Good day. My name is Savannah, and I will be your conference operator for today. At this time, I’d like to welcome everyone to the APEI Reports First Quarter 2022 Results Call. Today’s call is being recorded. All lines have been placed on mute to prevent any background noise, and after the speakers’ remarks, there will be a question-and-answer session. Thank you. I would now like to turn the conference over to Ryan Koren. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to APEI’s conference call to discuss first quarter 2022 financial and operating 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 conference call today are available under the Events & Presentations section of the APEI website. Please note that statements made during this conference call and any accompanying presentation materials regarding APEI and its subsidiaries that are not historical facts may be forward-looking statements based on current expectations, assumptions, estimates and projections about APEI and the industry. In some cases forward-looking statements may be identified by words such as anticipate, believe, seek, could, estimate, expect, can, may, plan, should, will, would and similar words or their opposites. Forward-looking statements include, without limitation, statements regarding the expected growth, registrations and enrolments, revenue, net income, earnings per share and adjusted EBITDA, as well as other earnings guidance, expected benefits of the acquisition of Rasmussen University, plans with respect to recent, current and future initiatives on future demand or expectations for online enrollment and nursing education. 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. These risks and uncertainties include among others, risks related effects of and the company’s responses to the COVID-19 pandemic, changing market demand, actions taken by the Department of Defense or branches of the U.S. Armed Forces, including actions related to the disruption and suspension of the tuition assistance program, challenges with integrating acquisitions, regulatory matters, competitive pressures and those described in our presentation, today’s press release, the company’s Form 10-Q filed with the SEC today and other SEC filings. The company undertakes no obligation to update publicly any forward-looking statement for any reason unless required by law, even if new information becomes available or other events occur in the future. This presentation contains references to non-GAAP financial information that we use to measure our business. A reconciliation between the non-GAAP financial measures we use and the most directly comparable GAAP measures is located in the appendix to our presentation and in our earnings release. Management believes that our presentation of non-GAAP financial information provides useful supplemental information to investors regarding our results of operations and should only be considered in addition to, and not as a substitute for or superior to any measure of financial performance prepared in accordance with GAAP. I would now like to turn the call over to our CEO, Angela Selden. Angie, please go ahead.

Thank you, Ryan. And thank you all for joining us today and for your interest in American Public Education. APEI’s first quarter results reflect our commitment to continued momentum in our core businesses. As we have shared in prior quarters, we have defined our APEI enterprise priority as educating the service minded, with roughly one-third of our revenue resulting from educating active-duty military and veterans, one-third to the education of nurses, and one-third educating other service minded students, including federal workers, teachers, social workers, fire safety providers, public health and many other providers. Overall, APEI’s Q1 2022 revenue was in line with the expectations, particularly in comparison to the broader higher education marketplace. We believe that APEI’s positioning with a strong foundation of stable military registrations, coupled with the growing need for nurses in the U.S. have contributed to this performance and our business mix positions us well for the future. In Q1 2022, we saw strengthening of certain trends, starting first with the enrollment momentum at APUS from all branches of the Armed Services, and notably from the Army, where the registration portal difficulties from the transition to ArmyIgnitED have subsided. While approximately one-third of Army registrations are still processed through the exception to protocol, Army new and returning registrations overall at APEI have increased 11% year-over-year. Overall, active-duty military increased approximately 7% year-over-year. Rasmussen’s total nursing enrollment continued to grow in the first quarter, up 2%, compared to a difficult positive 23% comparison prior year in 2021 and up 12% on a two-year CAGR basis versus 2020. Hondros nursing enrollment represented an 8% growth in the first quarter of 2022, also as compared to a very difficult plus 45% prior year comp and represents a 25% two-year CAGR growth over the 2020 period. We are generating interest from…

