Ladies and gentlemen, thank you for standing by, and welcome to APEI's Fourth Quarter 2019 Conference Call. [Operator Instructions].I would now like to hand the conference over to your speaker today, Chris Symanoskie, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thank you, operator. Good evening, and welcome to American Public Education's discussion of financial and operating results for the fourth quarter and full year 2019. Materials that accompany today's conference call are available in the Events and Presentations section of our website and are included as an exhibit to our current report on Form 8-K furnished with the SEC earlier today.Please note that statements made in this conference call and the accompanying presentation materials regarding American Public Education or its subsidiaries that are not historical facts may be forward-looking statements based on current expectations, assumptions, estimates and projections about American Public Education and the industry. These forward-looking statements are subject to risks and uncertainties that could cause actual future events or results to differ materially from such statements. Forward-looking statements can be identified by words such as anticipate, believe, seek, could, estimate, expect, intend, may, should, will and would.These forward-looking statements include, without limitation, statements regarding expected growth, expected registration and enrollments, expected revenues, expenses and earnings and plans with respect to recent and current future partnerships, investments and initiatives, including those that are referred the company's strategic plan and the company's planned new marketing campaign. Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described in the Risk Factors section and elsewhere in the company's most recent annual report on Form 10-K filed with the SEC and the company's 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 evening, it's my pleasure to introduce Angela Selden, our Chief Executive Officer; and Rick Sunderland, our Executive Vice President and Chief Financial Officer.Now, at this time, I'd like to turn the call over to Angela Selden. Angie?

Thank you, Chris. Good evening, everyone. I'm pleased to report on our fourth quarter results and share with you key elements of our new value creation strategy, which will accelerate our ambitions of enrollment growth in both APUS and Hondros.First, at APUS, in the fourth quarter of 2019, total student net course registrations are up 1% as compared with the prior year period, representing an enrollment stabilization milestone. This increase was driven by an 8% increase in net course registrations by new students utilizing cash and other sources and a 7% increase in new students utilizing Veterans Benefits. The increase was partially offset by a 4% year-over-year decline in net course registrations by new students utilizing Federal Student Aid, however notably, the smallest rate of decline since the fourth quarter of 2014.Net course registrations by new students utilizing Department of Defense Tuition Assistance, or TA, were approximately flat year-over-year. There was strong demand for courses by each branch of the military in the fourth quarter, except for the Navy, which continues to impose limitations on TA course approvals.We believe the combination of our focus on military, veteran, and other highly persistent communities, along with both the recent improvements in our operational effectiveness and improved learner persistence rates, helped to increase overall net course registrations during the fourth quarter at APUS. We are delighted by the year-over-year increase in total net course registrations, and we ultimately seek higher growth through the execution of our new value creation strategy.We are also pleased to share that Hondros has reported new student enrollment growth of 31% in the first quarter of 2020 as compared with the prior year period. This is the first increase in new student enrollment at Hondros since the second quarter of 2018. The execution of Hondros enrollment recovery plan has…

Thank you, Angie. Good evening. American Public Education's consolidated revenue for the 3 months ended December 31, 2019, decreased 3% to $74.4 million compared to $76.9 million in the prior year period. APEI segment revenue decreased $0.3 million or 0.5% to $66.5 million. HCN segment revenue decreased $2.2 million or 21.7% to $7.9 million.In the fourth quarter, total cost of expenses increased year-over-year by 0.4% to $65.8 million as compared to the prior year period driven primarily by higher technology-related expenditures and advertising in our APEI segment.Consolidated instructional costs and services expenses decreased approximately $0.4 million to $28 million and, as a percentage of revenue, increased to 37.7% compared to 37.0% in the prior year period. The decrease in instructional costs and services expenses was primarily driven by a decrease in instructional materials costs in both our APEI and HCN segments and the decrease in employee compensation costs in our HCN segment.Selling and promotional expenses increased approximately $1 million to $15 million and, as a percentage of revenue, increased to 20.2% of revenue compared to 18.2% in the prior year period. The increase in selling and promotional expenses was primarily driven by an increase in advertising costs in our APEI and HCN segments and an increase in employee compensation costs in our APEI segment.General and administrative expenses increased approximately $0.2 million to $18.9 million and, as a percentage of revenue, increased to 25.4% from 24.3% in the prior year period. The increase in general and administrative expenses was primarily related to an increase in professional fees related to our previously announced IT modernization project in our APEI segment, partially offset by a decrease in employee compensation costs in our APEI segment and decreases in bad debt expense in our APEI and HCN segments.Consolidated bad debt expense was $0.9 million or…

[Operator Instructions]. Your first question comes from the line of Jeff Silber with BMO Capital.

