American Public Education - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered broad-based strength: revenue rose 7.4% YoY to $164.1M, diluted EPS was $0.63, and adjusted EBITDA was $31.4M, all above the top end of company guidance, driven by improvements at APUS, Rasmussen, and Hondros.
• APUS registrations grew 7% YoY; Rasmussen posted a 9.3% YoY revenue increase and achieved $5.5M of EBITDA; Hondros revenue climbed 20% YoY with 19.3% enrollment growth.
• 2025 outlook: Q1 revenue $161–$163M; FY revenue $650–$660M; FY adjusted EBITDA $75–$85M; management also plans to redeem preferred equity by end of Q2, which would be accretive to EPS.
• Near-term catalysts: continued Rasmussen enrollment momentum, consolidation of institutions to simplify operations, and APUS steady registration growth; watch temporary headwind from Army/Air Force TA portal downtime impacting Q1 APUS registrations (late enrollments ongoing).

What Went Well and What Went Wrong

• What Went Well

  • “Revenue, earnings per share and Adjusted EBITDA all exceeded the top end of our guidance” for Q4 2024, reflecting execution across segments.
  • Rasmussen posted positive EBITDA in 2H 2024, with Q4 EBITDA of $5.5M, alongside 7% Q1 2025 enrollment growth (online +11.1% YoY; on-ground +3.2% YoY).
  • APUS net course registrations rose 7% YoY in Q4; APUS EBITDA margin in Q4 was 34.5%, illustrating strong profitability even as APUS invests to modernize curriculum and IT.

• What Went Wrong

  • Q1 2025 adjusted EBITDA guidance ($13.5–$15.5M) implies a YoY contraction due to deliberate increases in advertising (+$2.1M) and higher labor costs at APUS to support growth, pressuring near-term margins.
  • General & administrative expense rose 15.6% YoY in Q4 (to $36.2M) on higher IT and bad debt expense, partially offset by lower advertising and D&A.
  • APUS Q1 2025 registration growth is tempered (1.5–3%) by extended Army/Air Force TA portal maintenance overlapping the March session, though late registrations continue post-outage.

Transcript

Operator (participant)

Good afternoon, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the American Public Education Fourth Quarter 2024 results 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, Investor Relations. Please go ahead.

Brian Prenoveau (Head of Investor Relations)

Thank you, and good afternoon, everyone. Welcome to American Public Education's conference call to discuss fourth quarter and full year 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 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, such as those identified in our Form 10-K under the heading Risk Factors and those related to potential impacts from government shutdowns or changing federal government policies and practices, including impacts on revenue 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, 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, a combination of our institutions, financing and spending plans, future governmental and regulatory actions, and our response to those actions, 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 and the most directly comparable GAAP measures is located in the appendix to today's presentation and in the earnings release.

Management believes that the presentation of non-GAAP financial information provides useful supplemental information to investors regarding its results of operations and should be only considered in addition to, and 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. Angela, please go ahead.

Angela Selden (CEO)

Thank you, Brian. Good afternoon, and thank you for joining American Public Education's fourth quarter and full year 2024 earnings call. We are very pleased with our results in both the fourth quarter and full year 2024 and remain enthusiastic about our path forward. We have four areas to highlight during today's call. First, APEI outperformed fourth quarter 2024 financial guidance. In the fourth quarter, we exceeded guidance for revenue, net income, and adjusted EBITDA. Importantly, as we signaled at the beginning of the year, Rasmussen in the fourth quarter delivered both positive EBITDA and positive enrollment growth. Next, APEI outperformed full year 2024 financial guidance. We delivered on the full year guidance that we first established at the beginning of 2024 and then raised. Revenue of $624 million exceeded the top end of the original guidance and met the midpoint of our raised revised guidance.

Adjusted EBITDA of $72.3 million exceeded both the high end of our original and revised guidance range, which was $65 million. Capital expenditures were in line. Third, 2025 will be a year of simplification at APEI. In January, we announced a plan to combine our three degree-granting institutions into a single consolidated institution. This should provide simpler operations and an opportunity to find both revenue and cost synergies over the long term. Additionally, 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. We have closed some underperforming campuses, terminated expensive leases and contracts, and have two corporate buildings held for sale. These steps should simplify the balance sheet and cost structure, resulting in significant earnings growth in 2025. Finally, 2025 will be another year of revenue and adjusted EBITDA growth.

