American Public Education, Inc. 2026 Q2 Earnings Call

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 Jansen, 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 $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 two 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 two 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 two 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 four-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.