American Public Education, Inc.
) fourth-quarter 2013 earnings of 51 cents per share missed the
Zacks Consensus Estimate of 54 cents by 5.6%. Earnings also
declined 31.1% year over year due to military enrollment hurdles
and higher costs. Earnings were near the lower end of
management's expected range of 50 to 54 cents.
Revenues and Enrollment Details
American Public is the parent company of online learning
provider American Public University System (APUS) and
campus-based Hondros College, Nursing Programs which was acquired
in November last year.
Total revenue declined 4% year on year to $82.9 million,
slightly better than management's expectation of decline in the
range of 5-9%. Revenues also beat the Zacks Consensus Estimate of
$81.0 million by 2.3%. We believe the top-line beat was only due
to the inclusion of $3.8 million of revenues from Hondros. The
APUS revenues were lower than expected due to weaker enrollment
Total enrollment at APUS declined 9% year over year to 95,400,
worse than the company's guidance of decline in the range of 3%
to 7%. New student enrollments (student starts) at APUS declined
10% to 20,300, also worse than management's expectation of a
decline in the range of 5% to 9%.
Enrollments in the fourth quarter were adversely impacted by
decline in enrollments of students using Department of Defense
(DoD) Tuition Assistance or TA benefits. The temporary suspension
of the TA due to the government shutdown in Oct 2013 and lowering
of the benefits by the military greatly hurt enrollments by
In the quarter, net enrollments of students using DoD tuition
assistance programs decreased 35% year over year. Excluding
military students, the metric grew 6% as enrollment rates of
civilian and non-military students remained stable.
Total enrollments of students using cash or other source
increased 2% in the quarter. Net enrollments of students using
Title IV funds increased slightly less than 1% year over year,
and net course registrations by students using veterans benefits
were up 28% year over year.
Total enrollments at the newly acquired Hondros rose 13% in
the quarter to 1,330 students.
Margins Weak as Costs Increase
Operating income for the quarter declined 32% year over year
to $14.5 million due to higher costs. Selling and promotional
(S&P) expenses as a percentage of revenues increased 140
basis points (bps) to 20.6% of revenues due to American Public's
increased online marketing efforts, negative operating leverage
and additional staff costs. Instructional costs and services
increased 50 bps to 35.0% of revenues due to lower revenues.
Further, bad debt ratio increased 100 bps in the quarter to
4.6% due to a change in student mix to a higher percentage of
First-Quarter 2014 Outlook Soft
Management expects continued military enrollment hurdles in
the first quarter of 2014. New enrollments by students
using TA benefits are expected to decline again in the first
quarter due to ongoing budgetary constraints and uncertainty.
Management warned that new enrollments by these students have
already declined in a mid-teen percentage so far in the quarter.
However, civilian student starts are expected to increase year
Considering these factors, management expects first-quarter
2014 total enrollments to decline in the range of 5% to 7% while
student starts are expected to go down in the range of 7% to 9%.
American Public expects revenues to remain in the range of flat
to an increase of 3%. Management further projects first-quarter
2014 earnings between 43 to 48 cents, which marks a significant
decline from prior-year level. The earnings guidance is also well
short of the Zacks Consensus Estimate of 71 cents.
Management also stated that new student enrollments at Hondros
College increased 45% in first-quarter 2014.
In fiscal 2013, the company witnessed 5% increase in revenues
to $329.5 million, slightly above the Zacks Consensus Estimate of
$328 million. Adjusted earnings per share of $2.35, however,
missed the Zacks Consensus Estimate of $2.39 by 1.7%. Earnings
were flat year over year.
Other Stocks to Consider
American Public carries a Zacks Rank #3 (Hold). Better-ranked
stocks in the education sector include
Strayer Education, Inc.
New Oriental Education & Technology Group
Apollo Education Group, Inc.
). While Strayer sports a Zacks Rank #1 (Strong Buy), Apollo
Education and New Oriental Education have a Zacks Rank #2
AMER PUB EDUCAT (APEI): Free Stock Analysis
APOLLO GROUP (APOL): Free Stock Analysis
NEW ORIENTAL ED (EDU): Free Stock Analysis
STRAYER EDUC (STRA): Free Stock Analysis
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