Ladies and gentlemen, thank you for standing by, and welcome to the APEI Reports Third Quarter 2020 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [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.

Thank you, Operator. Good evening, and welcome to American Public Education's third quarter conference call. Materials that accompany today's conference call are available in the Events and Presentations section of our website. Please note that statements made in this conference call and in the accompanying presentation materials regarding American Public Education, its subsidiaries or Rasmussen University 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, plan, should, will, and would. These forward-looking statements include, without limitation, statements regarding the benefits of the acquisition of Rasmussen University, the closing of the transaction and it's timing, expected growth, expected registrations and enrollments, expected revenues, earnings and expenses, expected financial results for Rasmussen University, the ability to deliver a return on learners' educational investments and plans with respect to recent, current and future initiatives. Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including risk related to the acquisition of Rasmussen University and the risk factors described in the Risk Factors section and elsewhere in our company's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the SEC as well as the company's other SEC filings. The company undertakes no obligation to update publicly any forward-looking statements for any reasons, 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, Executive Vice President and Chief Financial Officer. Also available for questions is Steve Somers, Senior Vice President of Strategy and Corporate Development. Now, I'll turn the call over to Angela Selden. Angie?

Thank you, Chris. Good evening, everyone, and thank you for joining our call today. Before I share details surrounding APEI's third quarter results, I'd like to reflect on gains and progress APEI has made over the past year. Just over a year ago when I joined APEI, we began by evaluating every aspect of each business unit. At APUS enrollment has been flat or declining for several years, with only modest investments as the company sought to maintain margins. Hondros had a leading position in Ohio and was in the attractive pre-licensure nursing education segment that was underperforming and had made some unfortunate decisions in late 2018, which resulted in sharp declines in enrollment in 2019. With the support of the Board of Directors, we set out to turn around the business and to reposition the company for growth. All while continuing to ensure that we put our student's ambitions and success at the center of all we do. We evaluated the solid set of assets the company has built, including the leadership position in both military and veteran markets, the company's strong regulatory reputation, and established pre-licensure nursing beachhead in Ohio, and a solid balance sheet from which to work. What a year it has been! The improvements have been wide ranging and dramatic. We added key leaders and brought some additional experience to our board. Overall, it was a year of transformation and acceleration. At APUS, we're especially pleased to welcome Wade Dyke, as President to help guide the institution into its next phase of growth and improve our educational experience for our students and faculty. We prioritized modernizing our virtual campus, which is anchored by our Learning Management System or LMS, by implementing each well, and migrating as of this month, over 1,300 courses in nine months.…

Thank you, Angie. Going on to Page 6. American Public Education's consolidated revenue for the three months ended September 30, 2020, increased 16.6% to $79. 1 million compared to $67.9 million in the prior year period. The increase was driven by an $8.4 million or 13.7% increase in APEI's segment revenue, and a $2.8 million or 42.5% increase in HCN segment revenue. For the fourth consecutive quarter, net course registrations at APUS have increased year-over-year, driven primarily by increased demand from students utilizing DoD tuition assistance. We believe that the increase in new student enrollment at Hondros was due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19 and the increase in marketing expenditures, the continued impact of new initiatives implemented in 2019, such as the direct entry ADN program, and the implementation of institutional affordability grant in the first quarter of 2020. In the third quarter, cost of expenses were $75.8 million, an increase to $5.0 million or 7.1%, compared to $70.8 million in the prior period. The increase was primarily due to increases in employee compensation costs, advertising costs, professional fees, and information technology costs in our APEI segment, and increases in instructional materials costs, and employee compensation costs in our HCM segment, partially offset by a decrease in advertising costs in our HCM segment, and bad debt expense in our APEI's segment. Consolidated instructional costs and services expenses increased approximately $3.8 million to $31.1 million, and as a percentage of revenue decreased to 39.3% compared to 40.2% in the prior period. The increase in instructional costs and services expenses was primarily due to an increase in employee compensation costs in our APEI segment, and increases in instructional materials costs and employee compensation costs in our HCM segment.…

