What changed in this filing

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Item 1A. Risk Factors

2020-11-09 compared with 2020-08-10 · 75 added, 17 removed, 76 unchanged (55% of the section changed)

3 unchanged sentences

With the exception of the following, there have been no material changes in the risk factors set forth in the Risk Factors section of our Annual Report.

The Rasmussen Acquisition may not be completed on the anticipated timeline, or at all, and the failure to complete the Rasmussen Acquisition could adversely impact our business, results of operations, financial condition, and the market price of our common stock.

The closing of the Rasmussen Acquisition is subject to a number of conditions as set forth in the Rasmussen Agreement that must be satisfied or waived, including among others, (i) regulatory review by the U.S.

Department of Education, approval by the Higher Learning Commission, and approval of or notices to other regulatory and accrediting bodies, (ii) filings with and consents required to be made or obtained under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the expiration of any related waiting period, (iii) enrollment in Rasmussen’s nursing programs, in the term prior to closing, not having declined by more than five percent from enrollment as of the start of the same academic term in the prior academic year, and (iv) approval by the U.S.

Department of Education of Rasmussen’s March 2019 change in ownership.

There can be no assurance that all required approvals will be obtained or that all other closing conditions will otherwise be satisfied or waived, and, if all required approvals are obtained and all closing conditions are satisfied or waived, we can provide no assurance as to the terms, conditions and timing of such approvals or that the Rasmussen Acquisition will be completed in a timely manner or at all.

Certain of the conditions to completion of the Rasmussen Acquisition are not within either our or Rasmussen’s control, and we cannot predict when or if these conditions will be satisfied or waived.

Even if regulatory approval is obtained, it is possible conditions will be imposed that could result in a material delay in, or the abandonment of, the Rasmussen Acquisition or otherwise have an adverse effect on us.

The Closing is also dependent on the accuracy of representations and warranties made by the parties to the Rasmussen Agreement (subject to customary materiality qualifiers and other customary exceptions) and the performance in all material respects by the parties of obligations imposed under the Rasmussen Agreement.

If the Rasmussen Acquisition is not completed within the expected timeframe or at all, we may be subject to a number of material risks.

The price of our common stock may decline to the extent that current market prices reflect a market assumption that the Rasmussen Acquisition will be completed.

In addition, some costs related to the Rasmussen Acquisition must be paid whether or not the Rasmussen Acquisition is completed, and we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed transaction, as well as the diversion of management and resources towards the Rasmussen Acquisition, for which we will have received little or no benefit if completion of the Rasmussen Acquisition does not occur.

We may also experience negative reactions from our investors, students, and employees and faculty.

We are relying on the availability of financing under a commitment letter for debt financing to fund a portion of the purchase price for the Rasmussen Acquisition.

We plan to finance a portion of the aggregate purchase price for the Rasmussen Acquisition.

In connection with the Rasmussen Acquisition, we entered into a commitment letter for (i) a senior secured term loan facility in the aggregate principal amount of $175 million, or the Term Facility, and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $20 million, or together with the Term Facility, the Facilities, the terms of which are expected to be finalized on or prior to the Closing.

The obligations of the lenders under the commitment letter are subject to conditions, which may not be met.

We currently expect to pay up to $175 million of the cash consideration for the Rasmussen Acquisition with proceeds from the Facilities.

There can be no guarantee that we will be able to close the Facilities or any alternative financing arrangements on commercially reasonable terms or at all.

If the Facilities are not available, and alternative financing cannot be secured, we may not be able to pay the cash consideration for the Rasmussen Acquisition, in which case the Rasmussen Acquisition would not be completed.

We have incurred, and will continue to incur, significant transaction costs and integration costs in connection with the Rasmussen Acquisition.

We have incurred, and will continue to incur, significant costs, expenses and fees, including fees for professional services and other transaction costs, in connection with the Rasmussen Acquisition, including costs that we may not currently expect.

We must pay many of these costs and expenses whether or not the transaction is completed.

In addition, we expect to incur significant integration costs after the Closing.

There are a number of factors beyond our control that could affect the total amount or the timing of these costs and expenses.

Integrating our business with Rasmussen’s business may be more difficult, costly or time-consuming than expected, and we may not realize the expected benefits of the Rasmussen Acquisition, which may adversely affect our business results.

