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American Public Education Inc (NASDAQ:APEI)
Q4 2019 Earnings Call
Mar 10, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to APEI's Fourth Quarter 2019 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Chris Symanoskie, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Christopher L. Symanoskie -- Vice President, Investor Relations and Corporate Communications

Thank you, operator. Good evening, and welcome to American Public Education's discussion of financial and operating results for the fourth quarter and full-year 2019.

Materials that accompany today's conference call are available in the Events and Presentations section of our website and are included as an exhibit to our current report on Form 8-K, furnished with the SEC earlier today. Please note that statements made in this conference call and the accompanying presentation materials regarding American Public Education or its subsidiaries that are not historical facts may be forward-looking statements, based on current expectations, assumptions, estimates and projections about American Public Education and the industry. These forward-looking statements are subject to risks and uncertainties that could cause actual future events or results to differ materially from such statements.

Forward-looking statements can be identified by words such as anticipate, believe, seek, could, estimate, expect, intend, may, should, will and would. These forward-looking statements include without limitation, statements regarding expected growth, expected registration and enrollments, expected revenues, expenses and earnings and plans with respect to recent and current, future partnerships, investments and initiatives, including those that are part of the Company's strategic plan and the Company's planned new marketing campaign. Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including the risk factors described in the Risk Factors section and elsewhere in the Company's most recent Annual Report on Form 10-K filed with the SEC and the Company's other SEC filings. The Company undertakes no obligation to update publicly any forward-looking statements for any reason, unless required by law, even if new information becomes available or other events occur in the future.

This evening, it's my pleasure to introduce Angela Sheldon, our Chief Executive Officer and Rick Sunderland, our Executive Vice President and Chief Financial Officer. Now at this time, I'd like to turn the call over to Angela Sheldon. Angie?

Angela Selden -- Chief Executive Officer

Thank you, Chris. Good evening, everyone. I am pleased to report on our fourth quarter results and share with you key elements of our new value creation strategy, which will accelerate our ambitions of enrollment growth in both APUS and Hondros.

First at APUS, in the fourth quarter of 2019, total student net course registrations are up 1% as compared with the prior-year period, representing an enrollment stabilization milestone. This increase was driven by an 8% increase in net course registrations by new students utilizing cash and other sources and a 7% increase in new students utilizing veterans benefits. The increase was partially offset by a 4% year-over-year decline in net course registrations by new students utilizing Federal Student Aid, however notably, the smallest rate of decline since the fourth quarter of 2014. Net course registrations by new students utilizing Department of Defense Tuition Assistance or TA were approximately flat year-over-year.

There was strong demand for courses by each branch of the military in the fourth quarter, except for the Navy, which continues to impose limitations on TA course approvals. We believe the combination of our focus on military, veteran and other highly persistent communities along with both the recent improvements in our operational effectiveness and improved learner persistence rates helped to increase overall net course registrations during the fourth quarter at APUS. We are delighted by the year-over-year increase in total net course registrations and we ultimately seek higher growth through the execution of our new value creation strategy.

We are also pleased to share that Hondros has reported new student enrollment growth of 31% in the first quarter of 2020 as compared with the prior-year period. This is the first increase in new student enrollment at Hondros since the second quarter of 2018. The execution of Hondros enrollment recovery plan has yielded improvements in several key performance indicators. While in Q1 2020 total student enrollment at Hondros declined by 9% year-over-year, a large graduating class was in part contributing to the decline. Hondros believes that both recently reengineered enrollment and retention processes and the implementation of a new CRM, will support future increases in enrollment growth as well as improved conversion rates.

In the fourth quarter of 2019, including the start-up costs for the new Indianapolis campus, the operating loss in our Hondros segment improved sequentially to a loss of $500,000 as compared with a loss of $3.2 million in the third quarter of 2019. As a result of improved overall performance, Hondros management team expects operating losses to narrow this year and anticipates the Hondros segment to reach profitability for the fourth quarter of 2020. This profitability target includes those start-up costs for the new Indianapolis campus, which is expected to open for classes in the second quarter of 2020. ABHES, Hondros' accrediting agency, recently informed Hondros that it acted to affirm the institution's accreditation through February 2021. In addition, Hondros recently entered into an MOU or memorandum of understanding, to participate in the Department of Defense's Tuition Assistance or TA program. Although Hondros continues to face challenges, we are encouraged by what appears to be the start of a turnaround at Hondros.

