AMERICAN PUBLIC EDUCATION INC 10-Q

Item 1. Financial Statements AMERICAN PUBLIC EDUCATION, INC. Consolidated Balance Sheets (In thousands) As of September 30, 2020 As of December 31, 2019 ASSETS (Unaudited) Current assets: Cash, cash equivalents, and restricted cash (Note 2) $ 228,009 $ 202,740 Accounts receivable, net of allowance of $ 5,805 in 2020 and $ 6,174 in 2019 9,560 11,325 Prepaid expenses 7,563 7,087 Income tax receivable 2,500 1,757 Total current assets 247,632 222,909 Property and equipment, net 70,930 78,495 Operating lease assets, net 9,377 11,658 Investments 10,500 10,502 Goodwill 26,563 26,563 Other assets, net 5,197 4,770 Total assets $ 370,199 $ 354,897 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 4,489 $ 3,546 Accrued compensation and benefits 16,784 13,753 Accrued liabilities 10,555 8,270 Deferred revenue and student deposits 25,491 17,426 Operating lease liabilities, current 2,474 2,283 Total current liabilities 59,793 45,278 Operating lease liabilities, long-term 6,997 9,495 Deferred income taxes 5,365 3,391 Total liabilities 72,155 58,164 Commitments and contingencies (Note 7) Stockholders’ equity: Preferred stock, $ .01 par value; Authorized shares - 10,000 ; no shares issued or outstanding — — Common stock, $ .01 par value; Authorized shares - 100,000 ; 14,809 issued and outstanding in 2020; 15,178 issued and outstanding in 2019 148 152 Additional paid-in capital 193,787 190,620 Retained earnings 104,109 105,961 Total stockholders’ equity 298,044 296,733 Total liabilities and stockholders’ equity $ 370,199 $ 354,897 The accompanying notes are an integral part of these Consolidated Financial Statements. 3 AMERICAN PUBLIC EDUCATION, INC. Consolidated Statements of Income (In thousands, except per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (Unaudited) (Unaudited) Revenue $ 79,133 $ 67,888 $ 235,876 $ 211,889 Costs and expenses: Instructional costs and services 31,084 27,268 91,058 83,908 Selling and promotional 18,523 15,873 53,765 45,007 General and administrative 22,574 22,021 65,314 59,209 Loss on disposals of long-lived assets 418 394 742 524 Impairment of goodwill — 1,481 — 7,336 Depreciation and amortization 3,226 3,764 9,955 11,758 Total costs and expenses 75,825 70,801 220,834 207,742 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 (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 (loss) $ 2,642 $ ( 1,638 ) $ 11,751 $ 4,294 Net income (loss) per common share: Basic $ 0.18 $ ( 0.10 ) $ 0.79 $ 0.26 Diluted $ 0.18 $ ( 0.10 ) $ 0.78 $ 0.26 Weighted average number of common shares: Basic 14,797 15,967 14,870 16,335 Diluted 15,011 16,121 15,021 16,487 The accompanying notes are an integral part of these Consolidated Financial Statements. 4 AMERICAN PUBLIC EDUCATION, INC. Consolidated Statements of Stockholders’ Equity (Unaudited) (In thousands) Additional Paid-in Capital Retained Earnings Total Stockholders’ Equity Common Stock Shares Amount Balance as of December 31, 2018 16,425 $ 164 $ 187,172 $ 133,930 $ 321,266 Issuance of common stock under employee benefit plans 252 3 ( 3 ) — — Deemed repurchased shares of common and restricted stock for tax withholding ( 83 ) ( 1 ) ( 2,509 ) — ( 2,510 ) Stock-based compensation — — 5,031 — 5,031 Repurchased and retired shares of common stock ( 966 ) ( 10 ) — ( 27,293 ) ( 27,303 ) Net income — — — 4,294 4,294 Balance as of September 30, 2019 15,628 $ 156 $ 189,691 $ 110,931 $ 300,778 Additional Paid-in Capital Retained Earnings Total Stockholders’ Equity Common Stock Shares Amount Balance as of December 31, 2019 15,178 $ 152 $ 190,620 $ 105,961 $ 296,733 Issuance of common stock under employee benefit plans 258 2 ( 2 ) — — Deemed repurchased shares of common and restricted stock for tax withholding ( 79 ) ( 1 ) ( 2,096 ) — ( 2,097 ) Stock-based compensation — — 5,265 — 5,265 Repurchased and retired shares of common stock ( 548 ) ( 5 ) — ( 13,603 ) ( 13,608 ) Net income — — — 11,751 11,751 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. 5 AMERICAN PUBLIC EDUCATION, INC. Consolidated Statements of Cash Flows (In thousands) Nine Months Ended September 30, 2020 2019 (Unaudited) Operating activities Net income $ 11,751 $ 4,294 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,955 11,758 Stock-based compensation 5,265 5,031 Equity investment loss 2 1,464 Deferred income taxes 1,974 599 Loss on disposals of long-lived assets 742 524 Impairment of goodwill — 7,336 Other 24 83 Changes in operating assets and liabilities: Accounts receivable, net of allowance for bad debt 1,765 6,117 Prepaid expenses ( 807 ) ( 832 ) Income tax receivable/payable ( 743 ) ( 4,751 ) Operating leases, net ( 26 ) 361 Other assets ( 427 ) 303 Accounts payable 943 ( 5,145 ) Accrued compensation and benefits 3,031 ( 1,909 ) Accrued liabilities 3,219 4,405 Deferred revenue and student deposits 8,065 2,298 Net cash provided by operating activities 44,733 31,936 Investing activities Capital expenditures ( 4,171 ) ( 4,151 ) Proceeds from the sale of real property 412 — Net cash used in investing activities ( 3,759 ) ( 4,151 ) Financing activities Cash paid for repurchase of common stock ( 15,705 ) ( 29,813 ) Net cash used in financing activities ( 15,705 ) ( 29,813 ) 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 Cash, cash equivalents, and restricted cash at end of period $ 228,009 $ 210,103 Supplemental disclosure of cash flow information Income taxes paid $ 3,062 $ 5,749 The accompanying notes are an integral part of these Consolidated Financial Statements. 