What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-09 compared with 2021-05-10 · 268 added, 177 removed, 212 unchanged (68% 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.

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.

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.

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

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

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

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• our ability to manage and influence our bad debt expense;

• the expected effects of our workforce reduction;

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

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• 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;

• 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 the 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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• our dependence on and need to continue to invest in our technology infrastructure;

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

◦ 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;

◦ the significant transaction and integration costs we have incurred and expect to incur in connection with the acquisition;

◦ risks related to the integration of Rasmussen’s business and our ability to realize the expected benefits of the acquisition;

◦ that Rasmussen may have liabilities that are not known to us.

• risks related to the acquisition of Rasmussen University, including our inability to complete the acquisition on the anticipated timeline, or at all, significant transaction and integration costs, regulatory approvals, effective integration of Rasmussen’s business, and our ability to realize the expected benefits of the acquisition;

• risks related to incurring substantial debt under the debt facilities that we expect to enter into in connection with financing the acquisition of Rasmussen University, the cost of servicing that debt, and our ability in the future to service that debt.

Forward-looking statements should be considered in light of these factors and the factors described elsewhere in this Quarterly Report, including in the “Risk Factors” section, in the “Risk Factors” section of our Annual Report, and in our various filings with the Securities and Exchange Commission, or the SEC.

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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 three month period ended March 31, 2021.

The pandemic did not materially impact our results of operations during the six month period ended June 30, 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.

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.

In addition, as the COVID-19 pandemic abates, we believe near-term demand for our programs is moderating.

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

Our wholly owned operating subsidiary institutions include the following:

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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.

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.

In May 2021, APUS received a preliminary report recommending reaffirmation of accreditation.

The HLC Institutional Actions Council is required to vote and approve this recommendation.

We expect this vote to take place in August 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.

The Army previously announced that it would transition from its legacy system, GoArmyEd, to a new system, ArmyIgnitED, which soldiers will 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.

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

While soldiers could continue to directly register for courses with the expectation that TA can be retroactively applied for, Army officials have indicated that soldiers will be reimbursed for out-of-pocket costs incurred while ArmyIgnitED is unavailable, and the Army has created a process for soldiers to seek reimbursement.

On July 16, 2021, the Army released a list of educational institutions that would be permitted to begin to enroll students with TA after the ArmyIgnitED system went live.

The Army included AMU and APUS on the list of institutions that had taken the steps necessarily to support enrollment of students through the new system, and on July 19, 2021, the ArmyIgnitED system went live for soldiers seeking to use TA for courses at APUS.

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

The disruption to Army TA and resulting decreases in Army registrations had an adverse impact on registrations and revenue for the quarter ended June 30, 2021, and we expect the impact will continue for the quarter ending September 30, 2021.

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

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

In July 2021, the Indiana Board of Nursing authorized the admission of an additional 30 students per year, increasing the maximum enrollment to 60 students for the 2022 calendar year.

HCN can petition for an additional class size increase in February 2022.

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

Cost and Expense Reductions

On August 5, 2021, in connection with an evaluation and review of our costs and expenses, we initiated a plan to reduce costs, including a reduction in force that resulted in the termination of 44 employees, including 11 full-time faculty members at APUS, and 33 non-faculty members across a variety of roles and departments at APEI and APUS, representing approximately 3.2% of the APUS full-time faculty workforce, and 3.6% of the APEI and APUS non-faculty workforce.

We estimate that we will incur an aggregate of approximately $1.1 million of pre-tax cash expenses associated with employee severance benefits.

Other Information” in Part II of this Quarterly Report, which is incorporated herein by reference, for additional information on this workforce reduction and its expected financial impacts.

There is no certainty that the program, or any other expense reduction initiative, will have the intended benefits of reducing costs and expenses over the long-term, or whether there will be adverse impacts, including as a result of the loss of valuable employees.

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, which we refer to as the Rasmussen Acquisition.

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.

In June 2021, the HLC approved Rasmussen University’s application regarding the change in control.

