What changed in this filing

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Item 1. Financial Statements

2021-11-08 compared with 2021-08-09 · 305 added, 123 removed, 288 unchanged (60% of the section changed)

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(In thousands)

As of June 30, 2021 As of December 31, 2020

As of September 30, 2021 As of December 31, 2020

ASSETS (Unaudited)

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Investments 9,668 10,495

Intangible assets, net 88,936 3,721

Goodwill 243,766 26,563

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Operating lease liabilities, current 13,876 2,392

Long-term debt, current 8,750 —

Total current liabilities 90,129 55,058

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Deferred income taxes 1,864 2,580

Long-term debt, net 153,336 —

Total liabilities 318,749 64,093

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(In thousands, except per share amounts)

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

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

2021 2020 2021 2020

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Total costs and expenses 96,986 75,825 250,929 220,834

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 from operations before interest and income taxes 1,262 3,308 13,874 15,042

Interest (expense) income ( 1,305 ) 121 ( 1,167 ) 1,002

(Loss) income before income taxes ( 43 ) 3,429 12,707 16,044

Income tax expense 224 785 3,509 4,291

Equity investment income (loss) ( 822 ) 1 ( 827 ) —

Net income $ 531 $ 6,689 $ 8,638 $ 9,109

Net income per common share:

Equity investment loss — ( 2 ) ( 827 ) ( 2 )

Net (loss) income $ ( 267 ) $ 2,642 $ 8,371 $ 11,751

Net (loss) income per common share:

Basic $ ( 0.01 ) $ 0.18 $ 0.47 $ 0.79

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Net income — — — 11,751 11,751

Balance as of June 30, 2020 14,797 $ 148 $ 191,996 $ 101,467 $ 293,611

Balance as of September 30, 2020 14,809 $ 148 $ 193,787 $ 104,109 $ 298,044

Additional Paid-in Capital Retained Earnings Total Stockholders’ Equity

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Net income — — — 8,371 8,371

Balance as of June 30, 2021 18,689 $ 187 $ 283,120 $ 119,818 $ 403,125

Balance as of September 30, 2021 18,709 $ 187 $ 284,700 $ 119,551 $ 404,438

The accompanying notes are an integral part of these Consolidated Financial Statements.

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(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Operating activities

Net income $ 8,371 $ 11,751

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 5,175 6,729

Adjustments to reconcile net income to net cash provided by operating activities, net of assets and liabilities acquired:

Depreciation and amortization, including debt issuance 9,561 9,955

Amortization of debt issuance costs 223 —

Stock-based compensation 5,969 5,265

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Investing activities

Cash paid for acquisition, net of cash acquired ( 325,509 ) —

Capital expenditures ( 5,813 ) ( 4,171 )

Proceeds from the sale of real property — 412

Net cash used in investing activities ( 331,322 ) ( 3,759 )

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Cash received from issuance of common stock 86,205 —

Cash received from borrowings 175,000 —

Cash paid for debt issuance costs ( 13,629 ) —

Net cash provided by (used in) financing activities 244,544 ( 15,705 )

Net increase in cash, cash equivalents, and restricted cash 89,267 13,298

Net (decrease) increase in cash, cash equivalents, and restricted cash ( 86,199 ) 25,269

Cash, cash equivalents, and restricted cash at beginning of period 227,686 202,740

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Supplemental disclosure of cash flow information

Interest paid $ — $ —

Income taxes paid $ 6,983 $ 3,062

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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 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 students through subsidiary institutions that include:

• 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.

• Rasmussen College, LLC, which is referred to herein as Rasmussen University, or RU, a nursing- and health sciences-focused institution, provides postsecondary education to students at its 23 campuses across six states and online.

The Company completed the acquisition of Rasmussen University, or the Rasmussen Acquisition, on September 1, 2021, or the Closing Date.

Acquisition Activity” for more information on this acquisition.

The Consolidated Financial Statements do not include the operating results or financial position of Rasmussen University for any periods prior to the Closing Date.

RU is institutionally accredited by 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 one 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.