6 AMERICAN PUBLIC EDUCATION, INC. Notes to Consolidated Financial Statements Note 1. Nature of the Business American Public Education, Inc., or APEI, which together with its subsidiaries is referred to as the “Company,” is a provider of online and campus-based postsecondary education to approximately 88,300 students through two subsidiary institutions: • American Public University System, Inc., or APUS, provides online postsecondary education directed primarily at the needs of the military, military-affiliated, public service and service-minded communities through American Military University, or AMU, and American Public University, or APU. APUS is institutionally accredited by the Higher Learning Commission, or HLC. • National Education Seminars, Inc., which is referred to herein as Hondros College of Nursing, or HCN, provides nursing education to students enrolled at five campuses in Ohio, and, beginning in April 2020, to students enrolled at a campus in Indianapolis, Indiana, to serve the needs of the nursing and healthcare communities. HCN is institutionally accredited by the Accrediting Bureau for Health Education Schools, or ABHES. In March 2020, in response to the novel coronavirus COVID-19 global pandemic, HCN, leveraging the expertise of APUS, shifted to a blended model with online delivery of its courses and on campus delivery of certain labs. HCN has since fully reopened its campuses, using smaller in person classes with screening, social distancing and masking requirements while continuing to offer courses in a virtual setting for those that prefer remote course learning. There can be no assurance that HCN will not need to again further limit campus interactions or close its campuses in response to the COVID-19 pandemic or as a result of location regulations. The Company’s institutions are licensed or otherwise authorized, or are in the process of obtaining such licenses or authorizations, to offer postsecondary education programs by state authorities to the extent the institutions believe such licenses or authorizations are required, and are certified by the United States Department of Education, or ED, to participate in student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or Title IV programs. The Company’s operations are organized into two reportable segments: • American Public Education Segment, or APEI Segment. This segment reflects the operational activities at APUS, other corporate activities, and minority investments. • Hondros College of Nursing Segment, or HCN Segment. This segment reflects the operational activities of HCN. Note 2. Summary of Significant Accounting Policies Basis of Presentation and Accounting The accompanying unaudited, interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. Principles of Consolidation The accompanying unaudited interim Consolidated Financial Statements include accounts of APEI and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. Unaudited Interim Financial Information The unaudited interim Consolidated Financial Statements do not include all of the information and notes required by GAAP for audited annual financial statement presentations. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of the Company’s financial position, results of operations, and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Consolidated Financial Statements and accompanying notes in its audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019, or the Annual Report. 7 Use of Estimates In preparing financial statements in conformity with GAAP, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company evaluates these estimates and judgments on an ongoing basis and bases its estimates on experience, current and expected future conditions, and various other assumptions that the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to the Company’s Consolidated Financial Statements. Restricted Cash Cash, cash equivalents, and restricted cash includes funds held for students for unbilled educational services that were received from Title IV programs. The Company is required to maintain and restrict these funds pursuant to the terms of the applicable institution’s program participation agreement with the U.S. Department of Education. 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. Investments The Company periodically evaluates its equity method investment for indicators of an other-than-temporary impairment. Factors the Company considers when evaluating for an other-than-temporary impairment include the duration and severity of the impairment, the reasons for the decline in value, and the potential recovery period. For an investee with impairment indicators, the Company measures fair value on the basis of discounted cash flows or other appropriate valuation methods. If it is probable that the Company will not recover the carrying amount of the investment, the impairment is considered other-than-temporary and recorded in equity investment income (loss), and the equity investment balance is reduced to fair value. Each reporting period the Company evaluates its cost method investments for observable price changes. Factors the Company may consider when evaluating an observable price may include significant changes in the regulatory, economic or technological environment, changes in the general market condition, bona fide offers to purchase or sell similar investments, and other criteria. 