American Public Education (APEI) Q3 2026 earnings call transcript

Thank you and good afternoon everyone. Welcome to American Public Education's conference call to discuss 3rd quarter 2026 results. Joining me on the call today are Angela Seldin, President and Chief Executive Officer of APEI and Chancellor of the American Public University System. Edward Cote Spote, Executive Vice President and Chief Financial Officer, and Gary Janssen, 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 its subsidiaries that are not historical facts made before 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 those expressed or implied by such statements, including risks related to potential impacts from changing federal or state government policies, laws, practices and actions, including impacts on revenues or the timing of the students and other factors identified in our Form 10K and Form 10Q, under adding 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 pace, should, will, would and similar or opposite words. Forward-looking statements include without limitation statements regarding expected operational efficiencies and synergies, technology platform implementations such as our student lifecycle platform, marketing efficiency initiatives and their expected benefits, 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 future growth initiatives, strategic investments, capital allocation, share repurchases, and M&A opportunities, operational milestones and timelines, the completed institutional combination, potential changes to military tuition assistance programs, government governmental and regulatory actions, their impact and our response to those actions, changing market demands and are able to ability to satisfy such demands in other company initiatives.

Recall and the presentation contain references to non-GAP financial measures, including adjusted EBITDA margin and excess cash and short-term investments over debt. A reconciliation between each non-GAP financial measure we use and the most directly comparable GAP measure is located in the appendix to today's presentation and in the earnings release. Management believes that the presentation of non-GAP financial information provides useful supplemental information to investors regarding its results of operations. It 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 GAP. I'd now like to turn the call over to APEI's president and CEO, Angela Seldin. Angie, please go ahead.

Thank you, Jack. Good afternoon and thank you very much for joining American Public Education Inc's third quarter 2026 results call today.

I'm very pleased to report that we exceeded our guidance on revenue, net income available to common stockholders, adjusted EBITDA and diluted earnings for share. This is a continued result of the strong moat we built in our military plus division where active duty enrollment is rebounding, enrollment in veterans and families continues to see double-digit growth and the overall student value proposition of no out-of-pocket cost for undergraduate active duty military and a strong return on educational investment for veterans and families continues.

We've also built a strong boat in health plus where our campus nursing and online health revenue continues to grow at double digits with enrollment growth and modest price increases as the tailwinds for health professionals continue to drive student demands for our education in the markets we serve.

Here are the headlines. Military plus net course registrations grew 3.8% to approximately 100,000 above our guidance range. Health plus revenue grew approximately 9% with the mix shifting to campus nursing with low teens growth driving performance. We're also pleased with the strong mid-teens revenue growth in the quarter for online health care. Total revenue was muted by online plus non-health care revenue growth in low single digits. Total APEI revenue grew 3.6% year over year to 169.1 million above the high end of our guidance range of 164.5 million to 167 million. This does not include the approximately $6 million of military plus revenue that shifted into the fourth quarter due to registration timing as we previewed on our last earnings call.

Net income available to common stockholders grew 6% to 5.9 million and diluted earnings per share grew 6.7% to 32 cents both above the high end of our guidance ranges. Adjusted even out with 17.5 million exceeding the high end of our guidance range of 14 million to 17 million. As we anticipated when we provided guidance adjusted EBITDA and margin were below the prior year reflecting an increase in selling and promotion expenses that supported registration and enrollment growth along with several non-recurring events including the revenue timing shift and the marketing optimization investments we outlined last quarter. Further we experienced an increase in bad debt primarily as a result of delays in title four disbursements following the institutional combination.

We also believe that this is a temporary matter. We also more than doubled our pace of our share of purchases in the quarter. Finally the third quarter was the beginning of our operating as a single higher learning commission accredited institution the American public university system. As a reminder this combination allows us to simplify our operations to expand our health care platform to enhance academic choice for students and opportunities for faculty to strengthen our financial position and to improve our regulatory compliance and risk management. Turning our attention to full year 2026 we are raising full-year guidance on revenue, net income available to common stockholders, adjusted EBITDA and diluted EPS reflecting the momentum of the business and our strategy.

This is driven by the growth in our military plus division where our midpoint guidance reflects approximately 25 percent net course registration growth in Q4. A strong performance as compared to last year's partial Q4 government shutdown. This also reflects continued growth in our campus and online health revenue and mixed shift.

With those headlines I'll provide additional details on our two segments and give you an update on the work we committed to last quarter. Marketing optimization, institutional combination synergies and our student lifecycle platform which we are implementing in collaboration with Salesforce. I'll then turn it over to Ed Coddus-Fody APEICFO for more details on financial results and comments.

