What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-10 compared with 2020-11-09 · 227 added, 327 removed, 162 unchanged (77% of the section changed)

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This Quarterly Report contains forward-looking statements intended to be covered by the safe harbor provisions for forward-looking statements in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

We may use words such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “will,” or “may,” or other words that convey uncertainty of future events, conditions, circumstances, or outcomes to identify these forward-looking statements.

use words such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “will,” or “may,” or other words that convey uncertainty of future events, conditions, circumstances, or outcomes to identify these forward-looking statements.

Forward-looking statements in this Quarterly Report include, without limitation, statements regarding:

• our proposed acquisition of Rasmussen University;

• changes to and expectations regarding our student enrollments, net course registrations, and the composition of our student body;

• actions by the Department of Defense, or DoD, or branches of the United States Armed Forces, including actions related to the disruption and suspension of DoD tuition assistance programs;

• our expectations regarding the effects of and our response to the COVID-19 pandemic, including impacts on business operations and our financial results and our ability to comply with regulations related to emergency relief and the possible reduction in demand for online education or nursing education as the pandemic abates;

• our proposed acquisition of Rasmussen University and the financing thereof;

• changes to and expectations regarding our student enrollment, net course registrations, and the composition of our student body, including the pace of such changes;

• our ability to maintain, develop, and grow our technology infrastructure to support our student body;

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• our maintenance and expansion of our relationships and partnerships and the development of new relationships and partnerships;

• actions by the Department of Defense or branches of the United States Armed Forces;

• federal appropriations and other budgetary matters, including government shutdowns;

• changes in and our ability to comply with the extensive regulatory framework applicable to our industry, as well as state law and regulations and accrediting agency requirements;

• our ability to comply with the extensive regulatory framework applicable to our industry, as well as state law and regulations and accrediting agency requirements;

• our ability to undertake initiatives to improve the learning experience and attract students who are likely to persist;

• changes in enrollment in postsecondary degree-granting institutions and workforce needs;

• the competitive environment in which we operate;

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• our ability to manage, grow, and diversify our business and execute our business initiatives and strategy;

• our expectations regarding the effects of and our response to the COVID-19 pandemic, including our ability to successfully shift to blended in person and online learning at HCN, impacts on business operations and our financial results, and our ability to take advantage of emergency relief and to comply with related regulations;

• our financial performance generally.

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Risks and uncertainties involved in forward-looking statements include, among others:

• the effects, duration and severity of the ongoing COVID-19 pandemic and the actions we have taken or may take in response, particularly at HCN and as a result of working remotely;

• the loss of our ability to receive funds under DoD tuition assistance programs or the reduction, elimination, or suspension of tuition assistance;

• the effects, duration and severity of the ongoing COVID-19 pandemic and the actions we have taken or may take in response, particularly at Hondros College of Nursing and as a result of working remotely, and any adverse effects on demand for online education or nursing education as impacts of the pandemic abate;

• our dependence on the effectiveness of our ability to attract students who persist in our institutions’ programs;

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• risks related to the acquisition of Rasmussen University, including:

◦ satisfaction of closing conditions, including the failure to obtain or delay in obtaining required regulatory and accreditor approvals;

◦ our inability to complete the acquisition on the anticipated timeline, or at all;

◦ our reliance on a debt commitment letter, or alternative financing, to fund a portion of the purchase price for the acquisition;

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Our subsidiary institutions offer programs designed to prepare individuals for productive contributions to their professions and society, and to offer opportunities that may advance students in their current professions or help them prepare for their next career.

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.

Our subsidiary institutions are licensed or otherwise authorized by state authorities, or are in the process of obtaining such licenses or authorizations, to offer postsecondary education programs 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.

On March 11, 2020, the World Health Organization declared the novel coronavirus COVID-19 a global pandemic and recommended containment and mitigation measures worldwide.

The pandemic did not materially impact our results of operations during the nine month period ended September 30, 2020.

However, the duration and intensity of the outbreak, and therefore any future impact, is uncertain.

For example, in March 2020, we implemented our business continuity plans and employees transitioned to a remote workforce, and HCN 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.

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.

The pandemic did not materially impact our results of operations during the three month period ended March 31, 2021.

However, the duration and intensity of the outbreak, and therefore any future impact, remains uncertain.

In March 2020, we implemented our business continuity plan and employees transitioned to a remote workforce at APEI and American Public University System, Inc., or APUS, and Hondros College of Nursing, or HCN, shifted to a blended model with online delivery of its courses and on campus delivery of certain labs.

HCN later 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.

In addition, 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.

Ongoing and future impacts of the COVID-19 pandemic may cause additional disruption of educational services provided to our students, cause a disruption in revenue, lead to increased absenteeism in our workforce, increase costs for HCN to continue to deliver courses in person and online, be considered a triggering event to evaluate the value of HCN goodwill, lead to an impairment of APEI investments, impact the recoverability of receivables, and lead to an increase in bad debt expense and cohort default rates, among other impacts.

For more information on the potential risks related to COVID-19, please refer to the section entitled “Risk Factors” in this Quarterly Report.

In addition, we believe demand for our online education programs will moderate and could decrease and demand for our nursing education programs could also moderate or decrease as the pandemic abates.

For more information on the potential risks related to COVID-19, please refer to our Annual Report and to the section entitled “Risk Factors” in this Quarterly Report.

Our wholly-owned operating subsidiary institutions include the following:

• American Public University System, Inc., or APUS, which provides online postsecondary education to approximately 86,300 adult learners.

• American Public University System, Inc.

provides online postsecondary education to approximately 91,500 adult learners.

APUS is an accredited university system with a history of serving the academic needs of the military, military-affiliated, public service and service-minded communities through two brands:

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Fields of study include traditional academics, such as business administration, health science, technology, criminal justice, education and liberal arts, as well as public service-focused fields of study such as national security, military studies, intelligence, and homeland security.

APUS has institutional accreditation from the Higher Learning Commission, or HLC, and several of its academic programs have specialized accreditation granted by industry governing organizations.

On June 30, 2020, we entered into an Amendment to Amended and Restated Employment Agreement, or the Amendment, with Dr.

Boston, the President of APUS.

The Amendment amended Dr.

Boston’s Amended and Restated Employment Agreement, which had contemplated that Dr.

Boston would retire as APUS President on June 30, 2020.

Pursuant to the Amendment, Dr.

Boston retired as APUS President on August 12, 2020.

Wade Dyke assumed the role of APUS President on the same day.

In June 2020, APUS timely applied for recertification to participate in Title IV programs.

On September 9, 2020, ED notified APUS that it had completed its review of APUS’s application and had granted APUS provisional certification until June 30, 2023.

ED issued APUS a provisional program participation agreement, or PPPA, outlining the terms of provisional certification.

As described in the PPPA, the reason ED granted approval on a provisional basis is because APUS is subject to an open program review.

Specifically, the program review ED began in September 2016 of APUS’s administration of Title IV programs during the 2014-2015 and 2015-2016 award years remains open and ongoing.

At this time, we cannot predict the outcome of the program review, when it will be completed, or whether ED will place any liability or other limitations on APUS as a result of the review.

During a period of provisional certification, an institution must comply with any additional conditions imposed by ED.

In addition, ED may more closely review a provisionally-certified institution if it applies for approval to open a new location, add an educational program, acquire another school, or make any other significant change.

If ED determines that a provisionally certified institution is unable to meet its responsibilities, it may seek to revoke the institution’s certification to participate in Title IV programs with fewer due process protections than if it were fully-certified.

For more information on the potential risks associated with the above APUS initiatives, APUS more generally, and applicable accreditation matters, please refer to our Annual Report and the section entitled “Risk Factors” in this Quarterly Report.

• National Education Seminars, Inc., which we refer to as Hondros College of Nursing, or HCN, provides nursing education to approximately 2,000 students at five campuses in Ohio, and, beginning in April 2020, to students enrolled at a campus in Indianapolis, Indiana, to serve the needs of local nursing and healthcare communities that addresses the persistent supply-demand gap of nurses that is evident nation-wide.

The Ohio campuses are located in the suburban areas of Cincinnati, Cleveland, Columbus, Dayton, and Toledo.

In March 2020, in response to the 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 is institutionally accredited by the Accrediting Bureau for Health Education Schools, or ABHES, and HCN’s Ohio locations and programs are approved by the Ohio State Board of Career Colleges and Schools, or the Ohio State Board.

APUS has institutional accreditation from the Higher Learning Commission, or HLC, and several of its academic programs

have specialized accreditation granted by industry governing organizations.

A comprehensive evaluation by HLC for reaffirmation of accreditation is due for the 2020-2021 academic year, and a related site visit occurred in April 2021.

The preliminary report is expected in May 2021.

APUS relies on the ability of the Armed Forces to process service members’ participation in TA programs, and from time to time changes to processes have impacted the ability of service members’ to participate in the TA programs.

The Army previously announced that it would transition from its legacy system, GoArmyEd, to a new system, ArmyIgnitED, that soldiers could use to request TA.

On February 12, 2021, after February enrollments for APUS were principally determined, the Army deactivated GoArmyEd and announced that access to online TA requests would be suspended until the launch of ArmyIgnitED on March 8, 2021.

During the suspension, soldiers, Army education counselors, and education institutions such as APUS did not have access to the portal and soldiers could not apply for TA.

APUS had prepared for this anticipated suspension by focusing more on outreach to soldiers prior to the suspension and took the suspension into account when considering anticipated results of operations for the quarter ended March 31, 2021.

On March 8, 2021, the Army launched and then due to technical difficulties immediately suspended ArmyIgnitED.

The Army announced on March 18, 2021 that TA-eligible soldiers could register for courses beginning on or after March 8, 2021 and then retroactively apply for TA for those courses once the TA system was online in ArmyIgnitED.