Thank you, Angie. On slide eight, we present our financial highlights for the first quarter of 2022. Total revenue was $155 million, up approximately $66 million from the comparable prior year period due to the addition of Rasmussen and Graduate School results in the 2022 period. At APUS, although net course registrations were up 1% in 2022 compared to the 2021 quarter, APUS first quarter 2022 revenue decreased approximately 6% to $73 million. The decrease in revenue was a result of the timing of registrations within the quarter and lower revenue per net course registration. The increase in net course registrations in the current quarter was driven by active-duty military registration growth. These students utilized tuition assistance or TA and have lower revenue per net course registration than other funding sources. Hondros revenue increased approximately 4% to $12 million in the first quarter of 2022 versus the comparable prior year period, driven by the year-over-year enrollment growth that Angie touched on earlier. First quarter 2022, Rasmussen revenue was $67 million and the consolidated results include approximately $3 million of Graduate School revenue within corporate and other. Total costs and expenses for the first quarter 2022 were $150 million, an increase of approximately $72 million compared to the prior period, due primarily to the inclusion of Rasmussen and Graduate School results in the current year period. Expenses for the quarter include $2 million of non-cash stock compensation expense, $900,000 of professional fees and integration cost, primarily related to the integration of Graduate School and Rasmussen, $800,000 related to loss on disposal of long lived assets and approximately $8 million of depreciation and amortization, all on a pre-tax basis. As a reminder, we completed a reduction in-force at Rasmussen in mid-January 2022 that we estimate will result in pre-tax labor and benefits…

Thank you, Rick. In summary, we remain confident as we continue to transform and diversify APEI’s portfolio of career learning assets and fulfill our mission of educating the service minded. Demand for nursing graduates is expected to remain strong for the foreseeable future as employers are clamoring for new nurses to supply the national shortage and we believe we are well-positioned to fulfill these needs. APUS continues to strengthen its number one position in education to the U.S. military and veterans, and overall, APEI continues to represent an exceptional return on educational investment for working adults by keeping tuition rates in check, while providing books and materials at no cost, and being one of the most friendly transfer credit institutions. We now ask the Operator to open the line for questions.

Thank you. And our first question will come from Tobey Sommer with Truist Securities. Please go ahead.

Hey. Good afternoon. This is Jasper Bibb on for Tobey. Marketing expenses came in a bit higher than we are expecting in the first quarter. I was just hoping you could update us on what you are seeing with respect to student interest levels and managing the marketing yield there?

So Jasper let me comment on the numbers and then Angie can comment on student interest. You are right, marketing numbers were up. At Rasmussen, we saw approximately $1 million higher than what we were actually expecting when we gave guidance as they invest in student momentum. And at Hondros, when you look at the quarter was up about $400,000 year-over-year. So, investing both the nursing related businesses. Angie?

Sure. And what we are seeing in the conversion of those marketing dollars is very promising, but it hasn’t necessarily led to the number of enrollments that would be equivalent to prior year period. So we see double-digit increases in applications. What we are seeing is a slower application to enrollment pace with a handful of students primarily focused in the Northern Territory of Rasmussen’s business. But we are keenly focused on adding to our admissions reps to help support the questions and the curiosity that those prospective students have. Certainly taking the time to fill out an application and we will continue to lean in and convert those students to enroll students. The other thing that we are seeing is the, as we mentioned in the script, that we have had to increase the wages of our adjunct and full time faculty, specifically because the State of Minnesota has required Rasmussen to go back to in-person clinicals, whereas in the last two years, since the beginning of COVID, Rasmussen has been given the opportunity to do clinical rotations virtually. And so, consequently, we are now looking to ask both the part time and full time faculty to be present in hospital environments to support the clinical learning for the students and that’s creating some scheduling and availability conflicts. So we are looking at different kinds of incentives to ensure that we can fulfill the clinical placements that we need with our students with the appropriate adjunct faculty support.

Thanks. So that makes sense. And then I understand you are guiding 2Q yet, over some of the trends you cited, do you think the second quarter would represent a low point for margins in 2022 or how should we think about the cadence of margins over the balance of the year here?

I don’t think inflation is going to subside that quickly, nor will the pressure on wages, particularly related to nursing faculty. Well, that’s what’s up inside. So that ongoing inflationary environment with a particular focus on wage inflation and nursing faculty costs is going to have an impact on our nursing businesses through the remainder of this year.