Thank you, Rick. As Rick just noted, our third quarter results demonstrate that APEI has moved from negative to positive growth with year-over-year increases in revenue, net income and adjusted EBITDA. Enrolment growth at both APUS and Hondros drove an 11% increase in consolidated revenue for the first three quarters of this year. Adjusted EBITDA increased 5.8% year-to-date compared to the prior year period, even with the investments we made in technology and marketing. We believe this is a solid growth foundation that will be magnified by the acquisition of Rasmussen University. On Page 8, I'm so pleased to announce that we've entered into a definitive agreement to acquire Rasmussen University, which is transformational for both APEI and Rasmussen. This combination dramatically increases our scale, and is expected to nearly double APEI's revenue to approximately $600 million in fiscal year 2021, on a pro forma basis. It is also highly strategic as APEI will become the number one educator in the U.S. of pre-licensure nursing, by conferring associate's nursing degrees, and practical nursing degrees, which lead to registered nurses and licensed practical nurses respectively, after students sit for and pass the National Licensure Examination. Collectively, Rasmussen and Hondros will be a nursing education powerhouse, serving over 10,000 nursing students. The transaction creates scale and diversifies APEI's revenue mix that will consist of approximately one-third military and veterans, one-third nursing and one-third online adult learners. Furthermore, it provides important scale benefits, and help establish APEI as a platform for additional transactions that can create meaningful synergy opportunities over time. We feel very fortunate to have found a partner in Rasmussen, whose mission and culture aligns so well with that of APEI. We both prioritize providing affordable, inclusive and high-quality education, and both have strong regulatory track record, which makes this an…

Thanks, Angie. Going on to Page 15. APEI's outlook for the fourth quarter of 2020 is as follows: at APUS, net course registrations by new students are expected to increase between 11% and 15% year-over-year, and total net course registrations are expected to increase between 6% and 10% year-over-year. At Hondros, new and total enrollment increased by 34% year-over-year, compared to the fourth quarter of 2019. In the fourth quarter of 2020, we expect consolidated revenue to increase between 10% and 14% year-over-year, with year-over-year increases at both our APEI and HCM segments. The company expects diluted earnings per share to be between $0.41 and $0.46 in the fourth quarter of 2020. This includes the pre-tax impact of approximately $1.3 million in M&A-related professional fees. The consolidated outlook for the fourth quarter earnings per share includes items we generally view as important investments in our future growth, such as investments in our technology modernization project, and increase marketing to elevate our affordability message. In closing, APEI continues to report improved financial results, including a 16.6% increase in revenue, and a $4.3 million increase in net income for the three months ended September 30, 2020, as well as a 40.1% increase in net cash from operations for the nine months ended September 30, 2020, as compared to prior year periods. Operator, we'd like to now open the line for questions. Thank you very much.

[Operator Instructions] Our first question comes from Jeff Silber with BMO Capital Markets. Your line is open.

Thanks so much, and congratulations on the continued stellar results the company has been posting over the past few quarters. Angie, in your prepared remarks, you alluded to the political environment. And I'm sorry to start with this question. But given everything that's going on, I think it's important. I think you used the word that the company would be adaptable to propose changes, if any. Can you talk about what changes you might expect and how the company would adapt to those?

Sure. I think the one that has been most commonly discussed is the change in the composition of a 90/10 calculation. And as you know and many of us know, the military tuition assistance TA benefit, and VA benefit really, truly is that. It's the benefit to our active duty in our veterans for serving our country. And that is the reason why historically it has not been included in the 90% calculation. If, in fact, the TA and VA benefits will be included in the 90/10 calculation, APEI and APUS specifically would still be within the compliance of the 90/10 ratio. There are also discussions about moving the 90/10 calculation to 85/15, and we have some strategies that we are developing in order to be able to make sure that we can successfully pass an 85/15 ratio in the event that comes to path.

