American Public Education, inc (APEI) Q3 2021 Earnings Call Transcript

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American Public Education, inc (APEI 1.12%)
Q3 2021 Earnings Call
Nov 8, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the APEI Reports Third Quarter 2021 Results Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Ryan Koren. Thank you. Please go ahead.

Ryan Koren -- Associate Vice President, Investor Relations and Corporate Development

Thank you, and good afternoon, everyone. Welcome to the American Public Education's conference call to discuss third quarter 2021 financial and operating results. Joining me on the call today are Angela Selden, President and Chief Executive Officer; Rick Sunderland, Executive Vice President and Chief Financial Officer; and Steve Somers, Senior Vice President, Chief Strategy and Corporate Development Officer.

Materials for the conference call today are available under the Events and Presentations section of the APEI website. Please note that statements made during this conference call and any accompanying presentation materials regarding American Public Education, Inc. and its subsidiaries that are not historical facts may be forward-looking statements based on current expectations, assumptions, estimates and projections about APEI 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 those expressed or implied by such statements. Forward-looking statements may be identified by words such as anticipate, believe, seek, could, estimate, expect, can, may, plan, should, will, would and similar words or their opposites.

Forward-looking statements include without limitation, statements regarding the impact of recent disruptions to the Army's tuition assistance program, expected growth, registrations and enrollments, revenue, net income, earnings per share and EBITDA, expected benefits of the acquisition of Rasmussen University, future impacts of the COVID-19 pandemic, organizational changes, plans with respect to recent current and future initiatives, and future demand for online and nursing education. Actual results could differ materially from those expressed or implied by these forward-looking statements as a result of various factors, including risks related to actions taken by the Department of Defense or branches of the U.S. Armed forces, including actions related to the disruption and suspension of tuition assistance, the effects of and APEI's response to the COVID-19 pandemic, including impact on the demand environment as the pandemic abates, the acquisition of Rasmussen University, changes to and expectations regarding our enrollment, registrations and the composition of our student body, and to risk factors described in the Risk Factors section and elsewhere in the Company's quarterly reports on Form 10-Q filed with the SEC today and the Company's most recent Annual Report on Form 10-K and in the Company's other SEC filings. The Company undertakes no obligation to update publicly any forward-looking statement for any reason unless required by law, even if new information becomes available or other events occur in the future.

This presentation contains references to non-GAAP financial information that we use to measure our business. A reconciliation between the non-GAAP financial measures we use and the most directly comparable GAAP measures are located in the appendix to our presentation and in our financial statements.

I will now turn the call over to our CEO, Angela Selden. Angie, please go ahead.

Angela Selden -- Chief Executive Officer

Thank you, Ryan, and thank you all for joining us today and for your interest in American Public Education. This earnings call is the first in which Rasmussen University is part of APEI, having closed the transaction on September 1, 2021. The acquisition of Rasmussen University represents a milestone in APEI's history, and we look forward to sharing with you the new financial composition of APEI with the inclusion of Rasmussen.

However, before we discuss details of APEI's third quarter results, I'd like to spend a few minutes bringing to life APEI's mission that of educating the service-minded students and how are subsidiary institutions, which we refer to as education units, including our most recent quote unquote soon-to-close acquisition of Graduate School USA, align with our mission for the benefit of our students and our shareholders. Educating the service-minded students is the common thread that mixed together the missions of APUS, Hondros, Rasmussen and Graduate School USA. From its founding as American Military University in 1991, APEI has been focused on solving big problems for society and for our select student populations.

AMU was founded with the express purpose of enabling active duty military to get access to the education to which they are entitled from their earned educational benefits. Rasmussen, originally founded 120 years ago as a business college for women, today is a university that is focused on meeting the critical nursing and healthcare skills needs as well as providing degrees in high demand career fields like business and early education at very affordable rates. Likewise, Hondros College of Nursing is exclusively focused on meeting the need for nurses by creating new nurses through its PN and ADN pre-licensure programs.

In an era where many of today's students do not fit into the traditional mold of traditional higher education, APEI's strides to set adult learners on path to achieving their dreams by providing the skills necessary to maximize their return on their higher education investments. Slide 4 highlights how APEI offers a variety of learning solutions and delivery models, such as fully online one course at a time, asynchronous learning at APUS and purpose-built career-minded programs such as nursing at Rasmussen and Hondros. With the inclusion of Graduate School USA, APEI will now offer training and continuing professional education also in support of the mission of educating the service-minded students.

On Slide 5, at APEI, affordable, high-quality and outcome-focused education remain key tenants. APEI aims to support our students' lifetime career ambitions with a well thought-out curriculum that translates to added skills and degrees to boost their success over their entire lifetime journey of career advancement. We are focused on meeting any student wherever he, she or they are in that journey, whether it is in the beginning as he enters a new career as a first-time nurse, in the middle of a career as he tries to transition out of the military, or later in life as they advance their skills to obtain a specific promotion, APEI is committed to helping each student achieve their purpose.