The Army later modified that guidance, first by announcing that courses beginning on or after April 23, 2021 would not be eligible for retroactive TA, and then by rescinding that announcement by reinstating retroactive TA eligibility for those courses.

While soldiers can continue to directly register for courses with the expectation that they can retroactively apply for TA, on May 2, 2021, the Army announced that in order to test functionality, ArmyIgnitED would undergo a limited user test for certain units and bases for a two-week period ending on May 19, 2021.

However, there is no assurance when the new portal will be fully operational, or that if operational it will work correctly or efficiently or will not have other impacts on soldiers’ ability to participate in the TA programs or receive funds under those programs.

While the transition did not adversely affect revenue for the quarter ended March 31, 2021, Army enrollments at APUS subsequent to March 31, 2021 have been adversely impacted by this transition.

We expect the continued disruption to Army TA and resulting decreases in Army registrations to have an adverse impact on revenue for the quarter ending June 30, 2021, which could worsen if the Army again announces that soldiers will not be able to retroactively seek TA.

For information on potential risks associated with APUS, please refer to the section entitled “Risk Factors” in our Annual Report and this Quarterly Report.

• National Education Seminars, Inc., which we refer to as Hondros College of Nursing, provides nursing education to approximately 2,300 students at six campuses in Ohio, including a campus in Akron that opened in April 2021, and a campus in Indianapolis, Indiana, to serve the needs of local nursing and healthcare communities, addressing the persistent supply-demand gap of nurses that is evident nation-wide.

In addition to Akron, HCN’s Ohio campuses are located in the suburban areas of Cincinnati, Cleveland, Columbus, Dayton, and Toledo.

In February 2021, ABHES granted HCN continued accreditation through February 2027 for all programs at all campuses.

HCN’s Ohio Diploma in Practical Nursing, or PN, and Associate Degree in Nursing, or ADN, Programs are approved by the Ohio Board of Nursing, or OBN, and the PN Program is accredited by the National League for Nursing Commission for Nursing Education Accreditation, or NLN CNEA.

In April 2020, HCN began classes for the first cohort of students enrolled in the PN Program at HCN’s new campus in Indianapolis, Indiana.

Classes began online as a result of the COVID-19 pandemic but have since shifted to a blended learning model.

HCN is authorized to offer instruction in Indiana by the Indiana Board for Proprietary Education/Indiana Commission for Higher Education.

The Indiana State Board of Nursing has voted to grant initial accreditation and authorized the admission of the first cohort of students.

HCN has also notified NLN CNEA of the opening of the Indianapolis campus.

While NLN CNEA approval is not required to begin classes, NLN CNEA may accept the notification or take other actions, such as requesting follow-up information or imposing conditions.

HCN has not received any additional requests or follow up communication.

Beginning January 1, 2020, HCN began offering an institutional grant to students demonstrating financial need to cover the difference between the total cost of tuition and fees and the amount of all eligible financial aid resources.

The grant is designed to limit a student’s monthly payment to $200 through an award of up to $200 per month, or $600 per term after consideration of financial aid, employer tuition reimbursement, and other financial resources.

HCN awarded approximately $43,100 and $112,800 of institutional grants during the three and nine month periods ended September 30, 2020, respectively.

ABHES annually reviews student achievement indicators, including retention rate, placement rate, and licensing and credentialing examination pass rates.

Under ABHES policy, ABHES may withdraw accreditation at any time if it determines that an institution fails to demonstrate at least a 70% retention rate for each program, a 70% placement rate for each program, or a 70% pass rate on mandatory licensing and credentialing examinations, or fails to meet the state-mandated results for credentialing or licensure.

Alternatively, ABHES may in its discretion provide opportunity for a program to come into compliance within a period of time specified by ABHES, and ABHES may extend the period for achieving compliance if a program demonstrates improvement over time or other good cause.

In February 2020, ABHES notified HCN that it had taken additional actions with respect to certain HCN programs at certain locations related to those programs’ performance in relation to ABHES student achievement indicators.

Specifically, ABHES:

(i) placed the PN programs at the Dayton and Toledo campuses on program specific warning status because the programs have failed to meet the 70% retention rate threshold since HCN’s 2017-2018 annual report and informed HCN that those programs must meet the retention rate threshold by May 1, 2020;

(ii) removed the ADN programs at the Cleveland and Toledo campuses from outcomes reporting status after placement rates for those programs at those locations met the 70% compliance threshold;

(iii) continued outcomes reporting status for the PN program at the Columbus campus because it has not met the retention rate compliance threshold and reconfirmed that it has until May 1, 2021 to do so;

and (iv) directed HCN to provide evidence to ABHES that the ADN programs at each of the Columbus, Cleveland, Cincinnati, Dayton, and Toledo campuses and the PN programs at the Cleveland and Cincinnati campuses met the retention rate compliance threshold for the period from July 1, 2019 through March 31, 2020 and informed HCN that those programs must meet the compliance threshold by May 1, 2021.

On April 22, 2020, HCN notified ABHES that, as of March 31, 2020, HCN met the 70% retention rate threshold at each campus location.

For the reporting year July 1, 2019 through June 30, 2020, HCN’s programs satisfied ABHES’s threshold requirements for retention rate, placement rate, and mandatory licensure and credentialing examination pass rates.

There can be no assurance that HCN will be able to continue to demonstrate compliance in all cases.

On August 12, 2020, ABHES requested that HCN provide ABHES with a financial improvement plan that details HCN’s financial objectives, outlines HCN’s financial improvement plans, including a specific timeline, and addresses the net loss for the fiscal year ending December 31, 2019.

The plan was timely submitted to ABHES.

To apply for licensure to practice nursing in Ohio, an applicant must have successfully completed a nursing education program approved by the OBN.

The OBN requires that nursing education programs have a pass rate on the relevant National Council Licensure Examination, or NCLEX, that is at least 95% of the national average for first-time candidates in a calendar year.

If a program does not attain this pass rate, the program may face various consequences.

In March 2017, the OBN placed HCN’s ADN Program on provisional approval because the ADN Program had not met the pass rate standard for four consecutive years.

The OBN will consider restoring a program to Full Approval status if the program meets the pass rate standard for at least two consecutive years.

If a program on provisional approval fails to meet OBN requirements at the end of the time period established for provisional approval, the OBN may propose to continue provisional approval for a set time period or may propose to withdraw approval.

In March 2020, the OBN found that HCN’s ADN Program did not meet the OBN pass rate standard in 2019 for a seventh consecutive year.

HCN has been implementing changes, including curriculum, admissions, and academic achievement and course retake policy changes that are designed to improve NCLEX scores over time, but there is no assurance that these changes will be successful or will not have negative effects on HCN’s enrollment.

In June 2020, HCN filed a letter of intent with the Ohio Board of Nursing to expand its nursing programs to a new location in Akron, Ohio.

In July 2020, the Ohio Board of Nursing approved HCN’s request.

From August through October 2020, ABHES conducted virtual site visits to HCN campuses to assess compliance with ABHES accreditation standards.

The visits resulted in a finding that student satisfaction with the ADN and PN Programs at HCN’s Toledo campus, and the PN Program at HCN’s Cincinnati, Columbus, and Dayton campuses was below expected levels, which ABHES attributed to the transition to online courses as a result of the COVID-19 pandemic, and a finding at the Indianapolis and Columbus campuses related to the composition of an advisory board.

For more information on the potential risks associated with these HCN initiatives and HCN more generally, please refer to our Annual Report and the section entitled “Risk Factors” in this Quarterly Report.

To remain eligible to participate in Title IV programs, an educational institution’s student loan cohort default rates must remain below certain levels.

Pursuant to requirements of the Higher Education Act, as amended, if the cohort default rate for any year exceeds 40%, an institution loses eligibility to participate in Title IV programs, and if the institution’s cohort default rate exceeds 30% for three consecutive years, the institution loses eligibility to participate in Title IV programs.

If an institution’s cohort default rate is equal to or greater than 30% in any year, it must establish a default prevention task force.

In September 2020, ED released final official cohort default rates for institutions for federal fiscal year 2017, with ED reporting a 15.2% cohort default rate for APUS and a 12.1% cohort default rate for HCN.

Additional information regarding student loan default rates, prior year default rates, and potential risks associated with them is available in our Annual Report.

Proposed Acquisition of Rasmussen University

On October 28, 2020, we 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, or the Rasmussen Agreement, with FAH Education, LLC, or Seller, Rasmussen, LLC, or Rasmussen, and Rasmussen College, LLC, or together with Rasmussen, the Acquired Companies, a wholly owned subsidiary of Rasmussen, we agreed to purchase from Seller all of the units of membership interests in Rasmussen, or the Rasmussen Acquisition, for $300 million in cash consideration and $29 million in shares of a new series of non-voting preferred stock be issued at the closing of the Rasmussen Acquisition, or the Rasmussen Closing (or, at our 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 Rasmussen 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.

The Indiana State Board of Nursing granted initial accreditation and authorized the admission of the first cohort of students.

NLN CNEA granted HCN accreditation at its Indianapolis campus effective January 13, 2021.

For information on potential risks associated with HCN, please refer to the section entitled “Risk Factors” in our Annual Report and this Quarterly Report.

Acquisition of Rasmussen University

Pursuant to the terms of a Membership Interest Purchase Agreement, or the Rasmussen Agreement, we agreed to purchase from FAH Education, LLC all of the units of membership interests in Rasmussen LLC, Rasmussen University’s parent company, for $300 million in cash and $29 million in shares of a new series of non-voting preferred stock to be issued at the closing of the Rasmussen Acquisition (or, at our 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.

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 ED, approval by HLC, and approval by or notices to other regulatory and accrediting bodies.

We intend to rely on the availability of financing under a commitment letter for debt financing to fund a portion of the cash consideration for the Rasmussen Acquisition.