So, I don't know if you can give us an example. But at a high level, what kind of things can you do to make sure you stay above or below 85% if it comes down at that level?

These are things under development right now, Jeff. So I'd rather not share all those details right now. But there are some things related to corporate programs, employer reimbursement, a focus on kind of the micro segmenting and kind of redirecting some of our marketing spend to students, who perhaps are not the students using TA and VA benefits today. So we have a very good handle based on our micro segmenting work that we've accomplished this year, about the students that we can see who are not leveraging TA and VA. And so certainly, we want to redirect our focus towards those students.

Okay. That's really helpful. Let me shift gears over the Hondros. Again, really phenomenal results the past few quarters. From a competitive perspective, we're just seeing and hearing lots of schools starting to offer nursing. I'm just wondering what you're seeing the competitive landscape like. And how you can differentiate your offerings needs to be the competition? Thanks.

Sure. And thanks for asking that question. We find that there is a lack of clarity among some, not necessarily, you definitely know a lot about this. But when we get asked about nursing, we want to make sure that the understanding that folks have is that for Hondros specifically today, Hondros offers only pre-licensure nursing. It offers PN and ADN degrees. Pre-licensure nursing is the educational program that create new nurses. And that's really a big part of what we're focused on and a big reason why we are very attracted to Rasmussen, who also has a deep focus in creating new nurses. Certainly, Rasmussen offers the full ladder, but as soon as you do say an ADN or PN, BSN, or RN to BSN, the MSN degrees and even the doctoral program, we're not creating new nurses at that point. We're educating existing nurses and allowing them to advance in their careers, which is certainly also important. But right now, what we know is that the market gap, the shortage, the 175,000 open positions a year, the 500,000 nurse shortage by 2030, is specifically related to registered nurses. And so it's our mission to create as many qualified registered nurses as we can to help try and address that gap. That's what we think is really distinguishing about the programs we offer today. Certainly, as you think about competitors, who might be trying to expand into new states, there are different state regulations with the nursing boards and other regulatory bodies that make it somewhat difficult for new entrants to move swiftly into new states. It could be up to two years before nursing programs are approved for scale. And certainly, we believe that with the foothold that we have in now nine states as Rasmussen was just approved to open campuses in Texas, that we have the opportunity to significantly accelerate the number of new nurses that we create for the United States.

Right. That's great to hear. I'll jump back in the queue. Thank you.

[Operator Instructions] We have another question from Greg Pendy with Sidoti. Your line is open.

Hey, guys, thanks for taking my question. Can you just talk and I guess at the core university, and I'm sorry, if you guys touched on this earlier? But can you just now that you are kind of making a big acquisition into nursing. Can you kind of give a little bit of color on where you've seen the specific puts and takes in terms of demand as far as your curriculum? Are there any areas that are outpacing maybe IT or business lagging and just kind of go into a little bit of detail there in light of the enrolment numbers?

Sure. Happy to give you some details, not necessarily at the program level. But definitely some enrolment momentum had APUS. So today, certainly the Freedom Grant which we discussed earlier on the call has created momentum for new and returning students at the graduate level for APUS. We're also seeing significant momentum in the graduate programs for military affiliated students, who is might be spouses, and that's at the returning student level, as well as new registrations for military affiliated, both with the undergrad and the graduate level. And our non-military students have expressed significant interest and we have enrolment growth at the graduate level and our non-military students as well. So, we do see people taking advantage of the affordability the programs that we offer and advancing in their careers and in a very affordable way during this time of pandemic.

Great, that's helpful. Thanks.

[Operator Instructions] There are no further questions at this time. I'll turn the call back over to Chris for closing remarks.

Thank you, operator. That will conclude our call for today. We thank you for listening and for your continued interest in American Public Education. Good evening.

This concludes today's conference call. You may now disconnect.