Let me bring this to life with some examples from each of the APEI education units. At APUS, over 300,000 military personnel have utilized their military tuition assistance benefits at AMU and APU. For those active duty military today, APUS's total out-of-pocket costs for nearly all courses are priced no higher than the allowable military tuition assistance benefits. As a matter of fact, the combined undergraduate full-time tuition fees and book costs at APUS had been approximately 30% lower than the average in-state costs at public institutions offering bachelor's degree. APUS's per credit hour cost has increased by less than 1% in the last 20 years, barely a blip in comparison to the greater than 150% increase in higher education tuition and fees more broadly over that time.

APUS has ensured our active duty military and veterans are able to utilize our programs to complete a degree without incurring any APUS student loan debt. This value proposition has made APUS the institution of choice for active duty military, with 22% of total service members that are using their education benefit today take courses with AMU and APU. APUS subsequently extended its educational focus to veterans and a broader array of service-minded students, including law enforcements, firefighters, teachers, public health and other populations that all serve for the common good.

Affordability is also a pillar of the educational offerings at Rasmussen. For example, it recently lowered the price of each of the Masters degrees it offers, which are now less than $10,000, including the MSN or Masters of Science in Nursing. It is important to note that both APUS and Rasmussen serve non-traditional students. Only approximately 4% of APUS students enrolled in 2020, and approximately 8% of Rasmussen students fit the Department of Education's definition of first-time full-time students. Thus, many of the comparative traditional higher education success measures applied to a very small portion of those student population.

Also worth noting is that recently those APUS and Rasmussen's accreditations have been reaffirmed by the Higher Learning Commission and operate now within the HLC's open pathway accreditation option, which gives APUS and Rasmussen the unique opportunity to pursue improvement projects geared to our current needs and aspirations. Each of APUS, Rasmussen and Hondros's programs are all focused on helping students advance their job and career opportunities. In particular, Hondros is measured by its accrediting body ABHES on student placement rates, once students have graduated. Hondros is proud to report that each program at each campus has achieved or surpassed the ABHES placement standard for the most recent measurement period. All of this translates to APEI's being the largest educator of active duty military and veterans through two brands, APU and AMU and being the largest educator in pre-licensure nursing education through Rasmussen's School of Nursing and the Hondros College of Nursing.

The addition of Rasmussen has resulted in a more diversified APEI portfolio. We've now roughly equal parts, one-third nursing, one-third military and veteran education, and one-third other online education. With our inclusive, high quality, affordable and outcomes-focused education, APEI is setting its sights on being the best value in adult education for the service-minded students.

Turning to Slide 6. We believe the same principle of educating the service-minded students holds true for the nation's nurses and healthcare workers whose importance in our society was made abundantly clear over the past 20 months. Today, there are just over 3.1 million registered nurses in the U.S., and the Bureau of Labor Statistics predicts this will grow to over 3.3 million over the next decade as the aging of the U.S. population is expected to drive a demand for healthcare both in hospitals and at home healthcare services. Furthermore, with the Journal of Nursing Regulation indicating a growing increase in nurse retirements, the gap for RN job vacancies is expected to be approximately 175,000 each year for the next 10 years, according to the BLS.

We believe strongly that the nursing shortage is a critical societal crisis, as nurses represents the backbone of our healthcare system. As part of our efforts to educate the service-minded students, APEI today is addressing the societal nursing shortage through our tour to nursing focused institutions, collectively Hondros College of Nursing and Rasmussen School of Nursing educate approximately 11 pre-licensure nurses, thereby helping create the new nurses the country needs to help fill the growing nursing shortage.

Together, Hondros and Rasmussen provide nursing education at 30 campuses in eight states across the mid and upper Midwest and Florida, including in some of the states with the most severe nursing shortages. Beyond the benefit of serving society and the public good, nursing offers a long-term career path with attractive annual salaries to our students and their families. Taking into account their affordable tuition costs, Hondros and Rasmussen work to deliver high return on educational investments. Lastly, many of our nursing students come from disadvantaged communities. With our accessible inclusive education, it allows us to be a destination to help our local students drive and positively contribute to their communities and their families.

Let's move to Slide 7. In the third quarter, we also announced an agreement to acquire Graduate School USA. Graduate School or GSUSA is one of the leading providers of training to the federal workforce. GSUSA's extensive portfolio of government agency contract and customers is tightly aligned to APEI's focus on educating the service-minded students and represent a strong adjacency to APUS' core military and veteran student population. This acquisition further accelerates our focus on career training and degrees that help provide pathways to employment and career advancements.

