, in the case of Hondros Q2, mid double-digit enrollment growth. We continue to see people coming to the nursing profession as an important way for them to have long-term job security and a great ROI on their educational investment.

We do believe that our momentum there can be attributed to our successful marketing effectiveness improvement and the countercyclicality of, in particular, a nursing job, which we know will have durability for the next 40 years.

Stephen Sheldon (Partner and Equity Research Analyst)

Makes sense. Thank you.

Angela Selden (President and CEO)

Thanks very much.

Operator (participant)

Our next question comes from Alex Paris with Barrington Research. Please go ahead.

Alex Paris (Analyst)

Hi guys. Thanks for taking my questions and congratulations on the strong start to the year.

Angela Selden (President and CEO)

Thanks, Alex.

Alex Paris (Analyst)

A couple of clarifying questions, please. Rick, I think you said something about net income in the quarter that was partially attributed to a $1.4 million in timing of expenses. Could you give us a little color on that?

Rick Sunderland (EVP and CFO)

Yeah. Thank you, Alex. There were approximately $1.4 million of expenses that we anticipated incurring in the first quarter that were not due to some timing matters. They've been moved to the second quarter for purposes of that guidance. There were things that we thought would process in the quarter that just ended up being delayed. It's a variety of things, Alex. Some course materials at Rasmussen being a large matter. There were some event-related expenses that we expected at APUS that ended up that they were delayed and delayed in the second quarter. It's one large thing, the materials cost at Rasmussen, and a bunch of little things that all aggregate to about $1.4 million.

Alex Paris (Analyst)

That's a pre-tax number, $1.4 million.

Rick Sunderland (EVP and CFO)

It is a pretext. Yeah, I should have said that out. Thank you.

Alex Paris (Analyst)

Yeah. I started my question by saying net, so I just wanted to be clear. And then second question with regard to your guidance, I believe you were talking about the second quarter. The second quarter guide includes a redemption premium of $2.9 million, and that's in the adjusted EBITDA and net income guidance for Q2?

Rick Sunderland (EVP and CFO)

It's in the net income guidance, Alex, not the adjusted EBITDA.

Alex Paris (Analyst)

Okay. Yeah. That's below the line. And then the $1.7 million of expected costs related to the combination, was that an impact on full year, or was that an impact on Q2?

Rick Sunderland (EVP and CFO)

I'm sorry, Alex. Repeat the question.

Alex Paris (Analyst)

You said that guidance included two things. One, the redemption premium for $2.9 million, and then expected costs related to the combination of $1.7 million.

Rick Sunderland (EVP and CFO)

That's correct. That's a pretext number. And if you go to the.

Alex Paris (Analyst)

Okay.

Rick Sunderland (EVP and CFO)

Yeah. If you go to the guidance.

Angela Selden (President and CEO)

In Q2, Alex. In Q2. Obviously, then it'll be part of the full year, but it'll occur in the second quarter.

Alex Paris (Analyst)

I would assume that these sorts of expenses would occur in Q3 and Q2, maybe not this magnitude, but more spending on combination.

Rick Sunderland (EVP and CFO)

No, do not assume that, Alex. We guided to $4 million-$5 million of costs, I think, for the entire year for the combination, right? The combination is expected to close in the third quarter, assuming we get all the required approvals. As Angie said, we are on track to do that. I think you would see that tail off in the fourth quarter.

Alex Paris (Analyst)

Okay. Fair enough. And then last question regarding both of those, 2.9 and 1.7, together, that's $4.6 million. So net income available to common guidance for Q2 would have been $4.6 million higher had it not been for the redemption and these expected costs related to the combination.

Rick Sunderland (EVP and CFO)

After you tax effect.

Alex Paris (Analyst)

Oh, yeah. Okay. After tax effect. Okay. Thank you. Oh, wait. Last question on Graduate School. You reported revenue of $3.2 million versus $4.2 million. Was there any impact from DOGE or contract cancellations in the Q1 number?

Angela Selden (President and CEO)

Yes, there was.

Rick Sunderland (EVP and CFO)

It was very limited. Yeah. Go ahead, Angie.

Angela Selden (President and CEO)

No, go ahead, Rick.

Rick Sunderland (EVP and CFO)

I was going to say it was very limited, Alex, in the first quarter. Revenue year-over-year was only down $500,000 in the first quarter at Graduate School. When you look at it, it's really largely started in the second quarter.

