What changed in this filing

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Item 1. Financial Statements

2020-11-09 compared with 2020-08-10 · 74 added, 58 removed, 364 unchanged (27% of the section changed)

3 unchanged sentences

(In thousands)

As of June 30, 2020 As of December 31, 2019

As of September 30, 2020 As of December 31, 2019

ASSETS (Unaudited)

38 unchanged sentences

Consolidated Statements of Income

(In thousands)

Three Months Ended June 30, Six Months Ended June 30,

(In thousands, except per share amounts)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

9 unchanged sentences

Total costs and expenses 75,825 70,801 220,834 207,742

Income from operations before interest income and income taxes 9,041 5,678 11,734 7,060

Income (loss) from operations before interest income and income taxes 3,308 ( 2,913 ) 15,042 4,147

Interest income, net 121 1,019 1,002 3,207

Income before income taxes 9,220 6,813 12,615 9,248

Income tax expense 2,532 1,898 3,506 1,835

Income (loss) before income taxes 3,429 ( 1,894 ) 16,044 7,354

Income tax expense (benefit) 785 ( 239 ) 4,291 1,596

Equity investment income (loss) ( 2 ) 17 ( 2 ) ( 1,464 )

Net income $ 6,689 $ 4,921 $ 9,109 $ 5,932

Net income per common share:

Net income (loss) $ 2,642 $ ( 1,638 ) $ 11,751 $ 4,294

Net income (loss) per common share:

Basic $ 0.18 $ ( 0.10 ) $ 0.79 $ 0.26

15 unchanged sentences

Net income — — — 4,294 4,294

Balance as of June 30, 2019 16,266 $ 163 $ 187,979 $ 130,314 $ 318,456

Balance as of September 30, 2019 15,628 $ 156 $ 189,691 $ 110,931 $ 300,778

Additional Paid-in Capital Retained Earnings Total Stockholders’ Equity

6 unchanged sentences

Net income — — — 11,751 11,751

Balance as of June 30, 2020 14,797 $ 148 $ 191,996 $ 101,467 $ 293,611

Balance as of September 30, 2020 14,809 $ 148 $ 193,787 $ 104,109 $ 298,044

The accompanying notes are an integral part of these Consolidated Financial Statements.

2 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Operating activities

20 unchanged sentences

Capital expenditures ( 4,171 ) ( 4,151 )

Proceeds from the sale of real property 412 —

Net cash used in investing activities ( 3,759 ) ( 4,151 )

2 unchanged sentences

Net cash used in financing activities ( 15,705 ) ( 29,813 )

Net increase in cash, cash equivalents, and restricted cash 13,298 8,702

Net increase (decrease) in cash, cash equivalents, and restricted cash 25,269 ( 2,028 )

Cash, cash equivalents, and restricted cash at beginning of period 202,740 212,131

39 unchanged sentences

Department of Education.

Restricted cash on the Company’s Consolidated Balance Sheets was approximately $ 1.3 million at both June 30, 2020 and December 31, 2019.

Restricted cash on the Company’s Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 was $ 1.6 million and $ 1.3 million, respectively.

The Company periodically evaluates its equity method investment for indicators of an other-than-temporary impairment.

5 unchanged sentences

Management must exercise significant judgment in evaluating the potential impairment of its equity investments.

The Company evaluated its equity method and cost method investments for impairment as of June 30, 2020, including a review of any impacts related to the COVID-19 pandemic, and determined none of the investments were impaired.

The Company evaluated its equity method and cost method investments for impairment as of September 30, 2020, including a review of any impacts related to the COVID-19 pandemic, and determined none of the investments were impaired.

Goodwill and Indefinite-lived Intangible Assets

The Company evaluated events and circumstances related to the valuation of goodwill through June 30, 2020 to determine if there were indicators of impairment.

The Company evaluated events and circumstances related to the valuation of goodwill through September 30, 2020 to determine if there were indicators of impairment.