During the third quarter of 2021, the Company revised its reportable segments, as discussed further in “Note 9.

Segment Information” Prior period segment disclosures have been restated to conform to the current period presentation.

The Company’s operations are organized into three reportable segments:

• American Public University System, or APUS Segment.

This segment reflects the operational activities of APUS.

• Rasmussen University Segment, or RU Segment .

This segment reflects the operational activities of RU.

• Hondros College of Nursing Segment, or HCN Segment.

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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.

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

Specifically, at September 30, 2021, Intangible assets, net are disclosed as a separate financial statement line item on the Consolidated Balance Sheet.

Prior to September 30, 2021, Intangible assets, net, were presented in the Consolidated Balance Sheet in Other assets, net.

Use of Estimates

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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.

Cash, Cash Equivalents, and Restricted Cash

Cash, cash equivalents, and restricted cash includes funds held for students for unbilled educational services that were received from Title IV programs and, as of September 30, 2021, amounts to secure letters of credit, including $ 24.2 million in a restricted certificate of deposit account to secure a letter of credit for the benefit of the ED on behalf of RU in connection with RU’s 2020 composite score, which is used by ED for determining compliance with financial responsibility standards, being below the minimum required, and a $ 0.6 million restricted certificate of deposit to secure a letter of credit in lieu of a security deposit for an RU leased campus.

The Company is required to maintain funds from Title IV programs 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 September 30, 2021 and December 31, 2020, excluding the restricted certificates of deposit, was $ 1.8 million and $ 1.2 million, respectively.

Total restricted cash as of September 30, 2021 and December 31, 2020 is $ 26.6 million and $ 1.2 million, respectively.

Fair Value of Financial Instruments

The Company measures certain financial assets at fair value for disclosure purposes, as well as on a nonrecurring basis when they are deemed to be other-than-temporary impairments.

Fair value represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset.

Assets recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market used to measure fair value:

Level 1 - inputs to the valuation techniques that are quoted prices in active markets for identical assets or liabilities;

Level 2 - inputs to the valuation techniques that are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly;

Level 3 - inputs to the valuation techniques that are unobservable for the assets or liabilities.

The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company’s cash, cash equivalents, and restricted cash, accounts receivable, accounts payable and accrued liabilities are all short-term in nature.

As such, their carrying amounts approximate fair value and fall within Level 1 of the fair value hierarchy.

The carrying value of long-term debt approximates fair value as it is based on variable rate index.

The Company periodically evaluates its equity method investment for indicators of an other-than-temporary impairment.

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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.

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 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.

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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.

During the three months ended June 30, 2021, the Company determined that impairment indicators existed 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.

This impairment charge is included in equity investment loss in the Consolidated Statements of Income.

There was no impairment charge during the three months ended September 30, 2021 and during the nine months ended September 30, 2020.

As of September 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.

Self-Insured Liabilities

RU has a partially self-insured health plan (the Plan) for employee health benefits and records self-insurance liabilities based on claims filed and an estimate of claims incurred but not yet reported.

The Plan carries insurance with a yearly loss limit per person of $ 225,000 and a maximum claims expense of 125 % of the average claim value.

Self-insurance liabilities for employee health benefits claims are recorded in the accrued compensation and benefits line item of the Consolidated Balance Sheet and are $ 1.3 million as of September 30, 2021.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the tangible and intangible assets and liabilities assumed.

Intangible assets are recorded at their estimated fair value as of the acquisition date, and are classified as either indefinite-lived or definite-lived.

Indefinite-lived intangible assets are trade name and accreditation, licensing and Title IV.

Definite-lived intangible assets are student roster, curricula, and lead conversions.

Goodwill and indefinite-lived intangible assets are assessed at least annually for impairment or more frequently if circumstances indicate potential impairment.

Definite-lived intangible assets are amortized on a straight-line basis over the estimated useful life of the asset.

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.

Stock-based compensation cost is recognized as an 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.

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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,

Stock-based compensation expense for the three and nine months ended September 30, 2021 and 2020 was as follows (in thousands):

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

2021 2020 2021 2020

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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.