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 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 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 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. 8 Stock-based Compensation Stock-based payments may include incentive stock options or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance shares, performance units, cash-based awards, other stock-based awards, including unrestricted shares, or any combination of the foregoing. Stock-based compensation cost is recognized as expense generally over a three-year vesting period using the straight-line method for employees and the graded-vesting method for members of the Board of Directors, and is measured using the Company’s closing stock price on the date of the grant. An accelerated one-year period is used to recognize stock-based compensation cost for employees who have reached certain service and retirement eligibility criteria on the date of grant. The fair value of each option award is estimated at the date of grant using a Black-Scholes option-pricing model. Judgment is required in estimating the percentage of share-based awards that are expected to vest, and in the case of performance stock units, or PSUs, the level of performance that will be achieved and the number of shares that will be earned. The Company estimates forfeitures of share-based awards at the time of grant and revises such estimates in subsequent periods if actual forfeitures differ from original estimates. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. If actual results differ significantly from these estimates, stock-based compensation expense could be higher and have a material impact on the Company’s Consolidated Financial Statements. Estimates of fair value are subjective and are not intended to predict actual future events, and subsequent events are not indicative of the reasonableness of the original estimates of fair value. On May 15, 2020, the Company’s stockholders approved an amendment to the American Public Education, Inc. 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 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 (Unaudited) (Unaudited) Instructional costs and services $ 343 $ 404 $ 1,223 $ 1,213 Selling and promotional 252 207 729 600 General and administrative 1,347 1,101 3,313 3,218 Stock-based compensation expense in operating income $ 1,942 $ 1,712 $ 5,265 $ 5,031 Incentive-based Compensation The Company provides incentive-based compensation opportunities to certain employees through cash incentive and equity awards. The expense associated with these awards is reflected within the Company’s operating expenses. For the years ending December 31, 2020 and 2019, the Management Development and Compensation Committee of the Company’s Board of Directors approved an annual incentive arrangement for senior management employees. The aggregate amount of any awards payable is dependent upon the achievement of certain Company financial and operational goals, as well as individual performance goals. Given that the awards are generally contingent upon achieving annual objectives, final determination of the current year incentive awards cannot be made until after the results for the year are finalized. The Company recognizes the estimated fair value of performance-based restricted stock units by assuming the satisfaction of any performance-based objectives at the “target” level, which is the most probable outcome determined for accounting purposes at the time of grant, and multiplying the corresponding number of shares earned based upon such achievement by the closing price of the Company’s stock on the date of grant. 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 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. 9 Other Employee Benefits On May 15, 2020, the Company’s stockholders approved an amendment to the American Public Education, Inc. 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 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. Income Taxes 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. Recent Accounting Pronouncements In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-13, Financial Instruments - Credit Losses, which is included in Accounting Standards Codification, or ASC , Topic 326, Measurement of Credit Losses on Financial Instruments with certain amendments made to the standard in November 2018 through ASU No. 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 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. The guidance is effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted. 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. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract , which amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software or software licenses. The accounting for the service element of a hosting arrangement that is a service contract is not affected by this amendment. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted. The Company adopted this standard effective January 1, 2020 using the prospective approach. 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. All other ASUs issued subsequent to the filing of the Annual Report on March 10, 2020 were assessed and determined to be either inapplicable or not expected to have a material impact on the Company’s consolidated financial position and/or results of operations. Note 3. Revenue Disaggregation of Revenue In the following table, revenue, shown net of grants and scholarships, is disaggregated by type of service provided. The table also includes a reconciliation of the disaggregated revenue with the reportable segments (in thousands): Three Months Ended September 30, 2020 (Unaudited) APEI HCN Intersegment Consolidated Instructional services, net of grants and scholarships $ 69,010 $ 7,977 $ ( 18 ) $ 76,969 Graduation fees 400 — — 400 Textbook and other course materials — 1,411 — 1,411 Other fees 200 153 — 353 Total Revenue $ 69,610 $ 9,541 $ ( 18 ) $ 79,133 10 Three Months Ended September 30, 2019 (Unaudited) APEI HCN Intersegment Consolidated Instructional services, net of grants and scholarships $ 60,668 $ 5,722 $ ( 25 ) $ 66,365 Graduation fees 352 — — 352 Textbook and other course materials — 854 — 854 Other fees 197 120 — 317 Total Revenue $ 61,217 $ 6,696 $ ( 25 ) $ 67,888 Nine Months Ended September 30, 2020 (Unaudited) APEI HCN Intersegment Consolidated Instructional services, net of grants and scholarships $ 208,648 $ 21,636 $ ( 57 ) $ 230,227 Graduation fees 1,001 — — 1,001 Textbook and other course materials — 3,634 — 3,634 Other fees 602 412 — 1,014 Total Revenue $ 210,251 $ 25,682 $ ( 57 ) $ 235,876 Nine Months Ended September 30, 2019 (Unaudited) APEI HCN Intersegment Consolidated Instructional services, net of grants and scholarships $ 188,839 $ 18,735 $ ( 81 ) $ 207,493 Graduation fees 936 — — 936 Textbook and other course materials — 2,515 — 2,515 Other fees 611 334 — 945 Total Revenue $ 190,386 $ 21,584 $ ( 81 ) $ 211,889 The APEI Segment charges the HCN Segment for the value of courses taken by HCN Segment employees at APUS. The intersegment elimination represents the elimination of this intersegment revenue in consolidation. Contract Balances and Performance Obligations 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 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. Deferred revenue represents the Company’s performance obligation to transfer future instructional services to students. The Company’s remaining performance obligations represent the transaction price allocated to future reporting periods. The Company has elected, as a practical expedient, not to disclose additional information about unsatisfied performance obligations for contracts with customers that have an expected duration of one year or less. When the Company begins performing its obligations, a contract receivable is created, resulting in accounts receivable on the Company’s Consolidated Balance Sheets. The Company accounts for receivables in accordance with FASB ASC 310, Receivables . The Company uses the portfolio approach, a practical expedient, to evaluate if a contract exists and to assess collectability at the time of contract inception based on historical experience. Contracts are subsequently reviewed for collectability if significant events or circumstances indicate a change. 11 The allowance for doubtful accounts is based on management’s evaluation of the status of existing accounts receivable. Among other factors, management considers the age of the receivable, the anticipated source of payment, and historical allowance considerations. Consideration is also given to any specific known risk areas among the existing accounts receivable balances. Recoveries of receivables previously written off are recorded when received. APUS does not charge interest on past due accounts receivable. 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 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. Note 4. Leases The Company has operating leases for office space and campus facilities. Some leases include options to terminate or extend for one or more years. 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 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. Operating lease assets are right of use, or ROU, assets, which represent the right to use the underlying assets for the lease term. 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. These assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. When the lease does not provide an implicit interest rate, the Company uses an incremental borrowing rate based on information available at lease commencement to determine the present value of the lease payments. The ROU assets include all remaining lease payments and exclude lease incentives. Lease expense for operating leases is recognized on a straight-line basis over the lease term. There are no variable lease payments. 