As discussed during our Q3 2019 earnings call, we completed a value creation study of both our APUS and Hondros operations and core competencies. Federal organic growth opportunities were revealed, further validating my belief that APEI's focus on maximizing return on a learners educational investment can drive sustained enrollment growth at both APUS and Hondros. As a result, we are formulating and will implement a bold new strategy intended to drive enrollment growth and accelerate brand recognition. The key elements of the APUS value creation strategy involve refining our brand messaging to expand awareness and consideration by interested prospects, supported by a targeted marketing campaign to increase our share of voice and elevate our purpose-driven story of maximizing learner return on educational investment. It also includes refining admissions processes to help interested prospects more quickly and easily become students and polishing retention practices aimed at increasing tailored student services and reducing executional variances. These new initiatives are being added to the transformation under way in our technology modernization program to markedly improve the learner experience, leading to better learner outcomes and referral rates.

Now, I will share some finer points around APUS's value creation strategy. In recent years at APUS, we have spent approximately 21% of revenue or less on selling and promotion, while also having worked to increase persistence rates and improve our learner onboarding processes. The early results of these improvements, combined with our creative new marketing strategy and improved technology capabilities, gives me confidence to support elevating our marketing spend by $10 million to $15 million in the full-year 2020 as compared with 2019. Over the last few years, APUS has relied on a proprietary, stable, but now aging learning management system or LMS platform to deliver its high-quality campus experience fully online. By leveraging a newly adopted agile methodology, we successfully went live last week with our new cloud-based next-generation online campus, D2L's Brightspace after only five months. The roll-out will continue through early 2021. This, combined with the planned roll-out of our new CRM at APUS beginning in the second quarter of this year, represents two important steps in our technology modernization program that aims to improve the university experience in order to increase enrollment, learner satisfaction, and referrals.

Today's learners and their employers are demanding increasingly personalized solutions that are tied to employment outcomes. The new LMS, vastly expands our capability to develop more innovative, flexible workforce offerings such as micro credentials and competency-based programs that are increasingly sought by working professionals and corporate partners alike. At the core of our strategy remains an unyielding commitment to military communities, a unique strength we have built at APUS since our founding. In the first quarter of 2020, we anticipate continued growth in net course registrations by active duty military as a result of our recent decision to increase the number of military learners with minimal or no out-of-pocket costs by extending our textbook and tuition grant to military students at the Masters level, which became effective January 1, 2020. Our goal is to build on our strength in the military, military-affiliated and veteran communities to expand enrollments at AMU. We have a strong history of serving the military and we will continue to honor and grow that commitment.

In summary, at APUS, we believe that driving enrollment growth is our top priority and is the next critical step to improving our long-term financial health and future operating efficiency, leading to our ability to provide an excellent learner experience over the long term. Unlocking enrollment growth not only provides APUS with a larger, more vibrant learning community, but it increases the funds available to organically invest in innovation to create sustainable competitive advantage and serve learners and partners with greater distinction. The key elements of the value creation strategy for Hondros include: improving operational performance in SEO and digital marketing; modernizing the applicant journey; improving admission representative performance; and providing holistic support for students throughout their studies, all while continuing to restore the Hondros reputation with brand marketing and student attainment results. It is my top priority to grow APEI's core business with an emphasis on addressing the national need for an adult learning platform where learners of all backgrounds can obtain the skills they need to maximize the return on each learner's educational investment. Our success at implementing this new growth strategy requires a strong internal culture of execution and passion for our mission. We are under way in enhancing the bench strength of our executive leadership team to help me lead in enterprise transformation as well as to improve several key performance indicators.