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.

The Company recognized an aggregate expense associated with the Company’s current year annual incentive-based compensation plans of approximately $ 0.1 million and $ 2.6 million during the three and nine month periods ended September 30, 2021, compared to an aggregate expense of $ 2.1 million and $ 5.1 million during the three and nine month periods ended September 30, 2020.

On March 1, 2021, the Company completed an underwritten public offering of 3,680,000 shares of its 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.

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.

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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.

On September 1, 2021, the Company completed the Rasmussen Acquisition.

The Rasmussen Acquisition was completed pursuant to a Membership Interest Purchase Agreement, or the Purchase Agreement, dated October 28, 2020, by and among the Company, FAH Education, LLC, or Seller, Rasmussen, LLC, or Rasmussen, and Rasmussen College, LLC, a wholly owned subsidiary of Rasmussen, or Rasmussen College.

Pursuant to the Purchase Agreement, on the Closing Date, the Company purchased from Seller all membership interests in Rasmussen for an adjusted aggregate purchase price, subject to post-closing working capital adjustments, and net of cash acquired, of $ 325.5 million in cash.

Upon completion of the Rasmussen Acquisition, Rasmussen merged into Rasmussen College and Rasmussen College became a wholly owned subsidiary of the Company.

The Company applied the acquisition method of accounting to the Rasmussen Acquisition, whereby the excess of the acquisition date fair value of consideration transferred over the fair value of identifiable net assets was allocated to goodwill.

Goodwill reflects the fair value associated with the RU workforce and synergies expected from cost savings, operations, and revenue enhancements of the combined company that are expected to result from the acquisition.

The goodwill recorded as part of the acquisition was allocated to the Rasmussen reportable segment in the amount of $ 217.2 million and is deductible for tax purposes.

For the three and nine months ended September 30, 2021, the Company incurred approximately $ 1.5 million and $ 5.0 million of acquisition-related expenses, respectively, which are included in general and administrative on the Consolidated Statements of Income.

The preliminary opening balance sheet is subject to adjustment based on a final assessment of the fair values of certain acquired assets and liabilities, primarily intangible assets and goodwill.

The Company has up to one year from the Closing Date, or the measurement period, to complete the allocation of the purchase price.

As the Company finalizes its assessment of the fair values of certain acquired assets and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period.

The Company will reflect measurement period adjustments, if any, in the period in which the adjustments occur.

The following table summarizes the components of the estimated consideration along with the purchase price allocation (in thousands):

Purchase Price Allocation (Unaudited) Amount

Cash and cash equivalents $ 329,000

Working capital adjustment and additional cash contributions 1,704

Total consideration 330,704

Assets acquired:

Cash and cash equivalents 5,200

Accounts receivable 10,700

Prepaid expenses 4,600

Property and equipment, net 36,996

Operating lease assets 75,800

Deferred tax asset 3,205

Intangible assets 86,500

Other assets 600

Total assets acquired 223,601

Liabilities assumed:

Accounts payable 1,200

Accrued expenses 6,700

Deferred revenue 22,700

Operating lease liabilities, current 11,200

Operating lease liabilities, long-term 67,000

Other liabilities 1,300

Total liabilities assumed 110,100

Net assets acquired 113,501

Goodwill $ 217,203

The fair value of the identified intangible assets including the trade name, student roster, and lead conversions were determined using the income-based approach.

The fair value of curricula and accreditation, licensing, and Title IV identified intangible assets were determined using the cost approach.

The table below presents a summary of intangible assets acquired and the useful lives of these assets (in thousands):

Intangible Assets (Unaudited) Useful life Amount

Trade name Indefinite 26,500

Accreditation, licensing and Title IV Indefinite 24,500

Student roster 2 years 20,000

Curricula 3 years 14,000

Lead conversions 2 years 1,500

Pro Forma Financial Information

The following unaudited pro forma information is presented as if the Rasmussen Acquisition occurred on January 1, 2020.