So let's start with health plots. Overall health plus revenue grew 9 percent to 86.4 million dollars driven by a mixed shift to campus nursing which increased low double digit rates and which reflects our continued success in executing our fill the back row strategy along with a modest tuition increase in the second half of 2025. Our new Orlando campus continues to track ahead of initial expectations including our recent introduction of an evening LPN program. Our second Detroit campus is now facing a one quarter delay in opening an unexpected result of our creditor change due to the combination. Honduras's former accreditor, AbHES, had approved the new location prior to our combination. Now HLC, our new accreditor, requires its own separate approval and this process is currently underway.

Fort Lauderdale remains on pace to open in Q4, 2027 and overall we remain on track with our Trailblazer initiative to open two new smaller footprint campuses each year for the next four years. As a reminder opening these smaller footprint campuses give us continued growth over the next five years. By successfully executing on our fill the back row strategy with our existing campuses these new campuses will also allow us to create revenue momentum and margin expansion as we expect each to reach cash flow break even in 18 months and full utilization in four to five years.

Now turning to military plus. Our military plus net course registrations grew 3.8 percent to approximately 103,800 above our guidance range of 101 to 103. Military plus revenue of 82.7 million with flat year over year affected by approximately $6 million in registration revenue that shifted into the fourth quarter as we discussed during our last earnings call. Our military and military affiliated learners remain the engine of this segment. Veteran and military family registrations grew at double digit rates and active duty registrations returned to growth led by the army.

As a reminder our full year guidance does not assume a resolution to the Middle East conflict. With our continued strength in the army enrollment the branch from which the largest number of our students come a resolution to the conflict can support additional growth. As we turn our attention to marketing last quarter we shared that we had launched an end-to-end evaluation of marketing third party. We are implementing recommendations around organizational efficiency, marketing spend shifts, overall marketing optimization and expect to see continued improvements into one age 27 and beyond. In the third quarter selling and promotion expense was 24.7 percent of revenue as compared with 22.1 percent in the prior year period and general and administration expense increased due to the investments to optimize our marketing process and organization.

We made these investments intentionally and the increased costs were taken into account in our guidance. Our results including these increased costs exceeded that guidance. Now let's turn our attention to the combination synergies and the student lifecycle platform. We'd like to share more about the cost synergies resulting from our institutional combination. I want to highlight three buckets. First is the integration of Rasmussen University and Honduras College of Nursing where we have a target of five million dollars of recurring cost synergies in 2027 and beyond including campus and academic operational synergies and cost savings from consolidated buying of books, materials and from other contracts. These savings are included and are already published for your plan.

Second the cost synergies between health plus and military plus have a target of nine million dollars in recurring savings in 2028 and beyond primarily from productivity gains and admissions, financial aid, leadership and other academic shared services. These savings are also included and are already published for your plan. We continue to evaluate our revenue synergies in two categories.

The opportunity for HANDRA students to enroll in RACIS and nursing and online programs and revenue synergies from our student lifecycle platform implementation. Our implementation of SLP with Salesforce remains on track for its initial goal lives with our health plus segment in early 2027, beginning with student support and admissions. As a reminder, the implementation costs have already been included in our previously stated four-year plan.

The anticipated benefits including improved retention, better student services and lower cost to serve represent an incremental upside to the already published four-year plan. We will quantify the benefits of this upside on a future call.

With that, I'll turn the call over to Ed to discuss our third quarter finance results, capital allocation and our outlook in more detail.

Thank you, Angie. I'll begin with our third quarter results then review our balance sheet and cash flow, provide an update on capital allocation and sharing purchases and conclude with our outlook for the fourth quarter and full year 2026.

Total revenue in the third quarter was $169.1 million compared to $163.2 million in the prior year period, an increase of $5.9 million or 3.6%. Excluding $800,000 of graduate school USA revenue in the prior year period, revenue would have grown 4.2% as we discussed in our last call because military plus revenue was recognized rateably over the period of enrollment.

The September 7th start date shifted approximately $6 million of revenue and approximately $4 million of adjusted EBA from the third quarter into the fourth quarter. Now let's break down revenue by segment. At military plus, third quarter revenue was $82.7 million compared to $83.1 million in the prior year period, a decrease of half a percent, reflecting the revenue timing shift. Military plus segment income from operations was $21.4 million compared with $25.3 million in the third quarter of 2025 and segment EBADA margin was 27% compared to 32%, reflecting the revenue timing shift and increased selling and promotional expenses.