As I have said before, APEI today is higher education's best-kept secret. We are an organization that is driven by the belief that education should be accessible to all, not reserved for the few. Maximizing the return on a learners educational investment is what propels us forward. A 2019 study by Georgetown University Center of Education puts APUS in the top 2% among US colleges in terms of delivering value, meaning net present value of future earnings and affordability. It had never been a more important time to be part of APEI as we work to lead the nation's efforts in reducing and one day, hopefully eliminating student debt for our learners. I intend for APEI to build the best learner-centric universities and maximize return on a learners educational investment. We are absolutely committed to continuing the momentum of sustained enrollment growth across our institutions so that more learners can fulfill their dreams and start the next chapter of their careers without financial burden. It is our intention to ensure that APEI's value proposition to learners is a secret no more.

Before turning to our financial overview, I would like to address the matter of the novel coronavirus. There are two categories of considerations. Our online operations at APEI and APUS, and our on-ground operations at Hondros.

First, we have activated Stage 1 of our APEI and APUS business continuity plan, which is testing and confirming preparedness for all employees and faculty to work effectively from home. We will also be collecting information from each employee on professional and personal travel plans. Currently, we do not anticipate any significant business disruption. Our management team stands ready to review and revise the plan in light of any new information. As for our APUS students, there is no better example of the informed choice that they have made to advance their purpose through online coursework and for those students who need a low cost alternative to their current on-ground coursework, we certainly have the capacity to support higher enrollments should we see an increase in demand for online learning due to the coronavirus impact. We believe that APUS is an excellent stay-at-home option for those wanting to advance their skills, stay on track with their pathway, and experience affordable, flexible courses for transfer from APU and AMU, all while taking precautions to prevent transmission of an infectious virus.

Second, for our on-ground students at Hondros, we are confident that the training of hygienic practices, already in place in our healthcare education environment, brings awareness and precautionary measures to protect our students and employees from exposure. We are exploring additional measures including voluntary self testing for symptoms at Hondros. There are many unknowns about the future severity of the coronavirus and the nation's emergency response. There are always risks in executing business continuity plans so we have provided APEI's most up-to-date view on our estimated impact of the virus on our operations.

Now with that, I will turn the call over to our CFO, Rick Sunderland.

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

Thank you, Angie. Good evening. American Public Education's consolidated revenue for the three months ended December 31, 2019 decreased 3% to $74.4 million compared to $76.9 million in the prior-year period. APEI segment revenue decreased $0.3 million or 0.5% to $66.5 million. HCN segment revenue decreased $2.2 million or 21.7% to $7.9 million. In the fourth quarter, total cost and expenses increased year-over-year by 0.4% to $65.8 million as compared to the prior-year period, driven primarily by higher technology-related expenditures and advertising in our APEI segment. Consolidated instructional costs and services expenses decreased approximately $0.4 million to $28 million and as a percentage of revenue increased to 37.7% compared to 37% in the prior-year period. The decrease of instructional costs and services expenses was primarily driven by a decrease in instructional materials costs in both our APEI and HCN segments and a decrease in employee compensation costs in our HCN segment. Selling and promotional expenses increased approximately $1 million to $15 million, and as a percentage of revenue, increased to 20.2% of revenue compared to 18.2% in the prior-year period. The increase in selling promotional expenses was primarily driven by an increase in advertising costs in our APEI and HCN segments and an increase in employee compensation costs in our APEI segment.

General and administrative expenses increased approximately $0.2 million to $18.9 million and as a percentage of revenue increased to 25.4% from 24.3% in the prior-year period. The increase in general and administrative expenses was primarily related to an increase in professional fees related to our previously announced IT modernization project in our APEI segment, partially offset by a decrease in employee compensation costs in our APEI segment and decreases in bad debt expense in our APEI and HCN segments. Consolidated bad debt expense was $0.9 million or 1.3% of revenue in the fourth quarter of 2019 compared to $1.3 million or 1.7% of revenue in the prior-year period. Depreciation and amortization expenses decreased approximately $0.5 million to $3.8 million and as a percentage of revenue, decreased to 5.2% of revenue from 5.6% in the prior-year period.

