American Public Education, Inc. (APEI) Q2 2026 Earnings Report, Transcript and Summary

Thank you for standing by. My name is Jonathan, and I will be your conference operator today. At this time, I would like to welcome everyone to the APEI Second Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the call over to Jack Landry, Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to American Public Education's conference call to discuss Second Quarter 2026 Results. Joining me on the call today are Angela Selden, President and Chief Executive Officer of APEI and Chancellor of the American Public University System; Edward Codispoti, Executive Vice President and Chief Financial Officer; and Gary Janson, Chief Strategy and Growth Officer. Materials for today's call, which is being webcast and is open to the public, are available in the Events and Presentations section of APEI's website. Statements made during this call and in the accompanying presentation regarding APEI and subsidiaries that are not historical facts may be forward-looking statements that are based on management's current expectations, assumptions, estimates, and projections. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the expressed or implied by such statements, including risks related to potential impacts from government shutdowns or changing federal or state government policies, laws, practices, and actions, including impacts on revenues or the timing of receivables and other factors identified in our Form 10-K and Form 10-Q under the heading Risk Factors and other SEC filings. Forward-looking statements may sometimes be identified by words like believe, estimate, expect, may, plan, potentially, project, target, outlook, path, position, on track, on base, should, will, would, and similar or opposite words. Forward-looking statements include, without limitation, statements regarding expected operational efficiencies, technology platform implementations, marketing efficiency initiatives, expectations regarding the resilience of our programs to market or technological disruption, expectations for registration and enrollments, revenue, earnings, adjusted EBITDA, adjusted EBITDA margin, and other earnings guidance, our foundation for growth and our current and future growth initiatives, strategic investments, capital allocation, and M&A opportunities, operational milestones and timelines, the completed combination of our institutions, governmental and regulatory actions, their impact, and our response to those actions, changing market demands, and our ability to satisfy such demands and other company initiatives. The call and the presentation contain references to non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDA margin. A reconciliation between each non-GAAP financial measure we use and the most directly comparable GAAP measure 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 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'd now like to turn the call over to APEI's President and CEO, Angela Selden. Angie, please go ahead.

