American Public Education, Inc.
) beat the Zacks Consensus Estimates for both revenue and
earnings. However, new student starts were slightly weak and
operating margins declined in the quarter.
American Public'sfourth quarter 2012 earnings of 74 cents per
share beat the Zacks Consensus Estimate of 67 cents by 10.4% and
the prior-year quarter's earnings of 71 cents by 4.2%. Earnings
were also above the guidance range of 64 cents - 67 cents. Cost
savings owing to the company's strategic initiatives led to the
Investments in information technology infrastructure to
support a larger and more diverse student population, automation
of Title IV processes, and the ePress initiative are manifesting
favorable results. These initiatives helped lower 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 14% year on year to $86.0 million. The rate
of increase was higher than management's expectation of growth in
the range of 9% - 13%. Revenues also slivered past the Zacks
Consensus Estimate of $85.0 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 8% to $21.4
million. Operating margin, however, declined around 130 basis
points to 25% in the quarter.
Despite a challenging industry environment, American Public
has been consistently delivering positive growth in revenues,
earnings and enrollments. In fact this higher education provider
has beaten the Zacks Consensus Estimates for earnings for 7
straight quarters. This is impressive given that most of its
peers have been witnessing consistent enrollment declines.
Total enrollment increased 10% year over year to approximately
105,300; within the company's guidance of recording growth in the
range of 8% - 12%. New student enrollments declined to
approximately 22,600, higher than management's expectations of a
decline between 3% and 7%.
Management believes that the prior-year quarter may have
included enrollments of students who abused student aid. The
company's fraud prevention initiatives are reducing enrollment of
such students who abuse funds, which explains the decline in new
student starts for the quarter.
Costs in Detail
Selling and promotional expense as a percentage of revenue
increased to 19.1% of revenue, much higher than 16.4% in the
prior-year period, due to American Public's increased marketing
efforts. General and administrative expenses were 17.9% of
revenues in the quarter, down from 19.5% in the prior-year period
due to lower bad debts. Bad debt expenses declined 80 basis
points (bps) year over year and 100 bps sequentially to 3.5% in
the quarter, Instructional costs and services were 34.5% of
revenues in the fourth quarter of 2012, slightly lower than 34.6%
of revenue during the fourth quarter of 2011. Cost savings from
the ePress initiative and increased efficiency in student support
services lowered this expense.
Adjusted earnings were $2.35 per share, which beat the Zacks
Consensus Estimate of $2.28 by 3.1%. Adjusted earnings (excluding
an income tax benefit) increased 10% from the prior year and also
beat management's guidance range of $2.25-$2.28.
In fiscal 2012, the company witnessed a 20% increase in
revenues to $313.5 million, slightly beating the Zacks Consensus
Estimate of $312.0 million.
First-Quarter 2013 Outlook
As always, American Public introduced its financial guidance
for the next quarter, i.e. the first quarter of 2013. The company
is expecting revenue growth in the range of approximately 9% to
13% for the first quarter of 2013. Management now expects first
quarter of 2013 enrollments to increase between 7% and 10% over
the prior-year period. New student enrolments are expected to
decline between 5% and 7%. Management further projects first
quarter of 2013 earnings between 55 cents and 58 cents a share,
representing year-over-year growth of 10%-16%.
Overall, management expects its ePress initiative, information
and technology upgrades, Title IV processing automation, recently
announced technology fee, and lower bad-debt expense to drive
margin expansion in 2013. Moreover, the company intends to spend
less on traditional media advertising, which are relatively
expensive and also easily attract fund abusers.
American Public will also include such student programs in its
portfolio, which cater to high-demand education fields. For
example, at the fourth quarter conference call, the company
announced that it has received regulatory approval to offer a new
Bachelor of Science degree in electrical engineering. Management
believes this approval will boost its brand awareness and in turn
its revenues and cash flows as engineering degrees enjoy high
The stock carries a Zacks Rank #1 in the near term (Strong
Buy) following consistently impressive results over several
quarters. We believe that the company's affordable tuition costs
and shifting of student focus to the civilian market are boosting
enrollment growth. Moreover, its corporate and community college
partnerships provide the necessary diversification from volatile
enrollment trends of active duty military students. American
Public has established relationships with companies like
Wal-Mart Stores, Inc.
Dollar General Corporation
ManTech International Corporation
) and others. In addition, the company's fraud prevention
initiatives to improve student quality augur well for better
student outcome and retention.
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