Operating income for the fourth quarter of 2019 was $8.6 million compared to operating income of $11.4 million in the prior-year period. The decline in operating income is primarily due to the $2 million year-over-year decrease in operating income in our HCN segment combined with higher advertising and technology-related expenditures in our APEI segment. Consolidated net income for the quarter was $5.7 million or $0.37 per diluted share compared to net income of $9.1 million or $0.55 per diluted share in the prior-year period.

For the 12 months ended December 31, 2019 operating income declined $19.8 million compared to the prior year period. In 2019, operating income is reduced by the following on a pre-tax basis: a non-cash impairment of goodwill of $7.3 million in our HCN segment; a $3.5 million increase in advertising costs in our APEI and HCN segments; $2.8 million in employee compensation costs in our APEI segment for post-employment benefits that will be payable to the APUS President upon retirement; $2.1 million in information technology costs related to the evaluation and investment in replacements and upgrades to our information technology systems in our APEI segment and $1.4 million in professional fees associated with the evaluation of a potential acquisition in our APEI segment in the first quarter of 2019. In 2018, costs and expenses included pre-tax expenses of approximately $1.7 million resulting from the voluntary reduction in force program in our APEI segment.

Total cash and cash equivalents as of December 31, 2019 were approximately $202.7 million compared to $212.1 million at December 31, 2018. In 2019, approximately $39 million of cash was used to buy back 1.4 million shares of APEI common stock. Approximately $22 million remains under our share repurchase authorization as of December 31, 2019. Cash flow from operations for the year decreased 13.2% to $38.4 million compared to $44.2 million in the prior year with all the decrease attributable to our HCN segment. Capital expenditures for the fourth quarter of 2019 were approximately $3.1 million compared to $4.1 million in the prior-year period.

Turning to Page 5, first quarter 2020 Outlook. Our outlook for the first quarter of 2020 is as follows. At APUS, new net course registrations for the quarter are expected to be slightly positive and total net course registrations are expected to increase approximately 1% year-over-year. At Hondros, new student enrollment in the first quarter increased 31% and total enrollment decreased by 9% year-over-year compared to the first quarter of 2019.

In the first quarter of 2020, we expect the change in consolidated consolidated revenue to be in the range of minus 1% to plus 3%. The Company expects diluted earnings per share to be between $0.13 and $0.18 in the first quarter of 2020. APEI's consolidated first quarter outlook was positively impacted by the recent tuition increase and the anticipated share repurchases that may occur during the quarter. The consolidated outlook for the first quarter earnings per share includes the following items, which we generally view as important investments in our growth initiatives. Number one, an increase in advertising expense to further drive year-over-year registrations growth at APUS. We currently estimate that this will impact earnings per share by approximately $2.1 million or $0.10 per share. Number two, we expect costs associated with our technology modernization project to be approximately $1.1 million or $0.05 per share. As we mentioned last quarter, we anticipate the full-year cost of the technology modernization project to be between $6 million and $8 million in 2020, of which approximately 80% is related to implementation. Number three, increases in compensation and benefit costs related to annual compensation and benefit cost increases and higher headcount including for critical roles such as IT and military outreach is estimated to impact earnings per share by $0.09 in the first quarter. Lastly, the expected operating loss at Hondros and increase in cost of student services and other administrative functions may adversely impact our first quarter earnings by approximately $0.03 per share.

As Angie mentioned earlier, APEI's top priority is to grow its core business. We intend to achieve our goals through the strategy Angie described earlier, which was developed with her leadership and validated by a third-party value creation study. We will soon launch a new marketing campaign, elevating our message of affordability and ROI for learners. At the same time, we seek to increase the number of undergraduate and graduate military students who may obtain a degree with no out-of-pocket costs. The modernization of our IT infrastructure to enhance the learning experience is under way. Enrollment growth enables us the financial flexibility to accomplish many goals such as improve operational efficiency, build strategic competitive advantage, and most importantly, increase our value to students and society in fulfillment of our mission.