We're initiating 2025 guidance with revenue of $650 million-$660 million and adjusted EBITDA of $75 million-$85 million. Rick Sunderland, APEI CFO, will provide more details on guidance in his remarks. Now, I'll provide more detail about the fourth quarter and full year 2024 results, starting first with APEI's nursing and healthcare institutions. Much of the work over the past two years at Rasmussen has been focused on strengthening its foundation for long-term growth. We have made real progress and, in particular, are pleased with the previously guided financial results in the second half of 2024. Q3 2024 was the first quarter in which Rasmussen experienced positive year-over-year enrollment growth since APEI's acquisition. In Q4 2024, the trend continued with a 4% year-over-year enrollment increase.

In the first quarter of 2025, this momentum has accelerated with a 7% increase in enrollment compared to one Q24, including positive enrollment in our on-ground nursing and healthcare programs. Beyond enrollments, we signaled that Rasmussen would be adjusted EBITDA positive in the second half of 2024, and we achieved that goal with $6.4 million of adjusted EBITDA in four Q24 and positive $3.1 million for the second half of 2024. Of particular note is that this growth has been achieved even with the suspending of enrollments in two Wisconsin campuses and the Bloomington ADN program. These results support our belief that there remains significant upside to Rasmussen growth and profitability. Additionally, we continue to prioritize student outcomes and NCLEX pass rates that support real career opportunities and a positive ROI on students' educational investment.

In 2024, 23 of our 25 nursing reporting entities met the state NCLEX pass rate thresholds. At Hondros, as previously reported, Q4 2024 enrollment was very strong with 19% growth as compared to Q4 2023. Q1 2025 enrollment continues a positive trend, increasing 9.6% year-over-year to 3,600 students. This marks the 20th consecutive quarter that Hondros has posted year-over-year enrollment growth. We are building on that momentum of 2024 into 2025 at both Rasmussen and Hondros, with Q1 2025 reported student enrollments as actuals because these quarterly starts have already begun. We believe our nursing schools can continue to be a significant driver of growth and margin expansion going forward. The higher fixed cost base of these businesses allows for increased EBITDA flow-through as we fill existing spaces in classes and on campuses.

Further, the market dynamics present for new nurses remains as when we acquired Rasmussen in 2021, with an annual shortage of approximately 200,000 nurses each year, and with Hondros and Rasmussen currently educating over 9,000 students per year, there remains significant runway for further growth and expansion. Now, I'd like to turn our attention to APEI's online university educating our nation's military veterans and their families, currently called . In Q4 2024, overall net course registrations increased 7% year-over-year. Revenue at APUS was almost 4% higher due primarily to the overall growth in registrations.

EBITDA margins in the fourth quarter were 34.5% at APUS, which was down slightly as compared to 35% in Q4 2023, as APUS invested in various initiatives in the back half of 2024, aiming to modernize and strengthen its online curriculum, IT infrastructure, and to better optimize its marketing spend while aligning student support headcount to growing segments, including non-military and military families. For the full year 2024, APUS total net course registrations increased 3% as compared to 2023. We're pleased with the return to strong registration growth in the fourth quarter and expect continued registration growth in the low to mid-single digits in 2025. 2025 will be a year of simplification for APEI. As announced in January of this year, we are planning to combine APUS, Rasmussen, and Hondros into one consolidated institution, American Public University System, which we are now referring to as the system.

We are targeting the fourth quarter of 2025 for the combination to be completed, assuming all regulatory and accreditation steps have been satisfied. The system will have a healthcare division, which will include Rasmussen University and Hondros College of Nursing. 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. We're very excited that Mark Arnold, Rasmussen's new president, will be leading that division. The system will also have a military and veteran division called APUS Global. We're also very pleased that Nuno Fernandes will continue to lead that division. We have upcoming process steps with our accreditor, Higher Learning Commission, and the U.S. Department of Education. We will provide updates in future earnings calls as we complete key milestones. Overall, we're very proud of our results and achievements in 2024.

We believe in our future growth and opportunities in 2025 and beyond. Each of our education units was purpose-built to deliver accessible and affordable higher education and training across a diverse range of subjects. By aiming to educate service-minded students and their families, and by offering classes, certificates, and degrees in fields that will continue to have high demand, APEI enables students to experience a valuable lifelong return on their educational investment. Our mission reflects those priorities: to power purpose, potential, and prosperity for those in service to others. We're proud of the foundation for growth we have built, and we remain focused on setting clear, achievable goals for 2025 and beyond. With that, I will now turn the call over to APEI's Chief Financial Officer, Rick Sunderland.