In preparing the pro forma results, the Company is required to make estimates and assumption including with respect to underlying financial performance, purchase accounting, appropriate depreciation and amortization methods, effective tax rate,

and future interest rates, among other estimates and assumptions.

The Company believes that these estimates and assumptions are reasonable under the circumstances.

The pro forma results do not represent what may occur in the future as 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.

The table below presents the Company’s pro forma combined revenue and net income (in thousands):

Nine Months Ended September 30,

Revenue $ 446,984 $ 427,415

Net Income 15,781 16,499

Graduate School USA

On August 11, 2021, the Company announced that it had entered into an agreement to acquire substantially all of the assets of Graduate School USA, or Graduate School, one of the largest providers of training to the federal government workforce, for approximately $ 1.0 million.

The purchase price is subject to working capital adjustments, and the acquisition is expected to close in the first quarter of 2022, subject to the satisfaction or waiver of closing conditions.

Disaggregation of Revenue

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The table also includes a reconciliation of the disaggregated revenue with the reportable segments (in thousands):

Three Months Ended June 30, 2021

APEI HCN Intersegment Consolidated

Three Months Ended September 30, 2021

APUS RU HCN Intersegment Consolidated

Instructional services, net of grants and scholarships $ 65,321 $ 17,838 $ 9,534 $ ( 30 ) $ 92,663

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Total Revenue $ 65,906 $ 21,132 $ 11,240 $ ( 30 ) $ 98,248

Three Months Ended June 30, 2020

APEI HCN Intersegment Consolidated

Three Months Ended September 30, 2020

APUS RU HCN Intersegment Consolidated

Instructional services, net of grants and scholarships $ 69,058 $ — $ 7,977 $ ( 67 ) $ 76,968

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Total Revenue $ 69,659 $ — $ 9,541 $ ( 67 ) $ 79,133

Six Months Ended June 30, 2021

APEI HCN Intersegment Consolidated

Nine Months Ended September 30, 2021

APUS RU HCN Intersegment Consolidated

Instructional services, net of grants and scholarships $ 208,727 $ 17,838 $ 28,290 $ ( 156 ) $ 254,699

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Total Revenue $ 210,321 $ 21,132 $ 33,506 $ ( 156 ) $ 264,803

Six Months Ended June 30, 2020

APEI HCN Intersegment Consolidated

Nine Months Ended September 30, 2020

APUS RU HCN Intersegment Consolidated

Instructional services, net of grants and scholarships $ 208,773 $ — $ 21,636 $ ( 182 ) $ 230,227

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Total Revenue $ 210,376 $ — $ 25,682 $ ( 182 ) $ 235,876

The APEI Segment charges the HCN Segment for the value of courses taken by HCN Segment employees at APUS.

The RU Segment reflects the operations of RU, which was acquired on the Closing Date, through September 30, 2021.

The Company did not consolidate the financial results of the RU Segment prior to the Closing Date.

The APUS Segment charges the HCN Segment and corporate employees for the value of courses taken by HCN Segment employees at APUS.

The intersegment elimination represents the elimination of this intersegment revenue in consolidation.

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.

The Company has no contract assets or deferred contract costs as of September 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 RU and HCN.

Deferred revenue at September 30, 2021 was $ 26.0 million and includes $ 9.2 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $ 16.8 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.

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Recoveries of receivables previously written off are recorded when received.

APUS does not charge interest on past due accounts receivable.

APUS and RU do not charge interest on past due accounts receivable.

HCN charges interest on payment plans when a student graduates or otherwise exits the program.

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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.

The Company 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 RU Segment leases administrative office space in suburban Chicago, Illinois, and Minneapolis, Minnesota, and leases 23 campuses located in six states under operating leases that expire through October 2033.

The HCN Segment leases administrative office space in suburban Columbus, Ohio, and leases six campuses located in Ohio and one campus in Indianapolis, Indiana, under operating leases that expire through June 2029.

In November 2021, HCN entered into a lease agreement for a new campus location in suburban Detroit, Michigan for a lease term beginning in April 2022 and expiring in March 2032.

The total value of the minimum rental payments for the initial term of this lease is $ 4.9 million.