Thank you, Jack. Good afternoon, and thank you very much for joining American Public Education's 2Q 2026 results call today. First, given the strength of our second quarter results and our visibility into the balance of the year, we are raising our full year 2026 guidance on both revenue and adjusted EBITDA. In addition, I am very pleased to share American Public Education's second quarter 2026 results. Total revenue grew 5.5% year-over-year to $171.7 million, at the high end of our guidance range for the quarter. If you were to exclude $3.4 million of Graduate School USA revenue in the prior year period, which, as a reminder, is the business that we sold in July of 2025, APEI's revenue would have grown 7.8%. We exceeded the high end of our guidance range on adjusted EBITDA, which grew 36.8% to $20.7 million, compared to $15.1 million in the prior year period. We exceeded the high end of our guidance range on net income available to common stockholders and diluted earnings per share. Net income available to common stockholders was $9.8 million or $0.52 per diluted share, compared to a loss of $0.03 -- excuse me, $3 million or $0.02 per diluted share in the prior year period. On August 4, 2026, we completed our institutional combination, combining American Public University System, Rasmussen University, and Hondros College of Nursing into the new American Public University System or the system, for short, to complete the final milestone in our multi-year simplification of our business. Today, we are announcing that we are underway building a new AI-enabled student lifecycle platform for the system with Salesforce, which we believe will begin delivering value in early 2027. With those headlines, I will now provide some additional detail on our 2 segments, our institutional combination, and our new AI student platform before I turn it over to Edward Codispoti, APEI's Chief Financial Officer. Let's start with Health+. Health+ revenue grew 11% to $86.2 million, driven by 7% enrollment growth to approximately 19,600 students and a modest price increase, demonstrating the continued durability of demand for pre-licensure nursing education. We continue to execute on our Fill the Back Row strategy to improve capacity utilization by adding students to available seats in existing programs and our on-ground healthcare campuses, which outpaced our total Health+ enrollment gains by delivering approximately 9% enrollment growth in the quarter. Our new Health+ Orlando campus welcomed its first class this quarter, where enrollment is outpacing our plan, and where we introduced our LPN program to the Orlando market. Our Detroit II campus is on track to begin enrolling students in 2026, keeping us on track with our Trailblazer initiative to open 2 new campuses each year. I'm also very pleased to announce that we have signed the lease for our first 2027 campus location in Fort Lauderdale, Florida, which is scheduled to begin enrolling students in Q4 2027. Finally, I want to share that Mark Arnold, President of the Health+ division, is leaving for personal reasons. We thank him for his service, and we wish him well. Duane Bertotto, who many of you met at APEI campus visits in Eagan and Tampa, as well as our November Investor Day in New York, will continue to run day-to-day operations for Health+, which includes our important Fill the Back Row and Leverage the Ladder initiatives. Now turning our attention to Military+. Military+ revenue grew 4.7% to $85.5 million on net course registration growth of 2% to approximately 98,300 students. Veterans' and military families' registrations continue to grow at a mid-teens rate and remain a key driver of overall growth. Our active duty channel has been challenged this year by the nature of the ongoing conflict in the Middle East, and in particular, the continued deployment of Navy, Air Force, and Marine service members. Even so, our Army enrollments, historically representing the largest percent of our armed service registrations, continues to show strength, and we continue to collect evidence that this is event-related rather than a structural demand issue. I would like to take a moment to honor 2 Military+ students who, while serving our country, lost their lives in the conflict. We want to honor Sergeant Michael Swinton, who was pursuing a degree in counterterrorism studies, and First Lieutenant Tyler J. Ceehan, who was pursuing a master's degree in business administration. Now let's turn to an update on our institutional combination. I'm very, very pleased to highlight that last week we crossed the finish line with our institutional combination. The Higher Learning Commission has approved the combination of all of our academic units under a single institutional accreditation, and the Department of Education has approved the combination for purposes of federal student financial aid programs. American Military University, American Public University, Rasmussen University, and Hondros College of Nursing now operate as one unified HLC-accredited institution with more than 290 degree programs, approximately 109,000 students, and over 250,000 alumni worldwide. Notably, the last growth restriction on Rasmussen's total enrollments that was imposed in 2021 by the Department of Education when APEI purchased Rasmussen, was also lifted as a result of the combination. We are also pleased to announce a new AI-powered student lifecycle platform, or what we call SLP, with Salesforce for the American Public University System, using their next-generation student information platform along with Data 360 and Agentforce. As an important note, we had already anticipated these costs in our original 4-year 2029 financials. Beyond the costs, however, we expect operating efficiencies and additional financial benefits, which were not included, and we will share more detail on a future call. Over time, we expect this to support a more connected, cost-effective view of our students across admissions, advising, and other student services, along with ensuring data protections are built in. We expect the rollout to begin with our Health+ division in the first quarter of 2027, starting with student support and admissions, and to expand across both Health+ and Military+ through 2027 and into the first half of 2028. This is one part of our broader measured approach to applying technology where we believe it can have an improvement in both efficiency and student experience over time. Turning our attention to our new university system overall, on our last earnings call, we shared that we have been experiencing some increases in cost per lead for our non-core segments, which has resulted in some lower enrollments in our non-core student segments. While we have not seen our core segments of active duty veterans, families, and campus nursing affected by this, we did initiate an end-to-end evaluation of marketing efficiency and effectiveness across all student segments and channels with a third party. Our early findings point to meaningful opportunities to lower cost per start and increase effectiveness, and we have already begun implementing changes to processes, practices, and organizational structure with improvements expected to begin to take hold in Q4 '26. In summary, we remain pleased with the continuing performance of our health-affiliated and military-affiliated enrollments. In particular, with our Fill the Back Row initiative continuing to perform as we have expected, this reinforces the moats we have built around our large revenue and margin segments. I want to reinforce the message I delivered last quarter with one new important addition. The foundation is built, the business is simplified, the balance sheet is strong, and now the institutional combination is complete. Quarter after quarter, we are doing what we said we would do. We remain very confident about the significant runway ahead of us. With that, I'll turn the call over to Ed to discuss our 2Q '26 financial results and our updated 2026 guidance in detail.

