American Public Education, Inc. (APEI) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the American Public Education Annual Meeting. I would now like to hand the conference over to your speaker today, General Barbara Fast. Ma'am, please begin.

Thank you very much. Good morning, ladies and gentlemen. Welcome to the 2020 Virtual Annual Meeting of the Stockholders of American Public Education, Inc., our first virtual meeting of our stockholders. I'm Major General Barbara Fast, Chairperson of the Board of Directors. To all of our stockholders, I wish the best for you, your families and your communities in these unprecedented times. We're pleased that both American Public University System and Hondros College of Nursing continue to serve learners without significant interruption. Now more than ever, our students are counting on us to fulfill our social mission and brand promises. I'm pleased to welcome Angie Selden to the Annual Meeting. Angie joined us last September as our new President and Chief Executive Officer and a member of the Board. I've enjoyed working with Angie these last few months, and I'm excited about the future of the company. I would like to take a moment to thank Dr. Wally Boston, who's retiring from the Board at the Annual Meeting and from his role as President of American Public University System at the end of June. We owe a debt of gratitude to Wally for his long and tireless commitment to the company as both the CEO and the President and for his role in online higher education. We're an organization that's driven by the belief that education should be accessible to all, not reserved for the few, and this hasn't changed. One of our priorities this year is to further strengthen the core businesses with an emphasis on addressing the national need for adult learning platforms for learners of all backgrounds can obtain the skills they need to advance. For a general update on the business, please review our recent press release and archived replay of our conference call that discuss financial results for the first 3 months ending on March 31, 2020. These items are available in the Events and Presentations section of our website, apei.com. At this time, I call the meeting to order. There are 5 items of business on today's agenda: first, the election of directors; second, approval of an amendment to our 2017 Omnibus Incentive Plan; third, approval of an amendment to our Employee Stock Purchase Plan; fourth, an advisory note on the compensation of our named executive officers; and fifth, the ratification of the appointment of Deloitte & Touche LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2020. As the company's bylaws provide, I will act as Chairperson of this meeting. Thomas Beckett, the company's Senior Vice President and General Counsel, will act as secretary of the meeting. If any stockholder would like to make a comment regarding any of the proposals at the indicated time, please submit your comment using the designated field on the web portal. In addition, at the conclusion of the formal business portion of this meeting, we'll be holding a brief Q&A session. Stockholders may submit their questions using the designated field on the annual meeting web portal at any time during this meeting. We will attempt to ensure that stockholders' comments are read aloud and representatives of management will respond to questions. I would now like to take this opportunity to introduce the directors and executive officers of American Public Education, Inc. who are present virtually. In addition to me, the directors virtually present today are Eric C. Andersen; Dr. Wallace E. Boston, Jr.; Jean C. Halle; Dr. Barbara L. Kurshan; Timothy J. Landon; William G. Robinson, Jr.; and Angela Selden. In addition to Ms. Selden and Dr. Boston, the other executive officers present today are Rick Sunderland, our Executive Vice President and Chief Financial Officer; Patrik Dyberg, our Executive Vice President and Chief Technology Officer; Tom Beckett, our Senior Vice President, General Counsel and Secretary; Amy Bevilacqua, our Senior Vice President, Chief Innovation Officer; Elizabeth LaGuardia Cooper, our Senior Vice President, Chief Marketing Officer; Robert E. Gray (sic) [ Robert E. Gay ], Senior Vice President and Chief Operations Officer of APUS; and Dr. Vernon C. Smith, Senior Vice President and Provost of APUS. I would also like to introduce Beth Ann Reese of Deloitte & Touche LLP, the company's independent public accounting firm. After the formal business of the meeting, Ms. Reese will be available to answer any appropriate questions you might have. On behalf of the Board of Directors, I hereby appoint Chris Symanoskie, our Vice President of Corporate Communications, to act as inspector of elections. Mr. Symanoskie has previously taken his oath as inspector of elections. Mr. Symanoskie, please report on the record date and preliminary proxies.

