American Public Education, Inc.’s (APEI) third-quarter 2013 earnings of 61 cents per share beat the Zacks Consensus Estimate of 55 cents by 10.9%. Earnings also exceeded management’s expected range of 52 cents to 56 cents a share. Earnings increased 1.7% driven by solid revenue growth and better-than-expected enrollment trends.
Operating income for the quarter was flat year over year at $17.5 million as cost savings from the ePress initiative and lower bad debts were offset by higher selling/promotional and instructional costs. Selling and promotional (S&M) expense as a percentage of revenues increased 90 basis points (bps) to 19.6% of revenues due to American Public’s increased online marketing efforts. Instructional costs and services increased 20 bps to 34.4% of revenues due to a greater use of adjunct faculty.
Further, American Public’s fraud prevention initiatives have been effective in reducing enrollment of students who abuse funds, thereby reducing bad debt expenses. Bad debt ratio declined 30 bps in the quarter to 4.1%.
Revenues and Enrollment Details
Total revenue grew 6% year on year to $81.8 million, beating the company’s expected growth range of flat to up 4%. Revenues also beat the Zacks Consensus Estimate of $80.0 million by 2.3%. The top-line beat was driven by better-than-expected enrollment trends in the quarter.
Total enrollment increased 2% year over year to 105,200, better than the company’s guidance of its remaining flat. New student enrollments declined 8% to 22,100, better than management’s expectation of a decline of 11% to 15%.
In the quarter, net enrollments of students using Title IV funds decreased approximately 1% year over year. Enrollments of students using cash or other source decreased approximately 10% in the quarter. On the other hand, net enrollments of students using FSA benefits increased 2% year over year, and net course registrations by students using veterans benefits were up 22% year over year.
Fourth-Quarter 2013 Outlook Soft
Enrollments in the fourth quarter have been adversely impacted by the temporary suspension of the Title IV funds in the U.S. due to hurdles from the government shutdown in October.
Considering these factors, American Public expects revenues to decline in the range of 5%–9%. Management also expects fourth-quarter 2013 total enrollments to decline in the range of 3%–7%. New student enrollments are expected to decline in the range of 5% to 9%. Management further projects fourth-quarter 2013 earnings between 50 cents to 54 cents, which marks a year-over-year decline of 27%–32%. The earnings guidance also fell short of the Zacks Consensus Estimate of 68 cents. S&M ratio for the fourth quarter is anticipated to be above the long-term goal of 20% of revenues as a result of lower-than-expected revenues in October and November.
Hondros Acquisition Closed
On November 1, American Public closed its previously announced agreement to acquire Ohio-based National Education Seminars, Inc., also known as Hondros College (Nursing Programs), for approximately $45 million.
The acquisition is in line with the company’s long-term strategic plan of focusing on quality education, improving student retention and enhancing the quality of health, science and technology programs. Management believes that the acquisition will further consolidate the company’s position in the healthcare, nursing and public education sector.
Other Stocks to Consider
American Public carries a Zacks Rank #3 (Hold). Better-placed stocks in the education sector include ITT Educational Services Inc. (ESI), New Oriental Education & Technology Group Inc. (EDU) and Xueda Education Group (XUE). All of these carry a Zacks Rank #1 (Strong Buy).
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