Thank you, Angie. I'll begin with our second quarter results, then review our balance sheet, share an update on our share repurchase program, and conclude with our updated outlook for the third quarter and full year 2026. Total revenue in the second quarter was $171.7 million, compared to $162.8 million in the prior year period, an increase of $8.9 million or 5.5%. Excluding $3.4 million of Graduate School USA revenue in the prior year period, revenue would have grown 7.8% year-over-year. We believe this comparable growth rate is a cleaner read on underlying top-line momentum. Now let's break down revenue by segment. At Military+, second quarter revenue was $85.5 million, compared to $81.7 million in the prior year period, representing 4.7% growth. Military+ segment income from operations was $23.7 million, compared with $21.4 million in the second quarter of 2025, an increase of 10.6%, reflecting a segment adjusted EBITDA margin expansion of 150 basis points to 29.4%. Net course registrations at Military+ for the quarter were approximately 98,300, compared to 96,400 in the second quarter of 2025. At Health+, second quarter revenue was $86.2 million, compared to $77.7 million in the prior year period, representing 11% growth. This segment delivered income from operations of $0.3 million, compared to a loss of $2.4 million in the prior year period, reflecting continued enrollment momentum and early benefits from our Fill the Back Row capacity utilization initiative, partially offset by investment in advertising and technology. Turning to profitability, overall, APEI's second quarter net income available to common stockholders was $9.8 million, or $0.52 per diluted share, compared to a loss of $0.3 million or $0.02 per diluted share in the prior year period. Second quarter adjusted EBITDA was $20.7 million, up $5.6 million or 36.8%, compared to $15.1 million in the prior year period. Adjusted EBITDA margin was 12% compared to 9.3% in the second quarter of 2025, representing 275 basis points of margin expansion year-over-year. Turning to our balance sheet, we ended the second quarter in a very strong balance sheet position. As of June 30, 2026, our cash equivalents, restricted cash, and short-term investments totaled $222.8 million, compared to $176.5 million at December 31, 2025, an increase of $46.3 million or 26.2%. Total debt was $88.9 million, and we had excess cash and equivalents in short-term investments over debt of $133.9 million. Year-to-date cash flows from operations were $75.4 million, up 45.6% year-over-year. In March, our board authorized a $50 million share repurchase program. We remained active during the second quarter and currently have $45 million remaining available under the authorization. I'd like to take a moment to share our perspective on what drives APEI's strong cash generation. Our Military+ segment carries attractive margins, requires very little incremental capital to grow, and converts strongly to cash flow as enrollment scales. Our Health+ segment focuses on our Fill the Back Row and Leverage the Ladder strategies that utilize existing capacity. Because the infrastructure and support organization is largely in place, incremental margins on those students approach 50%. Additionally, our Trailblazer Nursing campus expansion strategy is highly efficient. We have publicly stated that we expect to open 8 new campuses between 2026 and 2029. We plan for each new campus to require approximately $3.5 million of investment, reach breakeven in about 18 months, and generate approximately $12 million of annual revenue within 4 to 5 years. The combination of a high-margin, capital-light online business, along with incremental revenue and margin expansion from our existing campuses and a highly efficient campus expansion strategy, creates a powerful growth framework. Our model is designed to enable us to expand while simultaneously generating significant free cash flow. We believe the combination of a capital-light, high-margin Military+ platform, significant operating leverage within Health+, attractive new campus economics, and strong returns on invested capital differentiates APEI and positions us to create substantial long-term shareholder value. I'll now discuss our updated guidance. Based on our second quarter results and their visibility into the third quarter, we are raising our full-year 2026 outlook on revenue, net income, adjusted EBITDA, and diluted EPS, and we are initiating third quarter 2026 guidance. For the full year 2026, our updated guidance is as follows. Revenue of $690 million to $698 million, compared with our prior range of $686 million to $696 million. Net income available to common stockholders of $46.5 million to $52.5 million, compared with a prior range of $44.9 million to $51.6 million. Adjusted EBITDA of $96 million to $104 million, compared with our prior range of $93 million to $102 million. Diluted EPS of $2.48 per share to $2.79 per share, compared with our prior range of $2.33 per share to $2.68 per share. We are lowering capital expenditures to $25 million to $28 million, compared with our prior range of $28 million to $32 million. Our updated guidance reflects our confidence in the trajectory of the business, continued enrollment momentum at Health+, the timing and investment dynamics I just described at Military+, and notable progress on each element of the strategic framework we outlined at Investor Day, including the completion of our institutional combination. As we turn our attention to third quarter guidance, I would like to discuss an infrequent revenue timing shift related to our monthly starts. Because our Military+ revenue is recognized ratably over the period of enrollment, in Q3 2026, based on a September 7 start date, approximately $6 million of revenue and roughly $4 million of adjusted EBITDA associated with these enrollments is forecasted in Q4 rather than Q3. With that, third quarter 2026 guidance is as follows. Revenue of $164.5 million to $167 million. Net income available to common stockholders of $3.4 million to $5.4 million. Adjusted EBITDA of $14 million to $17 million. Diluted EPS of $0.18 per share to $0.29 per share. The adjusted EBITDA guide in Q3 2026 of $14 million to $17 million includes the Military+ revenue timing anomaly of approximately $4 million and non-recurring expenses related to marketing optimization in the second half of the year. We expect our margins next year to continue to expand in line with our 4-year plan. This assumes Military net registrations of 101,000 to 103,000, up 1% to 3% year-over-year, and health enrollment of approximately 19,100, up approximately 3% year-over-year, with campus enrollment growth of 7%. As we raise our full-year 2026 guidance on revenue, net income, adjusted EBITDA, and diluted EPS, we remain committed to continuing to execute on the long-term strategy we laid out at Investor Day. With that, I'll turn it back to Angie for closing remarks.