Thank you, General Fast. The Board of Directors set March 19, 2020, as the date of record for this stockholders' meeting. We have made available a list of stockholders of record as of that date, which is available electronically for inspection today by stockholders on the meeting portal. A duplicate record has been on file and available for review since May 5, 2020. The company has received an affidavit of mailing that states the notice of meeting was mailed on or about April 3, 2020, to stockholders of record as of March 19, 2020. The affidavit of mailing will be made part of the minutes of this meeting. In addition, there are present at this meeting, in person or by proxy, shareholders of record holding in excess the majority of the company's issued and outstanding shares entitled to vote at today's meeting. Because the majority of the company's shares are represented here today, a quorum is present. The meeting is duly constituted and the business of the meeting may proceed. Many stockholders have already submitted their proxies. All proxies previously received will be voted as marked by the stockholder signing them. If you have voted by proxy or have already voted by telephone or Internet, you do not need to take any further action unless you wish to change your vote. Any stockholders who have not yet voted or wish to change their votes may do so by clicking the voting button on the web portal and follow the instructions.

We may now proceed to transact the business for which this meeting has been called. After the presentation of each proposal, we will open the floor for the questions of the proposals. The first item of business today is the election of the directors. Seven directors have been nominated for election at today's meeting. Nominees shall be elected as a director by the majority of the votes cast. The directors elected today will hold office until the 2021 Annual Meeting of Stockholders and until their successors are duly elected and qualified or until their earlier death, resignation or removal. The nominees are Eric C. Andersen; Major General Barbara G. Fast; Jean C. Halle, Barbara Kurshan; Timothy J. Landon; William G. Robinson, Jr.; and Angela Selden. The company's bylaws require that a stockholder provide advanced notice to the company of a stockholder's intent to nominate persons as directors. No such notice was received. Accordingly, I declare the nominations for directors closed. The next matter being submitted to stockholders for action is the approval of an amendment to the 2017 Omnibus Incentive Plan to increase the number of shares available for issuance thereunder by 1,425,000 shares and extend the term of the plan to May 15, 2030, to enable us to use equity awards to incentivize individuals for their contributions to the company and to further align their interest with those of our stockholders. And to clarify, we encourage our stockholders to refer to the amendment to the 2017 plan as well as the detailed discussion of the material provisions of our 2017 plan included in our proxy statement. The third matter of business is the approval of an amendment to the Employee Stock Purchase Plan to increase the number of shares available for issuance thereunder by 100,000 shares and extend the term of the plan to May 15, 2030, to ensure that we can continue to provide eligible employees the opportunity to increase their interest in our growth and success through purchases of our common stock. We encourage our stockholders to refer to the amendment and to a detailed discussion of major provisions of the Employee Stock Purchase Plan included in our proxy statement. The next matter being submitted to stockholders for action is an advisory vote on the compensation of our named executive officers. Our Board and our Compensation Committee actively review and assess our executive compensation program in light of executive compensation governance and best practices as well as changes in our industry and the marketplace for executive talent. We encourage stockholders to read the compensation discussion and analysis and executive compensation table sections of our proxy statement for a detailed discussion of our compensation programs and policies, taken with respect to 2019 compensation and the compensation awarded to our named executive officers. The following resolution related to this proposal is set forth in the company's proxy statement resolved that the compensation paid to the American Public Education, Inc. named executive officers as disclosed in the company's proxy statement for the 2020 Annual Meeting pursuant to the rules of the Securities and Exchange Commission, including the compensation discussion and analysis, compensation tables and any other related disclosures is hereby approved. The next matter being submitted to stockholders for action is the ratification of the appointment by our Audit Committee of Deloitte & Touche LLP as American Public Education, Inc.'s independent registered public accounting firm for the fiscal year ending December 31, 2020. The affirmative vote of at least a majority of the shares of our voting stock entitled to vote and represented in person or by proxy at this meeting is required to ratify the appointment of Deloitte & Touche LLP. Because no further business is scheduled to come before the stockholders, I declare the polls now open for voting. Each holder of common stock is entitled to 1 vote for each share of common stock held of record at the close of business on March 19, 2020. Any stockholders who have not yet voted or who wish to change their votes may do so by clicking on the voting button on the web portal and following the instructions. Stockholders who have sent in proxies or voted via telephone or Internet and do not want to change their votes do not need to take any further action. While stockholders are voting, the meeting is open for discussion relating to the proposals being presented. If any stockholder would like to make a comment regarding the proposals, please submit your comments through the web portal now.

We will pause for a moment to collect any comments. At this time, there are no further comments. Now we will pause for a moment for any final voting. [Voting]

Hearing nothing, I declare the polls for each matter voted upon at this meeting closed and direct the inspector of elections to collect and tabulate the ballots. The inspector of elections is now able to provide a preliminary report on the voting results for each of the proposals. Because the results are preliminary, they are subject to final tabulation and verification by the inspector of elections. I recognize the inspector of elections, Chris Symanoskie.