I'm sorry to focus on the coronavirus right away. Thank you for at least providing us some guidance in terms of the potential impact on your business. Have you been getting any -- an increase in inquiries because of everything that's going on? And are you also going to be including something like this in your marketing campaign to talk about the benefits of learning at home?

Thanks so much, Jeff, for the question. It's early days. I think as students evaluate their options, we're starting to see the institutions spending the student learning experience to a -- what is called an institutional continuity plan, which is really very different than a full online learning experience that we deliver. We will pay close attention to enrollment growth as a result of students transferring their interest from on-ground institutions to our online modality, and we welcome the opportunity to have those students join the APEI and APUS family.

And again, there's no issue in terms of capacity, either from a technological perspective or from a faculty perspective to handle that inflow?

So Jeff, it's Rick. So no capacity issues. We have a highly variable model for delivering our educational services. Few years ago, we were serving many more students than we're currently serving. So our systems, our people and our processes are constructed to deliver at scale, including dramatic increases in scale in the near term. We currently enroll close to 3,000 new students a month, and we feel like we can do much more than that should the opportunity present itself.

Okay. That's helpful. You mentioned the tuition increase. Can you remind us what that was and what schools it affected?

So Jeff, it's Rick. So, it was a 5% increase effective January 1. It was applied to all students, but what we did was for the undergraduate students who had prior to the increase paid $250 per credit hour, which is the TA reimbursement level, we have made a commensurate increase in that grant such that those undergraduate TA students saw no increase. And then at the graduate level, prior to the tuition increase, those graduate military TA students were actually paying a small out-of-pocket cost. We increased the grant to the graduate military TA, lowering their cost per credit hour to the $250. And the book rent, which previously only applied to undergraduates is now extended to graduate military students. And so, both undergraduate and graduate military now may attend and obtain a degree at APU, AMU without paying any out-of-pocket costs. So, the tuition increase was targeted. We gave grants back to our military populations, and we are seeing some upticks in our graduate military registrations as a result of the extension of that grant, and we call that the freedom grant. I think that's out in the market at this point.

All right. Great. And no tuition increase at Hondros or nothing out of the ordinary?

No, there wasn't.

Your next question comes from the line of Corey Greendale with First Analysis.

Congratulations on the enrollment results. In terms of the value creation plan, a couple of questions. The -- can you give more detail on the marketing plan? Are you talking about kind of mass marketing nationwide [indiscernible] or what kinds of things are you focused on?

Corey, it's Angie Selden. A couple of things I can share with you. We look at the allocation of that marketing plan across both brand building as well as advertising spending. So, about a third of that investment will be focused on the brand building side of the campaign and the other two thirds will really be focused on increasing enrollments through the advertising spend. In particular, we have a campaign, which I think we might be aligned in Q2 with the opportunity to draw in potential coronavirus students by articulating to those prospective students the opportunity for transfer of their course credit back to their home institution by considering these courses over their summer term. So, we do believe that that ad spending will be aligned in a very timely manner with the opportunity to attract those students over the summer period.

And I guess, just philosophically, the -- I think American Public has always been relatively low cost and always been a good value proposition for students, and part of the challenge has been the cost of acquiring students and how far can you go before the cost just gets too high to be economic. I guess what gives you the confidence that that equation -- how much are you seeing data today that [indiscernible] themselves? And how much is this kind of somewhat projecting ahead and you get the sort of retention benefit you think you're going to get from D2L or other things, then it does make sense, if that question makes sense.

It does make sense. One of the things that we've really keyed in on in our value creation strategy is a focus not only on enrollment growth, but also the underlying operations and improving overall operational effectiveness across the institution. So, it's our intention to focus both on growth as well as operational effectiveness in order to be able to make sure we're doing this in an affordable manner.

Okay. And one more, and then I'll hop back in -- well, maybe I'll ask two more. There's been news recently that a number of other institutions have been made at least potentially ineligible for VA benefits. Do you -- I assume it's too quickly to see anything from that, but do you expect any benefit from that?

I think it's too early to tell, Corey. I mean that announcement just came out, what two days ago?

