AMERICAN PUBLIC EDUCATION INC 10-Q

Item 1. Financial Statements AMERICAN PUBLIC EDUCATION, INC. Consolidated Balance Sheets (In thousands) As of June 30, 2021 As of December 31, 2020 ASSETS (Unaudited) Current assets: Cash, cash equivalents, and restricted cash (Note 2) $ 316,953 $ 227,686 Accounts receivable, net of allowance of $ 7,204 in 2021 and $ 5,983 in 2020 18,949 17,652 Prepaid expenses 9,466 6,472 Income tax receivable 5,099 — Total current assets 350,467 251,810 Property and equipment, net 65,823 68,434 Operating lease assets, net 9,175 8,743 Investments 9,668 10,495 Goodwill 26,563 26,563 Other assets, net 7,220 4,973 Total assets $ 468,916 $ 371,018 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 3,047 $ 3,757 Accrued compensation and benefits 16,564 15,660 Accrued liabilities 10,951 10,967 Deferred revenue and student deposits 21,625 22,104 Income tax payable — 178 Operating lease liabilities, current 2,143 2,392 Total current liabilities 54,330 55,058 Operating lease liabilities, long-term 7,233 6,455 Deferred income taxes 4,228 2,580 Total liabilities 65,791 64,093 Commitments and contingencies (Note 8) Stockholders’ equity: Preferred stock, $ .01 par value; Authorized shares - 10,000 ; no shares issued or outstanding — — Common stock, $ .01 par value; Authorized shares - 100,000 ; 18,689 issued and outstanding in 2021; 14,809 issued and outstanding in 2020 187 148 Additional paid-in capital 283,120 195,597 Retained earnings 119,818 111,180 Total stockholders’ equity 403,125 306,925 Total liabilities and stockholders’ equity $ 468,916 $ 371,018 The accompanying notes are an integral part of these Consolidated Financial Statements. 3 AMERICAN PUBLIC EDUCATION, INC. Consolidated Statements of Income (In thousands, except per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (Unaudited) (Unaudited) Revenue $ 78,014 $ 82,127 $ 166,555 $ 156,743 Costs and expenses: Instructional costs and services 30,394 30,744 62,713 59,974 Selling and promotional 17,490 17,056 36,892 35,242 General and administrative 25,457 21,737 48,981 42,740 Loss on disposals of long-lived assets 174 158 182 324 Depreciation and amortization 2,524 3,391 5,175 6,729 Total costs and expenses 76,039 73,086 153,943 145,009 Income from operations before interest income and income taxes 1,975 9,041 12,612 11,734 Interest income, net 24 179 138 881 Income before income taxes 1,999 9,220 12,750 12,615 Income tax expense 646 2,532 3,285 3,506 Equity investment income (loss) ( 822 ) 1 ( 827 ) — Net income $ 531 $ 6,689 $ 8,638 $ 9,109 Net income per common share: Basic $ 0.03 $ 0.45 $ 0.49 $ 0.61 Diluted $ 0.03 $ 0.45 $ 0.49 $ 0.61 Weighted average number of common shares: Basic 18,684 14,789 17,454 14,907 Diluted 18,840 14,948 17,654 15,026 The accompanying notes are an integral part of these Consolidated Financial Statements. 4 AMERICAN PUBLIC EDUCATION, INC. Consolidated Statements of Stockholders’ Equity (Unaudited) (In thousands) Additional Paid-in Capital Retained Earnings Total Stockholders’ Equity Common Stock Shares Amount Balance as of December 31, 2019 15,178 $ 152 $ 190,620 $ 105,961 $ 296,733 Issuance of common stock under employee benefit plans 240 2 ( 2 ) — — Deemed repurchased shares of common and restricted stock for tax withholding ( 73 ) ( 1 ) ( 1,945 ) — ( 1,946 ) Stock-based compensation — — 3,323 — 3,323 Repurchased and retired shares of common stock ( 548 ) ( 5 ) — ( 13,603 ) ( 13,608 ) Net income — — — 9,109 9,109 Balance as of June 30, 2020 14,797 $ 148 $ 191,996 $ 101,467 $ 293,611 Additional Paid-in Capital Retained Earnings Total Stockholders’ Equity Common Stock Shares Amount Balance as of December 31, 2020 14,809 $ 148 $ 195,597 $ 111,180 $ 306,925 Issuance of common stock in public offering 3,680 37 86,172 — 86,209 Issuance of common stock under employee benefit plans 291 3 ( 3 ) — — Deemed repurchased shares of common and restricted stock for tax withholding ( 91 ) ( 1 ) ( 2,811 ) — ( 2,812 ) Stock-based compensation — — 4,165 — 4,165 Net income — — — 8,638 8,638 Balance as of June 30, 2021 18,689 $ 187 $ 283,120 $ 119,818 $ 403,125 The accompanying notes are an integral part of these Consolidated Financial Statements. 