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 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 2020 (remaining) $ 741 2021 2,791 2022 2,465 2023 1,709 2024 928 2025 498 2026 and beyond 1,742 Total future minimum lease payments 10,874 Less imputed interest ( 1,403 ) Present value of operating lease liabilities $ 9,471 12 Balance Sheet Classification (Unaudited) Operating lease liabilities, current $ 2,474 Operating lease liabilities, long-term 6,997 Total operating lease liabilities $ 9,471 Other Information (Unaudited) Weighted average remaining lease term (in years) 5.03 Weighted average discount rate 5.1 % Note 5. Net Income Per Common Share Basic net income per common share is based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share increases the shares used in the per share calculation by the dilutive effects of restricted stock awards. 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 September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (Unaudited) (Unaudited) Basic weighted average shares outstanding 14,797 15,967 14,870 16,335 Effect of dilutive restricted stock 214 154 151 152 Diluted weighted average shares outstanding 15,011 16,121 15,021 16,487 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 Note 6. Segment Information The Company has two operating segments that are managed in the following reportable segments: • American Public Education Segment , or APEI Segment ; and • Hondros College of Nursing Segment , or HCN Segment . In accordance with FASB ASC 280, Segment Reporting , the chief operating decision-maker has been identified as the Company’s Chief Executive Officer. The Company’s Chief Executive Officer reviews operating results to make decisions about allocating resources and assessing performance for the APEI and HCN Segments. A summary of financial information by reportable segment is as follows (in thousands): 13 Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (Unaudited) (Unaudited) Revenue: American Public Education Segment $ 69,610 $ 61,217 $ 210,251 $ 190,386 Hondros College of Nursing Segment 9,541 6,696 25,682 21,584 Intersegment elimination ( 18 ) ( 25 ) ( 57 ) ( 81 ) Total Revenue $ 79,133 $ 67,888 235,876 $ 211,889 Depreciation and amortization: American Public Education Segment $ 3,067 $ 3,525 $ 9,482 $ 10,995 Hondros College of Nursing Segment 159 239 473 763 Total Depreciation and amortization $ 3,226 $ 3,764 9,955 $ 11,758 Income (loss) from operations before interest income and income taxes: American Public Education Segment $ 2,840 $ 247 $ 15,495 $ 14,358 Hondros College of Nursing Segment 466 ( 3,158 ) ( 455 ) ( 10,214 ) Intersegment elimination 2 ( 2 ) 2 3 Total income from operations before interest income and income taxes $ 3,308 $ ( 2,913 ) 15,042 $ 4,147 Interest income, net: American Public Education Segment $ 119 $ 1,006 986 $ 3,176 Hondros College of Nursing Segment 2 13 16 31 Total Interest income, net $ 121 $ 1,019 1,002 $ 3,207 Income tax expense (benefit): American Public Education Segment $ 655 $ 1,368 4,407 $ 5,166 Hondros College of Nursing Segment 130 ( 1,607 ) ( 116 ) ( 3,570 ) Total Income tax expense (benefit) $ 785 $ ( 239 ) 4,291 $ 1,596 Capital expenditures: American Public Education Segment $ 1,271 $ 1,034 $ 4,015 $ 3,608 Hondros College of Nursing Segment 7 160 156 543 Total Capital expenditures $ 1,278 $ 1,194 4,171 $ 4,151 The APEI Segment charges the HCN Segment for the value of courses taken by HCN Segment employees at APUS. The intersegment elimination represents the elimination of this intersegment revenue in consolidation. A summary of the Company’s consolidated assets by reportable segment is as follows (in thousands): As of September 30, 2020 As of December 31, 2019 (Unaudited) Assets: American Public Education Segment $ 320,446 $ 305,896 Hondros College of Nursing Segment 49,753 49,001 Total Assets $ 370,199 $ 354,897 14 Note 7. Commitments and Contingencies The Company accrues for costs associated with contingencies including, but not limited to, regulatory compliance and legal matters when such costs are probable and can be reasonably estimated. Liabilities established to provide for contingencies are adjusted as further information develops, circumstances change, or contingencies are resolved. The Company bases these accruals on management’s estimate of such costs, which may vary from the ultimate costs and expenses, associated with any such contingency. From time to time the Company may be involved in legal matters in the normal course of its business. Note 8. Concentration APUS students utilize various payment sources and programs to finance their educational expenses, including funds from: Department of Defense, or DoD, tuition assistance programs; education benefit programs administered by the U.S. Department of Veterans Affairs, or VA; and federal student aid from Title IV programs; as well as cash and other sources. 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 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 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 DoD tuition assistance programs 41 % 35 % 42 % 38 % VA education benefits 22 % 24 % 22 % 23 % Title IV programs 22 % 26 % 22 % 25 % 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 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 Title IV programs 81 % 83 % 82 % 81 % Cash and other sources 17 % 14 % 16 % 17 % VA education benefits 2 % 3 % 2 % 2 % 15 Note 9. 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.