In July 2021, ED notified Rasmussen University that in connection with Rasmussen University’s March 2019 change in ownership, ED was imposing certain temporary growth restrictions on the institution, which include maintaining limitations on new programs and locations that were already in place and imposing a cap on enrollment, which at this time are expected to be in place until ED reviews and accepts Rasmussen University’s 2021 audited financial statements and compliance audits.

The Rasmussen Acquisition is expected to close in the third quarter of 2021, subject to the satisfaction or waiver of closing conditions.

We intend to rely on debt financing under a commitment letter for debt financing to fund the Rasmussen Acquisition.

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

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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 June 2021, ED held virtual public hearings to receive feedback on potential issues for future rulemaking sessions, including borrower defenses to repayment, change in ownership processes, student outcomes transparency, public service loan forgiveness programs, and gainful employment requirements.

Following these hearings, ED solicited nominations for non-federal negotiators who can serve on the negotiated rulemaking committees, which ED indicated that it planned to convene during the third quarter of 2021.

On August 6, 2021, ED announced that it was establishing a negotiated rulemaking committee to address borrower defenses to repayment, public service student loan forgiveness programs, mandatory pre-dispute arbitration and prohibition of class-action lawsuits, among other issues.

Effective May 31, 2021, APUS terminated its lease for administrative offices in Manassas, Virginia.

As a result of this lease termination, APUS is no longer required to be certified by the State Council of Higher Education for Virginia, or SCHEV, and therefore did not renew its certification before it expired on June 30, 2021.

This change will not impact our operations in Virginia and we will continue to serve our Virginia students as an NC-SARA approved institution.

As a result of this change, APUS will no longer need to seek SCHEV approval prior to adding any new academic programs.

As part of the Consolidated Appropriations Act, 2021, Congress included legislative provisions that alter the application process for federal student aid, including streamlining the Free Application for Federal Student Aid, or FAFSA.

These changes were set to become effective for the 2023-2024 academic year.

On June 11, 2021, ED announced that the agency is delaying implementation, noting that many of these provisions will not be effective until the 2024-2025 academic year.

On June 8, 2021, the President signed into law the Training in High-Demand Roles to Improve Veteran Employment Act, or the THRIVE Act, which amended provisions related to veterans education programs found in the American Rescue Plan Act and the Johnny Isakson and David P.

Veterans Health Care and Benefits Improvement Act of 2020.

The legislation requires VA to work with the Department of Labor to determine the list of high-demand occupations for the rapid retraining assistance program, excludes programs pursued solely through distance learning on a half-time basis or less from the housing stipend available to those in the retraining program, and requires the Government Accountability Office to report on the outcomes and effectiveness of retraining programs.

The legislation also requires the VA to take disciplinary action if a person with whom an institution has an agreement to provide educational or recruiting services violates the VA’s incentive compensation prohibitions.

Higher Education Emergency Relief Funds

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 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.

The CARES Act included 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 included $12.6 billion in funding for higher education institutions.

The CARES Act authorized ED to allocate HEERF funding based on a statutory formula that accounted for the relative share of full-time students who are Pell Grant recipients and that excluded 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, with certain exceptions.

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

The CARES Act required 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 permitted 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, with certain exceptions.

By June 30, 2020, HCN received and 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.

This administrative forbearance period began on March 20, 2020 and will run until at least January 31, 2022.

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

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

Under this formula, ED allocated approximately $600,000 for APUS and $2.0 million for HCN.

Both APUS and HCN have accepted and distributed the entirety of their CRRSAA HEERF funds to eligible students.

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.

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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.

Under this formula, ED allocated approximately $330,000 for APUS and $1.2 million for HCN.

APUS has accepted the HEERF III funds but has yet to draw and distribute these funds to eligible students.

HCN declined its HEERF III allocation.

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.

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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, were permitted to apply for a temporary license that was valid until March 1, 2021, at which time it expired.

Effective May 14, 2021, Ohio reinstated this emergency relief law through July 1, 2021.

This law specified that the individual must have completed the nursing education program no more than two years before the date of submitting the Licensure by Examination application, the individual cannot receive a temporary license if they have a prior NCLEX failure in any state, if they have been convicted of or pleaded guilty to any felony, or have failed a drug test as determined by the Board.