For more information on this financing, see “– Liquidity and Capital Resources – Liquidity – Acquisition of Rasmussen University” below.

For more information on the Rasmussen Acquisition, please refer to our Annual Report, “Note 3.

Acquisition Activity” included in the Consolidated Financial Statements in this Quarterly Report, and the sections entitled “– Regulatory and Legislative Activity – Rasmussen Acquisition Regulatory Review” below.

Regulatory and Legislative Activity

In October 2018, ED announced that a negotiated rulemaking committee broadly focused on accreditation and innovation, or the Accreditation and Innovation Committee, would prepare proposed regulations related to, among other things, courses offered through distance education.

ED published a notice of proposed rulemaking on April 2, 2020 based on consensus language agreed to by the Accreditation and Innovation Committee and accepted public comments on the proposal until May 4, 2020.

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.

For example, the rulemaking clarifies and simplifies requirements related to direct assessment programs, including with respect to eligibility requirements and subscription-based programs.

The rulemaking also provides new definitions for “academic engagement,” “distance education,” and “regular and substantive interaction” in order to provide further clarity regarding the instructional requirements for distance education programs.

The COVID-19 pandemic has resulted in widespread disruptions in higher education, particularly with respect to institutions that engage in on-ground delivery of education, and a number of related regulatory developments.

The pandemic led to the shifting of HCN’s courses to a blended model with online delivery of its courses and on campus delivery of certain labs.

In addition, ED has issued numerous statements that provide guidance on how institutions are permitted to handle certain federal student financial aid requirements under certain circumstances related to responses to the COVID-19 pandemic.

On April 7, 2020, the Department of Veterans Affairs, or VA, announced that, effective April 1, 2021, it would no longer count the use of Veteran Readiness & Employment, or VR&E, benefits against the 48-month cap on veterans education benefits programs imposed when veterans use more than one benefit program.

As a result, veterans who use VR&E benefits prior to using another veterans education benefits program, such as the Montgomery GI Bill, or the GI Bill, and the Post-9/11 GI Bill, can still use up to 48 total months of the other veterans education benefits programs.

In March 2021, ED announced a revised approach for determining relief for borrowers who successfully assert borrower relief claims.

Under this new approach, a borrower will receive full loan relief when evidence shows that the institution engaged in certain misconduct.

This policy rescinds the prior administration’s formula that generally granted only partial loan relief for borrower defense claims.

ED also announced changes to the process for borrowers to seek loan relief due to total or permanent disability.

Specifically, ED has eliminated requirements that borrowers with total or permanent disability prove that they continue to have sufficiently low-incomes for three years following their loan discharge.

COVID-19 Pandemic

In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, in response to COVID-19 and its related effects.

Due to the COVID-19 pandemic, many higher education institutions shifted to distance learning as campuses shut down as a result of the public health emergency.

The CARES Act includes provisions designed to provide relief to higher education institutions in connection with the COVID-19 pandemic.

The CARES Act created the Higher Education Emergency Relief Fund, or HEERF, that includes $12.6 billion in funding for higher education institutions.

The CARES Act authorizes ED to allocate funding based on a statutory formula that accounts for the relative share of full-time students who are Pell Grant recipients.

Students who were enrolled exclusively in distance education courses prior to the COVID-19 emergency are excluded from this calculation.

Wholly online institutions were not eligible to receive an allocation of funding under the HEERF given the allocation formula’s exclusion of students enrolled exclusively in distance education courses prior to the onset of the COVID-19 emergency.

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

No allocation of HEERF funds was made to APUS by ED.

The CARES Act includes provisions designed to provide relief to higher education institutions in connection with the pandemic, including by creating the Higher Education Emergency Relief Fund, or HEERF, which includes $12.6 billion in funding for higher education institutions.

The CARES Act authorized ED to allocate HEERF funding based on a statutory formula that accounts for the relative share of full-time students who are Pell Grant recipients and that excludes students who were enrolled exclusively in distance education courses prior to the COVID-19 emergency from the calculation.

Wholly online institutions such as APUS were therefore not eligible to receive an allocation of funding under the CARES Act HEERF.

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 operations and delivery of instruction in light of COVID-19, it chose to distribute its entire HEERF allocation directly to eligible students.

As of June 30, 2020, HCN had distributed its entire allocation of $3.1 million in HEERF funds to eligible students.

The CARES Act also includes waivers of certain Higher Education Act provisions related to the federal student financial aid programs in order to provide regulatory flexibility to institutions in connection with COVID-19-related disruptions.

The CARES Act modifies processes related to the return of unearned Title IV funds in connection with student withdrawals during the COVID-19 pandemic, extends time limits for Pell Grants and Direct Loans as a result of withdrawals during this period, allows for flexibility in measuring the satisfactory academic progress of students, and permits institutions to continue making federal work study payments to students who can no longer meet work study obligations during the period.

Additionally, the CARES Act suspended payments for Federal Family Education Loans and Direct Loans until September 30, 2020, and an executive order extended this suspension until December 31, 2020.

During this period, these loans will not accrue interest and ED will suspend involuntary collection practices.

However, borrowers may choose to make payments towards principal on these loans voluntarily.

By June 30, 2020, HCN distributed its entire allocation of $3.1 million in CARES Act HEERF funds to eligible students.

In addition, as a result of the CARES Act and subsequent administrative actions, ED implemented a temporary freeze on payments and interest accruals for federal student loans.

This administrative forbearance period began on March 20, 2020 and will run until at least September 30, 2021.

In December 2020, Congress passed a law that includes the Coronavirus Response and Relief Supplemental Appropriations Act, or the CRRSAA, which contains several education-related provisions.

The CRRSAA appropriates an additional $22.7 billion for the HEERF, or CRRSAA HEERF, to be distributed to higher education institutions.

The CRRSAA HEERF allocation formula differs from the CARES Act HEERF formula in several ways, including new allocations for institutions based on the number of students enrolled exclusively in distance education.

Under this formula, ED allocated approximately $600,000 for APUS and $2.0 million for HCN, and both APUS and HCN have accepted their allocations.

As of March 31, 2021, HCN had received and distributed its entire allocation of $2.0 million in CRRSAA HEERF funds to eligible students.

In April 2021, ED approved APUS’s application for its $600,000 allocation, which APUS anticipates receiving and distributing to eligible students in the second quarter of 2021.

In March 2021, Congress passed the American Rescue Plan Act of 2021, or the ARPA, which includes an additional $40 billion for HEERF, or HEERF III.

ARPA incorporates CRRSAA’s restrictions regarding allowable uses of HEERF funds.

ARPA’s HEERF III allocation formula decreases the amount of funds allocated to for-profit institutions.

ED has not yet announced ARPA HEERF III allocations for APUS and HCN.

ARPA also includes a provision that amends the provision of the HEA that, as a condition of participation in the Title IV programs, prohibits a for-profit institution from deriving more than 90% of its revenue (as computed by ED) on a cash accounting basis (except for certain institutional loans) from Title IV programs for any fiscal year.

For more information on the so-called 90/10 Rule, please refer to our Annual Report.

ARPA modifies the HEA’s 90/10 Rule to require that a for-profit institution derive not less than 10 percent of its revenue from sources other than “federal education assistance funds”.

ARPA provides that the amendment applies to institutional fiscal years beginning on or after January 1, 2023.

In addition, ARPA provides that the amendment is subject to the HEA’s master calendar requirements and negotiated rulemaking and that such negotiated rulemaking shall commence no earlier than October 1, 2021.

An ED final rule to implement the ARPA provision is not expected to go into effect until July 1, 2023 at the earliest.

ARPA does not define “federal education assistance funds.” We expect such definition to be developed as part of the required negotiated rulemaking and anticipate that ED would seek to include TA and VA education benefits in the scope of the definition.

At this time we cannot predict the impact of the ARPA 90/10 Rule on our business, including because we cannot predict how ED will implement the ARPA 90/10 Rule provision.

We also cannot predict the likelihood that Congress will pass additional legislation to modify the 90/10 Rule further with respect to relevant sources of funds or other aspects of the calculation.

For example, other recent congressional proposals have focused on decreasing the limit on Title IV funds from 90% to 85%.

Such proposals, or other similar legislation, should they become law, could have a material adverse impact on our financial condition and results of operation.

On March 27, 2020, Ohio enacted a COVID-19 emergency relief law that allows individuals who have successfully completed a nursing education program approved by OBN to receive a temporary license to practice as an RN or LPN before taking the NCLEX.

Graduates of OBN-approved nursing education programs, such as HCN’s programs, may apply for a temporary license that would be valid until the earlier of March 1, 2021 and 90 days after the period of emergency ends.

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 i n the Presidential Administration or Congress may result in

changes to, or elimination of, currently effective ED regulations, or to implement 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 ch ange or eliminate or to implement new ED regulations, policies, and practices, nor can we predict the form that new regulations, policies, or practices may take.

Graduates of OBN-approved nursing education programs, such as HCN’s programs, were permitted to apply for a temporary license that was valid until March 1, 2021, at which time it expired.

The postsecondary education regulatory landscape is complex and continues to evolve, and the foregoing discussion does not address all of the laws and regulations that may materially affect our business, financial condition, and results of operations.

Additional information on the regulation of our business, including certain regulatory developments in 2021 that occurred prior to the filing of our Annual Report, is available in “Business – Regulatory Environment” in Item 1 of Part I of our Annual Report.

We cannot predict the extent to which the aforementioned regulatory activity or any other potential regulatory or legislative activity, including as a result of COVID-19 or the 2020 U.S.

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

Additional information regarding the regulatory and legislative environment and potential risks associated with it is available in our Annual Report and the section entitled “Risk Factors” in this Quarterly Report.

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

Additional information regarding the potential risks associated with the regulation of postsecondary education and our business is available in the sections entitled “Risk Factors” in our Annual Report and this Quarterly Report.