Operating lease assets are right of use, or ROU, assets, which represent the right to use the underlying assets for the lease term.

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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.

These lease assets and 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 estimates 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.

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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.

Lease expense for the three and nine month periods ended September 30, 2021 was $ 1.8 million and $ 3.4 million, respectively, compared to $ 0.7 million and $ 2.2 million for the three and nine month periods ended September 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):

Cash paid for amounts included in the present value of operating lease liabilities during the three and nine month periods ended September 30, 2021 was $ 1.9 million and $ 3.4 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 nine month periods ended September 30, 2020 was $ 0.7 million and $ 2.2 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 September 30, 2021 (dollars in thousands):

Maturity of Lease Liabilities (Unaudited) Lease Payments

11 unchanged sentences

Weighted average discount rate 3.1 %

Goodwill and Intangible Assets

In connection with the Rasmussen Acquisition, the Company applied FASB ASC 805, Business Combinations , using the acquisition method of accounting, and recorded $ 217.2 million of goodwill, representing the excess of the purchase price over the fair value of assets acquired and liabilities assumed, including identifiable intangible assets.

The Company previously recorded goodwill in the amount of $ 38.6 million in connection with its acquisition of HCN, and later recorded charges reducing the carrying value of our goodwill to $ 26.6 million.

Changes in the carrying amount of goodwill by reportable segment during the years ended September 30, 2021 and 2020 are as follows (in thousands):

APUS Segment RU Segment HCN Segment Total Goodwill

Goodwill as of December 31, 2020 $ — $ — $ 26,563 $ 26,563

Goodwill acquired — 217,203 — 217,203

Impairment — — — —

Goodwill as of September 30, 2021 $ — $ 217,203 $ 26,563 $ 243,766

In addition to goodwill, in connection with the acquisitions of RU and HCN, the Company recorded identified intangible assets with an indefinite useful life in the aggregate amount of $ 51.0 million and $ 3.7 million, respectively, which includes trade name, accreditation, licensing and Title IV, and affiliate agreements, and recorded $ 35.5 million and $ 4.4 million, respectively, of identified intangible assets with a definite useful life.

At the acquisition date, the useful life assigned to each type of intangible asset with a definite useful life was as follows for the RU Segment:

Curricula 3 years

Lead conversions 2 years

Student Roster 2 years

As of September 30, 2021 and December 31, 2020, all HCN Segment recorded identified intangible assets with a definite useful life were fully amortized.

HCN Segment indefinite-lived Intangible assets, consist of the following as of September 30, 2021 and December 31, 2020 (in thousands):

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Indefinite-lived intangible assets

1,998 — 1,998

Accreditation, licensing and Title IV

1,686 — 1,686

Affiliation agreements

Total indefinite-lived intangible assets

3,721 — 3,721

RU Segment Intangible assets consist of the following as of September 30, 2021 (in thousands):

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Finite-lived intangible assets

Student roster $ 20,000 833 19,167

14,000 389 13,611

Lead conversions 1,500 63 1,437

Total finite-lived intangible assets

$ 35,500 $ 1,285 $ 34,215

Indefinite-lived intangible assets

26,500 — 26,500

Accreditation, licensing and Title IV

24,500 — 24,500

Total indefinite-lived intangible assets

51,000 — 51,000

Total intangible assets

$ 86,500 $ 1,285 $ 85,215

The Company evaluated events and circumstances related to the valuation of goodwill and intangibles, recorded within our HCN Segment, through September 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 three and nine months ended September 30, 2021 and 2020, and consequently, there were no impairment of goodwill or intangible assets during those periods.

Determining the fair value of HCN goodwill and intangible assets requires judgment and the use of significant estimates and assumptions, including fluctuations in enrollments, revenue growth rates, operating margins, discount rates and future economic market conditions, among others.

Given the current competitive and regulatory environment, and the uncertainties regarding the related impact on HCN’s business, there can be no assurance that the estimates and assumptions made for purposes of the Company’s interim and annual goodwill impairment tests will prove to be accurate predictions of the future.