The emergency relief law expired on July 1, 2021.

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

We cannot predict the extent to which the aforementioned regulatory activity or any other potential regulatory or legislative activity 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

The Rasmussen Acquisition will be required to be reported to, and in some cases approved by, various education regulatory bodies.

The Rasmussen Acquisition was required to be reported to, and in some cases approved by, various education regulatory bodies.

An institution must obtain ED approval for a change in ownership and control in order to continue to participate in Title IV programs under the new ownership.

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 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.

In some instances, these bodies will require prior approval before the change in ownership can be completed.

State agencies, accreditors, boards of nursing, and other relevant regulators also require action with respect to the Rasmussen Acquisition.

In some instances, these bodies required prior approval before the change in ownership could be completed.

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

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.

Effective in June 2021, the HLC approved the application regarding the change in control.

An additional site visit is required within six months of the Closing Date.

Additionally, some regulators will require approval after a 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.

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.

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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.

On July 9, 2021, HCN received a letter from ED announcing an off-site program review that has been scheduled for August 9, 2021.

The review will assess HCN’s administration of Title IV programs, with a focus on award years 2019-2020 and 2020-2021.

Reportable Segments

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Summary of Results

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.

For the three months ended June 30, 2021, our consolidated revenue decreased to $78.0 million from $82.1 million, or by 5.0%, compared to the prior year period.

Our operating margins decreased to 2.6% from 11.0% for the three months ended June 30, 2021, compared to the prior year period.

Net income decreased to $0.5 million from $6.7 million, a decrease of $6.2 million, or 92.1%, compared to the prior year period.

For the six months ended June 30, 2021, our consolidated revenue increased to $166.6 million from $156.7 million, or 6.3%, compared to the prior period.

Our operating margins were 7.5% for both six month periods ended June 30, 2021 and 2020.

Net income decreased to $8.6 million from $9.1 million, a decrease of $0.5 million, or 5.2%, compared to the prior year period.

For the three months ended June 30, 2021, APEI Segment revenue decreased to $66.9 million from $73.5 million, or by 9.0%, compared to the prior year period.

Net course registrations at APUS for the three months ended June 30, 2021 decreased to approximately 82,600 from approximately 89,600, or approximately 7.8%, compared to the prior year period.

APEI Segment operating margins decreased to 2.8% from 12.3% for the three months ended June 30, 2021, compared to the prior year period.

The decrease in revenue was due to the decrease in net course registrations, which we believe was due in part to the temporary suspension and disruption of the Army’s TA program on March 8, 2021, as a result of delays in the transition from its legacy system, GoArmyEd, to a new system, ArmyIgnitED, and a moderation in near-term demand for online education due to the abatement of the COVID-19 pandemic.

For the six months ended June 30, 2021, APEI segment revenue increased to $144.3 million from $140.6 million, or by 2.6%, compared to the prior year period.

Net course registrations at APUS for the six months ended June 30, 2021 increased to approximately 175,600 from approximately 174,400, or approximately 0.7%, compared to the prior year period.

APEI Segment operating margins decreased to 8.1% from 9.0% for the six months ended June 30, 2021, compared to the prior year period.

The increase in net course registrations for the six months ended June 30, 2021, was in part due to the additional military registrations during the first quarter from students utilizing TA and higher revenue per net course registration.

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 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.

For the three months ended June 30, 2021, HCN Segment revenue increased to $11.1 million from $8.6 million, or by 29.4%, compared to the prior year period.

Total enrollment at HCN for the three months ended June 30, 2021 increased to approximately 2,400 from approximately 1,700, or approximately 35.8%, as compared to the prior year period.

HCN Segment operating margins increased to 1.1% from negative 0.4% for the three months ended June 30, 2021, compared to the prior year period.

For the six months ended June 30, 2021, HCN Segment revenue increased to $22.3 million from $16.1 million, or by 37.9%, compared to the prior year period.

HCN Segment operating margins increased to 4.0% from negative 5.7% for the six months ended June 30, 2021, compared to the prior year period.

We believe that the increase in 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, and 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.

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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 months ended March 31, 2021 compared to the three months ended March 31, 2020.