If we experience greater than anticipated costs to integrate or are not able to successfully integrate Rasmussen into our existing operations, we may not be able to achieve the anticipated benefits of the Rasmussen Acquisition, including cost savings and other synergies and growth opportunities.

Even if the integration of Rasmussen’s business is successful, we may not realize all of the anticipated benefits of the Rasmussen Acquisition during the anticipated time frame, or at all.

For example, events outside our control, such as changes in regulation and laws, as well as economic trends, including as a result of the COVID-19 pandemic, could adversely affect our ability to realize the expected benefits from this acquisition.

In addition, Rasmussen is a privately held company and has not been required to maintain an internal control infrastructure that would meet the standards of a public company, including the requirements of the Sarbanes-Oxley Act of 2002.

The costs that we may incur to implement such controls and procedures may be substantial and we could encounter unexpected delays and challenges in this implementation.

In addition, we may discover significant deficiencies or material weaknesses in the quality of Rasmussen’s financial and disclosure controls and procedures

An inability to realize the full extent of the anticipated benefits of the Rasmussen Acquisition, as well as any delays encountered in the integration process, could have an adverse effect upon our revenues, level of expenses and operating results, which may adversely affect the value of our common stock after the completion of the Rasmussen Acquisition.

In addition, it is possible that the integration process could result in the loss of key employees, errors or delays in the implementation of shared services, the disruption of our ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with students, faculty and other employees or to achieve the anticipated benefits of the Rasmussen Acquisition.

Integration efforts also may divert management attention and resources.

Rasmussen may have liabilities that are not known to us.

Rasmussen may have liabilities that we failed, or were unable, to discover in the course of performing our due diligence investigations.

Following the completion of the Rasmussen Acquisition, we may learn additional information about Rasmussen that materially adversely affects us, such as unknown or contingent liabilities and liabilities related to compliance with applicable laws.

Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.

We expect to incur substantial indebtedness under the Facilities, the cost of servicing that debt could adversely affect our business and financial results, and we may not be able in the future to service that debt.

Our ability to make scheduled payments on or to refinance our obligations under the Facilities or any alternative debt financing arrangements will depend on our financial and operating performance, which will be affected by economic, financial,

competitive, business, and other factors, some of which are beyond our control.

The indebtedness we expect to incur in connection with the Rasmussen Acquisition will require us to dedicate a substantial portion of our cash flow to servicing this debt, thereby reducing the availability of cash to fund other business initiatives.

There can be no assurance that our business will generate sufficient cash flow from operations to service our indebtedness or to fund our other liquidity needs.

If we are unable to meet our debt obligations or fund our other liquidity needs, we may need to restructure or refinance all or a portion of our indebtedness on or before maturity or sell certain of our assets.

There can be no assurance that we will be able to restructure or refinance any of our indebtedness on commercially reasonable terms, if at all, which could cause us to default on our debt obligations and impair our liquidity.

In addition, upon the occurrence of certain events, such as a change of control, we could be required to repay or refinance our indebtedness.

Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations.

There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

If we are unable to generate or borrow sufficient cash to make payments on our indebtedness, our business and financial condition would be materially harmed.

The COVID-19 pandemic has caused us to have to adjust our operations, which could adversely affect the student experience, particularly at HCN, and could have additional adverse effects on our business, financial condition, or results of operations.

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Furthermore, we have limited experience delivering HCN’s curriculum online, and to the extent HCN utilizes online learning, HCN’s students may not experience the same level of success in coursework or with NCLEX scores as they would in a traditional campus environment.

If HCN is not able to continue to deliver instruction on campus and HCN is not able to effectively create and manage online or blended versions, or otherwise arrange for delivery, of all of the required elements of HCN’s academic programs, HCN’s students may not be able to complete their studies with HCN, impacting their ability to graduate and obtain licensure, employment or their other desired outcomes.

If HCN is unable to continue to deliver instruction on campus or to effectively create and manage online or blended versions, or otherwise arrange for delivery of all of the required elements of HCN’s academic programs, HCN’s students may not be able to complete their studies with HCN, impacting their ability to graduate and obtain licensure, employment or their other desired outcomes.

This would likely have a material adverse effect on our business, financial condition or results of operations.

Furthermore, the need to practice social distancing also increases the demand for space in HCN’s facilities and HCN may need to obtain additional facilities or place caps on program size, which would adversely impact our results of operations.