Rasmussen Acquisition Regulatory Review

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ED does not provide pre-closing approval, but at the request of the parties, ED will conduct a “pre-acquisition review” of a proposed change.

In this case, the parties will request that ED conduct an “abbreviated pre-acquisition review.” Upon completion of an abbreviated pre-acquisition review, ED informs the institution whether the institution will be required to post a letter of credit in connection with its continued participation in Title IV programs after closing.

As required, we intend to timely notify ED about the occurrence of the change in ownership of Rasmussen and submit an application for approval to participate in Title IV programs after the closing of the transaction.

In this case, the parties intend to request that ED conduct an “abbreviated pre-acquisition review.” Upon completion of an abbreviated pre-acquisition review, ED will inform Rasmussen University whether it will be required to post a letter of credit in connection with its continued participation in Title IV programs after closing.

As required, we intend to timely notify ED about the occurrence of the change in ownership of Rasmussen University and submit an application for approval to participate in Title IV programs after the closing of the transaction.

We will also notify state agencies, accreditors, boards of nursing, and other relevant regulators of this change in ownership as required.

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For example, HLC requires approval before the closing of a transaction in order for an institution to maintain accredited status after closing.

The parties will submit an application to HLC for pre-closing approval of the change in ownership.

The parties submitted an application to HLC for pre-closing approval of the change in ownership, and HLC conducted focused site visits related to the application in February and March 2021.

We expect HLC to consider this matter at its June 2021 meeting.

Additionally, some regulators will require approval after the change in ownership in order to continue proper licensure, accreditation, approval, or authorization.

Compliance Reviews

In order to participate in TA, institutions must agree to participate in DoD’s Voluntary Education Institutional Compliance Program, or ICP.

An institution that through the ICP is found noncompliant with DoD requirements and

demonstrates an unwillingness to resolve a finding may be subject to a range of penalties from a written warning to termination of the institution’s participation in TA.

In February 2020, DoD informed APUS that it was one of 250 institutions selected for ICP review in 2020.

Upon request, in May 2020, APUS submitted a self-assessment in connection with the ICP.

On November 30, 2020, DoD issued a report finding that APUS did not clearly articulate certain policies or clearly make certain disclosures.

As required, APUS submitted its corrective action plan and related evidentiary support and in April 2021, APUS was informed that the review had been completed and no further actions are required.

Reportable Segments

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Summary of Results

For the three months ended September 30, 2020, our consolidated revenue increased to $79.1 million from $67.9 million, or by 16.6%, compared to the prior year period.

Our operating margins increased to 4.2% from negative 4.3% for the three months ended September 30, 2020, compared to the prior year period.

For the nine months ended September 30, 2020, our consolidated revenue increased to $235.9 million from $211.9 million, or by 11.3%, compared to the prior year period.

Our operating margins increased to 6.4% from 2.0% for the nine months ended September 30, 2020, compared to the prior year period.

Net income increased to $2.6 million from a net loss of $1.6 million, an increase of $4.2 million compared to the prior year period.

For the three months ended September 30, 2020, APEI Segment revenue increased to $69.6 million from $61.2 million, or by 13.7%, compared to the prior year period.

Net course registrations at APUS for the three months ended September 30, 2020 increased to approximately 90,300 from approximately 76,700, or approximately 17.7%, compared to the prior year period.

APEI Segment operating margins increased to 4.1% from 0.4% for the three months ended September 30, 2020, compared to the prior year period.

For the nine months ended September 30, 2020, APEI segment revenue increased to $210.3 million from $190.4 million, or by 10.4% compared to the prior year period.

Net course registrations at APUS for the nine months ended September 30, 2020 increased to approximately 264,700 from approximately 236,900, or approximately 11.7%, compared to the prior year period.

APEI Segment operating margins decreased to 7.4% from 7.5% for the nine months ended September 30, 2020, compared to the prior year period.

The increase in net course registrations was primarily due to an increase in military-related registrations from students utilizing DoD tuition assistance which is at a lower revenue per net course registration than other funding sources.

For the three months ended March 31, 2021, our consolidated revenue increased to $88.5 million from $74.6 million, or by 18.7%, compared to the prior year period.

Our operating margins increased to 12.0% from 3.6% for the three months ended March 31, 2021, compared to the prior year period.

Net income increased to $8.1 million from $2.4 million, an increase of $5.7 million compared to the prior year period.

For the three months ended March 31, 2021, APEI Segment revenue increased to $77.4 million from $67.1 million, or by 15.4%, compared to the prior year period.

Net course registrations at APUS for the three months ended March 31, 2021 increased to approximately 92,900 from approximately 84,800, or approximately 9.6%, compared to the prior year period.

The percentage increase in revenue exceeded the percentage increase in registrations as compared to the prior year due to the January 1, 2020 tuition and technology fee increases for non-active duty military students.

Because students can register as much as five months in advance of a course start, the quarter ended March 31, 2020 includes registrations made before the effective date of the tuition and technology fee increases.

APEI Segment operating margins increased to 12.7% from 5.3% for the three months ended March 31, 2021, compared to the prior year period.

The increase in net course registrations was primarily due to an increase in military-related registrations from students utilizing TA at APUS which have a lower revenue per net course registration than other funding sources.

Net course registrations represent the total number of courses for which students remain enrolled after the date by which they may drop a course without financial penalty.

For the three months ended September 30, 2020, HCN Segment revenue increased to $9.5 million from $6.7 million, or by 42.5%, compared to the prior year period.

Total enrollment at HCN for the three months ended September 30, 2020 increased to approximately 2,000 from approximately 1,400, or approximately 38.6%, as compared to the prior year period.

New student enrollment at HCN for the three months ended September 30, 2020 increased to 649 from 345, or approximately 88.1%, as compared to the prior year period.

HCN Segment operating margins increased to 4.9% from negative 47.2% for the three months ended September 30, 2020, compared to the prior year period.

For the nine months ended September 30, 2020, HCN Segment revenue increased to $25.7 million from $21.6 million, or by 19.0%, compared to the prior year period.

HCN Segment operating margins increased to negative 1.8% from negative 47.3% for the nine months ended September 30, 2020, compared to the prior year period.

We believe that the increase in new student enrollment at HCN was due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, an increase in marketing expenditures, the continued impact of new initiatives implemented in 2019 such as the direct entry ADN Program, and the implementation of the institutional affordability grant in the first quarter of 2020.

For the three months ended March 31, 2021, HCN Segment revenue increased to $11.1 million from $7.5 million, or by 47.7%, compared to the prior year period.

Total enrollment at HCN for the three months ended March 31, 2021 increased to approximately 2,300 from approximately 1,600, or approximately 45.1%, as compared to the prior year period.

New student enrollment at HCN for the three months ended March 31, 2021 increased to 644 from 444, or approximately 45.0%, as compared to the prior year period.

HCN Segment operating margins increased to 7.0% from negative 11.7% for the three months ended March 31, 2021, compared to the prior year period.

We believe that the increase in new student enrollment at HCN was due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, an increase in marketing expenditures, the continued impact of initiatives implemented in 2019 and 2020, such as the direct entry ADN Program and the institutional affordability grant.

HCN total student enrollment represents the total number of students enrolled in a course immediately after the date by which students may drop a course without financial penalty.

We believe the changes in revenue and operating margins are primarily due to the factors discussed below in the “Results of Operations” section of this Management’s Discussion and Analysis.

Critical Accounting Policies and Use of Estimates

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Results of Operations

Below we have included a discussion of our operating results and material changes in our operating results during the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019.

Below we have included a discussion of our operating results and material changes in our operating results during the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Our revenue and operating results normally fluctuate as a result of seasonal or other variations in our enrollments and the level of expenses in our APEI and HCN Segments.

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We expect quarterly fluctuations in operating results to continue as a result of various enrollment patterns and changes in expenses.

COVID-19 did not materially adversely impact our results of operations during the three and nine months ended September 30, 2020.

COVID-19 did not materially adversely impact our results of operations during the three months ended March 31, 2021.

However, the duration and intensity of the outbreak, and therefore any future impact, is uncertain.

For example, in March 2020, in response to the pandemic, HCN shifted to a blended model with online delivery of its courses and on campus delivery of certain labs.

While not yet material, ongoing and future impacts may cause additional disruption of educational services provided to students, and increase costs for HCN to continue to deliver courses in person and online, and could be considered a triggering event to evaluate the value of HCN goodwill, impairment of investments, and recoverability of receivables.

For more information on the potential risks related to COVID-19, please refer to the section entitled “Risk Factors” in this Quarterly Report.

In addition, during the three and nine months ended September 30, 2020, and thereafter, we have experienced a significant decrease in interest rates, including in connection with

the COVID-19 pandemic, as compared to 2019, and we expect to continue to earn reduced interest income on our invested funds.

We believe that the increase in enrollment at HCN for the three months ended September 30, 2020 as compared to the prior year period is due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, an increase in marketing expenditures, the continued impact of new initiatives implemented in 2019 such as the direct entry ADN Program, and the implementation of the institutional affordability grant in the first quarter of 2020.

While not yet material, ongoing and future impacts may cause additional disruption of educational services provided to students, increase costs for HCN to continue to deliver courses in person and online, and could be considered a triggering event to evaluate the value of HCN goodwill, impairment of investments, and recoverability of receivables.

Beginning in the first quarter of 2020, we experienced a significant decrease in interest rates, including in connection with the COVID-19 pandemic, and we expect to continue to earn reduced interest income on our invested funds.

In addition, as the pandemic abates, we believe demand for our online education programs will moderate and could decrease, and demand for our nursing education programs could also moderate or decrease.