Yes. I'm sorry, Rick. The last question is just on -- you're saying, Angie, part of the benefit of kind of the virtuous cycle of growth is more money to invest in innovation, and you've had a decent share repurchase program for the past year. Does that signal that you think innovation is kind of the better use of capital, and we shouldn't expect the repurchases as much going forward or how are you thinking about that?

Well, Corey, we continually evaluate that, right? So, one thing we firmly believe is that our shares are a good value at this price. And so, it makes sense for us to buy back shares, but of course looking at the return on that investment versus investing internally in technology or advertising, that's an ongoing evaluation for us. I think we see good things happening on the marketing side. And so, that might indicate a future shift away from share repurchases into revenue growth activities. Revenue growth activities, we believe, will generate increases in our share value. So, you sort of solve for the same answer, but in a different manner.

[Operator Instructions]. Your next question comes from the line of Alex Paris with Barrington Research.

This is Chris Howe sitting in for Alex Paris. Starting with Hondros, you mentioned the new enrollment growth that you saw the first time since the second quarter of '18. Can you talk more about what you're seeing there and how you sustain the enrollment trend that you're seeing with Hondros? And in regard to the profitability, you mentioned reaching it in the fourth quarter of '20. What's your outlook on balancing profitability with the potential addition of new campuses in the segment?

Chris, thanks for the questions. I'll answer the first one, and then I'll ask Rick to comment on the second. So, we are enthusiastic about what I would describe as a very comprehensive and systematic evaluation of each step in the process of attracting, enrolling, and supporting students through their whole educational journey at Hondros. And as a result of that, we have improved our conversion rates at the admissions point with students. We are improving our retention rates inside the program with students. And so, it really was a comprehensive systematic evaluation of each step in that process to ensure we're creating the best outcome for our students from the very beginning of that journey through their graduation and their testing processes. And then, Rick, you need to answer the second question.

Yes. So Chris, the second question, do you mind, I'm sorry, just repeating, you wanted to know about balancing profitability versus opening...

Yes, profitability with different investments for growth within Hondros.

Yes. So the actual investment to open a new campus is very low in terms of the capital investment. And to your point, during the early periods of operation, it does generate losses. We look for places where there's a nice supply-demand imbalance, the point being that open new campus and we should have an ability to generate good enrollment growth there.I would say our plan is to open a campus a year, Chris, which does balance kind of the need to generate profits and cash flow with the investment we would like to make in new campus operations to grow that business. We see a pretty nice growth path ahead of us not just by sustaining the current enrollment growth trend, but by adding to that by opening new campuses, right? And so if you look at the earning enrollment today versus where it was just a couple of years ago, we can generate growth in the existing campuses just by filling those up to where they were just a year or two ago without incurring the losses, in fact, realizing the profits associated with that incremental enrollment growth and then by opening a campus and hopefully placing it in the right location, meaning city and specific location pretty quickly fill that up and get to cash flow breakeven.

If I could add one thing, which is that our value creation study as it relates to Hondros, suggested that the PN program and the ADN program that we offer today are the areas where in the national forecast for shortages in health care professionals, the RN program or what is our ADN students become RN has the largest gap of nearly all health care professions forecasted in the year 2024. And so consequently, we feel very confident that finding those right markets that Rick described with the supply-demand imbalance, we have a great product that we can offer into those markets and really believe that that PN and ADN program is the right place at the right time.

But even in the markets that we currently serve where we're, I think, in 4 of the 5 markets, we're #1 in terms of graduating PN. If you look at the number of job openings in those specific markets, even as #1 in those markets, the need is not being met, which speaks for that...

[Indiscernible] 10%.

Yes. It speaks loudly to the fact that there's opportunities in the existing markets. And hopefully, if we're smart, and we plan to be smart about where we place new campuses, we'll see similar results in those campuses.

That's all very helpful. And then moving more broad reaching, as you look at this value creation strategy, and I look through the excitement that you have for this moving forward, this is a little bit of an open-ended question. But when you say creative, can you break apart kind of what you're thinking as far as the strategy as being reactive versus proactive in the market? In other words, is it more driven by what you're seeing within the business or outside the business? And just some of the different ways you look to measure this as we move through it.