Graduate School USA was established in 1921 as part of the U.S. Department of Agriculture, and is celebrating its centennial anniversary this year. Today, it provides training to the federal workforce through a catalog of over 300 courses specializing in foundational and continuing professional development in the areas of human resources, government auditing, federal financial budgeting and management, as well as leadership training to advance the performance of government agencies through the competency and career progressions of their employees. GSUSA is accredited by the Accrediting Council for Continuing Education and Training (ACCET) that and delivers its training both in-person and through virtual learning.

Graduate School serves the federal workforce through two channels, customized contract to training to federal agencies or B2C and open enrollment to government professionals or B2C. With a broad set of over 120 government agency customers, including the Department of Defense and many of its branches, the Departments of Homeland Security, Health and Human Services, Interior, Justice, and State Department, Graduate School USA represents a strong complement to APUS's primary student populations. Graduate School USA is a non-Title IV training provider that further diversifies APEI with a foothold in the workforce training marketplace. We believe its portfolio of short-form courses offers meaningful opportunities to create new stackable credentials.

Additionally, we see opportunity to further serve the federal workforce marketplace beyond the core Washington DC market and by extending into other workforce training segments. GSUSA has generated more than $20 million in average annual revenue over the past three fiscal years. It is approximately a breakeven business today, and we believe that by leveraging APEI's shared services and in particular IT, curriculum development and in-house marketing expertise, Graduate School USA could generate margins similar to other training businesses over the next few years. APEI is acquiring substantially all of GSUSA's assets for a purchase price of $1 million, and it will be a new stand-alone subsidiary Education Unit of APEI. The transaction is anticipated to close at the start of the new year, subject to certain closing conditions.

Now let's move to enrollment momentum and business performance by turning to Slide 9 and the next section. First at APUS, total net registrations of 83,100 in the third quarter were down 8% versus the same period in 2020, which is at the high-end of the guidance we provided last quarter. These results are favorable as compared to 2019, and up roughly 8%. When looking at just the combined August and September periods of this year compared to the August and September periods of 2020, net registrations were down just 3%, reflecting the ArmyIgnitED portal, partially coming back online toward the end of July.

Other military and non-military enrollments continued to see some moderation in demand, as some students have slowed their academic endeavors in favor of resuming otherwise activities that have been paused by the COVID pandemic. On a year-to-date basis, net course registrations through the third quarter are down only 2% as compared with 2020, which has been the best registration year for APUS since 2015. It's also important to note that compared to 2019, on a year-to-date basis, course registrations are up over 9%. For the fourth quarter, we anticipate registrations to decline by 2% to 5% to between 84,000 and 86,600, reflecting that same general student behavioral trends and compared to a somewhat inflated comparable period in 2020 that saw that increased course interest as normal social activities remained on hold during the COVID pandemic.

Finally, touching on the ArmyIgnitED portal generally, while many improvements have been made, important challenges remain. As mentioned on the last earnings call, the portal became partially operational on July 19. Soldiers are now able to use the portal to register, but many continue to do so through an exception to policy or ETP. Overall, August and September saw much improved course registrations compared to the sharp declines experienced from March through the July time frame, but we believe the portal issues continue to sign[Phonetic] soldier registrations.

We and our APUS soldier students are experiencing three remaining challenges with the ArmyIgnitED portal and understand that these are common across all other education provider to the Army. Number 1, system latency and performance issues which have impacted the speed of the portal and its usability. Number 2, remaining system and data defects such as students unable to access accurate degree plans, course enrollments and education pass that the developer Deloitte continues to resolve as they surface, but those defects continue to present challenges and more manual nature to the entire process for the education providers where manual approvals have been interjected at one certain points of the process where never before which has made a cumbersome for education providers, especially those such as APEI which process thousands of education requests. Despite the ongoing challenges from the Army portal, registrations from the Army has stabilized, and we expect positive registration growth year-over-year from soldiers in the fourth quarter.

Finally, we announced last week that Dr. Wade Dyke has left APUS as President to pursue a new endeavor and that Katherine Zatz, most recently Chairwoman of the APUS Board of Trustees, has been appointed acting President. She holds a doctorate in higher and adult education and two Masters degrees from Teachers College, Columbia University. Dr. Zatz's first pointed to the APUS Board in 2004. We thank Wade for his contributions over the past 15 months and look forward to filling the role permanently with an ongoing nationwide search.

Moving to Slide 10. Nursing enrollment at Rasmussen continues to grow, up 13% in the third quarter of 2021 compared to the prior year period and through a new historic enrollment high for the University. This positive growth was offset by a decline in non-nursing enrollment by 13% in the current quarter, in part due to the deliberate shift in marketing dollars away from those channels, which generate non-nursing leads. Overall, enrollment was down roughly 2% in 3Q, compared to 2020, a year that benefited from a bump in enrollments due to the COVID pandemic.