This evaluation included consideration of enrollment trends and financial performance, as well as industry and market conditions, and the impact of the COVID-19 pandemic.

This evaluation concluded there were no indicators of impairment during the period, and consequently, there was no impairment during the three and six months ended June 30, 2020.

During the three months ended March 31, 2019, the Company completed an interim goodwill impairment test as a result of circumstances that included HCN’s underperformance against 2019 internal targets and overall 2019 financial performance.

The implied fair value of goodwill was calculated and compared to the recorded goodwill, and the Company determined the fair value of goodwill was $ 28.0 million, or $ 5.9 million less than its carrying value.

There was no impairment

of the intangible assets.

As a result, the Company recorded a pretax, non-cash charge of $ 5.9 million to reduce the carrying value of its goodwill in our HCN Segment.

This evaluation concluded there were no indicators of impairment during the period, and consequently, there was no impairment during the three and nine months ended September 30, 2020.

During the three months ended March 31, 2019 and September 30, 2019, the Company completed an interim goodwill impairment test as a result of circumstances that included HCN’s underperformance against 2019 internal targets and overall 2019 financial performance.

During the three months ended March 31, 2019, the implied fair value of goodwill was calculated and compared to the recorded goodwill, and the Company determined the fair value of goodwill was $ 28.0 million, or $ 5.9 million less than its carrying value.

During the three months ended September 30, 2019, the implied fair value of goodwill was calculated and compared to the recorded goodwill, and the Company determined the fair value of goodwill was $ 26.6 million, or $ 1.5 million less than its carrying value.

As a result, the Company recorded pre-tax, non-cash impairments of $ 5.9 million and $ 1.5 million during the three months ended March 31, 2019 and September 30, 2019, respectively, to reduce the carrying value of its goodwill.

There was no impairment of the intangible assets in either period.

For additional information on goodwill and intangible assets see the Company’s Consolidated Financial Statements and accompanying notes in its audited financial statements included in the Annual Report.

11 unchanged sentences

2017 Omnibus Plan, or the 2017 Plan, to increase the number of shares available for issuance thereunder by 1,425,000 and to extend the term of the 2017 Plan to May 15, 2030, as well as to clarify limitations on repricing.

Stock-based compensation expense for the three and six months ended June 30, 2020 and 2019 is as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Stock-based compensation expense for the three and nine months ended September 30, 2020 and 2019 was as follows (in thousands):

Three Months Ended September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

12 unchanged sentences

To the extent performance goals are not met, compensation cost is not ultimately recognized against the goals and, to the extent previously recognized, compensation cost is reversed.

Amounts accrued are subject to change in future interim periods if actual future financial results or operational performance are better or worse than

The Company recognized an aggregate expense associated with the Company’s incentive-based compensation plans of approximately $ 1.8 million and $ 3.1 million during the three and six month periods ended June 30, 2020, respectively, compared to an aggregate expense of $ 0.7 million and $ 1.4 million during the three and six month periods ended June 30, 2019, respectively.

Amounts accrued are subject to change in future interim periods if actual future financial results or operational performance are better or worse than expected.

The Company recognized an aggregate expense associated with the Company’s current year annual incentive-based compensation plans of approximately $ 2.1 million and $ 5.1 million during the three and nine month periods ended September 30, 2020, respectively, compared to an aggregate expense of $ 0.9 million and $ 2.2 million during the three and nine month periods ended September 30, 2019, respectively.

Other Employee Benefits

1 unchanged sentence

Employee Stock Purchase Plan, or ESPP, to increase the number of shares of the Company’s common stock available for issuance under the plan by 100,000 shares and extend the term of the ESPP to May 15, 2030.

As of June 30, 2020, 106,088 shares remained available for purchase under the ESPP, including the 100,000 additional shares reserved under the plan following the stockholder approval.

As of September 30, 2020, 102,073 shares remained available for purchase under the ESPP, including the 100,000 additional shares reserved under the plan following the stockholder approval.