Thank you, Major General Fast. I have completed a count of the proxies and ballots submitted and have determined that a sufficient number of votes have been cast by proxy for me to provide this preliminary report. Each of the 7 nominees for election as a director has received the majority of the votes cast. The amendment for the 2017 Omnibus Incentive Plan received the approval of a majority of the shares present at the meeting in person or by proxy. The amendment to the Employee Stock Purchase Plan received the approval of a majority of the shares present at the meeting in person or by proxy. The shareholder advisory vote on the compensation of the company's named executive officers received the approval of a majority of the shares present at the meeting in person or by proxy. Finally, a majority of the shares present at the meeting in person or by proxy voted in favor of the ratification of the appointment of Deloitte & Touche LLP to act as American Public Education's independent registered accounting firm for the fiscal year ending December 31, 2020.

Thank you, Chris. Based on the inspector's report, I hereby declare that the 7 nominees have each been elected as a director of American Public Education, Inc. to serve for the term expiring on the date of the company's 2021 Annual Meeting and until his or her successor has been duly elected and qualified or until their earlier death, resignation or removal. As the vote on compensation is an advisory vote, it is not binding. However, our Board values our stockholders' opinions on this matter and will consider the outcome of the vote when considering executive compensation matters. The inspector of elections will provide the secretary with a written report of the final vote counts with respect to the matters voted on today, which shall be included in the minutes of this meeting. This concludes the formal business of the meeting, and I hereby declare the meeting is now adjourned, and we'll now open the floor to questions.

As a reminder, this Q&A session is being webcast live this morning, and only validated stockholders will be able to ask questions using the designated field on the web portal. We will attempt to ensure that everyone has -- who has a question that -- will have a chance to be heard and representatives of management will respond to questions. However, in the interest of time, we will limit each individual to one question at a time, and discussion on each question will be limited to 5 minutes. In addition, questions or comments that are about personal concerns not shared by stockholders generally or who use blatantly offensive language may be ruled out of order. Chris?

Our first question today is the following. The amendment -- the amended 2017 Omnibus Incentive Plan does not appear to set minimum vesting requirements on various equity grants. Currently, the company uses 3-year ratable vesting schedules for equity awards. Could you or the Chair of the Compensation Committee explain the use of these relative short vesting schedules for what is long-term compensation?

Okay. Thanks for that question. While our incentive plan doesn't establish minimum vesting requirements, as is disclosed in our proxy statement, our historic practice over the years is to use a 3-year vesting schedule. In recent years, we haven't made grants that differ from that practice. Our Comp Committee has been advised by its independent compensation consultant that a 3-year vesting period is consistent with the companies in our industry. And I will say that every year, we get a separate briefing from our independent advisers. And in those briefings, we benchmark against peer as well as surveys, companies, and we use that as a guideline for how we determine compensation in terms of both the length as well as in the amounts. Thank you very much for that question.

Great. Our second question is as follows. The recent dramatic growth and the size of passive mutual funds, corporate ownership interest in U.S. corporations raises important public policy and corporate governance issues. Currently, BlackRock holds 16% and Vanguard holds 8.8% of the company's outstanding shares. Does the Board see this growing passive ownership concentration as a positive or negative development as regards to long-term planning and performance?

Well, thanks for that question. Clearly, these 2 entities are very important shareholders to us. Our understanding is that the breakdown of passive and active investors is consistent with the overall market trends. Those market trends do raise governance and policy questions and are broader than APEI-specific issues. But with respect to APEI, we'll continue to seek to engage with our stockholders, whether they're active or passive investors. And regardless of the composition of our stockholder base, the Board is committed to generating long-term financial return for our stockholders. And Chris, I don't know if you want to add anything to that, but that would be my answer to the question.

No. That is terrific. So thank you for that. And there are no further questions at this time.

All right. Well, seeing no further questions at this time, this concludes the question-and-answer period. I want to thank all of you for attending today's meeting and for your continuing support of American Public Education, Inc. And now for -- I think everyone's questions were answered. And so therefore, I want to thank all of you for attending today's meeting and for your continuing support of American Public Education, Inc. Thank you very much. Have a great day. Stay healthy, stay safe, and we will see you next year at the Annual Meeting.

Ladies and gentlemen, this concludes the program and you may all disconnect. Everyone, have a great day.