If the Company’s assumptions are not realized, the Company may record additional goodwill impairment charges in future periods.

It is not possible at this time to determine if any such future impairment charge would result or whether such charge would be material.

Net Income Per Common Share

2 unchanged sentences

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,

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

2021 2020 2021 2020

4 unchanged sentences

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,

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

2021 2020 2021 2020

4 unchanged sentences

Total antidilutive securities 123 77 115 109

Long-Term Debt

On the Closing Date, APEI, as borrower, entered into a Credit Agreement (the “Credit Agreement”) with Macquarie Capital Funding LLC, as administrative agent and collateral agent (the “Agent”), Macquarie Capital USA Inc.

and Truist Securities, Inc., as lead arrangers and joint bookrunners, and certain lenders party thereto (the “Lenders”).

The Credit Agreement provides for (i) a senior secured term loan facility in an aggregate original principal amount of $ 175 million (the “Term Loan”) with a scheduled maturity date of September 1, 2027 and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $ 20 million (the “Revolving Credit Facility” and, together with the Term Loan, the “Facilities”) with a scheduled maturity date of September 1, 2026, the full capacity of which may be utilized for the issuance of letters of credit.

The Revolving Credit Facility also includes a $ 5 million sub-facility for swing line loans.

The Term Loan, the proceeds of which were used as part of the cash consideration for the Rasmussen Acquisition, was fully funded on the Closing Date and is presented net of the debt issuance costs of $ 12.9 million in the Consolidated Balance Sheet.

The debt issuance costs are being amortized using the effective interest method over the term of the Term Loan.

Debt issuance costs of $ 0.5 million related to the Revolving Credit Facility were recorded as an asset and are being amortized to interest expense over the term of the Revolving Credit Facility.

There were no borrowings outstanding on the Revolving Credit Facility at September 30, 2021.

The Credit Agreement provides APEI with the option, subject to certain conditions, including obtaining commitments from one or more lenders, to increase the total commitments under the Revolving Credit Facility, increase the amount of the Term Loan and/or incur incremental term loan facilities in an aggregate amount not to exceed the sum of (A) the greater of (1) $ 91.0 million and (2) an amount equal to consolidated EBITDA on a pro forma basis for the most recently ended four-quarter period (less the aggregate amount of certain other incremental indebtedness permitted to be incurred by APEI, and plus the aggregate amount of voluntary prepayments of certain other incremental indebtedness permitted to be incurred by APEI) and (B) an amount (1) in the case of secured incremental facilities that rank pari passu with the Facilities, such that the First Lien Net Leverage Ratio would not be greater than 1.50 to 1.00 and the Total Net Leverage Ratio would not be greater than 2.00 to 1.00, (2) in the case of secured incremental facilities that rank junior to the Facilities, such that the Secured Net Leverage Ratio would not be greater than 1.75 to 1.00 and the Total Net Leverage Ratio would not be greater than 2.00 to 1.00, and (3) in the case of unsecured incremental facilities, such that the Total Net Leverage Ratio would not be greater than 2.00 to 1.00 or the

Interest Coverage Ratio would not be less than 2.00 to 1.00.

The First Lien Net Leverage Ratio, the Secured Net Leverage Ratio and the Total Net Leverage Ratio are each defined in the Credit Agreement and reflect a ratio of (x) in the case of the First Lien Net Leverage Ratio, consolidated first lien indebtedness (net of unrestricted cash and cash equivalents in excess of $ 50.0 million) to consolidated EBITDA, (y) in the case of the Secured Net Leverage Ratio, consolidated secured indebtedness (net of unrestricted cash and cash equivalents in excess of $ 50.0 million) to consolidated EBITDA, and (z) in the case of the Total Net Leverage Ratio, consolidated total indebtedness to consolidated EBITDA.

The Interest Coverage Ratio is also defined in the Credit Agreement and reflects a ratio of consolidated EBITDA to consolidated interest expense.

Outstanding borrowings under the Facilities bear interest at a per annum rate equal to LIBOR (subject to a 0.75 % floor) plus 5.50 %, which shall increase by an additional 2.00 % on all past due obligations if APEI fails to pay any amount when due.