Below we have included a discussion of our operating results and material changes in our operating results during the three and six months ended June 30, 2021 compared to the three and six months ended June 30, 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.

1 unchanged sentence

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 months ended March 31, 2021.

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

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 believe the decrease in net course registrations at APUS for the three months ended June 30, 2021 was due, in part, to the temporary suspension and disruption of the Army’s TA program on March 8, 2021, resulting from delays in the transition from its legacy system, GoArmyEd, to a new system, ArmyIgnitED, and a moderation in near-term demand for online education due to the abatement of the COVID-19 pandemic.

For more information on the impacts of the Army TA program delays on the Company and the potential risks related to this, 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 this Quarterly Report.

We believe that the increase in enrollment at HCN for the three and six months ended June 30, 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, and 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 or a moderation of or decrease in the demand for nursing education as the pandemic abates.

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

Our consolidated results for the three and six months ended June 30, 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.

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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 March 31,

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

2021 2020 2021 2020

(Unaudited) (Unaudited)

Revenue 100.0 % 100.0 % 100.0 % 100.0 %

10 unchanged sentences

Income tax expense 0.8 3.1 2.0 2.2

Equity investment loss — —

Equity investment income (loss) (1.1) — (0.5) —

Net income 0.7 % 8.1 % 5.1 % 5.8 %

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.

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.

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Our consolidated revenue for the three months ended June 30, 2021 was $78.0 million, a decrease of $4.1 million, or 5.0%, compared to $82.1 million for the three months ended June 30, 2020.

The decrease in revenue was due to a $6.7 million, or 9.0%, decrease in revenue in our APEI Segment, partially offset by a $2.5 million, or 29.4%, increase in revenue in our HCN Segment.

The APEI Segment revenue decrease was primarily due to decreases in APUS total student net course registrations of 7.8% during the three months ended June 30, 2021 as compared to the prior year period.

The HCN Segment revenue increased primarily due to a 35.8% increase in total enrollment.

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.

Costs and expenses for the three months ended June 30, 2021 were $76.0 million, an increase of $3.0 million, or 4.0%, compared to $73.1 million for the three months ended June 30, 2020.

The increase in costs and expenses for the three months ended June 30, 2021 as compared to the prior year period was primarily due to increases in professional fees, primarily related to the Rasmussen Acquisition, advertising costs, and information technology costs in our APEI Segment and increases in employee compensation costs, bad debt expense, and instructional materials costs in our HCN Segment partially offset by decreases in depreciation and amortization expenses, and employee compensation costs in our APEI Segment.

The three months ended June 30, 2021 includes the following costs on a pre-tax basis:

$3.3 million in professional fees primarily related to the Rasmussen Acquisition, and $1.6 million in information technology costs related to our multi-year technology transformation program in our APEI Segment.

The three months ended June 30, 2020 included the following costs on a pre-tax basis:

$1.3 million in professional fees and $1.0 million in information technology costs related to our multi-year technology transformation program in our APEI Segment.

Costs and expenses as a percentage of revenue increased to 97.4% for the three months ended June 30, 2021, from 89.0% for the three months ended June 30, 2020.

The increase in costs and expenses as a percentage of revenue was primarily due to an increase in costs and expenses during a period when consolidated revenue decreased.

Instructional costs and services expenses.

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 36.5% for the three months ended March 31, 2021, from 39.2% for the three months ended March 31, 2020.

Our instructional costs and services expenses for the three months ended June 30, 2021 were $30.4 million, a decrease of $0.3 million, or 1.1%, compared to $30.7 million for the three months ended June 30,

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

Instructional costs and services expenses as a percentage of revenue increased to 39.0% for the three months ended June 30, 2021, from 37.4% for the three months ended June 30, 2020.

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

Selling and promotional expenses.

Our selling and promotional expenses for the three months ended June 30, 2021 were $17.5 million, an increase of $0.4 million, or 2.5%, compared to $17.1 million for the three months ended June 30, 2020.

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

Advertising costs increased $0.4 million in our APEI Segment and $0.1 million in our HCN Segment.