Rick Sunderland (CFO)

Thank you, Angie. Total revenue in the fourth quarter was $164.1 million, up $11.3 million, or 7.4%, from the prior year period. Fourth quarter revenue growth was driven by increased revenue at all of our education units. Hondros, in particular, delivered a 20% increase in revenue compared to the fourth quarter of 2023. Fourth quarter revenue exceeded the top end of our guidance range. Total cost of expenses in the fourth quarter increased $5.7 million, or 4.2%, as compared to the fourth quarter of 2023. The increase was primarily driven by increases in employee compensation costs and bad debt expense, partially offset by a decrease in advertising and depreciation and amortization expenses. In the fourth quarter, diluted net income per common share was $0.63, as compared to $0.64 in the prior year period.

Fourth quarter adjusted EBITDA was $31.4 million, which is above the top end of the guidance range, and represented an adjusted EBITDA margin of 19.1%, as compared to 16.8% in the prior year period. Fourth quarter adjusted EBITDA represented a $5.7 million, or 22.2%, increase as compared to the prior year. At APUS, fourth quarter revenue increased to $82.4 million, an increase of 3.8%, as compared to the prior year period. Fourth quarter net course registrations increased 7%, which was above the top end of our guidance range. The increase in fourth quarter net course registrations was driven by both military and military-affiliated net course registrations. For the quarter, APUS EBITDA was $28.4 million, and EBITDA margin was 34.5%, as compared to 35% in the prior year period. At Rasmussen, fourth quarter revenue was $57.5 million, an increase of 9.3%, as compared to the prior year.

In the fourth quarter, online enrollment increased 9%, as compared to the prior year, and total enrollment increased 4% to approximately 14,600 students. On-ground enrollment continues to stabilize, with first quarter 2025 on-ground enrollment increasing 3.2%, as compared to the prior year period. In the fourth quarter, Rasmussen delivered positive EBITDA of $5.5 million, as compared to EBITDA of $0.6 million in the prior year. As previously discussed, Rasmussen reported positive EBITDA of $3.1 million in the second quarter of in the second half of 2024, delivering on our promise of positive 2H 2024 EBITDA. At Hondros, fourth quarter revenue was up 20% to $18.9 million, as compared to the prior year period due to continued enrollment growth. For the quarter, Hondros total enrollment increased 19.3% to approximately 3,700 students. At Hondros, EBITDA was $1.3 million in the fourth quarter of 2024, compared to $1.2 million in the prior year.

Revenue at graduate school, included in corporate and other, was $5.4 million, as compared to $5 million in the prior year period. For the quarter, graduate school EBITDA was a loss of $0.7 million, compared to an EBITDA loss of $1.1 million in the prior year period. At December 31, 2024, total cash, cash equivalents, and restricted cash was $158.9 million, an increase of $14.6 million from year-end 2023. For the year-ended December 31, 2024, cash flow from operations was $48.9 million, compared to $45.5 million in the prior year. CapEx in 2024 was $21.1 million, and free cash flow for the year, defined as adjusted EBITDA less CapEx, was $51.2 million, compared to $45.7 million in 2023. Principal on APEI's term loan at December 31st was $93 million. With unrestricted cash of $132 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. I'm going to turn now to our outlook, which covers forward-looking statements subject to the various risks noted. For the first quarter 2025, APUS total net course registrations are expected to be between 100,500-102,000 registrations, representing a 1.5%-3% increase when compared to last year. The first quarter guidance is negatively impacted by the scheduled maintenance of the Army and Air Force TA portals that extended beyond its planned downtime. The outage lasted approximately two weeks, resulting in an overlap with the March session enrollment period. At Rasmussen and Hondros, first quarter student enrollments are actual because of the quarterly starts at these schools.