Net course registrations were approximately 103, 103,800 compared to approximately 100,000 in the third quarter of 2025. At health plus, third quarter revenue was $86.4 million compared to $79.3 million in the prior year period, representing 9% growth. The segment reported a loss from operations of $1.9 million compared to a loss of $2.1 million in the prior year period as the benefit from enrollment growth was partially offset by investment in advertising and bad debt expense, partly driven by delays in Title IV disbursements following the institutional combination. We expected delays in Title IV disbursements to be temporary. Turning now to expenses and profitability, instructional costs and services were $74.9 million, essentially flat year over year, improving to 44.3% of revenue from 45.8%, which reflects the operating leverage in our model.

Selling and promotional expenses were $41.8 million or 24.7% of revenue compared to $36.1 million or 22.1 percent of revenue in the prior year period. General and administrative expenses were $39.3 million compared to $34.7 million, primarily driven by increases in bad debt expense and professional service costs related to investments in marketing optimization.

Third quarter net income available to common stockholders was $5.9 million or $0.32 per diluted share compared to $5.6 million or 30 cents per diluted share in the prior year period.

Net interest income was half a million dollars compared to net interest expense of $1.1 million in the prior year period, reflecting our stronger cash and short-term investment position and lower debt and borrowing rates. Third quarter adjusted EBITDA was $17.5 million above the high end of our guidance range compared to $20.7 million in the prior year period. Adjusted EBITDA margin was 10.4% compared to 12.7%. The year-over-year decline was expected and reflected in our guidance. On a trailing 12-month basis, adjusted EBITDA was $96.1 million and adjusted EBITDA margin was 14.3% up from 13.5% a year ago. Turning now to our balance sheet and cash flow.

As of September 30th, 2026, our cash cash equivalents restricted cash and short-term investments total $216.4 million compared to $176.5 million at December 31, 2025. An increase of $39.9 million or 22.6%. Outstanding debt was $87.8 million and we had excess cash, cash equivalents, restricted cash and short-term investments over debt outstanding of $128.7 million.

We also have $40 million of available capacity under our revolving credit facility. Year-to-day cash flows from operations were $87.3 million up 18.7% year-over-year. Third-quarter operating cash flow was $11.8 million compared to $21.7 million in the prior year period, including because of delays in Title IV disbursements following the institutional combination.

Turning to capital allocation, our capital allocation framework is deliberate and disciplined. We evaluate alternative uses of capital, including organic growth, new campuses, technology, M&A, and shared purchases against hurdle rates that we set for each use.

Our first priority remains investing in organic growth, including our trailblazer campuses and the student lifecycle platform, both of which are funded within our four-year plan. Management and our board are also very focused on shared purchases as an important component of our capital allocation strategy. At the same time, our cash generation allows us to return capital to shareholders. In the third quarter, we repurchased 186,032 shares for approximately $9 million, more than double the amount we repurchased in the second quarter. Year-to-date, we have repurchased 274,237 shares for approximately $14 million under the $50 million program, our board authorized in March. Accordingly, we have approximately $36 million remaining under the authorization. As a result of our shared repurchases so far this year, our weighted average diluted share count declined to $18.7 million in the third quarter compared to $18.8 million in the prior year period.

I'll now discuss our outlooks. Based on our third quarter results and our visibility into the fourth quarter, we are raising four-year guidance on revenue, net income available to common stockholders, adjusted EBITDA, and diluted EPS. For the full year 2026, our updated guidance is as follows. Revenue of $695 million to $701 million compared with our prior range of $690 million to $698 million, net income available to common stockholders of $48.5 million to $53.2 million compared with our prior range of $46.5 million to $52.5 million.

Adjusted EBITDA of $98 million to $105 million compared with our prior range of $96 million to $104 million. Diluted EPS of $2.59 to $2.84 compared with our prior range of $2.48 to $2.7 million. We lowered our four-year capital expenditure guidance to $23 million to $26 million from $25 million to $28 million. For the fourth quarter of 2026, our guidance is as follows.

Revenue of $179.4 million to $185.4 million, net income available to common stockholders of $15.2 million to $19.8 million, adjusted EBITDA of $30.6 million to $37.6 million, and diluted EPS of $81 to $1.07. This assumes military plus net registrations of $100,000 to $105,000, up 21.7% to 27.7% year over year, and health plus enrollment of approximately $20,100, up approximately 1% year over year. As a reminder, our fourth quarter includes the approximately $6 million revenue shifted from the third quarter, and the prior year fourth quarter was impacted by the federal government shutdown. We remain committed to executing on the long-term strategy.