Thank you, Ed. In closing, the second quarter was another strong quarter and further proof that the simplification and strengthening work we completed in 2025 is translating into durable top-line growth and margin expansion. The core of our Health+ segment continues to demonstrate consistent enrollment and revenue growth, expanding margins, and the durability of demand for nursing and healthcare education. Our Military+ segment continues to deliver strong margins and growth, even as we work through the lingering active duty headwinds that we believe are event-related rather than structural. Notably, last week, we completed our institutional combination, the final milestone in the multi-year simplification of our business. At our November 2025 Investor Day, we laid out a multi-year framework with 9 value creation initiatives, 5 at Military+ and 4 at Health+, targeting an 8% to 12% revenue CAGR, organic and inorganic revenue of $890 million to $1 billion by 2029, and adjusted EBITDA margins of 20% to 21%. That framework is intact. Our Trailblazer new campus initiatives are on schedule. Our balance sheet remains very strong. There is meaningful runway ahead of us, and we are as optimistic today as we have ever been about APEI's long-term potential. Our organization is purpose-built to deliver affordable and accessible educational opportunities in fields that are in high demand and resilient to intelligent system disruption. Nursing education prioritizes in-person bedside care, and our military service members continue to be critical to the U.S. defense strategies. We continue to believe that our education supports careers that require human judgment and are AI resilient. We are also continuing to invest in technology, including the student lifecycle platform we announced today, in ways we believe can improve efficiency and the student experience over time. Our platform and sector tailwinds position APEI to accelerate growth and bring more educational opportunities to a greater audience. Before we move to questions, I want to thank our investors, analysts, and the APEI team for the dialogue and engagement we have had over the past quarter. In our ongoing effort to be transparent with our investor community, we remain committed to providing you with clear insights into our performance, our strategic initiatives, and the long-term value creation opportunities ahead of us. With that, I would now like to hand the call back to the operator to begin our question and answer session.