At Rasmussen, first quarter total online enrollment increased 11.1% to approximately 8,000 students, while total on-ground enrollment increased 3.2% to approximately 6,500 students for an aggregate enrollment of approximately 14,500 students. This represents a 7% increase when compared to the first quarter of 2024 and is our third consecutive quarter of overall positive year-over-year enrollment growth at Rasmussen. At Hondros, first quarter total student enrollment increased 9.6% year-over-year to approximately 3,600 students. In the first quarter of 2025, consolidated revenue is expected to be between $161 million and $163 million. The company expects net income available to common shareholders to be between $1.7 million and $3.1 million, or between income of $0.09 and $0.17 per diluted share. Adjusted EBITDA is expected to be between $13.5 million and $15.5 million in the first quarter of 2025.

We are providing full-year guidance with anticipated consolidated full-year 2025 revenue to be between $650 million and $660 million. We expect full-year adjusted EBITDA to be between $75 million and $85 million, and net income available to common shareholders to be between $19 million and $26 million. Our net income guidance assumes the redemption of our preferred equity prior to the end of the second quarter, which will reduce preferred dividend payments by approximately $3 million in 2025 if redeemed mid-year and $6 million annually. We anticipate 2025 capital expenditures to be between $18 million and $22 million. This translates to free cash flow expectations for the full year, defined as adjusted EBITDA less CapEx, to be between $53 million and $67 million. With that, Operator, please open the line for questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. As we enter into Q&A session, we ask that you please limit your input to one question and one follow-up. At this time, I would like to remind everyone to ask a question, press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. One moment, please, for your first question. Your first question comes from the line of Stephen Sheldon. Please go ahead.

Stephen Sheldon (Partner and Equity Research Analyst)

Thanks, and nice work here. Within APUS, great to see the strong acceleration in 4Q. I think you noted some portal timing headwinds to enrollments in the first quarter. I guess, how big of an impact was that? Is that kind of why enrollment growth is going to slow in 1Q and I guess, how should we think about enrollment trends potentially over the rest of the year?

Rick Sunderland (CFO)

Right. We do not have the exact impact because we are still late-registering students. We have built in the anticipated impact, which is in the mid-single digits percentage-wise, into the first quarter guidance. Of course, Matt, including in the first quarter guidance means it is included in the full-year guidance. The good news is, while the outage extended longer than was expected, it was expected to be somewhere around a week, and it lasted slightly over two weeks. It did, to that extent, impact first quarter guidance. It is now behind us. The portal is working. We are continuing to late-register students that would have otherwise registered during that outage period. Because of the full functioning of the portal, students that want to register for future sessions, April and beyond, are able to do so.

Stephen Sheldon (Partner and Equity Research Analyst)

Got it. That's helpful. Great to see you turn the corner on profit in Rasmussen this quarter. I'm just curious, generally, how long are you thinking that it might take for Rasmussen to get back to a double-digit adjusted EBITDA margin profile? Is that something that we're expecting kind of consistent improvement as we think about the next couple of years? Just generally, when do you think you could get back to that stronger margin profile?

Rick Sunderland (CFO)

Hey, Steven, it's Rick. I said Matt, and Angie corrected me by writing it on a piece of paper. My apology. Go ahead. If you want to take that, Angie, or give that to Steve.

Angela Selden (CEO)

Steven, how are you? We certainly aren't giving multi-year guidance presently, but we are really pleased with the acceleration in enrollment momentum we're seeing at Rasmussen, and it includes both our online unit as well as our campus-based unit. We believe that we will see a significant flow-through of that incremental revenue to the bottom line, and we're very excited about what we're seeing at Rasmussen right now.

Stephen Sheldon (Partner and Equity Research Analyst)

Good to hear. Just one more quick one, if I could. As we think about the profit guide for the first quarter, you're expecting revenue to grow kind of mid-single digits. You're expecting adjusted EBITDA to be down a decent amount year-over-year. Can you talk about what's driving that EBITDA kind of contraction year-over-year and whether there are timing or one-off issues we should be thinking about?

Rick Sunderland (CFO)

Do you want me to take that? Steven, it's Rick. When we look at first quarter of 2025 compared to first quarter of 2024, we're investing more in advertising as we've really kind of hit the accelerator on the impact and effectiveness of advertising. Advertising's up about $2.1 million. We do have higher labor costs in Q1 this year at APUS than we did Q1 of last year. We invested, as the marketing function continues to deliver good and even better results, we invested in student-facing staff, admissions, advising, student support to really care for the needs of the prospects and new students that were coming in. It's advertising and it's labor that's driving that year-over-year change.

Stephen Sheldon (Partner and Equity Research Analyst)

Makes sense. Thank you for the color and nice work.