Furthermore, the need to practice social distancing increases the need for space in HCN’s facilities and therefore HCN has temporarily obtained and may need to obtain further additional facilities.

For example, in October 2020, HCN began temporarily expanding certain campuses through short-term leases of additional space to be used as lab space in order to accommodate student demand in compliance with COVID-related public health measures that effectively limit the number of students in each lab class.

HCN may also need to place restrictions on program size, which may adversely impact our results of operations.

While we have not experienced significant changes in interactions with students other than by temporarily shifting to online and then blended in person and online learning at HCN, we may experience such impacts in the future if the COVID-19 pandemic and its effects are prolonged or increase in scope.

For example, APUS faculty, substantially all of whom work remotely in ordinary circumstances, and our student support services teams, many of whom routinely work in our offices, may experience increasing difficulty in continuing to provide quality instruction and support to our students if current social distancing and future “stay-at-home” orders impact the communities in which they live, causing disruption in their lives that could impact their ability to provide a quality product, lead to increase absenteeism, or impact their ability to continue working.

Almost all of the remainder of our workforce is working remotely, and we have implemented business continuity processes, which has led to decreased operational efficiency and other challenges inherent in doing things in a manner different than our ordinary course operations.

Almost all of the remainder of our workforce is working remotely, and we have implemented business continuity processes, which may lead to decreased operational efficiency and other challenges inherent in doing things in a manner different than our ordinary course operations.

If faculty, student support services staff, administrators, or other skilled personnel cease working or are unable to work as efficiently or effectively due to the effects of the COVID-19 pandemic, we could lose capacity and expertise critical to our operations and the delivery of instruction and services to students.

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Remote working and the implementation of business continuity processes also generally create operational challenges around information technology matters, including, for example, an enhanced risk of cyber events and more difficulty in responding to them.

It is not practical to estimate or identify all potential risks that could arise from having substantially all of our workforce working remotely or other impacts of the COVID-19 pandemic and there may be risks that are not reasonably foreseeable.

There could be significant adverse effects on our business, financial condition, and results of operations that we have not identified or that we do not currently expect will be material.

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Our marketing efforts, including our new campaign, may be less successful than we anticipate in attracting qualified students.

It may also be difficult to assess the value of our efforts if we are unable to ascertain whether and to what extent these efforts will impacted by extrinsic events, including the ongoing COVID-19 pandemic and the related economic downturn.

It may also be difficult to assess the value of our efforts if we are unable to ascertain whether and to what extent these efforts are impacted by extrinsic events, including the ongoing COVID-19 pandemic and the related economic downturn.

More generally, we are unable to estimate the level of disruption that the ongoing COVID-19 pandemic and the related economic downturn will have on our business, including our ability to attract new, qualified students and the ability of our existing students to continue to persist in our programs.

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The success of HCN will depend on our ability to maintain and increase student enrollments in HCN’s programs and grow HCN’s on-campus offerings.

As part of our strategy, we intend to open new campuses for HCN, such as the new campus in suburban Toledo, Ohio that began operations in early 2017, and our new campus in Indianapolis, Indiana.

As part of our strategy, we intend to open new campuses for HCN, such as the new campus in suburban Toledo, Ohio that began operations in early 2017, our new campus in Indianapolis, Indiana that began courses in April 2020, and our planned additional campus in Akron, Ohio.

Such actions require us to obtain appropriate federal, state, and accrediting agency approvals and to comply with any requirements from those agencies related to a new location.

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In addition, regulatory authorities may place limitations or restrictions on new programs or campuses, including by only provisionally accrediting programs or limiting the number of initial enrollees.

For example, in November 2019, the Indiana State Board of Nursing voted to grant initial accreditation for a

PN Program at HCN’s Indianapolis campus, but growth beyond an initial cohort of up to 30 students for the first year is subject to HCN’s ability to petition to increase the number of admissions after a site visit that will occur upon graduation of the first cohort.

For example, in November 2019, the Indiana State Board of Nursing voted to grant initial accreditation for a PN Program at HCN’s Indianapolis campus, but growth beyond an initial cohort of up to 30 students for the first year is subject to HCN’s ability to petition to increase the number of admissions after a site visit that will occur upon graduation of the first cohort.