Now, we would like to take questions from the audience. Operator, please open the line for questions.

Questions and Answers:

Operator

Certainly. [Operator Instructions] Your first question comes from the line of Jeff Silber with BMO Capital. Your line is open.

Jeff Silber -- BMO Capital -- Analyst

Thanks so much. I'm sorry to focus on the coronavirus right away. Thank you for, at least, providing us some guidance in terms of the potential impact on your business. Have you been getting any -- an increase in inquiries because of everything that's going on and are you also going to be including something like this in your marketing campaign to talk about the benefits of learning at home? Thanks.

Angela Selden -- Chief Executive Officer

Thanks so much, Jeff, for the question. It's early days. I think as students evaluate their options, we're starting to see the institutions spending the student learning experience to a, what is called an institutional continuity plan, which is really very different than a full online learning experience that we deliver. We will pay close attention to enrollment growth as a result of students transferring their interest from on-ground institutions to our online modality and we welcome the opportunity to have those students join the APEI and APUS family.

Jeff Silber -- BMO Capital -- Analyst

And again, there is no issue in terms of capacity either from a technological perspective or from a faculty perspective to handle net inflow?

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

So, Jeff, it's Rick. So, no. No capacity issues. We have a highly variable model for delivering our educational services. Few years ago, we were serving many more students than we're currently serving. So our systems, our people, and our processes are constructed to deliver at scale, including dramatic increases in scale in the near term. We currently enroll close to 3,000 new students a month and we feel like we can do much more than that should the opportunity present itself.

Jeff Silber -- BMO Capital -- Analyst

Okay, that's helpful. You mentioned a tuition increase. Can you remind us what that was and what schools had affected?

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

So, Jeff, it's Rick. So, it was a 5% increase effective January 1. It was applied to all students, but what we did was, for the undergraduate students who had prior to the increase paid $2.50 per credit hour, which is the TA reimbursement level, we've made a commensurate increase in that grant such that those undergraduate TA students saw no increase. And then at the graduate level, prior to the tuition increase, those graduate military TA students were actually paying a small out-of-pocket costs. We increased the grant to the graduate military TA, lowering their cost per credit hour to the $2.50 and the the book grant which previously only applied to undergraduates is now extended to graduate military students. And so, both undergraduate and graduate military now can -- may attendant and obtain a degree at APU, AMU without paying any out-of-pocket costs. So, the tuition increase was targeted. We gave grants back to our military populations and we are seeing some upticks in our graduate military registrations as a result of the extension of that grant and we call that the Freedom Grant. I think that's out in the market at this point.

Jeff Silber -- BMO Capital -- Analyst

All right, great. And no tuition increase at Hondros or nothing out of the ordinary?

Angela Selden -- Chief Executive Officer

No, there wasn't.

Jeff Silber -- BMO Capital -- Analyst

Okay, great. I'll jump back in the queue. Thanks so much.

Operator

Your next question comes from the line of Corey Greendale with First Analyst [Phonetic]. Your line is open.

Corey Greendale -- First Analysis -- Analyst

Hey, good afternoon and congratulations on the enrollment results. In terms of the value creation plan, a couple of questions. Can you give more detail on the marketing plan? Are you talking about kind of mass marketing nationwide QV [Phonetic] or what kinds of things are you focused on?

Angela Selden -- Chief Executive Officer

Hi, Corey. It's Angie Selden. A couple of things I can't [Phonetic] share with you. We look at the allocation of that marketing plan across both brand building as well as advertising spending. So, about a third of that investment will be focused on the brand building side of the campaign and the other two-thirds will really be focused on increasing enrollments through the advertising spend. In particular, we have a campaign which I think will nicely align in Q2 with the opportunity to draw in potential coronavirus students by articulating to those prospective students, the opportunity for transfer of their course credit back to their home institution by considering these courses over their summer term. So we do believe that that ad spending will be aligned in a very timely manner with the opportunity to attract those students over the summer period.