When compared to the third quarter of 2019, Rasmussen total enrollment is rough -- up roughly 3% on a two-year CAGR basis. For the fourth quarter of this year, we anticipate a similar trend as the third quarter with nursing enrollments expected to increase by roughly 8% to 8,800, yet another new enrollment record at Rasmussen. On the nursing side, we anticipate a decrease of roughly 13% to 8,700 enrollments. Overall, this translates to expected total enrollment of roughly 17,500 for the fourth quarter.

As we turn to Slide 11, demand for nursing in Hondros continues to generate strong overall enrollment growth, up 19% in 3Q '21 versus the comparable prior year period to a level of over 2,300 students. We believe that Hondros' focus on student support services, its favorable reputation in its communities, and ability to deliver good educational outcomes that lead to jobs allows us to meet the needs of students and hospital system. Both the PN and ADN programs saw growth and our one-plus-one PN to ADN gateway program offers students a chance to quickly enter the workforce and then come back to increase their skills and earning power with an ADN degree that provides credit for their PN work.

We expect these trends to continue in the fourth quarter of 2021, and are anticipating the highest level of PN starts ever and the highest total PN and RN enrollment ever, translating to 17% growth over the comparable 4Q 2020 period and over 2,500 total students enrolled. The uncertainty surrounding COVID, its impact on our students' ability to attend clinicals by child and elder care and concerns about vaccine mandates have all led to changes in perspective and at times existing student behaviors. For example, Hondros is seeing some of its highest enrollment demand ever and yet at the same time experiencing higher rates of deferrals or drop as students cope with an ever-changing environment. Despite all that, Hondros remains on pace to have another record-setting 4Q and 2021.

I would now like to turn the call over to Rick to review our third quarter financial results and fourth quarter outlook in further detail.

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

Thank you, Angie. Before we go to financial performance for the quarter, with the closing of the Rasmussen acquisition, I'd like to provide an overview of APEI's strong quality indicators, regulatory performance and general compliance history because everything we do is built on our strong regulatory and compliance track record.

On Slide 13, we present important quality and compliance metrics, representing our schools' commitment to the guiding principles of quality, integrity and compliance. Starting with accreditation, we are pleased to announce that the Higher Learning Commission or HLC just reaffirmed APUS's accreditation for 10 years through 2030, 2031 and accepted the school into its open pathway track, which affords institutions greater opportunity to pursue institutional improvement projects than the previous standard pathway designation.

Similarly, Rasmussen is also accredited by the HLC through the Open Pathway designation and recently received its reaffirmation of accreditation through 2025, 2026. Hondros is accredited by the Accrediting Bureau of Health Education Schools or ABHES through 2027. Finally, each school has specialized accreditations for many of their top programs.

On the right hand side of the page, you can see our strong performance as it relates to the most recent three-year cohort default rates or CDRs for the 2018 cohort, which was released this past quarter. All three institutions achieved three CDRs that are below the national average for all proprietary institutions and were within 2 percentage points of the national average for all institutions, including non-profits. Touching on 90/10, APU, Hondros and Rasmussen were all well below the 90% threshold for the 2020 reporting period.

Turning to Slide 14. On Slide 14, we present our financial highlights for the quarter and year-to-date nine-month periods. Total revenue for the third quarter was $98 million, up approximately $19 million from the comparable prior-year period, due entirely to the inclusion of one month of Rasmussen results in the 2021 period. APUS third quarter revenue was $66 million, a decrease of 5% from third quarter 2020, as a result of the decrease in net course registrations that Angie spoke about earlier, driven in part by the disruption of the Army's tuition assistance program and a moderation in the near-term demand for online education due to the abatement of the COVID-19 pandemic.

Honduras revenue increased by roughly 18% to $11 million in the current quarter compared to the comparable prior year period, driven by comparable increases in earning enrollments due to the ongoing demand for nursing education, our successful marketing efforts and execution of our enrollment strategies at Hondros.

Total cost and expenses for the quarter were $97 million, an increase of $21 million from the prior year period, due primarily to the inclusion of one month of Rasmussen's results in the current year quarter. This includes roughly $1.8 million of non-cash stock compensation expense and $1.6 million of M&A-related professional and integration costs related to the Rasmussen acquisition and $4.4 million of depreciation and amortization, all on a pre-tax basis. As discussed on our second quarter earnings call, in August, we completed a reduction in force that is expected to deliver approximately $1.8 million in pre-tax labor and benefits savings in 2021 and between approximately $2.6 million and $3.6 million of cost savings in 2022.

Overall, APEI achieved adjusted EBITDA of $9.1 million for the current year quarter. Net loss per diluted share for the period was $0.01. Net cash provided by operating activities was $600,000 for the nine months ended September 2021, compared to $44.7 million for the 2020 period. The decrease is primarily due to the timing of the Rasmussen acquisition, as Rasmussen receives the majority of its cash receipts at the start of a quarterly term during the first month of each fiscal quarter while disbursements occur throughout the quarter. As the seller retained substantially all of the cash at time of close, the majority of Rasmussen's operations were therefore funded by APEI through the middle of October when Rasmussen received its Temporary Provisional Program Participation Agreement or TPPPA permit that allows Rasmussen to continue drawing Title IV funds.