The Indiana State Board of Nursing will not grant the Indianapolis campus full accreditation status until the first cohort graduates, and may not grant full accreditation at that time if the program has a pass rate lower than one standard deviation below the average national pass rate.

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In addition, the inability to expand existing programs efficiently, or successfully, including as a result of constraints on our operations due to COVID-19, pursue new program initiatives, and add new campuses would harm our ability to grow our business and could have an adverse impact on our financial condition.

Economic and market conditions could affect our enrollments, success with placement and persistence and cohort default rates in the U.S.

Economic and market conditions in the U.S.

or abroad could affect our enrollments, success with placement and persistence and cohort default rates.

Our business has been in the past and may in the future be adversely affected by a general economic slowdown or recession in the U.S.

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Higher default rates may also adversely impact our eligibility to participate in some Title IV programs, which could adversely impact our operations and financial condition.

The CARES Act provides temporary relief for federal student loan borrowers by suspending payments on federal student loans until September 30, 2020.

The CARES Act provided temporary relief for federal student loan borrowers by suspending payments on federal student loans until September 30, 2020, and an executive order extended this relief until December 31, 2020 .

During this period, interest will not accrue and involuntary collection procedures will be suspended.

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As more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview - Regulatory and Legislative Activity,” in March 2020, Congress passed the CARES Act in response to COVID-19 and its related effects.

Wholly online institutions are effectively ineligible for any of the $12.6 billion in funding from ED available to higher education institutions under the higher education emergency relief fund established by the CARES Act.

Wholly online institutions are effectively ineligible for any of the $12.6 billion in funding from ED

available to higher education institutions under the Higher Education Emergency Relief Fund, or HEERF, established by the CARES Act.

ED allocated $3.1 million for HCN and in May 2020, HCN received its HEERF allocation.

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The CARES Act requires recipient institutions to use at least 50% of their HEERF funds to provide emergency grants to students for expenses related to the disruption of campus operations due to COVID-19.

The CARES Act also permits institutions to use up to 50% of their HEERF funds to cover any costs associated with significant changes to the delivery of instruction due to COVID-19, so long as such costs do not include payment to contractors for the provision of pre-enrollment recruitment activities, endowments, or capital outlays associated with facilities related to athletics, sectarian instruction, or

religious worship.

Although HCN incurred costs to shift its delivery of instructions and operations due to COVID-19, it chose to distribute its entire HEERF allocation directly to eligible students.

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ED published a notice of proposed rulemaking in April 2020 based on consensus language agreed to by the Accreditation and Innovation Committee.

The proposed rulemaking on distance education provides institutions additional flexibility in offering distance education and competency-based education programs.

New proposed definitions related to “academic engagement,” “distance education,” and “regular and substantive interaction” provide further clarity regarding the instructional requirements that distance education programs must abide by in order to remain eligible for Title IV disbursements.

On August 24, 2020, ED released the final rule, which goes into effect on July 1, 2021.

The rulemaking on distance education provides institutions additional flexibility in offering distance education and competency-based education programs.

New definitions related to “academic engagement,” “distance education,” and “regular and substantive interaction” provide further clarity regarding the instructional requirements that distance education programs must abide by in order to remain eligible for Title IV disbursements.

Failure to comply with these standards could lead to adverse actions by ED.

However, we cannot predict what regulations will be ultimately adopted following the notice-and-comment process.

Any final rules would be effective July 1, 2021 at the earliest.

The postsecondary education regulatory environment may change in the future as a result of the U.S.

federal election in November 2020 and any related run-off elections.

A change in the Presidential Administration or Congress may result in changes to, or elimination of, currently effective ED regulations, or the implementation of new ED regulations.

For example, a new Congress could seek to act under the Congressional Review Act, which establishes legislative procedures through which Congress may adopt a joint resolution of disapproval to nullify certain agency final regulations within a certain time period after the regulations are finalized by the agency.

ED, under new leadership, could also initiate new rulemaking processes to alter existing regulations and could act to change existing ED policies and practices with respect to matters related to postsecondary education institutions.

We cannot predict the extent to which a new Presidential Administration or Congress will act to change or elimina te or to implement new ED regulations, policies, and practices, nor can we predict the form that new regulations, policies, or practices may take.

We also cannot predict the extent any other potential regulatory or legislative activity as a result of the U.S.

federal elections may impact us or our institutions, nor can we predict the possible associated burdens and costs.

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 1A. Risk Factors