Corey Greendale -- First Analysis -- Analyst

And I guess, just philosophically, the -- I think American Public has always been relatively low cost and always been a good value proposition for students and part of the challenge has been the cost of acquiring students and how far can you go before the cost just gets too high to be economic. I guess what gives you the confidence that that equation, how much you've seen data today that has been solved and how much is this is kind of somewhat projecting ahead and if you get the sorts of retention benefits you think you're going to get from D2L or other things, then it does make sense -- if that question makes sense.

Angela Selden -- Chief Executive Officer

It does make sense. One of the things that we've really keyed in on in our value creation strategy is a focus, not only on enrollment growth, but also the underlying operations and improving overall operational effectiveness across the institution. So, it's our intention to focus both on growth as well as operational effectiveness in order to be able to make sure we're doing this in an affordable manner.

Corey Greendale -- First Analysis -- Analyst

Okay. And one more and then I'll hop back in or, well, maybe I'll ask two more. There has been news recently that a number of other institutions have been made, at least, potentially ineligible for VA benefits. Do you -- I assume it's too quickly to see anything from that, but do you expect any benefit from that?

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

I think it's too early to tell, Corey. I mean that announcement just came out, what, two days ago?

Corey Greendale -- First Analysis -- Analyst

Yeah.

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

Yeah, no. Yeah, go ahead.

Corey Greendale -- First Analysis -- Analyst

I am sorry, Rick. The last question is just on, you were saying, Angie, part of the benefit of kind of the virtuous cycle of growth is more money to invest in innovation and you've had a decent share repurchase program for the past year. Does that signal that you think innovation is kind of the better use of capital. We shouldn't expect the repurchases as much going forward or how are you thinking about that?

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

Well, Corey, we are going to -- we continually evaluate that, right. So, one thing we firmly believe is that our shares are a good value at this price and so it makes sense for us to buy back shares, but of course, looking at the return on that investment versus investing internally in technology or advertising, that's a ongoing evaluation for us. I think we see good things happening on the the marketing side. And so, that might indicate a future shift away from share repurchases into revenue growth activities. Revenue growth activities, we believe, will generate increases in our share value. So, you sort of solve for the same answer, but in a different manner.

Corey Greendale -- First Analysis -- Analyst

Got it. Thank you.

Operator

[Operator Instructions] Your next question comes from the line of Alex Paris with Barrington Research. Your line is open.

Chris Howe -- Barrington Research -- Analyst

Good afternoon. This is Chris Howe sitting in for Alex Paris. Starting with Hondros, you mentioned that new enrollment growth that you saw the first time since the second quarter of 2018. Can you talk more about what you're seeing there and how you sustain the enrollment trend that you're seeing with Hondros? And in regard to the profitability you mentioned reaching it in the fourth quarter of '20, what's your outlook on balancing profitability with the potential addition of new campuses in the segment?

Angela Selden -- Chief Executive Officer

Chris, thanks for the questions. I'll answer the first one and I'll ask Rick to comment on the second. So, we are enthusiastic about what I would describe as a very comprehensive and systematic evaluation of each step in the process of attracting, enrolling, and supporting students through their whole educational journey at Hondros. And as a result of that, we have improved our conversion rates at the admissions point with students. We are improving our retention rates inside the program with students. And so, it really was a comprehensive systematic evaluation of each step in that process to ensure we're creating the best outcome for our students from the very beginning of that journey through their graduation and their testing processes. And then, Rick, you need to answer the second part of the question.

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

Yeah, so, Chris, the second question do you mind -- I'm sorry just repeating. You wanted to know about balancing profitability versus opening new campuses?

Chris Howe -- Barrington Research -- Analyst

Yeah, profitability with different investments for growth within Hondros.