We believe that the increase in enrollment at HCN for the three months ended March 31, 2021 as compared to the prior year period is due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, an increase in marketing expenditures, the continued impact of initiatives implemented in 2019 and 2020, such as the direct entry ADN Program and the institutional affordability grant.

We cannot predict whether our initiatives and efforts will continue to be successful over the long term and cannot guarantee continued enrollment and revenue growth in our HCN Segment.

The success of these efforts could also be adversely affected by future impacts of the COVID-19 pandemic.

For more information on the initiatives discussed above, our operations, and related risk factors, please refer to the “Overview” section of this Management’s Discussion and Analysis and our Annual Report.

Our consolidated results for the three and nine months ended September 30, 2020 and 2019 reflect the operations of our APEI and HCN Segments.

For a more detailed discussion of our results by reportable segment, refer to our Analysis of Operating Results by Reportable Segment.

The success of these efforts could also be adversely affected by future impacts of the COVID-19 pandemic or a moderation of or decrease in the demand for nursing education as the pandemic abates.

For more information on the impacts of COVID-19 on the Company and the potential risks related to COVID-19, please refer to “Overview” in this Management’s Discussion and Analysis of Financial Condition and Results of Operation and the section entitled “Risk Factors” in our Annual Report and this Quarterly Report.

Our consolidated results for the three months ended March 31, 2021 and 2020 reflect the operations of our APEI and HCN Segments.

For a more detailed discussion of our results by reportable segment, refer to “Analysis of Operating Results by Reportable Segment” below.

Analysis of Consolidated Statements of Income

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The following table sets forth statements of income data as a percentage of revenue for each of the periods indicated:

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

2020 2019 2020 2019

(Unaudited) (Unaudited)

Three Months Ended March 31,

Revenue 100.0 % 100.0 %

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Loss on disposals of long-lived assets — 0.2

Impairment of goodwill — 2.2 — 3.5

Depreciation and amortization 3.0 4.5

Total costs and expenses 88.0 96.4

Income (loss) from operations before interest income and income taxes 4.2 (4.3) 6.4 2.0

Income from operations before interest income and income taxes 12.0 3.6

Interest income, net 0.1 0.9

Income (loss) from operations before income taxes 4.4 (2.8) 6.8 3.5

Income tax expense (benefit) 1.0 (0.4) 1.8 0.8

Income from operations before income taxes 12.1 4.5

Income tax expense 3.0 1.3

Equity investment loss — —

Net income (loss) 3.4 % (2.4) % 5.0 % 2.0 %

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Our consolidated revenue for the three months ended September 30, 2020 was $79.1 million, an increase of $11.2 million, or 16.6%, compared to $67.9 million for the three months ended September 30, 2019.

Net income 9.1 % 3.2 %

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Our consolidated revenue for the three months ended March 31, 2021 was $88.5 million, an increase of $13.9 million, or 18.7%, compared to $74.6 million for the three months ended March 31, 2020.

The increase in revenue was due to a $10.3 million, or 15.4%, increase in revenue in our APEI Segment and a $3.6 million, or 47.7%, increase in revenue in our HCN Segment.

In our APEI Segment, net course registrations by new students and total net course registrations increased 25.0% and 17.7%, respectively, during the three months ended September 30, 2020, as compared to the prior year period.

The HCN Segment revenue increase was primarily due to an 88.1% increase in new student enrollment and a 38.6% increase in total enrollment.

The APEI Segment revenue was primarily due to an increase in new student net course registrations and total net course registrations by 13.9% and 9.6%, respectively, during the three months ended March 31, 2021, as compared to the prior year period.

The percentage increase in APEI Segment revenue exceeded the percentage increase in registrations as compared to the prior year due to the January 1, 2020 tuition and technology fee increases for non-active duty military students.

The HCN Segment revenue increase was primarily due to a 45.0% increase in new student enrollment and a 45.1% increase in total enrollment.

Costs and expenses.

Costs and expenses for the three months ended September 30, 2020 were $75.8 million, an increase of $5.0 million, or 7.1%, compared to $70.8 million for the three months ended September 30, 2019.

The increase in costs and expenses for the three months ended September 30, 2020 as compared to the prior year period was primarily due to increases in employee compensation costs, advertising costs, professional fees, and information technology costs in our APEI Segment and increases in instructional materials costs and employee compensation costs in our HCN Segment partially offset by a decrease in advertising costs in our HCN Segment and bad debt expense in our APEI Segment.

Results for the three months ended September 30, 2020 include the following costs on a pre-tax basis:

a $2.1 million increase in advertising costs compared to the prior year period, $1.9 million in professional fees associated with strategic growth opportunities including the Rasmussen Acquisition, and $1.5 million in information technology costs related to the replacements and upgrades to our information technology systems, including the replacements of our learning management and customer relationship management systems.

Results for the three months ended September 30, 2019 include the following on a pre-tax basis:

$2.8 million in employee compensation costs for post-employment benefits related to the former APUS President’s retirement in our APEI Segment and a non-cash goodwill impairment of $1.5 million in our HCN Segment.

Costs and expenses as a percentage of revenue decreased to 95.8% for the three months ended September 30, 2020, from 104.3% for the three months ended September 30, 2019.

The decrease in costs and expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase in costs and expenses.

Costs and expenses for the three months ended March 31, 2021 were $77.9 million, an increase of $6.0 million, or 8.3%, compared to $71.9 million for the three months ended March 31, 2020.

The increase in costs and expenses for the three months ended March 31, 2021 as compared to the prior year period was primarily due to increases in employee compensation costs, advertising costs, information technology costs, and professional fees in our APEI Segment and increases in employee compensation costs, bad debt expense, and instructional materials costs in our HCN Segment.

Results for the three months ended March 31, 2021 include the following costs on a pre-tax basis:

$1.8 million in information technology costs related to our multi-year technology transformation program and $0.5 million in professional fees associated with the Rasmussen Acquisition in our APEI Segment, and a $0.7 million increase in advertising costs in our APEI and HCN Segments.

Results for the three months ended March 31, 2020 included the following costs on a pre-tax basis:

$0.9 million of information technology costs related to our multi-year technology transformation program, and $0.6 million associated with strategic opportunities in our APEI Segment.

Costs and expenses as a percentage of revenue decreased to 88.0% for the three months ended March 31, 2021, from 96.4% for the three months ended March 31, 2020.

The decrease in costs and expenses as a

percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase in costs and expenses.

Instructional costs and services expenses.

Our instructional costs and services expenses for the three months ended September 30, 2020 were $31.1 million, an increase of $3.8 million, or 14.0%, from $27.3 million for the three months ended September 30, 2019.

Our instructional costs and services expenses for the three months ended March 31, 2021 were $32.3 million, an increase of $3.1 million, or 10.6%, compared to $29.2 million for the three months ended March 31, 2020.

The increase in instructional costs and services expenses was primarily due to an increase in employee compensation costs in our APEI Segment and increases in instructional materials costs and employee compensation costs in our HCN Segment.

Instructional costs and services expenses as a percentage of revenue decreased to 39.3% for the three months ended September 30, 2020, from 40.2% for the three months ended September 30, 2019.

Instructional costs and services expenses as a percentage of revenue decreased to 36.5% for the three months ended March 31, 2021, from 39.2% for the three months ended March 31, 2020.

The decrease in instructional costs and services expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase in instructional costs and services expenses.

Selling and promotional expenses.

Our selling and promotional expenses for the three months ended September 30, 2020 were $18.5 million, an increase of $2.6 million, or 16.7%, from $15.9 million for the three months ended September 30, 2019.

The increase in selling and promotional expenses was primarily due to increases in advertising costs and employee compensation costs in our APEI Segment partially offset by a decrease in advertising costs in our HCN Segment.

APEI Segment advertising costs increased $2.3 million compared to the prior year period.

Selling and promotional expenses as a percentage of revenue was 23.4% for both the three months ended September 30, 2020 and 2019.

Our selling and promotional expenses for the three months ended March 31, 2021 were $19.4 million, an increase of $1.2 million, or 6.7%, compared to $18.2 million for the three months ended March 31, 2020.

The increase in selling and promotional expenses was primarily due to increases in advertising costs, employee compensation costs, and marketing support materials costs in our APEI Segment and an increase in advertising costs in our HCN Segment.

Advertising costs increased $0.7 million in our APEI and HCN Segments compared to the prior year period.

Selling and promotional expenses as a percentage of revenue decreased to 21.9% for the three months ended March 31, 2021, from 24.4% for the three months ended March 31, 2020.

The decrease in selling and promotional expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase in selling and promotional expenses.

General and administrative expenses.

Our general and administrative expenses for the three months ended September 30, 2020 were $22.6 million, an increase of $0.6 million, or 2.5%, from $22.0 million for the three months ended September 30, 2019.

The increase in general and administrative expenses for the three months ended September 30, 2020 as compared to the prior year period was primarily the result of increases in professional fees and information technology costs in our APEI Segment partially offset by decreases in employee compensation costs and bad debt expense in our APEI Segment.

For the three months ended September 30, 2020, APEI Segment general and administrative expenses include the following on a pre-tax basis:

approximately $1.9 million in professional fees associated with strategic growth opportunities including the Rasmussen Acquisition, and $1.5 million of information technology costs related to replacements and upgrades to our information technology systems, including replacements of our learning management and customer relationship management systems.

For the three months ended September 30, 2019, APEI Segment general and administrative expenses include $2.8 million in employee compensation costs for post-employment benefits related to the former APUS President’s retirement.

Consolidated bad debt expense for the three months ended September 30, 2020 was $0.9 million, or 1.1% of revenue, compared to $1.0 million, or 1.5% of revenue in the prior year period.

General and administrative expenses as a percentage of revenue decreased to 28.5% for the three months ended September 30, 2020, from 32.4% for the three months ended September 30, 2019.