Selling and promotional expenses as a percentage of revenue increased to 22.4% for the three months ended June 30, 2021, from 20.8% for the three months ended June 30, 2020.

The increase in selling and promotional expenses as a percentage of revenue was primarily due to an increase in selling and promotional expenses during a period when consolidated revenue decreased.

General and administrative expenses.

Our general and administrative expenses for the three months ended June 30, 2021 were $25.5 million, an increase of $3.8 million, or 17.1%, compared to $21.7 million for the three months ended June 30, 2020.

The increase in general and administrative expenses for the three months ended June 30, 2021 as compared to the prior year period was primarily the result of increases in professional fees primarily related to the Rasmussen Acquisition, employee compensation costs, and information technology costs in our APEI Segment, and increases in bad debt expense and employee compensation costs in our HCN Segment.

For the three months ended June 30, 2021, APEI Segment general and administrative expenses include the following on a pre-tax basis:

$3.3 million in professional fees primarily related to the Rasmussen Acquisition, and approximately $1.6 million of information technology costs related to our multi-year technology transformation program.

Consolidated bad debt expense for the three months ended June 30, 2021 was $1.4 million, or 1.8% of revenue, compared to $1.0 million, or 1.2% of revenue in the prior year period.

General and administrative expenses as a percentage of revenue increased to 32.6% for the three months ended June 30, 2021, from 26.5% for the three months ended June 30, 2020.

The increase in general and administrative expenses as a percentage of revenue was primarily due to an increase in general and administrative expenses during a period when consolidated revenue decreased.

As we continue to plan for the integration of the Rasmussen Acquisition, eventually integrate the acquisition, and evaluate and execute on 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.

Loss on disposals of long-lived assets.

The loss on disposals of long-lived assets was approximately $0.2 million for both the three months ended June 30, 2021 and 2020.

Depreciation and amortization expenses.

Depreciation and amortization expenses were $2.5 million and $3.4 million for the three months ended June 30, 2021 and 2020, respectively.

Depreciation and amortization expenses as a percentage of revenue decreased to 3.2% for the three months ended June 30, 2021, from 4.1% for the three months ended June 30, 2020.

The decrease in depreciation and amortization expenses as a percentage of revenue was primarily due to depreciation and amortization expenses decreasing at a rate greater than consolidated revenue.

Stock-based compensation expenses.

Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses were $2.0 million and $1.6 million for the three months ended June 30, 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 $24,000 and $0.2 million for the three months ended June 30, 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 $0.6 million and $2.5 million for the three months ended June 30, 2021 and 2020, respectively, or effective tax rates of 54.9% and 27.5%, respectively.

The increase in the effective tax rate for the three months ended June 30, 2021 is due to a higher amount of non-deductible expenses in relation to pre-tax income compared to the prior period.

There was no material impact to our effective tax rate for the three months ended June 30, 2021 and 2020 as a result of the effects of the COVID-19 pandemic.

Equity investment income (loss).

Equity investment loss was $0.8 million for the three months ended June 30, 2021, compared to income of $1,000 for the three months ended June 30, 2020, respectively.

The equity investment loss for the three months ended June 30, 2021 includes an impairment loss of $0.8 million on one of our cost method investments.

For additional

information on our investments please refer to “Note 2.

Significant Accounting Policies” in our Consolidated Financial Statements.

Our net income was $0.5 million for the three months ended June 30, 2021, compared to net income of $6.7 million for the three months ended June 30, 2020, a decrease of $6.2 million, or 92.1%.

This decrease was related to the factors discussed above.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Our consolidated revenue for the six months ended June 30, 2021 was $166.6 million, an increase of $9.9 million, or 6.3%, compared to $156.7 million for the six months ended June 30, 2020.

The increase in revenue was due to a $6.1 million, or 37.9%, increase in revenue in our HCN Segment and a $3.7 million, or 2.6%, increase in revenue in our APEI Segment.

The HCN Segment revenue increase was primarily due to a 40.2% increase in total enrollment.

The APEI Segment revenue increase was primarily as a result of additional military registrations from students utilizing TA and higher revenue per net course registration in the first quarter partially offset by a decrease in net course registrations at APUS for the three months ended June 30, 2021.