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

Yeah. So, the actual investment to open a new campus is very low, in terms of the capital investment and to your point, during the early periods of operation, it does generate losses. We look for places where there is a nice supply demand imbalance. The point being that, open new campus and we should have an ability to generate good enrollment growth there. I would say, our plan is to open a campus a year, Chris, which does balance kind of the need to generate profits and cash flow with the investment we would like to make in new campus operations to grow that business. We see a pretty nice growth path ahead of us, not just by sustaining the current enrollment growth trend, but by adding to that by opening new campuses, right.

And so, if you look at the earning enrollment today versus where it was just a couple of years ago, we can generate growth in the existing campuses despite filling those up to where they were just a year or two ago, without incurring the losses, in fact, realizing the profits associated with that incremental enrollment growth. And then by opening a campus and hopefully placing them in the right location, meaning, city and specific location pretty quickly fill that up and get to cash flow breakeven.

Angela Selden -- Chief Executive Officer

If I could add one thing, which is that our value creation study as it relates to Hondros suggested that the PN program and the ADN program that we offer today are the areas where in the national forecast for shortages in healthcare professionals. The RN program or what is our ADN students become RNs, has this -- the largest gap of nearly all healthcare professions forecasted in the year 2024. And so consequently, we feel very confident that finding those right markets that Rick described with the supply demand imbalance. We have a great product that we can offer into those markets and really believe that that PN and ADN program is the right place, at the right time.

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

But even in the markets that we currently serve, where we are, I think, in four of the five markets we're Number 1 in terms of graduating PNs.

Angela Selden -- Chief Executive Officer

That's right.

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

If you look at the number of job openings in those specific markets even as Number 1 in those markets, the need is not being met which speaks...

Angela Selden -- Chief Executive Officer

We're filling less than 10%.

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

Yeah, speaks loudly to the fact that there is opportunities in the existing markets and hopefully if we're smart and we plan to be smart about where we place new campuses, we'll see similar results in those campuses.

Chris Howe -- Barrington Research -- Analyst

That's all very helpful. And then, moving more broad reaching as you look at this value creation strategy and now look through the excitement that you have for this moving forward, this is a little bit of an open-ended question, but when you say creative, can you break apart, kind of, what you're thinking as far as the strategy as being reactive versus proactive in the market? In other words, is it more driven by what you're seeing within the business or outside the business and just some of the different ways you look to measure this as we move through it?

Angela Selden -- Chief Executive Officer

I'll do my best to answer that question. Since we're standing at the early days of the implementation, I'll tell you how we have informed our thinking so far. First, our intention is to create the most efficient and effective operating practices inside the Company. And the way to benchmark ourselves is to understand how others, both direct competitors and indirect competitors, perform those processes as well. And we did that benchmarking to better understand where we have the opportunity to improve.

Second, we need to look outside in the environment as well to understand when we stand in the shoes of our students and prospective students, what have they come to expect in terms of that student experience and what can we do to meet or beat those expectations when they decide to attend courses with us. And so, we need to evaluate both the external experiences that they have, as well as rely on our heritage of innovation to think about new and different ways that we can actually transform the student experience for our learners.

Chris Howe -- Barrington Research -- Analyst

That's very helpful. Thank you. That's all I have for now.

Operator

Your next question comes from the line of Greg Pendy with Sidoti. Your line is open.

Greg Pendy -- Sidoti -- Analyst

Hey, guys. Thanks for taking my question. Can you -- I think earlier you said the accreditation for Honduras was affirmed and pushed out -- or affirmed out to February 2021. Can you kind of share with us, I guess, any details, I mean on where NCLEX pass rates have been? Have they been trending up? And then also, can you kind of remind us, maybe about the changes in what the current enrollment process with Hondros is? I think a while back, you had some additional requirements. And then, I think you rolled those back. So kind of, how have things changed in the enrollment process. Thanks.

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

So, Greg, it's, Rick. So on the NCLEX scores, that's a Ohio Board of Nursing matter, not an accreditation matter. And you need to sort of break it down. In the PN program, our NCLEX scores are top-shelf, right. We outperform others in that area. They are very high and they have always been very high. It's in the ADN program where we've sought to improve those scores. We've been on provisional status with the OBN now for, I think, five years, perhaps six years. It's not a place we want to be, of course, but other schools have been on probation for a long time. So we don't -- that's why you see that as a immediate business risk.