5 AMERICAN PUBLIC EDUCATION, INC. Consolidated Statements of Cash Flows (In thousands) Six Months Ended June 30, 2021 2020 (Unaudited) Operating activities Net income $ 8,638 $ 9,109 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,175 6,729 Stock-based compensation 4,165 3,323 Equity investment loss 827 — Deferred income taxes 1,648 2,570 Loss on disposals of long-lived assets 182 324 Other 3 10 Changes in operating assets and liabilities: Accounts receivable, net of allowance for bad debt ( 1,297 ) 4,403 Prepaid expenses ( 3,133 ) ( 2,727 ) Income tax receivable/payable ( 5,277 ) ( 844 ) Operating leases, net 97 53 Other assets ( 875 ) ( 317 ) Accounts payable ( 413 ) 1,202 Accrued compensation and benefits 904 3,352 Accrued liabilities ( 1,267 ) 1,201 Deferred revenue and student deposits ( 479 ) 3,357 Net cash provided by operating activities 8,898 31,745 Investing activities Capital expenditures ( 3,028 ) ( 2,893 ) Net cash used in investing activities ( 3,028 ) ( 2,893 ) Financing activities Cash paid for repurchase of common stock ( 2,812 ) ( 15,554 ) Cash received from issuance of common stock 86,209 — Net cash provided by (used in) financing activities 83,397 ( 15,554 ) Net increase in cash, cash equivalents, and restricted cash 89,267 13,298 Cash, cash equivalents, and restricted cash at beginning of period 227,686 202,740 Cash, cash equivalents, and restricted cash at end of period $ 316,953 $ 216,038 Supplemental disclosure of cash flow information Income taxes paid $ 6,887 $ 1,780 The accompanying notes are an integral part of these Consolidated Financial Statements. 6 AMERICAN PUBLIC EDUCATION, INC. Notes to Consolidated Financial Statements Note 1. Nature of the Business American Public Education, Inc., or APEI, which together with its subsidiaries is referred to as the “Company,” is a provider of online and campus-based postsecondary education to approximately 91,500 students through two subsidiary institutions: • American Public University System, Inc., or APUS, provides online postsecondary education directed primarily at the needs of the military, military-affiliated, public service and service-minded communities through American Military University, or AMU, and American Public University, or APU. APUS is institutionally accredited by the Higher Learning Commission, or HLC. • National Education Seminars, Inc., which is referred to herein as Hondros College of Nursing, or HCN, provides nursing education to students enrolled at six campuses in Ohio, including a campus in Akron that opened in April 2021, and a campus in Indianapolis, Indiana, to serve the needs of the nursing and healthcare communities. HCN is institutionally accredited by the Accrediting Bureau for Health Education Schools, or ABHES. The Company’s institutions are licensed or otherwise authorized, or are in the process of obtaining such licenses or authorizations, to offer postsecondary education programs by state authorities to the extent the institutions believe such licenses or authorizations are required, and are certified by the United States Department of Education, or ED, to participate in student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or Title IV programs. The Company’s operations are organized into two reportable segments: • American Public Education Segment, or APEI Segment. This segment reflects the operational activities at APUS, other corporate activities, and minority investments. • Hondros College of Nursing Segment, or HCN Segment. This segment reflects the operational activities of HCN. Note 2. Summary of Significant Accounting Policies Basis of Presentation and Accounting The accompanying unaudited interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. Principles of Consolidation The accompanying unaudited interim Consolidated Financial Statements include the accounts of APEI and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. Unaudited Interim Financial Information The unaudited interim Consolidated Financial Statements do not include all of the information and notes required by GAAP for audited annual financial statement presentations. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of the Company’s financial position, results of operations, and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Consolidated Financial Statements and accompanying notes in its audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2020, or the Annual Report. 7 Use of Estimates In preparing financial statements in conformity with GAAP, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company evaluates these estimates and assumptions on an ongoing basis and bases its estimates on experience, current and expected future conditions, and various other assumptions that the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to the Company’s Consolidated Financial Statements. Restricted Cash Cash, cash equivalents, and restricted cash includes funds held for students for unbilled educational services that were received from Title IV programs. The Company is required to maintain and restrict these funds pursuant to the terms of the applicable institution’s program participation agreement with ED. Restricted cash on the Company’s Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 was $ 1.0 million and $ 1.2 million, respectively. Investments The Company periodically evaluates its equity method investment for indicators of an other-than-temporary impairment. Factors the Company considers when evaluating for an other-than-temporary impairment include the duration and severity of the impairment, the reasons for the decline in value, and the potential recovery period. For an investee with impairment indicators, the Company measures fair value on the basis of discounted cash flows or other appropriate valuation methods. If it is probable that the Company will not recover the carrying amount of the investment, the impairment is considered other-than-temporary and recorded in equity investment income (loss), and the equity investment balance is reduced to its fair value. For each reporting period, the Company evaluates its cost method investments for observable price changes. Factors the Company may consider when evaluating an observable price may include significant changes in the regulatory, economic or technological environment, changes in the general market condition, bona fide offers to purchase or sell similar investments, and other criteria. Management must exercise significant judgment in evaluating the potential impairment of its equity and cost method investments. The Company evaluated its equity method and cost method investments for impairment as of June 30, 2021, including a review of any impacts related to the COVID-19 pandemic, and concluded the fair value of a cost method investment was less than its carrying amount, resulting in a pretax non-cash impairment charge of approximately $ 0.8 million during the three months ended June 30, 2021. This impairment charge is included in equity investment income (loss) in the Consolidated Statements of Income. There was no impairment charge during the three and six months ended June 30, 2020. At June 30, 2021, the aggregate carrying amount of the Company’s investments accounted for under Financial Accounting Standards Board Accounting Standards Codification 321, Investments - Equity Securities, or FASB ASC 321, presented on its Consolidated Balance Sheets on a one-line basis as “Investments”, was approximately $ 8.5 million. Goodwill and Indefinite-lived Intangible Assets The Company evaluated events and circumstances related to the valuation of goodwill and intangibles through June 30, 2021 and 2020, respectively, to determine if there were indicators of impairment. This evaluation included consideration of enrollment trends and financial performance, as well as industry and market conditions, and the impact of the COVID-19 pandemic. These evaluations concluded there were no indicators of impairment during the periods, and consequently, there was no impairment of goodwill or intangible assets during the three and six months ended June 30, 2021 and 2020. For additional information on goodwill and intangible assets, see the Company’s Consolidated Financial Statements and accompanying notes in its audited financial statements included in the Annual Report. 8 Stock-based Compensation Stock-based payments may include incentive stock options or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance shares, performance units, cash-based awards, other stock-based awards, including unrestricted shares, or any combination of the foregoing. Stock-based compensation cost is recognized as expense, generally over a three-year vesting period, using the straight-line method for employees and the graded-vesting method for members of the Board of Directors, and is measured using the Company’s closing stock price on the date of the grant. An accelerated one-year period is used to recognize stock-based compensation cost for employees who have reached certain service and retirement eligibility criteria on the date of grant. The fair value of each option award is estimated at the date of grant using a Black-Scholes option-pricing model that uses certain assumptions, including assumptions with respect to expected stock price volatility and the risk-free interest rate. Judgment is required in estimating the percentage of share-based awards that are expected to vest, and in the case of performance stock units, or PSUs, the level of performance that will be achieved and the number of shares that will be earned. The Company estimates forfeitures of share-based awards at the time of grant and revises such estimates in subsequent periods if actual forfeitures differ from original estimates. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. If actual results differ significantly from these estimates, stock-based compensation expense could be higher and have a material impact on the Company’s Consolidated Financial Statements. Estimates are subjective and are not intended to predict actual future events, and subsequent events are not indicative of the reasonableness of the original estimates of fair value. Stock-based compensation expense for the three and six months ended June 30, 2021 and 2020 was as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (Unaudited) (Unaudited) Instructional costs and services $ 389 $ 402 $ 855 $ 880 Selling and promotional 255 218 564 476 General and administrative 1,341 953 2,746 1,967 Stock-based compensation expense in operating income $ 1,985 $ 1,573 $ 4,165 $ 3,323 Incentive-based Compensation The Company provides incentive-based compensation opportunities to certain employees through cash incentive and equity awards. The expense associated with these awards is reflected within the Company’s operating expenses. For the years ending December 31, 2021 and 2020, the Management Development and Compensation Committee of the Company’s Board of Directors approved an annual incentive arrangement for senior management employees. The aggregate amount of any awards payable is dependent upon the achievement of certain Company financial and operational goals, as well as individual performance goals. Given that the awards are generally contingent upon achieving annual objectives, final determination of the current year incentive awards cannot be made until after the results for the year are finalized. The Company recognizes the estimated fair value of performance-based restricted stock units by assuming the satisfaction of any performance-based objectives at the “target” level, which is the most probable outcome determined for accounting purposes at the time of grant, and multiplying the corresponding number of shares earned based upon such achievement by the closing price of the Company’s stock on the date of grant. To the extent performance goals are not met, compensation cost is not ultimately recognized against the goals and, to the extent previously recognized, compensation cost is reversed. Amounts accrued are subject to change in future interim periods if actual future financial results or operational performance are better or worse than expected. The Company recognized an aggregate expense associated with the Company’s current year annual incentive-based compensation plans of approximately $ 1.3 million and $ 2.5 million during the three and six month periods ended June 30, 2021, compared to an aggregate expense of $ 1.8 million and $ 3.1 million during the three and six month periods ended June 30, 2020. 9 Common Stock 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. Income Taxes The Company determines its interim tax provision by applying the estimated income tax rate expected for the full calendar year to income before income taxes for the period adjusted for discrete items. Recent Accounting Pronouncements The Company considers the applicability and impact of all Accounting Standards Updates, or ASUs, issued by FASB. All ASUs issued subsequent to the filing of the Annual Report on March 9, 2021 were assessed and determined to be either inapplicable or not expected to have a material impact on the Company’s consolidated financial position and/or results of operations. Note 3. Acquisition Activity On October 28, 2020, the Company entered into a definitive agreement to acquire Rasmussen University, a nursing- and health sciences-focused institution serving over 18,000 students at its 24 campuses across six states and online, which we refer to as the Rasmussen Acquisition. Pursuant to the terms of a Membership Purchase Agreement, or the Rasmussen Agreement, the Company 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 of the Company to be issued at the closing of the Rasmussen Acquisition (or, at the Company’s election, up to an additional $ 29 million in cash in lieu thereof), subject to customary adjustments, including for net working capital, cash and debt of the acquired companies. The Rasmussen Acquisition is expected to close in the third quarter of 2021, subject to the satisfaction or waiver of closing conditions. In connection with entering into the Rasmussen Agreement, on October 28, 2020, the Company 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 the terms of the Commitment Letter, Macquarie Lender committed to arrange (i) a senior secured term loan in the aggregate principal amount of $ 175 million, or the Term Loan and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $ 20 million (together with the Term Loan, the Facilities). On January 26, 2021, the Company entered into a joinder agreement pursuant to which Macquarie assigned a portion of the commitments to Truist Bank and Truist Securities, Inc., or Truist Securities, and together, Truist. Macquarie Capital and Truist Securities are lead arrangers and joint bookrunners with respect to the Facilities. 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 existing and future domestic subsidiaries of the Company, subject to certain exceptions, or the Subsidiary Guarantors, and secured by a lien in substantially all of the assets of the Company and the Subsidiary Guarantors. 10 Note 4. Revenue Disaggregation of Revenue In the following table, revenue, shown net of grants and scholarships, is disaggregated by type of service provided. The table also includes a reconciliation of the disaggregated revenue with the reportable segments (in thousands): Three Months Ended June 30, 2021 (Unaudited) APEI HCN Intersegment Consolidated Instructional services, net of grants and scholarships $ 66,475 $ 9,391 $ ( 13 ) $ 75,853 Graduation fees 272 — — 272 Textbook and other course materials — 1,614 — 1,614 Other fees 146 129 — 275 Total Revenue $ 66,893 $ 11,134 $ ( 13 ) $ 78,014 Three Months Ended June 30, 2020 (Unaudited) APEI HCN Intersegment Consolidated Instructional services, net of grants and scholarships $ 73,082 $ 7,268 $ ( 22 ) $ 80,328 Graduation fees 275 — — 275 Textbook and other course materials — 1,194 — 1,194 Other fees 190 140 — 330 Total Revenue $ 73,547 $ 8,602 $ ( 22 ) $ 82,127 Six Months Ended June 30, 2021 (Unaudited) APEI HCN Intersegment Consolidated Instructional services, net of grants and scholarships $ 143,306 $ 18,756 $ ( 26 ) $ 162,036 Graduation fees 645 — — 645 Textbook and other course materials — 3,245 — 3,245 Other fees 364 265 — 629 Total Revenue $ 144,315 $ 22,266 $ ( 26 ) $ 166,555 Six Months Ended June 30, 2020 (Unaudited) APEI HCN Intersegment Consolidated Instructional services, net of grants and scholarships $ 139,638 $ 13,659 $ ( 39 ) $ 153,258 Graduation fees 601 — — 601 Textbook and other course materials — 2,223 — 2,223 Other fees 402 259 — 661 Total Revenue $ 140,641 $ 16,141 $ ( 39 ) $ 156,743 The APEI Segment charges the HCN Segment for the value of courses taken by HCN Segment employees at APUS. The intersegment elimination represents the elimination of this intersegment revenue in consolidation. 11 Contract Balances and Performance Obligations The Company has no contract assets or deferred contract costs as of June 30, 2021 and December 31, 2020. The Company recognizes a contract liability, or deferred revenue, when a student begins an online course or term, in the case of APUS, or starts a term, in the case of HCN. Deferred revenue at June 30, 2021 was $ 21.6 million and includes $ 13.7 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $ 7.9 million in consideration received in advance for future courses or terms, or student deposits. Deferred revenue at December 31, 2020 was $ 22.1 million and includes $ 13.7 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $ 8.4 million in student deposits. Deferred revenue represents the Company’s performance obligation to transfer future instructional services to students. The Company’s remaining performance obligations represent the transaction price allocated to future reporting periods. The Company has elected, as a practical expedient, not to disclose additional information about unsatisfied performance obligations for contracts with students that have an expected duration of one year or less. When the Company begins performing its obligations, a contract receivable is created, resulting in accounts receivable on the Company’s Consolidated Balance Sheets. The Company accounts for receivables in accordance with FASB ASC 310, Receivables . The Company uses the portfolio approach, a practical expedient, to evaluate if a contract exists and to assess collectability at the time of contract inception based on historical experience. Contracts are subsequently reviewed for collectability if significant events or circumstances indicate a change. The allowance for doubtful accounts is based on management’s evaluation of the status of existing accounts receivable. Among other factors, management considers the age of the receivable, the anticipated source of payment, and historical allowance considerations. Consideration is also given to any specific known risk areas among the existing accounts receivable balances. Recoveries of receivables previously written off are recorded when received. APUS does not charge interest on past due accounts receivable. HCN charges interest on payment plans when a student graduates or otherwise exits the program. Interest charged by HCN on payment plans was immaterial for the periods presented. Note 5. Leases The Company has operating leases for office space and campus facilities. Some leases include options to terminate or extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised. The APEI Segment leases corporate office space in Maryland under an operating lease that expires in May 2022, and until May 2021, leased administrative office space in Virginia. The HCN Segment leases administrative office space in suburban Columbus, Ohio, and leases campuses located in the suburban areas of Akron, Cincinnati, Cleveland, Columbus, Dayton, and Toledo, Ohio and Indianapolis, Indiana under operating leases that expire through June 2029. Operating lease assets are right of use, or ROU, assets, which represent the right to use the underlying assets for the lease term. Operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating leases are included in the Operating lease assets, net, and Operating lease liabilities, current and long-term, on the Consolidated Balance Sheets. These assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. When the lease does not provide an implicit interest rate, the Company uses an incremental borrowing rate based on information available at lease commencement to determine the present value of the lease payments. The ROU assets include all remaining lease payments and exclude lease incentives. Lease expense for operating leases is recognized on a straight-line basis over the lease term. There are no variable lease payments. Lease expense for the three and six month periods ended June 30, 2021 was $ 0.8 million and $ 1.6 million, respectively, compared to $ 0.7 million and $ 1.5 million for the three and six month periods ended June 30, 2020, respectively. These costs are primarily related to long-term operating leases, but also include amounts for short-term leases with terms greater than 30 days that are not material. Cash paid for amounts included in the present value of operating lease liabilities during the three and six month periods ended June 30, 2021 was $ 0.8 million and $ 1.5 million, respectively, and is included in operating cash flows. Cash paid for amounts included in the present value of operating lease liabilities during the three and six month periods ended June 30, 2020 was $ 0.7 million and $ 1.4 million, respectively, and is included in operating cash flows. The following tables present information about the amount and timing of cash flows arising from the Company’s operating leases as of June 30, 2021 (dollars in thousands): 12 Maturity of Lease Liabilities (Unaudited) Lease Payments 2021 (remaining) $ 1,148 2022 2,815 2023 2,059 2024 1,282 2025 852 2026 852 2027 and beyond 1,778 Total future minimum lease payments 10,786 Less imputed interest ( 1,410 ) Present value of operating lease liabilities $ 9,376 Balance Sheet Classification (Unaudited) Operating lease liabilities, current $ 2,143 Operating lease liabilities, long-term 7,233 Total operating lease liabilities $ 9,376 Other Information (Unaudited) Weighted average remaining lease term (in years) 5.18 Weighted average discount rate 5.1 % Note 6. Net Income Per Common Share Basic net income per common share is based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share increases the shares used in the per share calculation by the dilutive effects of restricted stock and option awards. The table below reflects the calculation of the weighted average number of common shares outstanding, on an as if converted basis, used in computing basic and diluted net income per common share (in thousands). Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (Unaudited) (Unaudited) Basic weighted average shares outstanding 18,684 14,789 17,454 14,907 Effect of dilutive restricted stock and options 156 159 200 119 Diluted weighted average shares outstanding 18,840 14,948 17,654 15,026 The table below reflects a summary of securities that could potentially dilute basic net income per common share in future periods that were not included in the computation of diluted earnings per share because the effect would have been antidilutive (in thousands). Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (Unaudited) (Unaudited) Antidilutive securities: Stock Options 18 51 18 51 Restricted Shares 2 33 3 145 Total antidilutive securities 20 84 21 196 13 Note 7. Segment Information The Company has two operating segments that are managed in the following reportable segments: • American Public Education Segment , or APEI Segment ; and • Hondros College of Nursing Segment , or HCN Segment . In accordance with FASB ASC 280, Segment Reporting , the chief operating decision-maker has been identified as the Company’s Chief Executive Officer. The Company’s Chief Executive Officer reviews operating results to make decisions about allocating resources and assessing performance for the APEI and HCN Segments. 14 A summary of financial information by reportable segment is as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (Unaudited) (Unaudited) Revenue: American Public Education Segment $ 66,893 $ 73,547 $ 144,315 $ 140,641 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 Depreciation and amortization: American Public Education Segment $ 2,343 $ 3,221 $ 4,846 $ 6,415 Hondros College of Nursing Segment 181 170 329 314 Total Depreciation and amortization $ 2,524 $ 3,391 $ 5,175 $ 6,729 Income (loss) from operations before interest income and income taxes: American Public Education Segment $ 1,859 $ 9,077 $ 11,713 $ 12,655 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 Interest income, net: American Public Education Segment $ 22 $ 177 $ 134 $ 867 Hondros College of Nursing Segment 2 2 4 14 Total Interest income, net $ 24 $ 179 $ 138 $ 881 Income tax expense (benefit): American Public Education Segment $ 607 $ 2,537 $ 3,041 $ 3,752 Hondros College of Nursing Segment 39 ( 5 ) 244 ( 246 ) Total Income tax expense $ 646 $ 2,532 $ 3,285 $ 3,506 Capital expenditures: American Public Education Segment $ 843 $ 999 $ 1,814 $ 2,744 Hondros College of Nursing Segment 657 25 1,214 149 Total Capital expenditures $ 1,500 $ 1,024 $ 3,028 $ 2,893 The APEI Segment charges the HCN Segment for the value of courses taken by HCN Segment employees at APUS. The intersegment elimination represents the elimination of this intersegment revenue in consolidation. A summary of the Company’s consolidated assets by reportable segment is as follows (in thousands): As of June 30, 2021 As of December 31, 2020 (Unaudited) Assets: American Public Education Segment $ 417,494 $ 322,544 Hondros College of Nursing Segment 51,422 48,474 Total Assets $ 468,916 $ 371,018 15 Note 8. Commitments and Contingencies The Company accrues for costs associated with contingencies including, but not limited to, regulatory compliance and legal matters when such costs are probable and can be reasonably estimated. Liabilities established to provide for contingencies are adjusted as further information develops, circumstances change, or contingencies are resolved. The Company bases these accruals on management’s estimate of such costs, which may vary from the ultimate costs and expenses, associated with any such contingency. From time to time, the Company is involved in legal matters in the normal course of its business. Note 9. Concentration APUS students utilize various payment sources and programs to finance their educational expenses, including funds from: Department of Defense, or DoD, tuition assistance programs, or TA, education benefit programs administered by the U.S. Department of Veterans Affairs, or VA; and federal student aid from Title IV programs, as well as cash and other sources. Reductions in or changes to TA, VA education benefits, Title IV programs, and other payment sources could have a significant impact on the Company’s operations. As of June 30, 2021, approximately 63 % of APUS students self-reported that they served in the military on active duty at the time of initial enrollment. Active duty military students generally take fewer courses per year on average than non-military students. A summary of APEI Segment revenue derived from students by primary funding source for the three and six month periods ended June 30, 2021 and 2020 is included in the table below (unaudited): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 DoD tuition assistance programs 41 % 44 % 44 % 43 % VA education benefits 22 % 21 % 22 % 22 % Title IV programs 21 % 20 % 20 % 21 % Cash and other sources 16 % 15 % 14 % 14 % A summary of HCN Segment revenue derived from students by primary funding source for the three and six month periods ended June 30, 2021 and 2020 is included in the table below (unaudited): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Title IV programs 81 % 83 % 81 % 82 % Cash and other sources 17 % 15 % 18 % 16 % VA education benefits 2 % 2 % 1 % 2 % Note 10. Subsequent Events On August 5, 2021, in connection with an evaluation and review of costs and expenses, the Company initiated a plan to reduce costs. The plan includes a reduction in force that resulted in the termination of 11 full-time faculty members at APUS, and 33 non-faculty employees 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. Substantially all of the affected employees have been notified of the reduction. The Company expects to substantially complete this workforce reduction by August 9, 2021. The Company will record expenses for termination benefits related to the workforce reduction in the third quarter of 2021 in accordance with FASB ASC 420, Exit or Disposal Cost Obligations . 16