Our general and administrative expenses for the three months ended March 31, 2021 were $23.5 million, an increase of $2.5 million, or 12.0%, compared to $21.0 million for the three months ended March 31, 2020.

The increase in general and administrative expenses for the three months ended March 31, 2021 as compared to the prior year period was primarily the result of increases in employee compensation costs, information technology costs, and professional fees in our APEI Segment and increases in bad debt expense and employee compensation costs in our HCN Segment.

For the three months ended March 31, 2021, APEI Segment general and administrative expenses include the following on a pre-tax basis:

approximately $1.8 million of information technology costs related to our multi-year technology transformation program, and $0.5 million in professional fees associated with the Rasmussen Acquisition.

Consolidated bad debt expense for the three months ended March 31, 2021 was $1.5 million, or 1.7% of revenue, compared to $1.0 million, or 1.3% of revenue in the prior year period.

General and administrative expenses as a percentage of revenue decreased to 26.6% for the three months ended March 31, 2021, from 28.1% for the three months ended March 31, 2020.

The decrease in general and administrative expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase in general and administrative expenses.

As we continue to evaluate strategic growth opportunities and enhancements to our business capabilities, we expect to incur additional costs and that our general and administrative expenses related to professional fees will vary from time to t ime, and may increase in the fourth quarter of 2020.

Loss on disposals of long-lived assets.

The loss on disposals of long-lived assets was $0.4 million for both the three months ended September 30, 2020 and 2019, respectively.

Impairment of goodwill.

There was no impairment of goodwill for the three months ended September 30, 2020.

The $1.5 million pretax, non-cash impairment of goodwill for the three months ended September 30, 2019 resulted from the reduction of the carrying value of goodwill in our HCN Segment.

Depreciation and amortization expenses.

Depreciation and amortization expenses were $3.2 million and $3.8 million for the three months ended September 30, 2020 and 2019, respectively.

Depreciation and amortization expenses as a percentage of revenue decreased to 4.1% for the three months ended September 30, 2020, from 5.5% for the three months ended September 30, 2019.

The decrease in depreciation and amortization expenses as a percentage of revenue was primarily due to a decrease in depreciation and amortization expenses during a period when consolidated revenue increased.

Stock-based compensation expenses.

Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses were $1.9 million and $1.7 million for the three months ended September 30, 2020 and 2019, respectively.

Stock-based compensation costs include accelerated expense for retirement-eligible employees and performance stock unit incentive costs.

Interest income.

Interest income was $0.1 million and $1.0 million for the three months ended September 30, 2020 and 2019, respectively.

The decrease was due to a decrease in interest rates when compared to the prior year period.

Income tax expense (benefit).

We recognized income tax expense of $0.8 million and an income tax benefit of $0.2 million for the three months ended September 30, 2020 and 2019, respectively, or effective tax rates of 22.9% and (12.7)%, respectively.

The increase in the effective tax rate for the three months ended September 30, 2020 compared to the tax benefit for the three months ended September 30, 2019 is due to the pre-tax loss in the prior year period.

There was no material impact to our effective tax rate for the three months ended September 30, 2020 as a result of the effects of the COVID-19 pandemic.

Equity investment income (loss).

Equity investment income was $0.0 million and $0.02 million for the three months ended September 30, 2020 and 2019, respectively.

Net income (loss).

Our net income was $2.6 million for the three months ended September 30, 2020, compared to a net loss of $1.6 million for the three months ended September 30, 2019, an increase of $4.2 million.

This increase was related to the factors discussed above.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Our consolidated revenue for the nine months ended September 30, 2020 was $235.9 million, an increase of $24.0 million, or 11.3%, compared to $211.9 million for the nine months ended September 30, 2019.

The increase in revenue was due to a $19.9 million, or 10.4% increase in our APEI Segment and a $4.1 million, or 19.0%, increase in revenue in our HCN Segment.

In our APEI Segment, net course registrations by new students and total net course registrations increased 18.2% and

11.7%, respectively, during the nine months ended September 30, 2020, as compared to the prior year period.

The HCN Segment revenue increase was primarily due to a 58.8% increase in new student enrollment and a 12.7% increase in total enrollment.

Costs and expenses.

Costs and expenses for the nine months ended September 30, 2020 were $220.8 million, an increase of $13.1 million, or 6.3%, compared to $207.7 million for the nine months ended September 30, 2019.

The increase in costs and expenses was primarily due to increases in employee compensation costs, advertising and marketing support costs, professional fees, and information technology costs in our APEI Segment and increases in instructional materials costs, employee compensation costs, facilities costs, advertising costs, and bad debt expense in our HCN Segment partially offset by decreases in commencement and travel costs and bad debt expense in our APEI Segment.

The nine months ended September 30, 2020 includes the following costs on a pre-tax basis:

a $6.6 million increase in advertising costs compared to the prior year period, $3.8 million in professional fees associated with strategic growth opportunities including the Rasmussen Acquisition, and $3.4 million in information technology costs related to the replacements and upgrades to our information technology systems, including the replacements of our learning management and customer relationship management systems.

Costs and expenses for the nine months ended September 30, 2019 includes the following on a pre-tax basis:

a non-cash goodwill impairment of $7.3 million in our HCN Segment and $2.8 million in employee compensation costs for post-employment benefits related to the former APUS President’s retirement in our APEI Segment.

Costs and expenses as a percentage of revenue decreased to 93.6% for the nine months ended September 30, 2020, from 98.0% for the nine months ended September 30, 2019.

The decrease in costs and expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase in costs and expenses.

Instructional costs and services expenses.

Our instructional costs and services expenses for the nine months ended September 30, 2020 were $91.1 million, an increase of $7.2 million, or 8.5%, from $83.9 million for the nine months ended September 30, 2019.

The increase in instructional costs and services expenses was primarily due to increases in employee compensation costs and instructional materials costs in our APEI Segment and increases in employee compensation costs, instructional materials costs, and facilities costs in our HCN Segment partially offset by a decrease in commencement and travel costs in our APEI Segment.

Instructional costs and services expenses as a percentage of revenue decreased to 38.6% for the nine months ended September 30, 2020, from 39.6% for the nine months ended September 30, 2019.

Selling and promotional expenses.

Our selling and promotional expenses for the nine months ended September 30, 2020 were $53.8 million, an increase of $8.8 million, or 19.5%, from $45.0 million for the nine months ended September 30, 2019.

The increase in selling and promotional expenses was primarily due to increases in advertising and marketing support costs and employee compensation costs in our APEI Segment and an increase in advertising costs in our HCN Segment.

Advertising costs increased $6.4 million and marketing support costs increased $0.5 million in our APEI Segment and advertising costs increased $0.2 million in our HCN Segment as compared to the prior year period.

Selling and promotional expenses as a percentage of revenue increased to 22.8% for the nine months ended September 30, 2020, from 21.3% for the nine months ended September 30, 2019.

The increase in selling and promotional expenses as a percentage of revenue was primarily due to selling and promotional expenses increasing at a rate greater than the increase in our consolidated revenue.

General and administrative expenses.

Our general and administrative expenses for the nine months ended September 30, 2020 were $65.3 million, an increase of $6.1 million, or 10.3%, from $59.2 million for the nine months ended September 30, 2019.

The increase in general and administrative expenses was primarily related to increases in professional fees, employee compensation costs, and information technology costs in our APEI Segment and an increase in bad debt expense in our HCN Segment partially offset by a decrease in bad debt expense in our APEI Segment and a decrease in employee compensation costs in our HCN Segment.

For the nine months ended September 30, 2020, APEI Segment general and administrative expenses includes the following costs on a pre-tax basis:

$3.8 million in professional fees associated with strategic growth opportunities including the Rasmussen Acquisition, $3.4 million of information technology costs related to replacements and upgrades to our information technology systems, including replacements of our learning management and customer relationship management systems.

For the nine months ended September 30, 2019, APEI Segment general and administrative expenses includes the following costs on a pre-tax basis:

$2.8 million in employee compensation costs for post-employment benefits related to the former APUS President’s retirement;

$1.4 million of professional fees associated with strategic growth opportunities including the Rasmussen Acquisition;

and $1.1 million related to the evaluation of replacements or upgrades to our information technology and learning management systems.

Consolidated bad debt expense for the nine months ended September 30, 2020 was $2.8 million, or 1.2% of revenue, compared to $2.9 million, or 1.4% of revenue in the prior year period.

General and administrative expenses as a percentage of revenue decreased to 27.7% for the nine months ended September 30, 2020, from 27.9% for the nine months ended September 30, 2019.

The decrease in general and administrative expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase

in general and administrative expenses.

As we continue to evaluate strategic growth opportunities and enhancements to our business capabilities, we expect our general and administrative expenses related to professional fees will vary from time to time, and may increa se in the fourth quarter of 2020.

Loss on disposals of long-lived assets.

The loss on disposals of long-lived assets was $0.7 million and $0.5 million for the nine months ended September 30, 2020 and 2019, respectively.

Impairment of goodwill.

There was no impairment of goodwill for the nine months ended September 30, 2020.

The $7.3 million pretax, non-cash impairment of goodwill for the nine months ended September 30, 2019 resulted from the reduction of the carrying value of goodwill in our HCN Segment.

There was no loss on disposals of long-lived assets for the three months ended March 31, 2021.

The loss on disposals of long-lived assets for the three months ended March 31, 2020 was $0.2 million.

Depreciation and amortization expenses.

Depreciation and amortization expenses were $10.0 million and $11.8 million for the nine months ended September 30, 2020 and 2019, respectively.

Depreciation and amortization expenses as a percentage of revenue decreased to 4.2% for the nine months ended September 30, 2020, from 5.5% for the nine months ended September 30, 2019.

Depreciation and amortization expenses were $2.7 million and $3.3 million for the three months ended March 31, 2021 and 2020, respectively.

Depreciation and amortization expenses as a percentage of revenue decreased to 3.0% for the three months ended March 31, 2021, from 4.5% for the three months ended March 31, 2020.

Stock-based compensation expenses.

Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses was approximately $5.3 million and $5.0 million for the nine months ended September 30, 2020 and 2019.

Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses were $2.2 million and $1.8 million for the three months ended March 31, 2021 and 2020, respectively.

Stock-based compensation costs include accelerated expense for retirement-eligible employees and performance stock unit incentive costs.

Interest income.

Interest income was $1.0 million and $3.2 million for the nine months ended September 30, 2020 and 2019, respectively.

Interest income was $0.1 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively.

The decrease was due to a decrease in interest rates when compared to the prior year period.

Income tax expense.

We recognized income tax expense of $4.3 million and $1.6 million for the nine months ended September 30, 2020 and 2019, respectively, or effective tax rates of 26.7% and 27.1%, respectively.

The decrease in the effective tax rate for the nine months ended September 30, 2020 is primarily due to lower amount of non-deductible expenses in proportion to pre-tax income as compared to the prior period.

The effective tax rate for the nine months ended September 30, 2020 includes income tax expense of $0.1 million related to ASU No.

2016-09 Compensation - Stock Compensation (Topic 718), compared to an income tax expense benefit of $0.5 million for the nine months ended September 30, 2019.

There was no material impact to our effective tax rate for the nine months ended September 30, 2020 as a result of the effects of the COVID-19 pandemic.

We recognized income tax expense of $2.6 million and $1.0 million for the three months ended March 31, 2021 and 2020, respectively, or effective tax rates of 24.6% and 28.7%, respectively.

The decrease in the effective tax rate for the three months ended March 31, 2021 is due to a lower amount of non-deductible expenses as compared to the prior period and a $0.3 million benefit from Accounting Standards Update No.

2016-09, Compensation- Stock Compensation

(Topic 718), in the current year period.

There was no material impact to our effective tax rate for the three months ended March 31, 2021 and 2020 as a result of the effects of the COVID-19 pandemic.

Equity investment loss.

Equity investment loss was $0.0 million for the nine months ended September 30, 2020 compared to a loss of $1.5 million for the nine months ended September 30, 2019.

Our net income was $11.8 million for the nine months ended September 30, 2020, compared to net income of $4.3 million for the nine months ended September 30, 2019, an increase of $7.5 million.

Equity investment loss was $5,000 and $1,000 for the three months ended March 31, 2021 and 2020, respectively.

Our net income was $8.1 million for the three months ended March 31, 2021, compared to net income of $2.4 million for the three months ended March 31, 2020, an increase of $5.7 million.

This increase was related to the factors discussed above.

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The following table provides details on our operating results by reportable segment for the respective periods (in thousands):

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

2020 2019 2020 2019

(Unaudited) (Unaudited)

Three Months Ended March 31,

American Public Education Segment

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Hondros College of Nursing Segment

9,541 6,696 25,682 21,584

Intersegment elimination

(18) (25) (57) (81)

Total Revenue $ 88,541 $ 74,616

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Hondros College of Nursing Segment

466 (3,158) (455) (10,214)

Intersegment elimination

Total income (loss) from operations before interest income and income taxes

$ 3,308 $ (2,913) $ 15,042 $ 4,147

For the three months ended September 30, 2020, the $8.4 million, or 13.7%, increase to approximately $69.6 million in revenue in our APEI Segment was attributable to higher net course registrations primarily as a result of additional military registrations from students utilizing DoD tuition assistance which is at a lower revenue per net course registration than other funding sources.

Net course registrations at APUS increased 17.7% to approximately 90,300 from approximately 76,700 during the three months ended September 30, 2020 compared to the same period in 2019.

Income from operations before interest income and income taxes increased to $2.8 million during the three months ended September 30, 2020, from $0.2 million, an increase of $2.6 million compared to the prior year as a result of an increase in revenue due to increases in registrations discussed above.

For the nine months ended September 30, 2020, the $19.9 million, or 10.4%, increase to approximately $210.3 million in revenue in our APEI Segment was primarily attributable to higher net course registrations primarily as a result of additional military registrations from students utilizing DoD tuition assistance which is at a lower revenue per net course registration than other funding sources.

Net course registrations at APUS increased 11.7% to approximately 264,700 from approximately 236,900 during the nine months ended September 30, 2020 compared to the same period in 2019.

Income from operations before interest income and income taxes was $15.5 million during the nine months ended September 30, 2020, an increase of 7.9% compared to the same period in 2019, as a result of an increase in revenue due to increases in registrations discussed above.

For the three months ended September 30, 2020, the $2.8 million, or 42.5%, increase to approximately $9.5 million in revenue in our HCN Segment was attributable to an increase in total student enrollment.

HCN new student enrollment for the three month period ended September 30, 2020 increased to 649 from 345, or approximately 88.1%, as compared to the comparable prior year period.

HCN total student enrollment increased 38.6% to approximately 2,000 from approximately 1,400 students during the three months ended September 30, 2020 compared to the same period in 2019.

We believe that the increase in HCN’s total student enrollment for the three months ended September 30, 2020 was due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, the continued impact of new initiatives implemented in 2019 such as the direct entry ADN Program, and the implementation of the institutional affordability grant in the first quarter of 2020.

Income from operations before interest income and income taxes in our HCN Segment was $0.5 million during the three months ended September 30, 2020, compared to a loss of $3.2 million in the same period in 2019, an increase of $3.7 million, primarily as a result of the increase in revenue due to higher enrollment discussed above and the $1.5

million pretax, non-cash impairment of goodwill in 2019.

For the nine months ended September 30, 2020, the $4.1 million, or 19.0%, increase to approximately $25.7 million in revenue in our HCN Segment was primarily attributable to an increase in student enrollment.

HCN new student enrollment increased 58.8% and total student enrollment increased 12.7% during the nine months ended September 30, 2020 compared to the same period in 2019.

We believe that the increase in HCN’s enrollment for the nine months ended September 30, 2020 was due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, an increase in marketing expenditures, the continued impact of new initiatives implemented in 2019 such as the direct entry ADN Program, and the implementation of the institutional affordability grant in the first quarter of 2020.

The loss from operations before interest income and income taxes in our HCN Segment was $0.5 million during the nine months ended September 30, 2020, compared to a loss of $10.2 million in the same period in 2019, a decrease of $9.7 million, primarily as a result of the increase in revenue due to higher enrollment discussed above and the $7.3 million pretax, non-cash impairment of goodwill in 2019.

Total income from operations before interest income and income taxes $ 10,637 $ 2,693

For the three months ended March 31, 2021, the $10.3 million, or 15.4%, increase to approximately $77.4 million in revenue in our APEI Segment was attributable to higher net course registrations primarily as a result of additional military registrations from students utilizing TA and higher revenue per net course registration.

Net course registrations at APUS increased 9.6% to approximately 92,900 from approximately 84,800 during the three months ended March 31, 2021 compared to the same period in 2020.

The percentage increase in APEI Segment revenue exceeded the percentage increase in registrations as compared to the prior year due to the January 1, 2020 tuition and technology fee increases.

Income from operations before interest income and income taxes increased to $9.9 million during the three months ended March 31, 2021, from $3.6 million, an increase of $6.3 million compared to the prior year as a result of an increase in revenue due to increases in registrations discussed above.

Disruption related to the Army’s transition to a new system for soldiers to use to request TA is expected to adversely impact Army registrations and revenue at APUS for the quarter ending June 30, 2021.

For the three months ended March 31, 2021, the $3.6 million, or 47.7%, increase to approximately $11.1 million in revenue in our HCN Segment was attributable to an increase in new and total student enrollment.

HCN new student enrollment for the three month period ended March 31, 2021 increased to 644 from 444, or approximately 45.0%, as compared to the comparable prior year period.

HCN total student enrollment increased 45.1% to approximately 2,300 from approximately 1,600 students during the three months ended March 31, 2021 compared to the same period in 2020.

We believe that the increase in HCN’s total student enrollment for the three months ended March 31, 2021 was due in part to an increase in demand for

nursing education, a change in the competitive environment due to COVID-19, and the continued impact of initiatives implemented in 2019 and 2020, such as the direct entry ADN Program and the institutional affordability grant.

Income from operations before interest income and income taxes in our HCN Segment was $0.8 million during the three months ended March 31, 2021, compared to a loss of $0.9 million in the same period in 2020, an increase of $1.7 million, primarily as a result of the increase in revenue due to higher enrollment discussed above.

Liquidity and Capital Resources

We financed operating activities and capital expenditures during the nine months ended September 30, 2020 and 2019 with cash provided by operating activities.

Cash and cash equivalents were $228.0 million and $202.7 million at September 30, 2020 and December 31, 2019, respectively, representing an increase of $25.3 million, or 12.5%.

Cash and cash equivalents at September 30, 2020 increased by $17.9 million from $210.1 million, or 8.5%, as compared to September 30, 2019.

We derive a significant portion of our revenue from tuition assistance programs from the Department of Defense, or DoD.

We financed operating activities and capital expenditures during the three months ended March 31, 2021 and 2020 with cash provided by operating activities.

Cash and cash equivalents were $320.8 million and $227.7 million at March 31, 2021 and December 31, 2020, respectively, representing an increase of $93.1 million, or 40.9%.

Cash and cash equivalents at March 31, 2021 increased by $124.0 million from $196.8 million, or 63.0%, as compared to March 31, 2020.

The increase in cash and cash equivalents was primarily due to the net proceeds of approximately $86.2 million from the underwritten public offering of 3,680,000 shares of our common stock completed on March 1, 2021, and cash provided by our operating activities, partially offset by cash used in investing activities.

We derive a significant portion of our revenue from TA from the DoD.

