American Public Education, Inc. (APEI) reported third quarter 2012 earnings of 60 cents per share, beating both the Zacks Consensus Estimate and prior-year quarter’s adjusted earnings (excluding an one-time tax benefit) of 50 cents by 20%. Earnings were also significantly above the guidance range of 46 cents – 51 cents. Cost savings banking on the company’s strategic initiatives made up for the modest revenue growth, leading to the earnings beat.
Investments in information technology infrastructure to support a larger and more diverse student population, automation of Title IV processes and the ePress initiative have started to show favorable results. These initiatives helped lower the costs in the reported quarter. Further, American Public’s fraud prevention initiatives have been effective in reducing enrollment of students who abuse funds, thereby reducing bad debt expenses.
Total revenue grew 18% year on year to $77.1 million. The rate of increase was within management’s expectation of a growth in the range of 16% to 19%. Revenues slivered past the Zacks Consensus Estimate of $77.0 million. The top-line growth was driven by brisk student enrollments in the quarter, particularly from civilian, military, and veteran students. Operating income for the quarter increased 17% to $17.5 million.
Despite a challenging industry environment, American Public has been consistently delivering positive growth in revenues, earnings and enrollments. This is impressive given the fact most of its peers have been witnessing consistent enrollment declines.
Enrollment Growth
Total enrollment increased 17% year over year to approximately 103,000; within the company’s guidance of recording growth in the region of 16% to 18%. New student enrollments grew only slightly to approximately 24,000, almost in line with management expectations of remaining flat with 2011 levels.
Management believes that the prior-year quarters may have included enrollments of students who abused student aid. The company’s fraud prevention initiatives are reducing enrollment of students who abuse funds, which explains the muted year-over-year enrollment growth rates for the third quarter.
New Corporate Relationship
American Public Education is gradually shifting focus from military personnel to public service segments of the civilian market. The company is also entering into corporate and government reationships, community college partnerships and international opportunities to give it the necessary diversification from volatile enrollment trends of active duty military students.
American Public Education has established relationships with companies like Wal-Mart Stores, Inc. (WMT), Dollar General Corporation (DG), ManTech International Corporation (MANT) and others. In the quarter, American Public renewed its partnership with Wal-Mart and plans to develop courses for their associates.
Also in the quarter, American Public acquired a minority interest in a joint venture, NWHW Holdings, Inc., which will acquire New Horizons Worldwide, Inc., a global, independent IT-training company. The partnership is aimed to attract international students to American Public University (APU) by working with New Horizons’ international franchise centers and building relationships with the latter’s business customers like AT&T, Inc. (T), Microsoft Corporation (MSFT) and many such big names.
Fourth-Quarter 2012 Outlook
Like always, American Public Education introduced its financial guidance for the next quarter of 2012. The company is expecting revenue growth in the range of approximately 9% to 13% for the fourth quarter of 2012. Management now expects fourth quarter 2012 enrollments to increase between 8% and 12% over the prior-year period. New student enrolments are expected to decline between 3% and 7%. Management further projects fourth quarter 2012 earnings between 64 cents and 67 cents a share.
Management noted that if registrations from students who abused funds were excluded from the prior-year quarter figure, the fourth-quarter 2012 new enrollment growth would have been up 8% to 9%.
For the full year, management issued a guidance range of $2.25-$2.28. The Zacks Consensus Estimate stands at $2.24 per share.
The stock carries a Zacks #3 Rank in the near term (‘Hold’ rating).
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