[Operator Instructions] Your first question comes from the line of Griffin Boss from B. Riley Securities.

First, just off the bat, regarding the combination, acknowledging that this was completed last week, I am just curious if there is any initial sentiment with regard to any changes in the synergies that you expect to unlock with that combination, particularly on the revenue side, or if there are any cost synergies that have arisen.

Yes, great question. We are really excited now, Griffin, to turn our attention to revenue synergies, which we have discussed in the past, namely bringing these Rasmussen programs that are both the RN to BSN and the post-licensure healthcare programs, along with the BSN programs to our Hondros campuses. So in the upcoming calls, we are going to put a number around that, what we believe is the growth opportunity now that we have line of sight to the fact that the combination is complete. Because of course, that had to be complete before we would be able to complete the necessary regulatory steps to accomplish that. And then as it relates to simplification and other cost synergies, certainly the first step is bringing Rasmussen and Hondros together, and then looking at the 3 institutions combined. We look forward to sharing with you some of those findings and results and guidance in the next call.

Okay. Well, Yes, look forward to hearing about that. Then for my follow-up, one thing that we have been following of late is the Senate and House authorization bills, and specifically the possible increase for tuition assistance benefits from $250 to $350 per credit hour. Obviously, I assume this is something that you are following as well, and this is a longer-term possible event that could happen. But I am curious just if you have any commentary about how APEI is thinking about that, what it would intend to do with its tuition rate if that increase passes, and then more specifically, too, and related, if there is any detail you could provide about the military students that currently use TA-funded credits and to what degree that is in terms of credits per year. If there is any more color you could provide, that would be helpful.

Yes. Great question, Griffin. Thank you for asking that. As you may have followed in the press, the NDAA bill did pass the House, which is a step that has not happened for this particular matter in the past. What is in the House version of the bill is a 40% increase in the per credit hour tuition assistance reimbursement rate. There are some additional process steps that this has to complete, which is getting the bill passed in the Senate, and then the Department of Defense has to essentially approve the increase and the appropriations bill, which is what funds the entire Department of Defense, not just this small program, but the entire defense budget also has to be passed, which typically happens here before October 1. Those are several process steps that have to be completed. If that were to come to pass, then it does really create an opportunity for the Military+ division to reevaluate the price per credit hour for our active duty military. The primary reason is because we have, for over 20 years, committed to not requiring active duty military to pay out of pocket to get an undergraduate education. For 23 years, we have been able to drive efficiency and optimization in our business to be able to create the margin profile that we continue to deliver, and at the same time, honor that commitment to our active duty service members for that zero out-of-pocket cost. It is an important development. We are paying careful attention to it, and we certainly will update all of you if we have further developments on that.

Your next question comes from the line of Tom White at D.A. Davidson.

This is Wyatt on for Tom. With the conflict in the Middle East not resolved yet, could you maybe talk about what is contemplated in your guidance and how you are thinking about the active duty headwinds relative to last quarter?

You bet. So I believe on our last earnings call, maybe even the one prior to that, we described that the headwinds for Navy, Air Force, and Marines have been included in our guidance for the rest of the year. All right? We did not want to anticipate the war would be over by the end of 2026, since it began after we had initiated guidance. So, we have assumed that the headwinds will remain as is for the remainder of 2026.

Got it. That is helpful. With continued progress, mid-teens growth and adding non-active duty military to Military+, how should we think about the opportunity and the contribution to overall growth in that segment in the coming quarters?

Yes. Go ahead, Ed, if you want to.

Well, I would just say that, yes, on the veterans and military families, those are growing in the double digits. When you think about the full year guidance, what it implies is a 14% to 15% adjusted EBITDA margin. Despite those low single-digit military growth rates, as Angie mentioned, it does include the headwinds from the deployment. It still suggests an 8% revenue growth if you adjust for Graduate School USA.