Cash provided by operating activities was also impacted by the Army's transitioned ArmyIgnitED, which is adversely impacted APUS's ability to invoice the Army. As of September 30, approximately $18.7 million in accounts receivable was due from Army, of which $11.6 million is older than 60 days. Cash at September 30, 2021 was $141 million, of which approximately $27 million is restricted. Restricted cash is almost entirely comprised of restricted certificate of deposit securing a letter of credit. Rasmussen University is required to post to ED as a result of its 2020 composite score. The composite score is used by ED for determining compliance with financial responsibility standards and the Rasmussen composite score relates to its prior ownership and it was below the minimum required. The composite score will now be calculated at the APEI consolidated financial position and will be reevaluated by ED after submission of audited financial statements that reflect one full fiscal year of APEI ownership, which means after the 2022 audited financial statements are submitted to ED. We anticipate the APEI consolidated composite score will eliminate the need for that letter of credit in 2023.

In connection with the closing of Rasmussen and to fund a portion of the purchase price, APEI entered into a $175 million term loan B on September 1 with a scheduled maturity of September 2027. This is the first debt facility entered into by APEI as a public company. In conjunction with the term loan, we also closed on a revolving credit facility with a commitment amount of $20 million that remains undrawn at this time. The facilities were issued at LIBOR plus 550 basis points with a LIBOR floor of 75 basis points. The term loan requires annual amortization of 5% or $8.75 million and includes customary restrictions on incurring incremental indebtedness and a financial covenant requiring a total net leverage ratio of no greater than 2 to 1.

Turning to Slide 15. APEI's outlook for the fourth quarter of 2021 is as follows. APUS net course registrations are expected to decrease between 2% and 5% year-over-year. This reflects a rebound from Army registrations, offset by the impact on near-term demand of the moderation of COVID-19 and broader factors impacting the higher education industry. At APUS, we continue to work on reaccelerating registration momentum.

At Hondros and Rasmussen, fourth quarter student enrollment is actual because of the quarterly start to these schools. At Hondros, fourth quarter student enrollment increased by 17% year-over-year to 2,500 students. At Rasmussen, nursing student enrollment increased 8% year-over-year, offset by non-nursing enrollment declines of 13% for an aggregate Rasmussen enrollment decline of approximately 3.5% year-over-year.

In the fourth quarter of 2021, consolidated revenue is expected to increase between 75% and 80% year-over-year, given the addition of Rasmussen. The Company expects net income to be between $5.7 million and $7.1 million and earnings per diluted share of between $0.31 and $0.38.

The outlook for the fourth quarter net income includes the following on a pre-tax basis. Approximately $1.7 million to $2.2 million in professional fees related to the Rasmussen -- to the integration of Rasmussen, approximately $600,000 -- between $600,000 and $800,000 in labor and benefit cost savings from the August production in force, adjusted EBITDA is expected to be between $23.8 million and $26.3 million for the fourth quarter of 2021.

One additional point to note is that the Rasmussen transaction is expected to result in a cash tax benefit to API due to the step-up in tax basis of the assets acquired. We have estimated this cash tax benefit to have a present value of approximately $29 million, which represents the $29 million of value that APEI paid to acquire Rasmussen over the $300 million that we otherwise would have been willing to pay for the business. We expect that in the first year post closing, APEI will experience a cash tax benefit of approximately $6 million. While we do not currently report cash EPS metric, this cash tax benefit would amount to $0.30 per share to $0.35 per share in the first year.

With that, we now ask the operator to open the line for questions. Operator, please open the line. Thank you.

Questions and Answers:

Operator

[Operator Instructions] For our first question, we have Tobey Sommer from Truist Securities. Tobey, your line is open.

Jasper Bibb -- Truist Securities -- Analyst

Hey. Good afternoon, everyone. This is Jasper Bibb on for Tobey. Thanks for taking the questions. So I wanted to drill into Rasmussen. It looks like nursing continues to grow high single-digits, but could you provide a bit of color on the pressures we're seeing on the non-nursing side and or the health sciences programs that are being less impacted than the other non-nursing like business[Phonetic]? Thanks.

Angela Selden -- Chief Executive Officer

Hi, Jasper, it's Angie Selden. Thanks for the question. Let's talk a little bit about Rasmussen non-nursing. First, as I mentioned in the script, there has been a deliberate focus on investing in marketing to generate leads for nursing, given both the momentum and the shortage in the number of nurses in the public market. What I will say on the nursing side is that we're very enthusiastic about the opportunity to turn that momentum around with some of the capabilities that exist through APUS, namely the fact that there is relatively small academic overlap in the non-nursing business between APUS and Ras and that we actually have some capabilities, namely our national marketing capabilities that are different from the marketing approach that Rasmussen presently takes.