That being said, we're working hard to improve those scores. We've launched something called the direct entry ADN program where we bring in students who have a degree, not in healthcare or related fields. They've demonstrated the ability to succeed at the college level and they are students who are looking for a change in their life trajectory to become a nurse. And so, that program launched I think late in 2019 and is really now beginning to get traction. We think that that's going to be a driver of improved NCLEX scores in the ADN program.

In terms of the admissions process, we've made some changes in terms of how we apply the HESI test at the PN level, that's a very sort of micro point. We've implemented other systems, sales force, I think, we've talked about being implemented to more efficiently track prospects and improve conversion rates. Last year we did something. We extended hours of our student-facing teams to better meet the needs of our prospective students in terms of when they're interested in learning more about our programs, probably not doing 9 to 5. So, we extended to evening hours. I would say it's a holistic view of how we identify prospects, how we create a frictionless process to enroll students and then support them in their success.

And so, the school has gone through an exhaustive examination of all those processes. And I think the good news is, we're actually seeing the outcomes of that, right. We're seeing now new student enrollment growth 31%, in the first quarter and that of course will then lead to -- we expect year-over-year improvement in earning enrollment, right. We were at minus 9% because we still have those smaller cohorts from 2019 and I think there was a large graduation that was referenced in the script earlier, but the new students as you know is a leading indicator and being up 31% is going to, we believe, lead to overall enrollment growth in the future.

Angela Selden -- Chief Executive Officer

If I could also add that, again, one of our key activities is standing in the shoes of our students and our prospective students, and really understanding how they experience our brand. And one of the key focus areas in the early part of 2020 at Hondros is modernizing the applicant journey, making sure that we remove the barriers that have prevented students from being able to enroll easily and swiftly in the process historically, and that is well under way with many improvements being made to the benefit of the students.

Greg Pendy -- Sidoti -- Analyst

That's helpful. Thanks a lot.

Operator

[Operator Instructions] Your next question comes from the line of Jeff Silber with BMO Capital. Your line is open.

Jeff Silber -- BMO Capital -- Analyst

Thanks. Just a couple of quick numbers questions. What should we be using for the tax rate for the first quarter and for the year and also our capital expenditures for the year, what you're expecting as well. Thanks.

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

Right. So, we don't give guidance beyond the quarter but I think, Jeff, for your modeling, you need to be a little north of what we had previously guided to. We were high in '19. I would do something around 28% or 29% for the first quarter. And in terms of capex, you've seen our capex come down. I think we're probably getting to a place at this point where you're going to see a leveling. So I think, the recent history would be a reasonable indicator of where we're headed in 2020. We just have minimum capital expenditures. We are moving to the cloud which alters that capital landscape, but I think where we've recently been, this is probably a good indicator of where we're headed.

Jeff Silber -- BMO Capital -- Analyst

Okay, that's helpful. Let me sneak one more in. The $0.13 to $0.18 guidance for EPS, what share count or range of share count is embedded in that?

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

I mean I have to get back to you. It's roughly 15.5 million, Jeff.

Jeff Silber -- BMO Capital -- Analyst

That's fine. That's perfect. Thank you so much.

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

Yeah.

Operator

At this time, there are no further questions. I will turn the call back over to Mr. Symanoskie for closing statements.

Christopher L. Symanoskie -- Vice President, Investor Relations and Corporate Communications

Thank you, operator. That will conclude our call for today. We wish to thank you all for listening and for your continued interest in American Public Education. Have a good evening.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Christopher L. Symanoskie -- Vice President, Investor Relations and Corporate Communications

Angela Selden -- Chief Executive Officer

Richard W. Sunderland -- Executive Vice President and Chief Financial Officer

Jeff Silber -- BMO Capital -- Analyst

Corey Greendale -- First Analysis -- Analyst

Chris Howe -- Barrington Research -- Analyst

Greg Pendy -- Sidoti -- Analyst

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