Your next question comes from the line of Luke Horton from Northland Capital Markets.

Congrats on a nice quarter. Just wanted to touch on the Health+ business. Just with the enrollment for 3Q, it looks like it's decelerating a little bit to that 2.5% starts growth. Was just wondering if you guys are seeing, since several competitors have kind of called this out this earnings cycle with the increasing usage of AI to search for schools, causing some enrollment disruptions. Are you guys seeing any of that on the healthcare side? I know the military side is more referral-based. But just any details you could provide there.

Sure. I'll start and then I'll have Gary Janson add to the comments. What we see both at Military+, Luke, and also with our healthcare business is that the nature of our core businesses, which is our active duty military veterans and families, those are driven primarily by referrals. It is much more driven by brand marketing and other brand awareness than it is what you would consider traditional search. There's a very small part of the Military+ business, what we call our civilian business, which likely is being modestly affected by that. But it's an incredibly small part of the Military+ division. On the Health+ side, our campuses for all of our nursing programs, same as the core of our Military+ division. We are relying on brand awareness and really, as we've talked in the past, very local market-driven marketing strategies, bus wraps, billboards, radio campaigns, et cetera, which allows our local market students to be aware of our campus-based, both nursing and other healthcare programs. As you recall from Investor Day, we do have 2 online program categories at Health+, and one is the health related, and the other is our what we call Plus or the non-health related. As we mentioned in our last call, in that non-health online program, we were seeing cost per lead, cost per enrollment going up. We have, in this past quarter, engaged a third party not just to look at that small slice of Health+, but look at the entire end-to-end marketing strategy, capabilities, organization, processes, practices, et cetera, to be sure that we are not being negatively affected and can position ourselves in this new environment. That work is underway. We expect to see fourth quarter results in a positive manner. Again, for the Health+, which is what your question was, we believe that that cost per lead increasing is something we are tackling right away in order to be able to get our online non-healthcare enrollments back in line with what we had expected.

Okay. Got it. That is super helpful. Then just last bit from me, just the cash position, obviously, you grew cash $46 million to over $220 million. You've got $45 million remaining on the buyback. I guess, how do you guys think of the pace of repurchases versus other capital deployment options, or specifically kind of M&A and the appetite there?

Luke, this is Ed. First, of course, as we have said in the past, we invest in our organic business first and foremost. Of course, as part of our Trailblazer plan, we are opening up 2 campuses per year, but we always have the option to open up more as we begin to ramp up and get the cadence going. We are always actively looking at acquisitions. There is nothing on the table right now, but we are actively looking at acquisitions. Our priority is to invest in growth at the end of the day and to increase shareholder value. We are going to take that cash and use it as wisely as possible to get the highest return possible.

Your next question comes from the line of Jasper Bibb at Truist Securities.

just following up on Luke's question within Health+, I guess I'm curious how much of the 3Q versus 2Q deceleration in enrollment growth is driven by online. I think you had ground enrollment plus 9% in the second quarter in the deck. So just curious if you're seeing a similar trend there in your third quarter guidance.

Yes. This is Gary. Jasper, the Fill the Back Row, which is our campus-based portion of that, which is the area we're really focused on from a capacity utilization standpoint, went from 9% growth, which we're very happy, to 7%, which is well within line with what we're expecting. To answer your question, the vast majority was due to our online segment, and that's where we're really focused on, as Angie pointed out, of making sure that we optimize. As Angie said, we're comfortable with the referral rates in the military, and we're very comfortable with how the campus-based programs are progressing. We're just trying to make sure that we optimize to grow the other little slivers of the business that are important, but not as significant for a long-term strategy.

I think you mentioned some opportunities, you are analyzing the cost per lead and some things you could do to improve that with your advisors. I guess just any more detail on what some of those opportunities might be or changes that you are planning to implement based on what you have learned through that process?