Today, Rasmussen really focuses on marketing its non-nursing programs to the geographies within 150 miles of their campuses, and we believe that there are lots of opportunities to take the non-nursing educational offerings and begin marketing them to a national audience.

Jasper Bibb -- Truist Securities -- Analyst

Okay, that's helpful. One more on student acquisition. Selling expense came in a bit higher than we were expecting. Could you give any color on how your marketing yield has trended and are you seeing more competition there than normal?

Angela Selden -- Chief Executive Officer

Jasper, is that overall, or are you seeing that specifically for one of the education units?

Jasper Bibb -- Truist Securities -- Analyst

That's across the portfolio.

Angela Selden -- Chief Executive Officer

Okay. I'll turn that to Rick.

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

Yeah. So Jasper, we are seeing successes. Harry Wilkins and his team have been working on the internal metrics related to conversions and retentions -- retention. So as we see improvements there at APUS, we see additional opportunities to invest. And then of course in the nursing businesses, Hondros and Rasmussen given the demand in the marketplace for nursing education, it warrants additional investments in those areas. So I would say, we are always focused in how we invest our marketing dollars and we're seeing current improvements on the either side in particular because of some of the internal work that Harry and his teams are doing.

Angela Selden -- Chief Executive Officer

One thing I would add -- [Speech Overlap] I was going to detail one more point which is that, as we think about the point in the year where we are right now, we typically invest slightly more in marketing in Q3 to try and drive larger Q4 and Q1 start. And so, it is a time of a year where we are on a floating basis[Phonetic], seeing a little bit more of an investment in Q3.

Jasper Bibb -- Truist Securities -- Analyst

Okay, got it. And then last question for me on Rasmussen and Hondros, what's been the experience with reopening campuses? And then, how much of that expense will be say is can party[Phonetic] in the third quarter results versus incremental costs you see coming back in the fourth quarter or over 2020, '22[Phonetic]?

Angela Selden -- Chief Executive Officer

I'll start, and then Rick I'll ask you throw some[Phonetic] details. We are -- we have been and continue to be fully open at Hondros and at Rasmussen. And the cost profile that you're seeing in the financials today will continue to be the cost profile in the coming quarters.

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

Yeah, absolutely. And I would also add that if you look back over the last year and you look at instructional costs for Rasmussen and Hondros, they were likely favorably impacted by the going remote on some element of it. And so, as they come back into the classroom, you're going to see a modest increase in structural costs when you compare it to those earlier periods.

Jasper Bibb -- Truist Securities -- Analyst

Okay. Thanks for taking the question.

Angela Selden -- Chief Executive Officer

Thank you.

Operator

And for our next question, we have Jeff Silber from BMO. Your line is open.

Jeff Silber -- BMO Capital Markets -- Analyst

Thanks so much. I wanted to shift the focus back to nursing. And some of the other companies in this space talked this quarter about the difference between some of the post-licensure programs and the pre-licensure programs specifically that they were seeing pressure on post-licensure enrollment as nurses decided to continue working because the salaries are so high. Are you seeing any major difference between those two groups? And if so, how?

Angela Selden -- Chief Executive Officer

Hi, Jeff. It's, Angie. Thanks very much for the question. I'm going to turn it over to Steve. He's been following this trend pretty closely.

Steve Somers -- Senior Vice President, Chief Strategy and Corporate Development Officer

Yeah. Hi, Jeff. In our case, the vast, vast majority, upwards of 95% of the nursing enrollment across Rasmussen and Hondros is pre-licensure. And so, we haven't really experienced sort of that bifurcation of enrollment trends because the proposed licensure is relatively small component of our total nursing enrollment. And so, the trends that you're seeing there is, when we closed the nursing certainly at the Hondros side are entirely pre-licensure and the numbers for Rasmussen are for all intents and purposes nearly entirely pre-licensure as well. So that's not an area that we've really experienced a tremendous divergence in the trend.

Angela Selden -- Chief Executive Officer

We're also seeing, as we reported with Hondros, increase in interest for the PN program in particular. The salaries people are commanding now and the opportunities that are being presented to PN students are much greater than what they would have seen in the past. And so, there is significant demand for our PN programs across the board.

Jeff Silber -- BMO Capital Markets -- Analyst

Okay. That's really helpful. A few times, you talked about some changes in student behavioral trends. It doesn't sound like you're really seeing it on the nursing side, but it sounds like you're seeing it on the non-nursing side across your various programs. What changed over the past few[phonetic] months? This wasn't something that you discussed much last quarter.