An unused commitment fee in the amount of 0.50 % is payable quarterly in arrears based on the average daily unused amount of the commitments under the Revolving Credit Facility.

APEI is also required to make principal payments of the Term Loan on the last day of each quarter, commencing with the quarter ending December 31, 2021, in an amount equal to $ 2.2 million per quarter.

Subject to certain exceptions, APEI is required to make mandatory prepayments of the Term Loan, with the proceeds of asset sales, casualty and condemnation events, and unpermitted debt issuances.

The Facilities are and will be guaranteed by APEI’s subsidiaries and certain of APEI’s future subsidiaries that are required to become a party thereto as guarantors (collectively, the “Guarantors”).

The obligations of APEI and the Guarantors are secured by a pledge of substantially all of their respective assets pursuant to the terms of the Collateral Agreement dated as of the Closing Date by and among APEI, the Agent and the Guarantors from time to time party thereto (the “Collateral Agreement”).

The Credit Agreement contains customary affirmative and negative covenants, including limitations on APEI’s and its subsidiaries’ abilities, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions and enter into affiliate transactions, in each case, subject to certain exceptions, as well as customary representations, warranties, events of default, and remedies upon default, including acceleration and rights to foreclose on the collateral securing the Facilities.

In addition, the Credit Agreement contains a financial covenant that requires APEI to maintain a Total Net Leverage Ratio of no greater than 2.0 to 1.0.

Long-term debt consists of the following as of September 30, 2021 (in thousands):

Long-Term debt (Unaudited)

Credit agreement $ 175,000

Deferred financing fees ( 12,914 )

Total debt 162,086

Current portion ( 8,750 )

Long-term Debt $ 153,336

Scheduled maturities of long-term debt at September 30, 2021 are as follows (in thousands):

Maturities of Long-Term Debt (Unaudited) Loan Payments

2021 (remaining) $ 2,188

Thereafter 129,062

Total $ 175,000

Derivatives and Hedging

The Company is subject to interest rate risk as all outstanding borrowings under the Credit Agreement are subject to a variable rate of interest.

On September 30, 2021, the Company entered into an interest rate cap agreement to manage its exposure to the variable rate of interest with a total notional value of $ 87.5 million.

This interest rate cap agreement, designated as a cash flow hedge, provides the Company with interest rate protection in the event the LIBOR rate exceeds 2.0 %.

The interest rate cap is effective October 1, 2021 and will expire on January 1, 2025.

Segment Information

The Company has two operating segments that are managed in the following reportable segments:

• American Public Education Segment , or APEI Segment ;

• Hondros College of Nursing Segment , or HCN Segment .

In the third quarter of 2021, in connection with the Rasmussen Acquisition (as further described in Note 3, “Acquisition Activity”), the Company revised its reportable segments to reflect the manner in which the chief operating decision-maker evaluates performance and allocates resources, and to include RU as a separately reportable segment.

Prior to the third quarter of 2021, the Company had two reportable segments:

the American Public Education, Inc.

Segment, or APEI Segment, and the HCN Segment.

Post-acquisition, the Company has three reportable segments:

the APUS Segment, which was previously included within the former APEI Segment;

the Rasmussen Segment;

and the HCN Segment.

The APEI Segment previously reported the results of both APUS and remaining unallocated Company expenses.

Adjustments to reconcile segment results to the Consolidated Financial Statements are included in “Corporate and Other”, which primarily includes unallocated corporate activity and eliminations, which generally were previously reported within the APEI Segment.

Prior periods have been updated to conform to the revised presentation.

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.

The Company’s Chief Executive Officer reviews operating results to make decisions about allocating resources and assessing performance for the APUS, RU, and HCN Segments.

The RU Segment reflects the operations of RU, which was acquired on the Closing Date, through September 30, 2021.

The Company did not consolidate the financial results of the RU Segment prior to the Closing Date.