Yes, I will start. Certainly, the first thing we need to do is create a much more agile environment. So when I mention organizational changes, we are really focusing on how we are implementing the latest thinking around agile strategies for our marketing organization. We are also looking at various places where we perhaps have spent beyond the optimal level in order to get the next lead and reinvest those dollars in places that have more opportunity. So it is really what I would call tweaking what we already have in place, really for optimization purposes and being able to move more quickly to respond to what we are seeing are signs and trends of developing patterns. So, very excited to share with you more about those details in an upcoming call.

Your next question comes from the line of Eric Wold at Texas Capital Bank.

Two questions. I want to go back to the Military+ segment, obviously, the impact of the deployments. You mentioned that obviously U.S. Army enrollment continues to be strong or that is not impacted. Anything you have seen or any kind of data around those students that may have delayed the start or paused their programs to be deployed, coming back and restarting to kind of get a sense of just, it really is nice to pause and you are going to have data that is going to show that for those impacted segments?

Yes. I think while we see students that have actively asked for waivers for deployment, and obviously that spiked up during that time period, what we have really seen is just a trend of stopouts. Our students do not have to tell us that they are stopping out for a period of time because they are in the military and they are more of a part-time student. We allow them to have grace periods. We would not see it immediately through actively asking for waivers. What we did see is a change in the enrollment patterns in those 3 branches that certainly is related to the deployments. That gave us a pretty good sense of what was going on, specifically in the U.S. Air Force, the United States Navy, and the U.S. Marine Corps. We have seen a little bit of improvement in new students in one of those branches, but the good news we said makes us feel like there is nothing structural, is we continue to see very strong numbers in U.S. Army, consistent with our long-range growth trajectory. We will have to see how the deployment rolls out. I know it changes. Every few weeks we hear new news. We are hopeful that things come to a good resolution, and we can get back to a normal state of operating.

Perfect. Then, with the growth restrictions now removed from Rasmussen with the combination, maybe talk about how you expect to benefit from that and how quickly you could start seeing any incremental growth on that segment.

Sure. So, as a reminder, there were 3 types of growth restrictions that the Department of Ed imposed on us when we completed the transaction in 2021. The first was the ability to add new campuses. The second was adding new programs, and both of those were lifted last year. Consequently, it is just this year that we are able to open new campuses, which you heard Ed talking about, the fact that we now have 2 opening this year and one already the lease signed for the first one for next year already. So we're taking advantage of those already. This growth restriction was on the total number of students at Rasmussen who could engage or basically take financial aid from the department. So, this was an important year for that to be lifted, because we certainly were approaching that limit. So, we're very pleased to say that we no longer have that restriction. It would've required us to have to potentially redirect students to other types of payment plans, et cetera. Consequently, students can engage with the department as in the normal course and be able to take financial aid without any kind of limit that we had on the total number of students with financial aid.

Your next question comes from the line of Elle Niebuhr from Lake Street Capital Markets.

With CapEx now in the range of $25 million to $28 million versus about $16 million last year, just wondering how much of that increase is related to campus expansion strategy, and what level of return are you targeting on these investments?

Hi, this is Ed. Yes. When you think about that CapEx number, about $7 million is related to CapEx expansion. Our cadence has us at about $3.5 million per campus, so about $7 million of that combined since we're on that 2 campus per year pace.

As you look towards 2027, which of the current growth initiatives gives you the most confidence that APEI can sustain that above-market revenue growth while continuing the EBITDA margins?

Elle, thanks for the question. I would start by saying we continue to have tremendous enthusiasm about Fill the Back Row. That is working. We do not see the marketing being affected by any kind of LLM or Google search. We are very excited about Fill the Back Row and believe that there is a lot of potential there. Second is our Leverage the Ladder, and we talked a little bit about that a few minutes ago, which is the ability for us to bring the Rasmussen programs that are not already offered at Hondros campuses to those students, either as alums or as new students, considering which program they want to engage in. That has a few regulatory thresholds we need to tackle. But the road is clear now for us to be able to do that now that we are finished with the combination. We are excited to lay out the timeline for those specific growth levers, and we will share that in our next call. On the APUS side, we are very excited about our military and veterans growth strategy, also continuing with our families. We have the opportunity to invest more behind our active duty now as a result of the combination. That will allow us to redirect some of our marketing dollars we have been spending in other cash pay categories and really focus on what is our core in that division, which is our active duty military and our veterans segment. We expect to see that that will grow at a faster rate in the future than what we have seen, and certainly also then muted by the deployments as well.