We do believe it’s an environment where it’s our obligation to tighten our belts and so we will be looking for opportunities for cost savings across all of our education units in the coming quarters to really improve the margin profile in spite of inflation.

Okay. Got it. And then with the APUS enrollments being down pretty significantly from 1Q in the second quarter guidance, can you give a bit more color on what’s driving that, that enrollment trend? Is that primarily the impact of the troop movements you have decided in response to Russia-Ukraine, or is there anything else we should think about that?

Jasper, it’s Rick. No, that’s just seasonality, year-over-year, we are seeing, there was a 1% increase in the first quarter against prior year, and given our guidance and if you go to the midpoint, it would be about a 1% increase in the second quarter. So both quarters are tracking on a relative basis, very consistent with the prior year, you are just observing seasonality.

And I would add we did, as we mentioned in the script, see a slight decline in the first month of the quarter in April because of the Ukraine conflict. But we are seeing momentum building again as the troops get deployed and they are waiting for their instructions so able to kind of re-engage in their education. The other thing that we do know about the second quarter is that we do have one last week of registration enrollment as compared to the prior year. So that will be factored into the second quarter as well.

All right. Last one for me. There have been a couple other services providers talking about students may be taking less courses than they have in previous semesters, is that something you are seeing in any of your portfolio of institutions?

Right. So just we got to break down the different units in the nursing schools, it’s a prescribed curriculum, right? So you sign up on a term or quarter basis and the curriculum is prescribed based upon the program that you are in. When you look at APUS, the military students have historically taken fewer courses and so on average, we may see a very slight decline in average courses taken over the entirety of the university simply because of that mix shift. But I don’t think we have noticed, we have observed any change in average course load at APUS by call it customer segment.

I would put that some numbers behind that, at Rasmussen, the retention rates for students. So once they have defined a cohort and you are taking four classes each quarter, the retention is an all-time high at Rasmussen. So once students have begun their educational journey, they are completing at an all-time high pace and we are also very pleased to report that retention, meaning the concentration of courses at APEI was up 8% year-over-year in the first quarter.

Appreciate the comment. Thanks for taking the questions.

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

Hi, everyone. This is Matt Filek on for Stephen. Thank you for taking my questions. I was wondering what impact are enrollment caps having on the business and are there any campuses that are struggling to grow because of those enrollment caps?

Matt, thanks for the question. As we mentioned, we aren’t seeing any growth restrictions because of enrollment caps across the Rasmussen campuses. We have no enrollment caps among the other education units. We have a -- what I would call a self-imposed limit on the number of students who are enrolling in the northern region of Rasmussen presently, because of the lack of availability of the clinical faculty. But that is not anything other than our own obligation to make sure the students are getting a high quality education and we have the right mix of faculty to students.

So -- this is Rick. So the limit there is based upon the availability of faculty particularly in the clinical area. When we think about the physical space, the campuses, we have plenty of room to continue to grow enrollment within those. So once we solve the availability of faculty challenge, we have capacity within the physical spaces to continue to grow enrollments.

Great. Thank you. That’s helpful. And then on the nursing faculty front, could you maybe just talk a little more about what actions you are specifically taking to address that and how do you generally feel about your ability to build nursing faculty capacity to meet student demand over the remaining part of 2022?

Great question. We have a variety of basically financial and flex schedule levers that we are using right now. Certainly, I think the financial situation is mostly acute. But as we mentioned, it was this very swift shift from a virtual clinical in the State of Minnesota back to in-person clinicals that has created a lack of availability at some of the add-on faculty that we have been relying in an virtual environment in the past. And so we will see an increase, further increase in some wages either because of state bonuses or increased prices that we will pay for add-on faculty to now to do these clinicals in-person, in hospitals rather than being able to do those virtually from the comfort of their homes or their office. So we believe that that we will see continued pressure on our faculty wages in the coming quarter or two.

Thanks for that color. I will jump back in the queue.

And our next question will come from Raj Sharma with B. Riley. Please go ahead. Raj?

Hi. Sorry about that. Thank you for taking my question. I wanted to understand the Rasmussen University in marketing spend, is that on the non-nursing non-working as well and I wanted to understand the enrollment declines a little bit more? And also the big, big picture on the non-nursing side, you talked about the early education accounting for a quarter of the decline. Could you please talk about that and the longer term sort of picture we are seeing?

Hi, Raj...

fact...

Sorry, I will let you finish your question.

No. Sorry. No. I am done. Go ahead, please.

Okay. Sure. So I will start by saying that there is positive news coming from some of the non-nursing segments in Rasmussen in quarter two, where we are seeing flat to growing enrollments there and we believe that that’s the return of interest of students wanting to take education, benefits and continue their education. So we do believe that there is momentum in several of those, including the Business School, Health Sciences and in the Justice Studies program. We have also, as we noted in the 10-Q, terminated the media buying relationship that Rasmussen had with Coliges , which is allowing APEI to have more control over the choices being made about how we are going to generate leads and where we are going to invest those dollars. That will be fully terminated and APEI will be responsible for media buying, direct-to-consumer media channel buying effective July 1, 2022, and so, we have confidence that we, with the ability to direct those efforts, will be able to create a balance around nursing -- pre-licensure nursing leads and the key non-nursing businesses to generate more momentum across both of those segments.

So has the decline in enrollment largely been because of the economic tight labor markets and keeping students away from enrolling or have marketing dollars not been spent or are they have been spending and is not efficient?

Yeah. Great question.

And now you are doing it in-house, right?

Yeah. There’s been a meaningful shift, as we have discussed in prior calls of marketing dollars investing in pre-licensure nursing leads and kind of being redirected away from the non-nursing businesses. We intend to try and create a NAND strategy with control over the media buying now for Rasmussen effective July 1, 2022 and have a high degree of confidence that we will be able to drive leads in both of those segments going forward. And what I will reinforce again as we mentioned in the script is that, it is really, almost exclusively a Northern region issue. We are not seeing the same dilemmas in our markets in Florida or Illinois.

But that’s also related to the faculty, right, unavailability…

That’s right.

…of the aging faculty?.

Yeah.

Okay. My next question is on just an observation, are Hondros enrollment transition from the nursing resolution. How does that second quarter and it seem a little different, Hondros seems to be doing a little better?

Hey, Raj. It’s Rick. Yes. And I think that’s a market based view, right? It’s what’s going on in the Ohio market where they have their largest concentration…

Okay.

… versus the impact we see in the north central region at Rasmussen.

Right.

Yeah. Then fewer problems with access to faculty, I think, it’s…

Okay.

… primarily one of the things that isn’t clouding the Hondros picture like it is in Ras.

Got it. And then on the APUS enrollment, it’s flat -- it’s essentially flat second quarter guidance. Is that despite the military enrollment sort of picking up Army portal, I just want to understand that a little better the components of it. The Army portal issues are kind of behind us. That would be help. There was a law because Ukraine, that you saw a pickup in the interest. But the enrollment trends are guided to flat.

I think you got it right.

Late market or...

Yeah. I think you got it right, Raj, and Angie in her comments noted that we continue to see strength in the military some softness in May, because of Eastern Europe recovery from that and the other elements of the APUS business, military affiliated and non-military remain soft.

What I will say, Raj, is that, we -- as we mentioned on our prior call, have completed a significant portion of our CRM upgrade and we are seeing a meaningful increase in the number of applicants at APUS. And much like the situation at Rasmussen, where we want to make sure we have the right number of admissions, reps able to process the interested student applications. And we are also trying to work to appropriately size the APUS admissions team as well to make sure that we are converting every single one of those applications that we can into enrolled students. So it isn’t that APUS in particular. On the non-military side, we don’t really see it being as much as a top of the funnel issue as it is really being able to take those interesting prospects and converting them into enrolled students. And Jeff Tognola, our new CXO is laser focused on this in conjunction with the APUS management team.

Great. That’s exciting. That’s exciting. Thank you for answering my questions. I will take my -- I will take it offline. Thank you.

Sure.

And with no further questions, I will conclude today’s conference. Thank you for your participation and you may now disconnect.