Item 1A. Risk Factors
Item 1A. Risk Factors
An investment in our stock involves a high degree of risk. You should carefully consider the risks set forth in the Risk Factors section of our Annual Report and the other information set forth in this Quarterly Report on Form 10-Q, our Annual Report, and the additional information in the other reports we file with the SEC. If any of the risks contained in those reports actually occur, our business, results of operation, financial condition, and liquidity could be harmed, the value of our securities could decline and you could lose all or part of your investment. With the exception of the following, there have been no material changes in the risk factors set forth in the Risk Factors section of our Annual Report.
Our student registrations and revenue have been adversely impacted and we could continue to experience adverse impacts as a result of the Army’s transition from GoArmyEd to ArmyIgnitED.
Army service members participating in TA programs constituted approximately 22.9% of APUS’s adjusted net course registrations for 2020. APUS relies on the ability of the Army, and the other branches 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 those programs. For example, the Army previously announced that it would transition from its legacy system, GoArmyEd, to a new system, ArmyIgnitED, that soldiers could use to apply for TA. As described more fully in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview,” this transition has been beset by delays and resulted in temporary suspension and disruption of the Army’s TA programs, including the issuance and subsequent rescission of guidance that courses beginning on or after April 23, 2021 would not be eligible for retroactive TA. 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. The inability of soldiers to participate in TA programs, or continued or additional limitations on their ability to apply and participate, would have an adverse effect on our results of operations and financial condition, particularly because soldiers make up the largest group of TA participants at APUS. In addition, for the period beginning March 8, 2021, soldiers that registered for courses other than through the two-week limited user test of ArmyIgnitED ending on May 19, 2021 will have to retroactively apply for TA. As a result, it is possible that we could incur bad debt expenses if soldiers who expect to receive TA do not receive it and do not otherwise pay the tuition for their courses. The disruption to the Army’s systems has also adversely impacted APUS’s ability to invoice the Army for Army registrations and may impact future accounts receivable balances and cash flow from operations.
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Moderating or decreased demand for online education or nursing education as a result of the abatement of the COVID-19 pandemic could adversely affect our business, financial condition, and results of operations.
In 2020, we experienced an increase in net course registrations at APUS and an increase in student enrollment at HCN. We believe the increase in net course registrations at APUS may have in part been due to the impact of the COVID-19 pandemic, and that the increase in new student enrollment at HCN was due in part to an increase in demand for nursing education and a change in the competitive environment due to COVID-19. There is no assurance that the increases will be sustained, and as the pandemic abates, we believe demand for our online education programs will moderate and could decrease, and the demand for our nursing education programs could also moderate or decrease.
Congressional and administrative examination of for-profit institutions has resulted in and could result in further legislative and regulatory changes that may materially and adversely affect our business.
ARPA modifies the 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”. Prior to going into effect, the provisions of ARPA related to the 90/10 Rule are required to go through a negotiated rulemaking process. An ED final rule to implement the ARPA provision is not expected to go into effect until July 1, 2023 at the earliest, and we cannot predict to what extent ARPA and the final rule will affect us and our institutions. ARPA does not define “federal education assistance funds”. However, 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. If the rulemaking process results in TA and VA being included in the “90%” side of the ratio, our institutions’ 90/10 Rule percentage will increase. This change, and any resulting actions we take to adjust the operations of our institutions to comply with the rule, could have a material adverse impact on the financial condition and operations of our institutions.
We also cannot predict the likelihood that Congress or the President will continue to modify the 90/10 Rule with respect to relevant sources of funds or other aspects of the calculation. For example, in recent years Congress has considered various other proposals that would modify the 90/10 Rule, including proposals to decrease 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 the operations of our institutions. To the extent that any additional laws or regulations, including regulations under ARPA, are adopted that limit or condition the participation of for-profit schools or distance education programs in TA or in Title IV programs, or that limit or condition the amount of TA for which for-profit schools or distance education programs are eligible to receive, our financial condition and results of operations could be materially and adversely affected.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.