Your next question comes from the line of Stephen Sheldon at William Blair.

Nice work here. Angie, can you talk some more about the AI student life cycle platform that you're building with Salesforce? I think you mentioned some cost benefits that you're planning to quantify at some point. On the latter part, I think, how should we think about the way it could impact and boost the overall student experience? Are there any early insights that you can share on how that might add stuff to the business?

Yes. We're excited about this, Stephen, so thank you for asking this question. I think as you may recall, we talked last year about some experiments that we had been doing in and around the idea of using AI across different processes. We've really moved from experimentation now to actually embedding AI in every single process and practice that we're doing in conjunction with our students. We believe we've evolved, as we've learned more, and frankly we've built an AI first team, led by our former board member, now our Chief Innovation and Technology Officer, James Kenigsberg. He has built a team that is really accelerating this strategy. So we're very excited about that. To answer your question about the cost benefits and the revenue benefits or the student satisfaction, student success, and retention, which is really a big part of what we believe this will do for us. First, on the cost side, we certainly expect that the benefit will be more about throughput, right. We want to make sure that we can increase speed to service for our students, that we are their first choice, and that, as a result, we can deploy the people that we have working today to serve more and more students, maybe students who have complex problems. We really are excited about the ability to drive efficiency and effectiveness with our teams, especially at the first part of the pipe. As you described, retention is a critical part of what intelligence systems can do and identify where students are perhaps demonstrating early warning signals. It's very difficult, certainly in particular at APUS or on the Rasmussen Online side, to necessarily sense those things early on. You can have a better sense of that with our campus-based programs and seeing students struggling. So using these for our online students to be able to understand more quickly where they may be struggling or stepping away will increase retention, which we all know increases revenue, and also reduces the cost to serve per student because we're not having to go out and spend marketing dollars on replacing that student with someone new. So, we're going to give you some quantification of that in an upcoming call, because we've just launched this initiative in the last 2 quarters, and we look very forward to going live with this in early 2027. But I do want to reiterate, as I said in my comments, that when we met you all last year in New York, we had anticipated the move to this platform. So the costs are baked in already to our 4-year plan. It's just the upside benefits in terms of retention, better student service, et cetera, that we look forward to sharing with you in an upcoming call.

Great to hear. Look forward to learning more about that. Then just as a follow-up, gross margin trends here have been really strong, especially over the last year or so. So can you talk some about the levers driving this degree of year-over-year expansion. How much Fill the Back Row and just general improving campus utilization may be playing into that. How you're thinking about the trajectory over the back half and into early 2027. Are there still levers to pull to keep providing year-over-year expansion?

Yes, I'll start, and Edward can chime in, too. So definitely where we've seen the most improvement has been actually in our Military+, where the team over there is constantly, because of the fixed price of $250 per credit hour, constantly had a practice of trying to find operating efficiencies in the business. I believe if you ask that team, they believe they could continue to find those improvements in gross margin, especially in gross margin over the next few years. That's one area. But then certainly in Health+, just the flow through because of the fixed cost nature of our campuses, we expect that to be equally as strong in the business model. Both of those are contributing and I feel like that we have opportunity to expand the gross margin at both businesses now.

There are no further questions at this time. This concludes the Q&A session. I will now turn the call back to Angela Selden for closing remarks.

Thank you, Jonathan, and thanks to all of you who joined our call today. We look forward to sharing with you continued updates about the developments in our business. Thank you again for joining us this evening.

This concludes today's call. Thank you for attending. You may now disconnect.