Alex Paris (Analyst)

Is it sort of that we're expecting zero from here on out or not that dramatic?

Rick Sunderland (EVP and CFO)

Not that dramatic.

Alex Paris (Analyst)

For this year?

Angela Selden (President and CEO)

No, no. There are contracts that have full-year revenue associated with them that are continuing to run. There are additional, basically, cohort-based programs that are continuing to run. We are seeing individual students continuing to enroll in courses, albeit at a lower pace than what we had seen in the past. It is just now in the second quarter where we're starting to see the effect of that third stream, which is students who individually enroll. We are seeing a slight pickup from the beginning of the quarter. We are being very conservative about how we're forecasting the full-year revenue for Graduate School USA presently. We are keeping a careful eye on all that we can do to continue to scoop up all that revenue and those enrollments between now and the end of the year.

Alex Paris (Analyst)

Whatever your expectation is, it's incorporated into the aggregate revenue guidance for the full year, hence the reason that you didn't increase that in the quarter here.

Angela Selden (President and CEO)

Correct. Correct. Yes. You can see we've got positive registration growth at APUS, at Rasmussen, at Hondros, right? Just upset by what we are conservatively anticipating at Graduate School. It is not zero for the rest of the year.

Alex Paris (Analyst)

Gotcha. I spent a lot of time on it. I mean, the more important things are APUS, Rasmussen, and Hondros, which have continued to do very well. Thank you very much for that additional color. I appreciate it. Of course. Thank you, Alex. Thank you very much.

Operator (participant)

Our next question comes from Griffin Boss, B. Riley Securities. Please go ahead.

Griffin Boss (Analyst)

Hi. Good evening, and thanks for taking my question. Just to start off, you mentioned it in the prepared remarks, but just curious if you can remind us what the revenue synergies that you expect to see from this consolidation are, particularly on the healthcare side of the business.

Angela Selden (President and CEO)

Hi, Griffin. It's Angie. Welcome to the call. Thank you very much for your question. We have not provided revenue synergies specifically. We have talked about categories, right, where one of the exciting benefits of combining Rasmussen and Hondros together is that Hondros will be able to offer not just the nursing curriculum that Rasmussen has, which includes the early nursing curriculum as well as the post-licensure, but it also allows Hondros to be able to offer the catalog that Rasmussen offers online as well. We have talked about categories of synergies, but we have not attributed numbers yet to what we believe the revenue synergies will be.

Griffin Boss (Analyst)

No, I thought that's great. That's what I was looking for. I appreciate the color there, Angie. Just, yeah, final one for me. I noticed in your EBITDA schedule in the 8-K, you have the interest expense line, which seems to be outsized in Q2. I apologize if I missed this if it was discussed earlier. I'm just curious what's driving the heavy interest expense in the second quarter. I wouldn't expect it to be related to the redemption of the preferred stock, but maybe correct me if I'm wrong or if that's coming from somewhere else.

Angela Selden (President and CEO)

Hey, Rick, can you address that, please?

Alex Paris (Analyst)

Yeah.

Rick Sunderland (EVP and CFO)

Sure. It includes the preferred redemption premium, which is why it's a higher number.

Griffin Boss (Analyst)

Okay. All right. Got it. Great. Thank you for answering my questions. Appreciate it.

Angela Selden (President and CEO)

Yeah. That'll be a one-time hit. Yeah. Thank you very much, Griffin. Thanks for the call.

Griffin Boss (Analyst)

Sure thing. Thanks.

Operator (participant)

Our final question comes from the line of Raj Sharma with Texas Capital Bank. Please go ahead.

Raj Sharma (Senior Analyst)

Hi. Thank you for taking my questions. Great execution. You've been talking about growing Rasmussen enrollment, and that momentum is very positive. Positive EBITDA. Just trying to get a sense of the fixed versus the variable costs at Rasmussen. For every dollar increase in revenues from here, how much of that do you think drops down to the EBITDA level from these levels, especially given your nice enrollment growth at Rasmussen? Trying to get a sense of the magnitude of the EBITDA profits that Rasmussen could generate.

Angela Selden (President and CEO)

Hi, Raj. Welcome.

Rick Sunderland (EVP and CFO)

Hey.

Angela Selden (President and CEO)

It's great to talk to you.

Rick Sunderland (EVP and CFO)

Thank you. Just saying hi.