Angela Selden -- Chief Executive Officer

Well, what I can share with you is that we are continuing to see increasing enrollment momentum in our returning students at APUS. In fact, we had one of our largest returning students single-day registrations in five years at APUS in the past several weeks. And we have worked tirelessly as we began discussing on the last call about streamlining our enrollment processes and adding some new tools and capabilities under Harry Wilkins' leadership. So, we brought him in to bring the best practices that he had instituted at Hondros into APUS as well, and we're starting to see the fruits of that work really manifesting itself. We also have seen very strong top of the funnel lead. So, we're not seeing any declines in the lead. What we are seeing is some delay in people converting from an interested student into an enrolled student. And so, we're working very hard now to take all those really wonderful leads that we have and get those students converted at a faster pace.

Jeff Silber -- BMO Capital Markets -- Analyst

Okay, thanks so much.

Angela Selden -- Chief Executive Officer

Thank you.

Operator

For our next question, we have Raj Sharma from B. Riley and Company. Raj, your line is open.

Raj Sharma -- B. Riley Securities -- Analyst

Yeah, thank you so much for taking my question. Can we dig in a little bit into revisit the Army portal impact? I see the impact in the December quarter. Is this impact likely to persist through first calendar quarter? And any sort of remaining impact and if you could give more color on the percentage of the total Army enrollment that is being impacted, if you can understand that a little better?

Angela Selden -- Chief Executive Officer

I'll start. I'm really pleased to say -- well, thanks, Raj, for the question. Great to speak with you. Rick and I had the privilege last week of speaking with the leadership team running ArmyIgnitED. We really believe that was a breakthrough because up until this point, we haven't had the opportunity to have a fulsome conversation with them and we really focused on two key topics. The first of which was we had pulled our students who are using the portal and not using the portal to try and collect information about the areas of issues that they were having and we shared those survey results back with the Army leadership team. We also spent a fair amount of time on collections, I feel like Rick dig into here in just a moment. We have seen a reduction in the number of students that have to use the exception to policy process, in particular in the month of October and November. And what that tells us along with the survey results is that the students are becoming more familiar with how to use the new tools, the system issues are diminishing.

And while I can't promise that in Q1 of '22, we will be fully operational with no ETP enrolled students, we're seeing an acceleration in the students using the new platform and obviously return to positive enrollment comparisons year-over-year as a result. So, you never want to knock on wood and say we've turned the corner, but I do feel that we've turned the corner, not only in terms of how the system is performing, the students are responding and also the fact that we now have created an open dialog with the Army leadership team to make sure that we can communicate both ways in terms of what we're each seeing and how we can help these really important student soldiers be able to use our education benefit. Rick, I'll turn it over to you.

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

Yeah. Hi, Raj. So, meeting last week was really productive. The team came with a description of the challenges they face with great detail and then how they're going to work their way through those challenges with specificity not only related to the steps we are going to take, but as to the timeline. And as Angie said, you really have to sort of break the challenges down into two areas. One, students being able to actually register in and through the system. And Angie said, we're seeing sequential and rather substantial increases in the number of enrollments coming to us in the system as opposed to through the exception to policy or ETP process.

On the collection side, we are -- we continue to invoice and the Army continues to pay, but at rates that really don't address the current call it backlog in unapproved, unbilled and unpaid transactions as evidenced by the dollar amount. The Army folks that we met with laid out a plan for us where certain holds in the system will be addressed in the, call it, November time frame. That's sort of Phase 1 and then Phase 2 later in the year, toward the end of the year and based upon the description we got, it's my expectation that that will address a large number of the transactions that are currently held in the system, allowing us to invoice those transactions and then putting them into the process for the Army to pay and the Army is for those transactions that are invoiced. There is a payment methodology on the Army side. So that's really not an area of challenge.

So I think we should see a reduction in net AR, not a return to normal in its entirety as we go into and through the fourth quarter of the year and hopefully much of the backlog in terms of approvals and payments will be cleared up closer to the end of the year. That remains to be seen. Of course, I would say I was encouraged because when we finished our meeting, the folks from Army asked for a follow-up meeting, which says to me that they're really committed to delivering on the points that they described to us that they want to come back and have a further discussion. So that was really productive beginning last week.

Raj Sharma -- B. Riley Securities -- Analyst

Great. So in terms of the registrations or enrollment of Army personnel year-on-year, where do we stand? Are we down 20%, down 5% and where -- and when do we expect to kind of come back to last year's levels?

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

Yeah. So it's really -- Raj, it's really stabilized. In the third quarter actual, I think the Army was down for the quarter roughly 3%. And so, you're really seeing a return to kind of the prior year normal. Right now, as you look at our guidance for the fourth quarter, Army is going to be flat to slightly up, right. So it's really a combination of soldiers getting through that system, with the remainder utilize net ETP process that's really allowing them to now restart for those that were paused to restart their educational journey.