Generally, these funds are received within 60 days of the start of the courses to which they relate.

We also participate in programs from the U.S.

Department of Veterans Affairs, or VA.

We also participate in programs from the VA.

Generally, these funds are received within 60 days of the start of the courses to which they relate.

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We have typically received disbursements under Title IV programs within 30 days of the start of the applicable course or term.

Disruption related to the Army’s transition to a new system for soldiers to use to request TA has adversely impacted APUS’s ability to invoice the Army for Army registrations and may impact future accounts receivable balances and cash flow from operations.

We expect to continue to fund our costs and expenses through cash generated from operations.

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We expect operating expenditures to increase in future periods as we accelerate the investment in and modernization of our information technology systems and increase marketing and other expenditures.

For the year ended December 31, 2019, we incurred approximately $2.1 million to evaluate and invest in replacements and upgrades to our information technology systems, including replacements of our learning management and customer relationship systems, and to inform the scope and duration of the larger overall information technology transformation program.

For the nine months ended September 30, 2020, we incurred approximately $3.7 million, including $0.4 million of capital costs, of the anticipated 2020 spending of between approximately $6.0 million and $8.0 million on our information technology transformation program, focusing on specific information technology projects, including replacements of our learning management and customer relationship management systems.

APUS signed a contract for a replacement customer relationship management system in the first quarter of 2020 and began its first cohort of students in a new learning management system in March 2020.

For the year ended December 31, 2020, we incurred approximately $5.6 million on our multi-year technology transformation program, and we anticipate spending between approximately $4.0 million and $5.0 million in 2021.

For the three months ended March 31, 2021, we incurred approximately $1.8 million on our information technology transformation program, focusing on specific information technology projects, including the replacement of our customer relationship management system.

We will continue to evaluate our Partnership At a Distance™, or PAD, customized student information and services system for possible changes and upgrades and anticipate that we will eventually make significant changes to that system, as well.

Capital expenditures could be higher in the future as a result of, among other things, additional expenditures for technology or other business capabilities, the opening of new campuses at HCN, the acquisition or lease of existing structures or potential new construction projects, and necessary tenant improvements that arise as a result of our ongoing evaluation of our space needs and opportunities for physical growth.

Professional fees may increase as we evaluate investments in strategic growth opportunities and enhancements to our business capabilities.

Professional fees may increase as we approach the closing of the Rasmussen Acquisition and continue to evaluate investments in strategic growth opportunities and enhancements to our business capabilities.

We expect to continue to explore opportunities to invest in the education industry, which could include purchasing or investing in other education-related companies or companies developing new technologies.

We will need additional capital to finance the Rasmussen Acquisition, and we may also need additional capital in the future, including to finance other business acquisitions and investments in technology or to achieve growth or fund other business initiatives.

We will need additional capital to finance the Rasmussen Acquisition, as discussed below, and we may also need additional capital in the future, including to finance other business acquisitions and investments in technology or to achieve growth or fund other business initiatives.

In February 2021, we filed a shelf registration statement in order to help facilitate potential public offerings of our securities.

On March 1, 2021, we completed an underwritten public offering of 3,680,000 shares of our common stock at a price to the public of $25.00 per share for net proceeds of approximately $86.2 million, after deducting underwriting discounts and commissions and offering expenses.

Acquisition of Rasmussen University

In connection with entering into the Rasmussen Agreement, on October 28, 2020, we entered into a senior secured credit facilities commitment letter, or the Commitment Letter, with Macquarie Capital (USA) Inc., or Macquarie Capital, and Macquarie Capital Funding LLC, or Macquarie Lender, pursuant to which Macquarie committed to provide (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.

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

In connection with entering into the Rasmussen Agreement, on October 28, 2020, we entered into a senior secured credit facilities commitment letter, or the Commitment Letter, with Macquarie Capital (USA) Inc., or Macquarie Capital, and Macquarie Capital Funding LLC, or Macquarie Lender, and together, Macquarie, pursuant to which Macquarie Lender committed to provide (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.

On January 26, 2021, we entered into a joinder agreement pursuant to which Macquarie assigned a portion of the commitments to Truist Bank and Truist Securities, Inc., or together, Truist.

Macquarie Capital and Truist will act as lead arrangers and bookrunners with respect to the Facilities.

The commitments under the Commitment Letter to provide the Facilities are subject to customary conditions, including the absence of a Material Adverse Effect (as defined in the Rasmussen Agreement) on the Acquired Companies having occurred, the execution of satisfactory documentation, and other customary closing conditions.

We currently expect to pay up to $175 million of the cash consideration for the Rasmussen Acquisition with proceeds from the Facilities, and the Rasmussen Agreement requires us to use commercially reasonable efforts to obtain debt financing for the Rasmussen Acquisition.

We currently expect to pay a portion of the cash consideration for the Rasmussen Acquisition with proceeds from the Term Facility.

In April 2021, Macquarie Capital informed us that it had successfully syndicated the Facilities and allocated expected commitments from lenders to be funded in connection with the closing of the Facilities, or the Closing, subject to the execution of final documentation.

The Facilities are expected to bear interest at a per annum rate equal to LIBOR (subject to a floor of 0.75%) plus an applicable margin of 5.50%.

In addition, we expect that we will pay to the lenders (i) holding commitments in respect of the Term Facility, and (ii) an upfront fee at Closing equal to 2.0% of the stated principal amount of the Term Facility.

The terms of the Facilities are not final and are subject to entering into final documentation at Closing.

Our future capital requirements will depend on a number of factors, including our ability to consummate the Rasmussen Acquisition on the terms and schedule contemplated and our ability to obtain the Facilities or to secure alternative financing.

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

Equity Offering

Share Repurchase Program

On May 2, 2019, our Board of Directors authorized the repurchase of up to $35.0 million of our common stock, and on December 5, 2019, the Board approved an additional authorization of up to $25.0 million of shares.

On May 2, 2019, our Board of Directors authorized the repurchase of up to $35.0 million of shares of our common stock, and on December 5, 2019, the Board approved an additional authorization of up to $25.0 million of shares.

We may purchase shares at management’s discretion in the open market, in privately negotiated transactions, in transactions structured through investment banking institutions, or a combination of the foregoing.

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The authorization under this program is in addition to our repurchase program under which we may annually purchase up to the cumulative number of shares issued or deemed issued in that year under our equity incentive and stock purchase plans.

The Company did not repurchase shares during the three months ended September 30, 2020.

During the nine months ended September 30, 2020, the Company repurchased 547,563 shares of common stock.

At September 30, 2020, there remains $8.4 million available under our share repurchase authorization.

During the three months ended March 31, 2021, we did not repurchase shares of common stock.

As of March 31, 2021, there remained $8.4 million available under our share repurchase authorization.

For additional information on our repurchases of our common stock, please refer to “Item 5.

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Operating Activities

Net cash provided by operating activities was $44.7 million and $31.9 million for the nine months ended September 30, 2020 and 2019, respectively.

The increase in cash from operating activities is primarily due to an increase in net income, changes in working capital due to the timing of receipts and payments, and lower estimated tax payments in 2020.

Accounts receivable at September 30, 2020, was approximately $1.8 million lower than December 31, 2019 due to the timing of payment processing by customers.

Accounts payable, accrued compensation and benefits, and accrued liabilities at September 30, 2020 were approximately $7.2 million higher than December 31, 2019 primarily due to additional incentive compensation accruals and the timing of expenditures and the processing of payments.

Net cash provided by operating activities was $11.2 million and $11.5 million for the three months ended March 31, 2021 and 2020, respectively.

The decrease in cash from operating activities is primarily due to changes in working capital due to the timing of receipts and payments.

Accounts receivable at March 31, 2021, decreased approximately $4.2 million compared to December 31, 2020.

Accounts payable, accrued compensation and benefits, and accrued liabilities at March 31, 2021 were approximately $4.8 million lower than December 31, 2020 primarily due to the payment in the first quarter of incentive compensation costs accrued at December 31, 2020.

Investing Activities

Net cash used in investing activities was $3.8 million and $4.2 million for the nine months ended September 30, 2020 and 2019, respectively.

This decrease was primarily related to proceeds received for the sale of real property in our APEI Segment during the nine months ended September 30, 2020.

Net cash used in investing activities was $1.5 million and $1.9 million for the three months ended March 31, 2021 and 2020, respectively.

This decrease was primarily related to a decrease in technology-related capital expenditures compared to the comparable prior year period.

Financing Activities

Net cash used in financing activities was $15.7 million and $29.8 million for the nine months ended September 30, 2020 and 2019, respectively.

The decrease in cash used in financing activities for the nine months ended September 30, 2020 was due to a decrease in cash used to repurchase our common stock partially offset by an increase in cash used for the deemed repurchase of our common stock to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants.

For the nine months ended September 30, 2020 and 2019, we used $13.6 million and $27.3 million, respectively, to repurchase shares of our common stock in accordance with our share repurchase program.

Net cash provided by financing activities was $83.4 million for the three months ended March 31, 2021, compared to $15.6 million of net cash used in financing activities for the three months ended March 31, 2020, respectively.

The increase in cash provided by financing activities for the three months ended March 31, 2021 was due to our underwritten public offering of common stock for aggregate net proceeds of approximately $86.2 million.

For the three months ended March 31, 2020, we used $13.6 million to repurchase shares of our common stock in accordance with our share repurchase program.

Off-Balance Sheet Arrangements

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Purchase obligations include agreements with consultants, contracts with third-party service providers, and other future contracts or agreements.

In February 2020, APUS entered into a 48 month agreement with a customer relationship management platform provider.

The total value of the contract over that 48 month period is approximately $3.5 million.

Other than this agreement, there were no material changes to our contractual commitments outside of the ordinary course of our business during the nine months ended September 30, 2020.

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 2. Management’s Discussion and Analysis