Angela Selden (President and CEO)

For these positive revenue enrollments now at Rasmussen, we're seeing about 60% flow-through. We do believe, as we continue to optimize our marketing spend and, as I said, fill the back row of the classroom, we could expect to see something higher potentially. For now, it's a really positive accelerator to the profitability of Rasmussen's campuses. As you well know, you've been following the story for quite a while. Once we turn that corner, that flow-through has a very significant positive impact on the profitability of Rasmussen.

Raj Sharma (Senior Analyst)

Got it. That's very positive. Thank you for that. Thank you for the clarification. Just overall in the operating costs, I know you've got the marketing in-house, and then you've outsourced certain IT functions, and that gave you cost cuts. In the current year, fiscal 2025, is this OpEx level, could that be assumed to stay at current levels? Is this a stable OpEx level for the entire organization?

Angela Selden (President and CEO)

I'll start, and then Rick can jump in. First, I would say where we are seeing positive enrollment momentum, we are going to invest behind the marketing to continue to accelerate the growth. That's something we'll continue to invest behind. As it relates to the technology costs, there are a couple of things that we've signaled. One is that we are actively pursuing different AI initiatives, both to reduce the cost of development as well as some operational improvements. We'll see those take hold later on in 2025. We may be redirecting some of our technology spend in a manner that will drop more profitability to the bottom line as we spend less and get more. We are actively pursuing the use of advanced technologies and AI to help us streamline and reduce our overall technology footprint cost.

Raj Sharma (Senior Analyst)

Great. Great. Thank you. That is very helpful. Then just on Hondros, there is a rise in revenue year-over-year, but that resulted in a lower EBITDA level. Anything happening on the expenses side, or is it just sort of a blip?

Angela Selden (President and CEO)

Yeah. That's an astute question, Raj. Thank you for asking that. We've seen a bit of a mixed shift of the programs back to the LPN Program, which is a shorter program than the ADN Program. As a result, you have to enroll students more often in order to be able to refill the revenue. One of the significant benefits of the combination is allowing us to have those longer programs, the BSN Program and some of the other non-nursing degree programs, be available to Hondros campuses and Hondros students. We believe that that will allow us to rebalance that mix so that we can enroll students who will have a longer tenure with us than where the mixed shift has moved in the first quarter of 2025.

Raj Sharma (Senior Analyst)

Thank you. That's very helpful. Just lastly, on the portal issues at the Army, I know Rick mentioned no impact on the registration. That's excellent. Do you foresee any impact on the accounts receivable collection or any working capital impact from the portal outage?

Angela Selden (President and CEO)

Yeah. I'll start and then turn it over to Rick. Funny enough, it wasn't Army this time. It was Air Force. I think.

Raj Sharma (Senior Analyst)

Sorry. Yeah. Sorry.

Angela Selden (President and CEO)

There was a blip there. Rick, do you want to talk about the receivables?

Rick Sunderland (EVP and CFO)

Yeah. Raj, the portal outage affected the students' ability to impact. It really didn't affect the timing of how we invoiced. We had some catch-up collections in the first quarter that really related to the fourth quarter, but we're seeing normal invoicing and collections from all the branches, including Air Force.

Angela Selden (President and CEO)

Students' ability to enroll.

Rick Sunderland (EVP and CFO)

For both.

Angela Selden (President and CEO)

Yeah, is what he meant to say. Yeah.

Rick Sunderland (EVP and CFO)

Yeah. That was really impacting the enrollment. It really didn't have much impact on invoicing or collections.

Angela Selden (President and CEO)

It was not nearly as extensive. It was an upgrade. It was a maintenance upgrade that took longer than they had originally forecasted. It was not anything like the ArmyIgnitED.

Rick Sunderland (EVP and CFO)

That you had a few years ago.

Angela Selden (President and CEO)

A couple of years ago. Yeah. No, not at all.

Raj Sharma (Senior Analyst)

That's right. I guess I was too fixated on that. I'm like, "Oops." Great. That's super helpful. Thank you again for answering my questions. Again, great execution, great results. Congratulations.

Angela Selden (President and CEO)

Thanks. Nice to hear from you, Raj.

Raj Sharma (Senior Analyst)

Thank you. Same here. Thanks. Bye.

Operator (participant)

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

Angela Selden (President and CEO)

Sure. Thank you, operator. I would like to thank each of you for joining our earnings conference call for Q1 2025. Hope you each have a very wonderful evening. Take care.

Operator (participant)

This concludes today's teleconference. You may now disconnect your lines. Thank you, everyone, for joining, and have a wonderful day.