The Company determines its interim tax provision by applying the estimated income tax rate expected for the full calendar year to income before income taxes for the period adjusted for discrete items.

3 unchanged sentences

2018-9, Codification Improvements to Topic 326, Financial Instruments - Credit Losses.

The new guidance revises the accounting requirements related to the measurement of credit losses and will require entities to measure all expected credit losses for financial assets based on historical experience, current conditions, and reasonable and supportable forecasts about collectability.

The new guidance revises the accounting requirements related to the measurement of credit losses and requires entities to measure all expected credit losses for financial assets based on historical experience, current conditions, and reasonable and supportable forecasts about collectability.

Assets must be presented in the financial statements at the net amount expected to be collected.

1 unchanged sentence

Early adoption was permitted.

The adoption of this standard effective January 1, 2020 did not have a material impact on its Consolidated Financial Statements.

The adoption of this standard was effective January 1, 2020 and did not have a material impact on the Company’s Consolidated Financial Statements.

In August 2018, the FASB issued ASU No.

6 unchanged sentences

The Company adopted this standard effective January 1, 2020 using the prospective approach.

The adoption of this standard effective January 1, 2020 did not have a material impact on its Consolidated Financial Statements.

The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.

The Company considers the applicability and impact of all ASUs issued by the FASB.

3 unchanged sentences

The table also includes a reconciliation of the disaggregated revenue with the reportable segments (in thousands):

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

APEI HCN Intersegment Consolidated

4 unchanged sentences

Total Revenue $ 69,610 $ 9,541 $ ( 18 ) $ 79,133

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

APEI HCN Intersegment Consolidated

4 unchanged sentences

Total Revenue $ 61,217 $ 6,696 $ ( 25 ) $ 67,888

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

APEI HCN Intersegment Consolidated

4 unchanged sentences

Total Revenue $ 210,251 $ 25,682 $ ( 57 ) $ 235,876

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

APEI HCN Intersegment Consolidated

7 unchanged sentences

Contract Balances and Performance Obligations

The Company has no contract assets or deferred contract costs as of June 30, 2020 and December 31, 2019.

The Company has no contract assets or deferred contract costs as of September 30, 2020 and December 31, 2019.

The Company recognizes a contract liability, or deferred revenue, when a student begins an online course or term, in the case of APUS, or starts a term, in the case of HCN.

Deferred revenue at June 30, 2020 was $ 20.8 million and includes $ 12.0 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $ 8.8 million in consideration received in advance for future courses or terms, or student deposits.

Deferred revenue at September 30, 2020 was $ 25.5 million and includes $ 17.0 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $ 8.5 million in consideration received in advance for future courses or terms, or student deposits.

Deferred revenue at December 31, 2019 was $ 17.4 million and includes $ 9.6 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $ 7.8 million in student deposits.

12 unchanged sentences

HCN charges interest on payment plans when a student leaves upon graduation or exit of the program.

Interest income earned on open receivables during the three and six months ended June 30, 2020 was approximately $ 4,300 and $ 8,600 , compared to interest income of approximately $ 3,000 and $ 8,000 earned during the three and six months ended June 30, 2019.

For the three and six months ended June 30, 2020, there were no material impacts to revenue, deferred revenue, or accounts receivable due to the COVID-19 pandemic.

Interest income earned on open receivables during the three and nine months ended September 30, 2020 was approximately $ 4,900 and $ 13,520 , respectively, compared to interest income of approximately $ 3,200 and $ 11,400 earned during the three and nine months ended September 30, 2019, respectively.

For the three and nine months ended September 30, 2020, there were no material adverse impacts to revenue, deferred revenue, or accounts receivable due to the COVID-19 pandemic.

The Company has operating leases for office space and campus facilities.

1 unchanged sentence

These options are included in the lease term when it is reasonably certain that the option will be exercised.

The APEI Segment leases corporate and administrative office space in Maryland and Virginia under operating leases that expire through June 2023.