Angela Selden (CEO)

Thank you very much.

Operator (participant)

Your next question comes from the line of Jasper Bibb of Truist Securities. Please go ahead.

Jasper Bibb (VP and Senior Equity Analyst)

Hey, good evening, everyone. I want to ask about the portfolio consolidation in the one institution. I know it's going to close in the fourth quarter, or that's the plan. I guess, as of now, is there any way you could help frame for us if you're expecting G&A savings associated with that, how large they might be, and the potential timing in 2026 or beyond of when we could expect to see that? Thank you.

Angela Selden (CEO)

Thanks for the question, Jasper. Certainly, we anticipate both revenue synergies, and I'll talk about why that is, as well as cost synergies. Our belief is that we'll close in the fourth quarter of 2025, that we have some important process steps coming up in the next few weeks that will finalize that timeline for us. I want to talk about the revenue synergies first because one of the things we're quite excited about is offering to our Hondros students who have only access to pre-licensure nursing programs today the full ladder of post-licensure curriculum that exists at Rasmussen. Also, we believe that the online modality for our students at both Rasmussen and APUS are different in that one offers a monthly start, one offers a quarterly start.

We believe that students who may find one of those institutions and may not like that start pattern, we can offer them the alternative of our sister institution at the other institution. We believe there is a lot of revenue synergies we are going to see as a result of this combination. As it relates to cost, we certainly see in the long term an opportunity to streamline some of the services that we have that overlap between the institutions today. I think in the short term, the primary areas of cost synergies will be a few leadership positions at Hondros. Importantly, we will be aligning our accreditation and other academic teams to the system level. By and large, this is not a cost reduction. That is not what this is intended to be.

It's really about building these platforms to allow us to accelerate the growth in both our military business as well as in our nursing and healthcare business.

Jasper Bibb (VP and Senior Equity Analyst)

Thanks for that. The online growth for Rasmussen has been really strong. It looks like you're looking for double digits in the first quarter. Could you frame some of the drivers of that growth and also what you're seeing from a marketing yield perspective that's allowing you to generate these new starts?

Angela Selden (CEO)

Yes, I'll start. Rick, please jump in. One of the things that we're particularly pleased with is the optimization of the marketing spend. We've turned our attention to organic lead generation as opposed to paid leads. As those leads have increased substantially, the flow-through on those leads has been very material. We actually saw a reduction in marketing spend at Rasmussen last year and an increase in conversion rate. That has had a substantial positive effect, in particular on our online enrollments, but certainly also on our campus-based enrollments as well. Can you remind me what the second part of your question was? I don't remember what you said.

Jasper Bibb (VP and Senior Equity Analyst)

Drivers of enrollment strength and marketing yield for Rasmussen.

Angela Selden (CEO)

Oh, okay. Yes. What we are also finding from a marketing perspective is that we turned our attention to what I would call hyper-local marketing for our campuses, and that has had a significant positive effect on our campus-based enrollment growth. We have returned to some fairly traditional methods, radio and some other very local market activities. For the student demographic that we educate, it has been highly effective. We are really treating those two businesses or two business segments as part of Rasmussen with different marketing strategies, and that separation of marketing strategies is really paying off for us.

Jasper Bibb (VP and Senior Equity Analyst)

That's good for me. I know there's typically some seasonality in the Rasmussen margin, but $5.5 million in 4Q EBITDA is a decent margin. Looking ahead, I guess, just hoping you could frame for us what you expect Rasmussen contribution is in your 2025 EBITDA guidance and how you expect that to look on a quarterly basis through the year?

Angela Selden (CEO)

As you know, Jasper, we do not break out those margin contributions by education unit presently. As I said before, the revenue improvements that we are seeing at Rasmussen and certainly on a year-over-year basis are going to have a substantial flow-through to the bottom line from an EBITDA and margin improvement in all of 2025.

Jasper Bibb (VP and Senior Equity Analyst)

Okay. Thanks so much.

Angela Selden (CEO)

Thank you.

Operator (participant)

This concludes our Q&A session. With that, I will now turn the call back over to Angie for closing remarks. Please go ahead.

Angela Selden (CEO)

Thank you all for joining American Public Education's fourth quarter and full year 2024 earnings and guidance call. We appreciate all that you do for our students and for APEI and look forward to our next call with you coming up shortly. Thank you very much.

Operator (participant)

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful day.