At APUS, total student net course registrations increased 0.7% during the six months ended June 30, 2021, as compared to the prior year period.

Costs and expenses.

Costs and expenses for the six months ended June 30, 2021 were $153.9 million, an increase of $8.9 million, or 6.2%, compared to $145.0 million for the six months ended June 30, 2020.

The increase in costs and expenses for the six months ended June 30, 2021 as compared to the prior year period was primarily due to increases in employee compensation costs, professional fees, advertising costs, and information technology costs in our APEI Segment, and increases in employee compensation costs, bad debt expense, and instructional materials costs in our HCN Segment partially offset by decreases in instructional materials costs in our APEI Segment.

Results for the six months ended June 30, 2021 include the following costs on a pre-tax basis:

$3.7 million in professional fees primarily related to the Rasmussen Acquisition, $3.4 million in information technology costs related to our multi-year technology transformation program, and a $1.1 million increase in advertising costs as compared to the prior year.

Results for the six months ended June 30, 2020 included the following costs on a pre-tax basis:

$1.9 million in professional fees primarily related to the Rasmussen Acquisition, and $1.9 million in information technology costs related to our multi-year technology transformation program.

Costs and expenses as a percentage of revenue was 92.5% for both the six months ended June 30, 2021 and 2020.

Instructional costs and services expenses.

Our instructional costs and services expenses for the six months ended June 30, 2021 were $62.7 million, an increase of $2.7 million, or 4.6%, compared to $60.0 million for the six months ended June 30, 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 employee compensation costs, and instructional materials costs in our HCN Segment partially offset by decreases in instructional materials costs in our APEI Segment.

Instructional costs and services expenses as a percentage of revenue decreased to 37.7% for the six months ended June 30, 2021, from 38.2% for the six months ended June 30, 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 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.

Our selling and promotional expenses for the six months ended June 30, 2021 were $36.9 million, an increase of $1.7 million, or 4.7%, compared to $35.2 million for the six months ended June 30, 2020.

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

Selling and promotional expenses as a percentage of revenue decreased to 22.2% for the six months ended June 30, 2021, from 22.5% for the six months ended June 30, 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 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.

Our general and administrative expenses for the six months ended June 30, 2021 were $49.0 million, an increase of $6.3 million, or 14.6%, compared to $42.7 million for the six months ended June 30, 2020.

The increase in general and administrative expenses for the six months ended June 30, 2021 as compared to the prior year period was primarily the result of increases in professional fees primarily related to the Rasmussen Acquisition, employee compensation costs, and information technology costs in our APEI Segment, and increases in bad debt expense and employee compensation costs in our HCN Segment.

For the six months ended June 30, 2021, APEI Segment general and administrative expenses include the following on a pre-tax basis:

$3.7 million in professional fees primarily related to the Rasmussen Acquisition and $3.4 million of information technology costs related to our multi-year technology transformation program.

Consolidated bad debt expense for the six months ended June 30, 2021 was $2.9 million, or 1.7% of revenue, compared to $2.0 million, or 1.3% of revenue in the prior year period.

General and administrative expenses as a percentage of revenue increased to 29.4% for the six months ended June 30, 2021, from 27.3% for the six months ended June 30, 2020.

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

Loss on disposals of long-lived assets.

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.

The loss on disposals of long-lived assets was $0.2 million and $0.3 million for the six months ended June 30, 2021 and 2020, respectively.

Depreciation and amortization expenses.

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.

Depreciation and amortization expenses were $5.2 million and $6.7 million for the six months ended June 30, 2021 and 2020, respectively.

Depreciation and amortization expenses as a percentage of revenue decreased to 3.1% for the six months ended June 30, 2021, from 4.3% for the six months ended June 30, 2020.

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 $2.2 million and $1.8 million for the three months ended March 31, 2021 and 2020, respectively.

Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses were $4.2 million and $3.3 million for the six months ended June 30, 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 $0.1 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively.

Interest income was $0.1 million and $0.9 million for the six months ended June 30, 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 $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 $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.