The APEI Segment leases corporate and administrative office space in Maryland and Virginia under operating leases that expire through May 2022.

The HCN Segment leases administrative office space in suburban Columbus, Ohio, and leases six campuses, located in the suburban areas of Cincinnati, Cleveland, Columbus, Dayton, and Toledo, Ohio, and, beginning in April 2020, Indianapolis, Indiana, under operating leases that expire through June 2029.

1 unchanged sentence

Operating lease liabilities represent the obligation to make lease payments arising from the lease.

Operating leases are included in the Operating lease assets, net, and Operating lease liabilities, current and long-term, on the Consolidated Balance Sheets at June 30, 2020 and December 31, 2019.

Operating leases are included in the Operating lease assets, net, and Operating lease liabilities, current and long-term, on the Consolidated Balance Sheets.

These assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

3 unchanged sentences

There are no variable lease payments.

Lease expense for the three and six month periods ended June 30, 2020 was $ 0.7 million and $ 1.5 million, respectively, compared to $ 0.6 million and $ 1.2 million for the three and six month periods ended June 30, 2019, respectively.

Lease expense for the three and nine month periods ended September 30, 2020 was $ 0.7 million and $ 2.2 million, respectively, compared to $ 0.6 million and $ 1.9 million for the three and nine month periods ended September 30, 2019, respectively.

These costs are primarily related to long-term operating leases, but also include amounts for short-term leases with terms greater than 30 days that are not material.

Cash paid for amounts included in the present value of operating lease liabilities during the three and six month periods ended June 30, 2020 was $ 0.7 million and $ 1.4 million, respectively and is included in

operating cash flows.

Cash paid for amounts included in the present value of operating lease liabilities during the three and six month periods ended June 30, 2019 was $ 0.6 million and $ 1.2 million, respectively, and is included in operating cash flows.

The following tables present information about the amount and timing of cash flows arising from the Company’s operating leases as of June 30, 2020 (dollars in thousands):

Cash paid for amounts included in the present value of operating lease liabilities during the three and nine month periods ended September 30, 2020 was $ 0.7 million and $ 2.2 million, respectively, and is included in operating cash flows.

Cash paid for amounts included in the present value of operating lease liabilities during the three and nine month periods ended September 30, 2019 was $ 0.6 million and $ 1.8 million, respectively, and is included in operating cash flows.

The following tables present information about the amount and timing of cash flows arising from the Company’s operating leases as of September 30, 2020 (dollars in thousands):

Maturity of Lease Liabilities (Unaudited) Lease Payments

4 unchanged sentences

Present value of operating lease liabilities $ 9,471

Balance Sheet Classification

Balance Sheet Classification (Unaudited)

Operating lease liabilities, current $ 2,474

1 unchanged sentence

Total operating lease liabilities $ 9,471

Other Information

Other Information (Unaudited)

Weighted average remaining lease term (in years) 5.03

4 unchanged sentences

The table below reflects the calculation of the weighted average number of common shares outstanding, on an as if converted basis, used in computing basic and diluted net income per common share (in thousands).

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

3 unchanged sentences

Diluted weighted average shares outstanding 15,011 16,121 15,021 16,487

During the three and six month periods ended June 30, 2020, the Company had 33,329 and 145,427 shares of restricted stock, respectively, excluded from the diluted earnings per share calculation because the effect would have been antidilutive.

During the three and six month periods ended June 30, 2019, the Company had 12,774 and 37,738 shares of restricted stock, respectively, that were excluded from the calculation as antidilutive.

For both the three and six month periods ended June 30, 2020 there were 51,134 stock options excluded from the calculation as antidilutive.

For the three and six month periods ended June 30, 2019 there were no stock options outstanding.

The table below reflects a summary of securities that could potentially dilute basic net income per common share in future periods that were not included in the computation of diluted earnings per share because the effect would have been antidilutive.