We laid out at investor date. With that, I'll turn it back to Angie for closing remarks.

Thank you, Ed. In closing, our first partial quarter as a single combined institution was a very strong one. We exceeded guidance on every key metric. Our core military affiliated in campus nursing programs continue to grow, and we stepped up the return of capital to shareholders. Subsequent to quarter end, we welcome Sheara Goodman to the API board, effective October 27. Sheara brings 26 years of leadership experience at Staples, including serving as CEO, along with extensive corporate board experience.

APEI appointed her as a replacement for James Kenigsberg, who stepped down from the board to become APEI's chief innovation and technology officer. We look forward to leveraging Sheara's expertise in strategic growth and organizational transformation as we advance our mission and expand educational opportunities. Our organization is purpose-built to deliver affordable and accessible education in fields that are in high demand and require human judgment. Nursing and healthcare, where care is delivered at the bedside and military service, which remains critical to our U. S. national defense strategy, and is often delivered on the battlefield. We believe this position is APEI with differentiated offerings and meaningful modes for the foreseeable future. At our November 2025 investor day, we laid out a multi-year framework targeting an inorganic revenue of 892 million to $1 billion by 2029, and adjusted EBITDA margins of 20 to 21%.

That framework is intact. The institutional combination is complete. Our trailblazer schedule is largely on track. The student lifecycle platform is on track for its initial goal life with our health plus segment in early 2027, and our balance sheet remains very strong.

Before we move to questions, I want to thank our investors, analysts, and the APEI team for the dialogue and engagement over the past quarter. 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.

Thanks for the question, Eric. This is Angie. I'll start and then I'll turn it over to Ed. So you're right. By virtue of our raising guidance for the full year, we have been able to very effectively manage through the inflationary costs. And some of the categories that you outlined certainly are among those that we manage. I would say I would add to that list, certainly our employee compensation and in particular health care benefits, which we do think, you know, will rise again in 2027 and we've been working very hard to offset mitigate the impact to our employees. Overall, our technology strategy is really focused on operational optimization and being able to do more with less.

And so as we roll up the student lifecycle platform, enabled by the AI capabilities inside Salesforce, we see that as a great way to mitigate those inflationary costs. Let me turn it over to Ed or Gary. Gary has something.

Yeah. Yeah, I was going to say, you know, it's kind of been our historical effort at the military plus side of things to find ways to optimize the business there. In that segment of the business, we consistently look at how do we improve operating efficiencies to allow for those inflationary costs to get absorbed within the business model and maintain the operating margin. So there's nothing new there. And on the health plus side, we have historically used price on a regular basis, you know, small inflationary increases to offset any inflationary costs. I think that's the theme, right? We have some pockets of the business where we have seen the inflation. But overall, you know, when you look at the overall business, the efficiencies that we're investing in have been able to mitigate those those increase.

And even in some cases, you know, leverage additional profitability. Okay.

And so what we're seeing is that we have these delays as a result of primarily as a result of the combination. And so you try to estimate the fact that some of those students, if they cannot be processed quickly enough, would fall under some sort of payment plan. And then along with that, you have the associated bad debt expense that would go along with that. But we we there's a lot of focus on our end to number one, expedite the processing and number two, you know, put a lot of pressure on on collection so that we don't we don't have that that that expense materialized. I mean, the main the main cause of this, of course, was the Department of Ed's challenges in in basically setting up financial aid in the combined entity for one of our divisions.

And so that is what has delayed this. So we're working in partnership with them. They have worked tirelessly to help resolve these issues. Our students are fully covered, so they have been communicated to, you know, to each that they have financial aid eligibility. So it's really just a matter of getting the getting the the packaging and the rest of the processes come completed. I know I was just going to say that those system challenges occurred and had been resolved. It's just the length of time that it took to get them resolved is what's caused delay in processing and the incremental assessment on bad debt. So we hope to to deliver, you know, a better number at the end of Q4, but this is the number that we think is probably a worst case scenario.

Thanks for the question, Griffin. So we'll start with military plus, as you know, our active duty. We, for undergraduate students, really have held true to our value proposition of no out-of-pocket cost. And so the $2.50 per credit hour dictates the price we charge for undergraduate active duty militaries. We have at times passed through a small expense increase for the other categories for veterans and for families. We anticipate a very small price increase in 2027 for those categories. And then, if you turn your attention to Health Plus, we had communicated in the November 2025, four-year strategic plan meeting that we discussed. We did signal that we would do an every other year price increase for the programs in our Health Plus division.

Okay, got it. That's great color. Thank you, Angie. I appreciate it. I'll hop back in the queue. Thank you.