We recognized income tax expense of $3.3 million and $3.5 million for the six months ended June 30, 2021 and 2020, respectively, or effective tax rates of 27.6% and 27.8%, respectively.

The decrease in the effective tax rate for the six months ended June 30, 2021 is due to 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 six months ended June 30, 2021 and 2020 as a result of the effects of the COVID-19 pandemic.

Equity investment income (loss).

Equity investment loss was $0.8 million for the six months ended June 30, 2021.

There was no equity investment income or loss for the six months ended June 30, 2020.

The equity investment loss for the six months ended June 30, 2021 includes an impairment loss of $0.8 million on one of our cost method investments.

For additional information on our investments please refer to “Note 2.

Significant Accounting Policies” in our Consolidated Financial Statements.

Our net income was $8.6 million for the six months ended June 30, 2021, compared to net income of $9.1 million for the six months ended June 30, 2020, a decrease of $0.5 million, or 5.2%.

This decrease was related to the factors discussed above.

Analysis of Operating Results by Reportable Segment

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

Three Months Ended March 31,

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

2021 2020 2021 2020

(Unaudited) (Unaudited)

American Public Education Segment

1 unchanged sentence

Hondros College of Nursing Segment

11,134 8,602 22,266 16,141

Intersegment elimination

(13) (22) (26) (39)

Total Revenue $ 78,014 $ 82,127 $ 166,555 $ 156,743

3 unchanged sentences

Hondros College of Nursing Segment

117 (35) 900 (921)

Intersegment elimination

(1) (1) (1) —

Total income from operations before interest income and income taxes $ 1,975 $ 9,041 $ 12,612 $ 11,734

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.

For the three months ended June 30, 2021, the $6.7 million, or 9.0%, decrease to approximately $66.9 million in revenue in our APEI Segment was attributable to lower net course registrations.

Net course registrations at APUS decreased 7.8% to approximately 82,600 for the three months ended June 30, 2021 from approximately 89,600 during the same period in 2020.

Income from operations before interest income and income taxes decreased to $1.9 million during the three months ended June 30, 2021, from $9.1 million, a decrease of $7.2 million, or 79.5%, compared to the prior year as a result of a decrease in revenue due to decreases in net course registrations as discussed above.

We anticipate that revenue and enrollment at APUS for the quarter ending September 30, 2021 will continue to be adversely impacted by disruptions related to the Army’s transition from its legacy system, GoArmyEd, to a new system, ArmyIgnitED, and may be impacted by a further moderation in near-term demand for online education due to the abatement of the COVID-19 pandemic.

For the six months ended June 30, 2021, the $3.7 million, or 2.6%, increase to approximately $144.3 million in revenue in our APEI Segment was primarily attributable to higher net course registrations during the first quarter, primarily as a result of additional military registrations.

Net course registrations at APUS increased 0.7% to approximately 175,600 for the six months ended June 30, 2021 from approximately 174,400 during the same period in 2020.

Income from operations before interest income and income taxes in our APEI Segment was $11.7 million during the six months ended June 30, 2021, a decrease of $0.9 million, or 7.4%, compared to the same period in 2020, as a result of increases in costs and expenses including higher professional fees, and compensation, advertising and technology costs.

For the three months ended June 30, 2021, the $2.5 million, or 29.4%, increase to approximately $11.1 million in revenue in our HCN Segment was attributable to an increase in total student enrollment.

HCN total student enrollment increased 35.8% to approximately 2,400 from approximately 1,700 students during the three months ended June 30, 2021 compared to the same period in 2020.

Income from operations before interest income and income taxes in our HCN Segment was $0.1 million during the three months ended June 30, 2021, compared to a loss of $35,000 in the same period in 2020, an increase of $0.2 million, primarily as a result of the increase in revenue due to higher enrollment discussed above.

For the six months ended June 30, 2021, the $6.1 million, or 37.9%, increase to approximately $22.3 million in revenue in our HCN Segment was primarily attributable to an increase in student enrollment.

HCN total student enrollment increased 40.2% during the six months ended June 30, 2021 compared to the same period in 2020.

The income from operations

before interest income and income taxes in our HCN Segment was $0.9 million during the six months ended June 30, 2021, compared to a loss of $0.9 million in the same period in 2020, 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 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.

We financed operating activities and capital expenditures during the six months ended June 30, 2021 and 2020 with cash provided by operating activities.

Cash and cash equivalents were $317.0 million and $227.7 million at June 30, 2021 and December 31, 2020, respectively, representing an increase of $89.3 million, or 39.2%.

Cash and cash equivalents at June 30, 2021 increased by $100.9 million from $216.0 million, or 46.7%, as compared to June 30, 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 VA.

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

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

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

As of June 30, 2021, approximately $14.9 million in accounts receivable, of which $10.6 million is older than 60 days from the course start date, was due from the Army due to the disruption associated with the transition to ArmyIgnitED.

Another significant source of revenue is derived from our participation in ED’s Title IV programs, for which disbursements are governed by federal regulations.

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.

Based on our current level of operations, we believe that our cash flow from operations and our existing cash and cash equivalents will provide adequate funds for ongoing operations and planned capital expenditures for the foreseeable future.

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.

Our operating expenditures may increase in future periods as we continue to invest in the modernization of our information technology systems, advertising, and other expenditures.

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 $5.0 million and $7.0 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.

For the six months ended June 30, 2021, we incurred approximately $3.4 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 approach the closing of the Rasmussen Acquisition and continue to evaluate investments in strategic growth opportunities and enhancements to our business capabilities.

Professional fees may increase as we continue to plan for the integration of the Rasmussen Acquisition, eventually integrate the acquisition, and continue to evaluate and execute on 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, 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.

For the three and six months ended June 30, 2021, we incurred approximately $3.1 million and $3.6 million of acquisition-related expenses, respectively, included in general and administrative on the Consolidated Statements of Income.

We anticipate spending between approximately $1.5 million and $2.5 million in professional fees related to the Rasmussen Acquisition integration during the third quarter 2021.

We raised 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.

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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, 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 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.

There can be no guarantee that we will be able to close the Facilities or alternative financing arrangements on commercially reasonable terms or at all, or that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs.

Borrowings under 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%.

The Facilities are expected to be guaranteed by all of our existing and future domestic subsidiaries, subject to certain exceptions, or the Subsidiary Guarantors, and secured by a lien on substantially all of our assets and those of the Subsidiary Guarantors.

We intend to pay a portion of the cash consideration for the Rasmussen Acquisition with proceeds from the Term Loan.

Our future capital requirements will depend on a number of factors.

There can be no guarantee that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs.

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

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

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 other offering expenses.

Share Repurchase Program

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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.

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.

During the three and six months ended June 30, 2021, we did not repurchase shares of common stock.

As of June 30, 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 $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.

Net cash provided by operating activities was $8.9 million and $31.7 million for the six months ended June 30, 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, and higher estimated tax payments in 2021 compared to prior year.

Tax payments for income taxes were $6.9 million for the six months ended June 30, 2021, compared to $1.8 million for the six months ended June 30, 2020, an increase of $5.1 million.

The following changes in working capital accounts had a negative impact on operating cash flow for the six months ended June 30, 2021, as compared to the prior year period:

changes in accounts receivable of $5.7 million primarily due to the disruption caused by the Army’s transition to the ArmyIgnitED system;

accounts payable, accrued compensation and benefits, and accrued liabilities of $6.5 million due in part to higher incentive-based compensation payments in the current year period;

and deferred revenue of $3.8 million due to lower revenue in the current year period.

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

Investing Activities

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.

Net cash used in investing activities was $3.0 million and $2.9 million for the six months ended June 30, 2021 and 2020, respectively.

This increase was primarily related to an increase in technology-related capital expenditures as well as capital expenditures related to the set-up of the Akron, Ohio campus.

Financing Activities

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.

Net cash provided by financing activities was $83.4 million for the six months ended June 30, 2021, compared to $15.6 million of net cash used in financing activities for the six months ended June 30, 2020, respectively.

The increase in cash provided by financing activities for the six months ended June 30, 2021 was due to our underwritten public offering of common stock for aggregate net proceeds of approximately $86.2 million.

For the six months ended June 30, 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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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