Raj Sharma -- B. Riley Securities -- Analyst

Great. And then I have one more question. The LOC -- could you come back to the LOC on the Rasmussen with the amount again, and is there any impact as far as regulatory impact is concerned, or is it just it was what it was under the last ownership and now they will be assessed on the CDR under APEI and going forward, it should not be a problem, but you won't -- you still be able to -- you still need to post the LOC until -- I'm sorry I missed that.

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

Yeah. So Raj, you have it right. It's related to the composite score under the prior ownership, where Rasmussen fell just below the threshold of 1.5, prompting the Department of Ed to require them to post a letter of credit. The letter of credit is required to be posted at 105% of 10% of their Title IV disbursements. The number is roughly $25 million, Raj. And the way the Department constructs this is they want to see one full year of audited financials coming from the new owner. So, we won't get relief for the short year since we acquired Rasmussen on September 1. We will go through the entirety of 2022. Those financials will be auditable, calculate the financial composite score under our ownership and submit those financial statements to ED early in 2023, and then they will be available for ED to evaluate. As I said in my part of the script, we fully expect we will be above the threshold at that point. As you know, we've been comfortably above the threshold at APEI. And we -- our expectation is that ED would then release that letter of credit and we said in the script in 2023. So that's the timing mandated by the process from Department of Ed.

Raj Sharma -- B. Riley Securities -- Analyst

And meanwhile, it does not always been posting the LOC, there is no other impact on the operations or enrollment business of Rasmussen.

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

No.

Raj Sharma -- B. Riley Securities -- Analyst

Okay, thank you. I will take my questions offline. Thanks a lot again.

Operator

And for our next question, we have Stephen Sheldon from William Blair. Stephen, your line is open.

Matt Filek -- William Blair -- Analyst

Hi, everyone. This is Matt Filek on for Stephen Sheldon. Thanks for taking my questions. With respect to Army Ignite, can you further expand on the progression of the portal since the last earnings call? It may also be helpful, if you could provide some details on the mix between exception to policy enrollments and tuition assistance approved enrollments and how that trended throughout the quarter? It sounds like ETP enrollments are decreasing, but any metrics surrounding that would be helpful?

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

Well, the portal officially went live on July 19. And in the early implementation period, there was a lot of learning that needed to go on with soldiers utilizing the system. And we were -- we play a role in helping soldiers learn how to use the new system. We have folks in the field that work with soldiers and ESOs. The -- in terms of the progression, we're currently seeing about 75% of the students coming through using the system as opposed to the ETP. Obviously, that would have started back in July, when they very first began using the system. Prior to that, it was all ETP. So I don't know that it's been a linear progression, but it's certainly been a substantial progression from started in July to now 75% -- roughly 75% of the students utilizing ArmyIgnitED portal.

Angela Selden -- Chief Executive Officer

And I can just add to that, Matt, that we saw an acceleration even from October to November, where in October, 45% of the students were using the new portal and in November, 75%.

Matt Filek -- William Blair -- Analyst

That's very helpful. Thank you for that commentary. And switching gears, I was wondering if you could provide some commentary on how cost per lead and conversion rates have trended during the quarter?

Angela Selden -- Chief Executive Officer

Matt, we don't actually provide that level of detail unfortunately, but thanks for the good questions.

Matt Filek -- William Blair -- Analyst

Okay. Thank you. And one more quick one for me. Recently, you announced a partnership with California Community Colleges to help program [Indecipherable] pursue an online bachelor's degree through APUS. Any updates on that partnership and your expectations for it going forward.

Angela Selden -- Chief Executive Officer

We have a large number of California students that enroll in APUS degree programs today, largely affiliated with military bases in the State of California. And we believe that the two-plus-two partnership that we've created for many community colleges around the country would certainly make a lot of sense with the 115-odd community colleges in California. It's very early days for that partnership, and we are excited about the possibilities. At this point, there's not a lot of information about the enrollment momentum, but like I said, we've got some brand awareness in the State of California through our -- largely our military students and a lot of experience doing the two-plus-two partnerships in some of the other states, including Virginia and Arizona.

Matt Filek -- William Blair -- Analyst

That's helpful. Thanks for taking my questions.

Angela Selden -- Chief Executive Officer

You bet.

Operator

And we don't have any further questions at this time. Presenters, please continue.

Angela Selden -- Chief Executive Officer

Okay. Well, thank you so much everyone for your interest in APEI and participating in our third quarter update. We look forward to seeing you all virtually and hopefully on the road in the coming months ahead. Take care, and have a good evening.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Ryan Koren -- Associate Vice President, Investor Relations and Corporate Development

Angela Selden -- Chief Executive Officer

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

Steve Somers -- Senior Vice President, Chief Strategy and Corporate Development Officer

Jasper Bibb -- Truist Securities -- Analyst

Jeff Silber -- BMO Capital Markets -- Analyst

Raj Sharma -- B. Riley Securities -- Analyst

Matt Filek -- William Blair -- Analyst

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