I'll do my best to answer that question. Since we're standing at the early days of the implementation, I'll tell you how we've informed our thinking so far. First, our intention is to create the most efficient and effective operating practices inside the company. And the way to benchmark ourselves is to understand how others, both direct competitors and indirect competitors, perform those processes as well. And we did that benchmarking to better understand where we have the opportunity to improve. Second, we need to look outside in the environment as well to understand when we stand in the shoes of our students and prospective students, what have they come to expect in terms of that student experience and what can we do to meet or beat those expectations when they decide to attend courses with us. And so we need to evaluate both the external experiences that they have as well as rely on our heritage of innovation to think about new and different ways that we can actually transform the student experience for our learners.

Your next question comes from the line of Greg Pendy with Sidoti.

I think earlier, you said the accreditation for Hondros was affirmed and pushed out -- affirmed out to February 2021. Can you kind of share with us, I guess, any details, I mean, on where NCLEX pass rates have been, have they been trending up? And then also, can you kind of remind us maybe about the changes in what the current enrollment process with Hondros is? I think a while back, you had some additional requirements, and then I think you rolled those back. So kind of how have things changed in the enrollment process?

So Greg, it's Rick. So on the NCLEX scores, that's Ohio Board of Nursing matter, not an accreditation matter. And you need to sort of break it down. In the PN program, our NCLEX scores are top shelf, right? We outperform others in that area. They're very high, and they've always been very high. It's in the ADN program where we've sought to improve those scores. We've been on provisional status with the OBN now for, I think, 5 years, perhaps 6. It's not a place we want to be, of course, but other schools have been on probation for a long time. So we don't necessarily see that as an immediate business risk. That being said, we're working hard to improve those scores.We've launched something called the direct entry ADN program where we bring in students who have a degree not in health care or related field. They've demonstrated the ability to succeed at the college level, and they're students who are looking for a change in their life trajectory to become a nurse. And so that program launched, I think, late in 2019, and it's really now beginning to get traction. We think that that's going to be a driver of improved NCLEX scores in the ADN program.In terms of the admissions process, we've made some changes in terms of how we apply the HESI test. At the PN level, that's a very sort of micro point. We've implemented other systems. Sales force, I think, we've talked about being implemented to more efficiently track prospects and improve conversion rates. Last year, we did something -- we extended hours of our student facing teams to better meet the needs of our prospective students in terms of when they're interested in learning more about our programs, probably not going 9 to 5. So we extended the evening hours. I would say it's a holistic view of how we identify prospects, how we create a frictionless process to enroll students and then support them in their success.And so the school has gone through an exhaustive examination of all those processes. And I think the good news is we're actually seeing the outcomes of that, right? We're seeing now new student enrollment growth, 31%, in the first quarter. And that, of course, will then lead to, we expect, year-over-year improvements in earning enrollment, right? We were at minus 9 because we still have these smaller cohorts from 2019, and I think there was a large graduation that was referenced in the script earlier. But the new students, as you know, is a leading indicator, and being up 31% is going to, we believe, lead to overall enrollment growth in the future.

If I could also add that, again, one of our key activities is standing in the shoes of our students and our prospective students and really understanding how they experience our brand. And one of the key focus areas in the early part of 2020 at Hondros is modernizing the applicant journey, making sure that we remove the barriers that have prevented students from being able to enroll easily and swiftly in the process historically, and that is well underway with many improvements being made to the benefit of the student.

[Operator Instructions]. Your next question comes from the line of Jeff Silber with BMO Capital.

Just a couple of quick numbers questions. What should we be using for the tax rate for the first quarter and for the year and also capital expenditures for the year, what you're expecting as well?

Right. So we don't give guidance beyond the quarter. But I think, Jeff, for your modeling, you need to be a little north of what we had previously guided to. We were high in '19. I would do something around 28% or 29% for the first quarter. And in terms of CapEx, you've seen our CapEx come down. I think we're probably getting to a place at this point where you're going to see leveling. So I think the recent history would be a reasonable indicator of where we're headed in 2020. We just have minimum capital expenditures. We are moving to the cloud, which alters that capital landscape. But I think where we've recently been, it's probably a good indicator of where we're headed.

Okay. That's helpful. Let me sneak one more in. The $0.13 to $0.18 guidance for EPS, what share count or range of share count is embedded in that?

I'm going to have to get back to you. Roughly $15.5 million, Jeff.

At this time, there are no further questions. I will turn the call back over to Mr. Symanoskie for closing statements.

Thank you, Operator. That will conclude our call for today. We wish to thank you all for listening and for your continued interest in American Public Education. Have a good evening.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.