Three Months Ended September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(Unaudited) (Unaudited)

Antidilutive securities:

Stock Options 60,504 — 60,504 —

Restricted Shares 15,733 12,774 48,434 37,738

Total antidilutive securities 76,237 12,774 108,938 37,738

Segment Information

5 unchanged sentences

A summary of financial information by reportable segment is as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

40 unchanged sentences

A summary of the Company’s consolidated assets by reportable segment is as follows (in thousands):

As of June 30, 2020 As of December 31, 2019

As of September 30, 2020 As of December 31, 2019

American Public Education Segment

16 unchanged sentences

Reductions in or changes to DoD tuition assistance, VA education benefits, Title IV programs, and other payment sources could have a significant impact on the Company’s operations.

As of June 30, 2020, approximately 59 % of APUS students self-reported that they served in the military on active duty at the time of initial enrollment.

As of September 30, 2020, approximately 60 % of APUS students self-reported that they served in the military on active duty at the time of initial enrollment.

Active duty military students generally take fewer courses per year on average than non-military students.

A summary of APEI Segment revenue derived from students by primary funding source for the three and six month periods ended June 30, 2020 and 2019 is included in the table below (unaudited):

Three Months Ended June 30, Six Months Ended June 30,

A summary of APEI Segment revenue derived from students by primary funding source for the three and nine month periods ended September 30, 2020 and 2019 is included in the table below (unaudited):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

3 unchanged sentences

Cash and other sources 15 % 15 % 14 % 14 %

A summary of HCN Segment revenue derived from students by primary funding source for the three and six month periods ended June 30, 2020 and 2019 is included in the table below (unaudited):

Three Months Ended June 30, Six Months Ended June 30,

A summary of HCN Segment revenue derived from students by primary funding source for the three and nine month periods ended September 30, 2020 and 2019 is included in the table below (unaudited):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

2 unchanged sentences

VA education benefits 2 % 3 % 2 % 2 %

Subsequent Events

On October 28, 2020, the Company entered into a definitive agreement to acquire Rasmussen University, a nursing- and health sciences-focused institution serving over 18,000 students at its 24 campuses across six states and online.

Pursuant to the terms of a Membership Interest Purchase Agreement (the “Rasmussen Agreement”) with FAH Education, LLC (“Seller”), Rasmussen, LLC (“Rasmussen”) and Rasmussen College, LLC (together with Rasmussen, the “Acquired Companies”), a wholly owned subsidiary of Rasmussen, the Company agreed to purchase from Seller all of the units of membership interests in Rasmussen (the “Rasmussen Acquisition”) for $ 300 million in cash consideration and $ 29 million in shares of a new series of non-voting preferred stock of the Company to be issued at the closing of the Rasmussen Acquisition (the “Closing”) (or, at the Company’s election, up to an additional $ 29 million in cash in lieu thereof), subject to customary adjustments, including for net working capital, cash and debt of the Acquired Companies prior to the Closing.

The Rasmussen Acquisition is expected to close in the third quarter of 2021, subject to the satisfaction or waiver of closing conditions that include, among others, regulatory review by the U.S.

Department of Education, approval by the Higher Learning Commission, and approval by or notices to other regulatory and accrediting bodies.

In connection with entering into the Rasmussen Agreement, on October 28, 2020, the Company entered into a senior secured credit facilities commitment letter (the “Commitment Letter”) with Macquarie Capital (USA) Inc.

(“Macquarie Capital”) and Macquarie Capital Funding LLC (“Macquarie Lender”), pursuant to which Macquarie Lender committed to provide (i) a senior secured term loan facility in the aggregate principal amount of $ 175 million (the “Term Facility”) and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $ 20 million (together with the Term Facility, the “Facilities”).

Macquarie Capital will act as lead arranger and bookrunner with respect to the Facilities.

The Company currently expects to pay up to $ 175 million of the cash consideration for the Rasmussen Acquisition with proceeds from the Facilities.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements