AMERICAN PUBLIC EDUCATION INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations In this Quarterly Report on Form 10-Q, or Quarterly Report, “we,” “our,” “us,” “the Company” and similar terms refer to American Public Education, Inc., or “APEI,” and its subsidiary institutions collectively unless the context indicates otherwise. The following discussion of our historical results of operations and our liquidity and capital resources should be read in conjunction with the Consolidated Financial Statements and related notes that appear elsewhere in this Quarterly Report and the audited financial information and related notes, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations and other disclosures, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, or our Annual Report. Forward-Looking Statements This Quarterly Report contains forward-looking statements intended to be covered by the safe harbor provisions for forward-looking statements in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We may use words such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “will,” or “may,” or other words that convey uncertainty of future events, conditions, circumstances, or outcomes to identify these forward-looking statements. 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, 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; • changes to and expectations regarding our student enrollment, net course registrations, and the composition of our student body, including the pace of such changes; • our ability to maintain, develop, and grow our technology infrastructure to support our student body; • our conversion of prospective students to enrolled students and our retention of active students; • our ability to update and expand the content of existing programs and develop new programs to meet emerging student needs and marketplace demands, and our ability to do so in a cost-effective manner or on a timely basis; • our plans for, marketing of, and initiatives at, our institutions; • our ability to leverage our investments in support of our initiatives, students, and institutions; • our maintenance and expansion of our relationships and partnerships and the development of new relationships and partnerships; • federal appropriations and other budgetary matters, including government shutdowns; • our ability to comply with the extensive regulatory framework applicable to our industry, as well as state law and regulations and accrediting agency requirements; • our ability to undertake initiatives to improve the learning experience and attract students who are likely to persist; • changes in enrollment in postsecondary degree-granting institutions and workforce needs; • the competitive environment in which we operate; • our cash needs and expectations regarding cash flow from operations; • 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; and • our financial performance generally. Forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance, taking into account information currently available to us and are not guarantees of future results. There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. Risks and uncertainties involved in forward-looking statements include, among others: • 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 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; • our inability to effectively market our programs; 17 • adverse effects of changes our institutions make to improve the student experience and enhance their ability to identify and enroll students who are likely to succeed; • our inability to maintain strong relationships with the military and maintain enrollments from military students; • our failure to comply with regulatory and accrediting agency requirements or to maintain institutional accreditation; • our loss of eligibility to participate in Title IV programs or ability to process Title IV financial aid; • our need to successfully adjust to future market demands by updating existing programs and developing new programs; • 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, significant transaction and integration costs, regulatory approvals, effective integration of Rasmussen’s business, and our ability to realize the expected benefits of the acquisition; and • 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. It is important that you read these factors and the other cautionary statements made in this Quarterly Report as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report. If any of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance, or achievements may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. You should also read the more detailed description of our business in our Annual Report when considering forward-looking statements. We caution readers not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to publicly update any forward-looking statements except as required by law. Overview Background We are a provider of online and on-campus postsecondary education to approximately 91,500 students through two subsidiary institutions. Our subsidiary institutions offer programs designed to prepare individuals for productive contributions to their professions and society, and to offer opportunities that may advance students in their current professions or help them prepare for their next career. Our subsidiary institutions are licensed or otherwise authorized by state authorities, or are in the process of obtaining such licenses or authorizations, to offer postsecondary education programs to the extent the institutions believe such licenses or authorizations are required, and are certified by the United States Department of Education, or ED, to participate in student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or Title IV programs. On March 11, 2020, the World Health Organization declared the novel coronavirus COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. The pandemic did not materially impact our results of operations during the six month period ended June 30, 2021. However, the duration and intensity of the outbreak, and therefore any future impact, remains uncertain. 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 potential impacts. 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: • American Public University System, Inc. provides online postsecondary education to approximately 89,100 adult learners. APUS is an accredited university system with a history of serving the academic needs of the military, military-affiliated, public service and service-minded communities through two brands: American Military University, or AMU, and American Public University, or APU. 18 APUS offers 128 degree programs and 112 certificate programs in diverse fields of study, with a particular focus on those relevant to today’s job market and emerging fields. 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. 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. 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, 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. On March 8, 2021, the Army launched and then, due to technical difficulties, 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 came online in 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. • National Education Seminars, Inc., which we refer to as Hondros College of Nursing, provides nursing education to approximately 2,400 students at six campuses in Ohio, including a campus in Akron that opened in April 2021, and a campus in Indianapolis, Indiana, to serve the needs of local nursing and healthcare communities, addressing the persistent supply-demand gap of nurses that is evident nation-wide. In addition to Akron, HCN’s Ohio campuses are located in the suburban areas of Cincinnati, Cleveland, Columbus, Dayton, and Toledo. HCN is institutionally accredited by the Accrediting Bureau for Health Education Schools, or ABHES, and HCN’s Ohio locations and programs are approved by the Ohio State Board of Career Colleges and Schools. In February 2021, ABHES granted HCN continued accreditation through February 2027 for all programs at all campuses. HCN’s Ohio Diploma in Practical Nursing, or PN, and Associate Degree in Nursing, or ADN, Programs are approved by the Ohio Board of Nursing, or OBN, and the PN Program is accredited by the National League for Nursing Commission for Nursing Education Accreditation, or NLN CNEA. HCN is authorized to offer instruction in Indiana by the Indiana Board for Proprietary Education/Indiana Commission for Higher Education. The Indiana State Board of Nursing granted initial accreditation and authorized the admission of the first cohort of students. NLN CNEA granted HCN accreditation at its Indianapolis campus effective January 13, 2021. 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. 19 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. See “Item 5. 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. 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. For more information on the Rasmussen Acquisition, please refer to our Annual Report, “Note 3. Acquisition Activity” included in the Consolidated Financial Statements in this Quarterly Report, and the sections entitled “– Regulatory and Legislative Activity – Rasmussen Acquisition Regulatory Review” below. Regulatory and Legislative Activity On April 7, 2020, the Department of Veterans Affairs, or VA, announced that, effective April 1, 2021, it would no longer count the use of Veteran Readiness & Employment, or VR&E, benefits against the 48-month cap on veterans education benefits programs imposed when veterans use more than one benefit program. As a result, veterans who use VR&E benefits prior to using another veterans education benefits program, such as the Montgomery GI Bill, or the GI Bill, and the Post-9/11 GI Bill, can still use up to 48 total months of the other veterans education benefits programs. In March 2021, ED announced a revised approach for determining relief for borrowers who successfully assert borrower relief claims. Under this new approach, a borrower will receive full loan relief when evidence shows that the institution engaged in certain misconduct. This policy rescinds the prior administration’s formula that generally granted only partial loan relief for borrower defense claims. ED also announced changes to the process for borrowers to seek loan relief due to total or permanent disability. Specifically, ED has eliminated requirements that borrowers with total or permanent disability prove that they continue to have sufficiently low-incomes for three years following their loan discharge. 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. 20 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. Roe, M.D. 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 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 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 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. 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 and included certain restrictions regarding allowable uses of CRRSAA HEERF funds. 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. ARPA incorporates CRRSAA’s restrictions regarding allowable uses of HEERF funds. ARPA’s HEERF III allocation formula decreases the amount of funds allocated to for-profit institutions. 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. 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 21 accounting basis (except for certain institutional loans) from Title IV programs for any fiscal year. For more information on the so-called 90/10 Rule, please refer to our Annual Report. ARPA modifies the HEA’s 90/10 Rule to require that a for-profit institution derive not less than 10 percent of its revenue from sources other than “federal education assistance funds”. ARPA provides that the amendment applies to institutional fiscal years beginning on or after January 1, 2023. In addition, ARPA provides that the amendment is subject to the HEA’s master calendar requirements and negotiated rulemaking and that such negotiated rulemaking shall commence no earlier than October 1, 2021. An ED final rule to implement the ARPA provision is not expected to go into effect until July 1, 2023 at the earliest. ARPA does not define “federal education assistance funds.” We expect such definition to be developed as part of the required negotiated rulemaking and anticipate that ED would seek to include TA and VA education benefits in the scope of the definition. At this time, we cannot predict the impact of the ARPA 90/10 Rule on our business, including because we cannot predict how ED will implement the ARPA 90/10 Rule provision. We also cannot predict the likelihood that Congress will pass additional legislation to modify the 90/10 Rule further with respect to relevant sources of funds or other aspects of the calculation. For example, other recent congressional proposals have focused on decreasing the limit on Title IV funds from 90% to 85%. Such proposals, or other similar legislation, should they become law, could have a material adverse impact on our financial condition and results of operation. On March 27, 2020, Ohio enacted a COVID-19 emergency relief law that allows individuals who have successfully completed a nursing education program approved by OBN to receive a temporary license to practice as an RN or LPN before taking the National Council Licensure Examination, or 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 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 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 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. 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. 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 22 of the institution’s participation in TA. In February 2020, DoD informed APUS that it was one of 250 institutions selected for ICP review in 2020. Upon request, in May 2020, APUS submitted a self-assessment in connection with the ICP. On November 30, 2020, DoD issued a report finding that APUS did not clearly articulate certain policies or clearly make certain disclosures. As required, APUS submitted its corrective action plan and related evidentiary support and in April 2021, APUS was informed that the review had been completed and no further actions are required. 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 Our operations are organized into two reportable segments: • American Public Education Segment, or APEI Segment. This segment reflects the operational activities of APUS, other corporate activities, and minority investments; and • Hondros College of Nursing Segment, or HCN Segment. This segment reflects the operational activities of HCN. Summary of Results 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 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. 23 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. Critical Accounting Policies and Use of Estimates For information regarding our Critical Accounting Policies and Use of Estimates, see the “Critical Accounting Policies and Use of Estimates” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. Results of Operations 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. Our student population varies as a result of new enrollments, graduations, student attrition, the success of our marketing programs, and other reasons that we cannot always anticipate. We expect quarterly fluctuations in operating results to continue as a result of various enrollment patterns and changes in expenses. 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 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 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. 24 Analysis of Consolidated Statements of Income For the Consolidated Statements of Income, refer to our Financial Statements: Consolidated Statements of Income. The following table sets forth statements of income data as a percentage of revenue for each of the periods indicated: 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 % Costs and expenses: Instructional costs and services 39.0 37.4 37.7 38.2 Selling and promotional 22.4 20.8 22.2 22.5 General and administrative 32.6 26.5 29.4 27.3 Loss on disposals of long-lived assets 0.2 0.2 0.1 0.2 Depreciation and amortization 3.2 4.1 3.1 4.3 Total costs and expenses 97.4 89.0 92.5 92.5 Income from operations before interest income and income taxes 2.6 11.0 7.5 7.5 Interest income, net — 0.2 0.1 0.5 Income from operations before income taxes 2.6 11.2 7.6 8.0 Income tax expense 0.8 3.1 2.0 2.2 Equity investment income (loss) (1.1) — (0.5) — Net income 0.7 % 8.1 % 5.1 % 5.8 % Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020 Revenue. 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 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 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, 25 2020. 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 26 information on our investments please refer to “Note 2. Significant Accounting Policies” in our Consolidated Financial Statements. Net income. 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 Revenue. 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 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. 27 General and administrative expenses. 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. 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 $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 $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 $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 $0.9 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 $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. Net income. 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. 28 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 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 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 APEI Segment 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. HCN Segment 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 29 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 Liquidity 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 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. 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. 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 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 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. 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. On March 1, 2021, we completed an underwritten public offering of 3,680,000 shares of our common stock at a price to the public of $25.00 per share for net proceeds of approximately $86.2 million, after deducting underwriting discounts and commissions and offering expenses. 30 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 Loan, and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $20 million, or together with the Term Loan, 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. 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. Share Repurchase Program On May 2, 2019, our Board of Directors authorized the repurchase of up to $35.0 million of shares of our common stock, and on December 5, 2019, the Board approved an additional authorization of up to $25.0 million of shares. We may purchase shares at management’s discretion in the open market, in privately negotiated transactions, in transactions structured through investment banking institutions, or a combination of the foregoing. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of shares under this authorization. The amount and timing of repurchases are subject to a variety of factors, including liquidity, cash flow, stock price and general business and market conditions. We have no obligation to repurchase shares and may modify, suspend or discontinue the repurchase program at any time. 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 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. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of Part II of our Annual Report and “Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - Repurchases” of Part II of this Quarterly Report. Operating Activities 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. 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 caused by the transition to ArmyIgnitED. 31 Investing Activities 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 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 We do not have off-balance sheet financing arrangements, including any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities. Contractual Commitments We have various contractual obligations consisting of operating leases and purchase obligations. Purchase obligations include agreements with consultants, contracts with third-party service providers, and other future contracts or agreements.