American Public Education, Inc. (APEI) is a leading provider of online and campus-based postsecondary education and career learning, serving over 125,000 students through its four subsidiary institutions - American Public University System (APUS), Rasmussen University (RU), Hondros College of Nursing (HCN), and Graduate School USA (GSUSA). With a strong focus on serving military, veterans, and other public service-minded communities, as well as addressing the growing demand for healthcare professionals, APEI has carved out a distinctive market position and is poised for continued growth.

Company History and Evolution

APEI's history can be traced back to 1991 when American Military University (AMU), the first institution under APUS, was founded by James Etter. Recognizing the need for affordable, accessible education for military personnel, AMU pioneered online learning and quickly became the top provider of higher education to the U.S. military and veterans. In 2002, AMU was joined by American Public University (APU), further expanding APUS's reach and capabilities.

In 2018, APEI strengthened its healthcare education portfolio with the acquisition of Rasmussen University, a nursing- and health sciences-focused institution. This strategic move positioned the company to better address the chronic nursing shortage, a pressing issue exacerbated by the COVID-19 pandemic. APEI further expanded its healthcare footprint in 2019 with the acquisition of Hondros College of Nursing, a leading provider of nursing education in the Midwest.

Current Operations and Market Position

Today, APEI's institutions offer a diverse range of degree programs and career-focused training, catering to the evolving needs of its students. APUS continues to be the top choice for military and veteran students, with approximately 66% of its students self-reporting active-duty military status at the time of enrollment. Meanwhile, RU and HCN have become crucial contributors to the healthcare industry, graduating thousands of nurses each year to help address the significant demand for skilled healthcare professionals.

Financial Performance

APEI's financial performance has been marked by consistent revenue growth, with the company reporting $600.5 million in total revenue for the fiscal year ended December 31, 2023. However, the company faced challenges in 2022, recording a net loss of $114.9 million due to non-cash impairment charges related to its Rasmussen University segment. Despite these setbacks, APEI's management team has been proactive in stabilizing and improving the performance of its Rasmussen and Hondros segments, as evidenced by the positive enrollment and financial trends observed in recent quarters.

For the fiscal year 2023, APEI reported a net loss of $47.29 million, with operating cash flow (OCF) of $45.51 million and free cash flow (FCF) of $31.62 million. The most recent quarter (Q3 2024) showed significant improvement, with revenue increasing by 1.5% year-over-year to $153.12 million. Net income for Q3 2024 was $2.26 million, compared to a net loss of $3.33 million in the prior year period. Q3 2024 OCF was $14.08 million and FCF was $7.76 million.

The revenue increase in Q3 2024 was primarily driven by a $1.80 million (12.8%) increase in the HCN Segment, a $0.60 million (0.8%) increase in the APUS Segment, and a $0.50 million (1.0%) increase in the RU Segment, partially offset by a $0.50 million (6.3%) decrease in GSUSA revenue.

Segment Performance

APEI operates through three reportable segments: APUS, RU, and HCN.

The APUS Segment, which includes American Military University and American Public University, serves approximately 87,700 adult learners, primarily in the military and public service sectors. For the three months ended September 30, 2024, APUS Segment revenue increased by 0.8% to $77.00 million compared to the prior year period, primarily due to higher net course registrations and tuition and fee increases. The segment's operating margin decreased to 27.0% from 28.7% in the prior year period.

The RU Segment, which reflects the operations of Rasmussen University, serves approximately 13,500 students across 20 campuses in six states and online. For Q3 2024, RU Segment revenue increased by 1.0% to $52.60 million compared to the prior year period. The segment's loss from operations before interest and income taxes improved to $7.61 million from $10.57 million in the prior year period.

The HCN Segment, representing Hondros College of Nursing, serves approximately 3,100 students at eight campuses in three states. For Q3 2024, HCN Segment revenue increased by 12.8% to $15.50 million compared to the prior year period, primarily due to a 10.4% increase in total student enrollment.

Liquidity and Capital Structure

As of September 30, 2024, APEI reported total cash, cash equivalents, and restricted cash of $162.2 million, with no outstanding borrowings under its $20 million revolving credit facility. The company's long-term debt stood at $96 million, and its total capitalization was $386.7 million. APEI's financial ratios, including a current ratio of 2.65 and a debt-to-equity ratio of 0.33, suggest a stable and liquid financial position.

Recent Financial Results

In terms of profitability, APEI's third-quarter 2024 results showed a net income of $2.3 million, or $0.04 per diluted share, compared to a net loss of $3.3 million, or $0.27 per diluted share, in the prior-year period. Adjusted EBITDA for the quarter was $12.9 million, exceeding the company's guidance range. These improvements were largely driven by the continued stabilization and growth of the Rasmussen and Hondros segments.

Future Outlook

Looking ahead, APEI provided a positive outlook for the fourth quarter of 2024, with expected net course registrations at APUS to grow between 4% and 6% year-over-year. At Rasmussen, fourth-quarter total enrollment is expected to increase 4% compared to the prior-year period, marking the second consecutive quarter of positive year-over-year enrollment growth. Hondros is also anticipated to maintain its strong momentum, with fourth-quarter total student enrollment expected to increase 19% year-over-year.

For the fourth quarter of 2024, APEI expects consolidated revenue to be between $159 million and $164 million, with net income between $9 million and $11 million, or $0.47 to $0.56 per diluted share. Adjusted EBITDA is expected to be between $23 million and $26 million.

For the full year 2024, APEI has updated its guidance, projecting consolidated revenue in the range of $620 million to $625 million, representing a 3% to 4% increase from 2023, and adjusted EBITDA between $64 million and $67 million, a 7% to 12% increase from 2023. The company expects capital expenditures to be between $19 million and $22 million, translating to free cash flow expectations of at least $42 million for the full year.

Conclusion

APEI's transformation and diversification efforts, coupled with its strong market position in the military and healthcare education segments, position the company well for continued growth and value creation. As the company navigates the evolving postsecondary education landscape, investors will be closely monitoring APEI's ability to further stabilize and grow its Rasmussen and Hondros segments, while maintaining its leadership in the military-affiliated student market through APUS. The company's improved financial performance and positive outlook for the coming quarters suggest that APEI is on track to deliver sustainable growth and enhanced shareholder value in the future.