I think, yeah, to your point, Luke, and most of that is from the shift of the $6 million into Q4, of which the EBITDA was about $4 million. That's the main driver.

Gary, do you agree with that?

Yeah, I mean, I was going to say the margins in that business stay pretty consistent over time. That shift was a one-time anomaly.

Okay. Got it.

Yeah, great question, Luke. And of course, I think the entire world is turning its attention to what's going to happen as a result of the election.

I'll start by saying that the NDAA that was passed in the House and was awaiting pass in the Senate now is sitting having to be reconsidered as a result of the new election. Our government relations team says that there's a strong belief that there's support for the passing of NDAA, but perhaps not at the level of the original one. That has nothing to do with the raise of the per credit hour that was discussed just a general philosophy around how much they would like to see in the total NDAA. What I will say is that we have been working and monitoring carefully with our government relations team the progress on that policy of potentially increasing the reimbursement rate.

We understand that the Department of War continues to evaluate changes to tuition assistance. We see that they could really support and implement reimbursement levels for programs at different classifications. We have no information at this time about whether they're going to make any changes and what the changes could look like. So it's very difficult for us to speculate on whether or not any of the changes that were previously discussed in the past congressional session are going to be implemented. And if it could have a beneficial or even a detrimental effect on us.

No, I mean, I think the high end of the guidance on the registration side as well as the revenue, which is implied in the overall guide, indicates that we feel pretty good, but we still have one month left in the start cycle. So we just increased the range. But I do think, as Angie said, we're seeing some rebounding and specific segments that give this conduct to this. So we just have to see one more month. I think that we feel good about the prospects at military plus and the registration guidance and the corresponding revenue that goes along with that. So nothing unusual about the wider guidance. It is different than what we've done in the past that you're correct.

Got it.

Yeah. So let me start with your first question. So yeah, we were, unfortunately, we were surprised by the fact that even though ABHAS, which was Honduras as a creditor, pre-combination, had already approved the location that HLC needed to go through its own process steps to approve the location. So it was an unexpected one-quarter delay. So now enrollment for that new Detroit 2 campus we anticipate will, students will start being educated at Q2 of 27 instead of Q1 of 27. And so then as it relates to the momentum around Trailblazer, I'll turn it over to Gary who leads that up for us.

Yeah, I think we're still focused on two new campuses per year right now. I think things may change as we continue to evaluate the market and opportunities. We've identified those locations, we're not disclosing them until we have all the plans in place and eyes dotted these cross. But I think right now we're at two campuses. If we feel good after the next two material launches, and again, this is the first campus for Rasmussen in several years, they're opening up the South Florida, Fort Lauderdale location. So that's the area we have to make sure is that we have the good muscle memory around opening those campuses. But certainly we could deploy additional capital in out years.

It's called late 20 years. We'd love to be able to do that.

Yeah, it's a really good question. So I think as Angie mentioned that we saw some weakness in the online portion of the business. The ground is very exactly where we'd expect it to be. I think in key three we're around call it 7% and key four is at the same rate with the inflationary increases the way we discussed. That's right on our long-term growth plan.

We saw really strong numbers in Q3 on the online health programs and we still think that's a good up-market forest area. We're still trying to figure out and before we invest heavily behind that we're looking at different ways to go after is the online plus which is really non-health care programs. The more undifferentiated pieces of the business and I would say that's where all the weakness and what we're seeing is coming from. So from the health standpoint we're really pleased with how it's progressing with the non-health portion which is again a small percentage of the business but it is driving down the overall enrollment headline number. That piece of the business we're still trying to work on the marketing piece of that as well as trying to figure out how we can create some differentiation there.

Two things I'll add, Jasper, one and I think we've shared this in previous earnings call. An enrolled student in a campus is going to generate 2x the revenue of an enrolled student online either in health or non-health. So certainly you can see when we talk about mix shift the fact that our campuses are growing at low to mid double digits really allows us to demonstrate the power of that mix shift to 2x revenue for each additional student.

And as we discussed in our investor day last year we had not planned for what we call our O plus or our online plus which is the non-health care online to grow. We had just planned for it to remain flat. We are seeing slight declines there right now which is pulling down the overall health plus performance but we're continuing to invest behind the campuses and our online health which is really seeing great momentum.

Yeah so we if you remember there was a stacked bar chart in the you know in the investor day that showed that was an enrollment based chart so really less than 15% of our revenue and enrollment is coming from O plus and obviously as the other two pieces grow that as a percentage of the total is going to continue to shrink.