A summary of financial information by reportable segment is as follows (in thousands):

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

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

2021 2020 2021 2020

(Unaudited) (Unaudited)

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 )

APUS Segment $ 65,906 $ 69,659 $ 210,321 $ 210,376

RU Segment 21,132 — 21,132 —

HCN Segment 11,240 9,541 33,506 25,682

Corporate and Other ( 30 ) ( 67 ) ( 156 ) ( 182 )

Total Revenue $ 98,248 $ 79,133 $ 264,803 $ 235,876

Depreciation and amortization:

American Public Education Segment

$ 2,343 $ 3,221 $ 4,846 $ 6,415

Hondros College of Nursing Segment

181 170 329 314

APUS Segment $ 2,246 $ 3,057 $ 7,071 $ 9,451

RU Segment 1,935 — 1,935 —

HCN Segment 195 159 524 473

Corporate and Other 10 10 31 31

Total Depreciation and amortization $ 4,386 $ 3,226 $ 9,561 $ 9,955

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

Total Interest income, net $ 24 $ 179 $ 138 $ 881

Income (loss) from operations before interest and income taxes:

APUS Segment $ 7,825 $ 7,392 $ 30,969 $ 29,785

RU Segment ( 999 ) — ( 999 ) —

HCN Segment 448 466 1,348 ( 455 )

Corporate and Other ( 6,012 ) ( 4,550 ) ( 17,444 ) ( 14,288 )

Total income from operations before interest and income taxes $ 1,262 $ 3,308 $ 13,874 $ 15,042

Interest (expense) income:

APUS Segment $ 41 $ 78 $ 171 $ 251

RU Segment — — — —

HCN Segment 2 2 6 16

Corporate and Other ( 1,348 ) 41 ( 1,344 ) 735

Total Interest (expense) income $ ( 1,305 ) $ 121 $ ( 1,167 ) $ 1,002

Income tax expense (benefit):

American Public Education Segment

$ 607 $ 2,537 $ 3,041 $ 3,752

Hondros College of Nursing Segment

39 ( 5 ) 244 ( 246 )

APUS Segment $ 2,606 $ 1,769 $ 9,673 $ 7,944

RU Segment ( 371 ) — ( 371 ) —

HCN Segment 250 130 494 ( 116 )

Corporate and Other ( 2,261 ) ( 1,114 ) ( 6,287 ) ( 3,537 )

Total Income tax expense $ 224 $ 785 $ 3,509 $ 4,291

Capital expenditures:

American Public Education Segment

$ 843 $ 999 $ 1,814 $ 2,744

Hondros College of Nursing Segment

657 25 1,214 149

APUS Segment $ 1,159 $ 1,271 $ 2,973 $ 4,015

RU Segment 1,259 — 1,259 —

HCN Segment 367 7 1,581 156

Total Capital expenditures $ 2,785 $ 1,278 $ 5,813 $ 4,171

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

American Public Education Segment

$ 417,494 $ 322,544

Hondros College of Nursing Segment

51,422 48,474

As of September 30, 2021 As of December 31, 2020

APUS Segment $ 128,331 $ 112,461

RU Segment 432,767 —

HCN Segment 52,827 48,474

Corporate and Other 109,262 210,083

Total Assets $ 723,187 $ 371,018

10 unchanged sentences

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.

As of September 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,

A summary of APUS Segment revenue derived from students by primary funding source for the three and nine month periods ended September 30, 2021 and 2020 is included in the table below (unaudited):

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

2021 2020 2021 2020

3 unchanged sentences

Cash and other sources 14 % 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,

A summary of HCN Segment revenue derived from students by primary funding source for the three and nine month periods ended September 30, 2021 and 2020 is included in the table below (unaudited):

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

2021 2020 2021 2020

2 unchanged sentences

VA education benefits 1 % 3 % 1 % 2 %

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 .

RU participates in Title IV programs and also receives funds from education benefit programs administered by the VA.

During the nine months ended September 30, 2021, approximately 76 % of RU Segment revenue was derived from students using Title IV programs, 2 % from VA education benefits, and the remaining 22 % was derived from students using cash and other sources.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements