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Item 1. Financial Statements

2022-05-10 compared with 2021-11-08 · 272 added, 221 removed, 372 unchanged (57% of the section changed)

3 unchanged sentences

(In thousands)

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

As of March 31, 2022 As of December 31, 2021

ASSETS (Unaudited)

8 unchanged sentences

Operating lease assets, net 104,484 77,943

Investments 9,668 10,495

Intangible assets, net 88,936 3,721

Goodwill 243,993 243,486

Intangible assets, net 82,094 85,082

Other assets, net 15,887 14,043

6 unchanged sentences

Deferred revenue and student deposits 27,920 21,776

Income tax payable — 178

Operating lease liabilities, current 13,876 2,392

Lease liabilities, current 14,416 13,705

Long-term debt, current 8,750 8,750

Total current liabilities 93,702 83,678

Operating lease liabilities, long-term 73,420 6,455

Lease liabilities, long-term 96,859 69,488

Deferred income taxes 7,456 5,059

4 unchanged sentences

Preferred stock, $ .01 par value;

Authorized shares - 10,000 ;

10,000 shares authorized;

no shares issued or outstanding

Common stock, $ .01 par value;

Authorized shares - 100,000 ;

100,000 shares authorized;

18,856 issued and outstanding in 2022;

1 unchanged sentence

Additional paid-in capital 287,295 286,385

Accumulated other comprehensive income 1,432 108

Retained earnings 134,265 128,932

5 unchanged sentences

(In thousands, except per share amounts)

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

2021 2020 2021 2020

(Unaudited) (Unaudited)

Three Months Ended March 31,

Revenue $ 154,747 $ 88,541

7 unchanged sentences

Income from operations before interest and income taxes 5,200 10,637

Gain on acquisition (Note 3) 4,533 —

Interest (expense) income ( 3,355 ) 114

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

Income before income taxes 6,378 10,751

Income tax expense 1,040 2,639

Equity investment loss ( 5 ) ( 5 )

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

Net (loss) income per common share:

Net income $ 5,333 $ 8,107

Net income per common share:

Basic $ 0.28 $ 0.50

5 unchanged sentences

AMERICAN PUBLIC EDUCATION, INC.

Consolidated Statements of Comprehensive Income

(In thousands)

Three Months Ended March 31,

Net income $ 5,333 $ 8,107

Other comprehensive income, net of tax:

Unrealized gain on hedging derivatives, net of taxes 1,324 —

Comprehensive income $ 6,657 $ 8,107

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

AMERICAN PUBLIC EDUCATION, INC.

Consolidated Statements of Stockholders’ Equity (Unaudited)

(In thousands)

Additional Paid-in Capital Retained Earnings Total Stockholders’ Equity

Additional Paid-in Capital Accumulated Other Comprehensive Income (loss) Retained Earnings Total Stockholders’ Equity

Shares Amount

Balance as of December 31, 2020 14,809 $ 148 $ 195,597 $ — $ 111,180 $ 306,925

Issuance of common stock in public offering 3,680 37 86,168 86,205

Issuance of common stock under employee benefit plans 272 3 ( 3 ) — — —

1 unchanged sentence

Stock-based compensation — — 2,180 — — 2,180

Repurchased and retired shares of common stock ( 548 ) ( 5 ) — ( 13,603 ) ( 13,608 )

Net income — — — — 8,107 8,107

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

Additional Paid-in Capital Retained Earnings Total Stockholders’ Equity

Balance as of March 31, 2021 18,671 $ 187 $ 281,170 — $ 119,287 $ 400,644

Additional Paid-in Capital Accumulated Other Comprehensive Income (loss) Retained Earnings Total Stockholders’ Equity

Shares Amount

Balance as of December 31, 2021 18,709 $ 187 $ 286,385 $ 108 $ 128,932 $ 415,612

Issuance of common stock in public offering 3,680 37 86,168 — 86,205

Issuance of common stock under employee benefit plans 218 3 ( 3 ) — — —

1 unchanged sentence

Stock-based compensation — — 2,356 — — 2,356

Unrealized gain on hedging derivatives, net of taxes — — — 1,324 — 1,324

Net income — — — — 5,333 5,333

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

Balance as of March 31, 2022 18,856 $ 189 $ 287,295 $ 1,432 $ 134,265 $ 423,181

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

2 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities

Net income $ 5,333 $ 8,107

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

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

Depreciation and amortization 8,148 2,651

Amortization of debt issuance costs 654 —

3 unchanged sentences

Loss on disposals of long-lived assets 793 8

Gain on acquisition ( 4,533 ) —

Changes in operating assets and liabilities:

10 unchanged sentences

Investing activities

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

Cash received from acquisition, net of cash paid 1,932 —

Capital expenditures ( 2,965 ) ( 1,528 )

4 unchanged sentences

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

Cash paid for principal on borrowings and finance leases ( 2,216 ) —

Net cash (used in) provided by financing activities ( 3,660 ) 83,432

Net increase in cash, cash equivalents, and restricted cash 21,316 93,130

Cash, cash equivalents, and restricted cash at beginning of period 149,627 227,686

7 unchanged sentences

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 students through subsidiary institutions that include:

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 and, with the acquisition of Graduate School USA, career learning to students through the following subsidiary institutions:

• American Public University System, Inc., or APUS, provides online postsecondary education directed primarily at the needs of the military, military-affiliated, public service and service-minded communities through American Military University, or AMU, and American Public University, or APU.

1 unchanged sentence

• 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.

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

Please refer to “Note 3.

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.

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

• 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 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.

• American Public Training LLC, which is referred to herein as Graduate School USA, or GSUSA, provides career learning in-person and online to the federal workforce through a catalog of over 300 courses specializing in foundational and continuing professional development, as well as leadership training to advance the performance of government agencies through the competency and career advancement of their employees.

The Company completed the acquisition of substantially all the assets of GSUSA, or the GSUSA Acquisition, on January 1, 2022, or the GSUSA Closing Date.

Please refer to “Note 3.

Acquisition Activity” for more information on this acquisition.

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

GSUSA is accredited by the Accrediting Council for Continuing Education and Training, or ACCET.

GSUSA operates as a stand-alone subsidiary of APEI, however GSUSA does not meet the quantitative thresholds to qualify as a reportable segment;

therefore, this operating segment is combined and presented within “Corporate and Other”.

Please refer to “Note 9.

Segment Information” for more information on the Company’s reporting segments.

The Company’s subsidiary institutions are licensed or otherwise authorized by state authorities to offer postsecondary education programs to the extent the institutions believe such licenses or authorizations are required, and APUS, RU, and HCN 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.

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.

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.

• American Public University System Segment, or APUS Segment.

This segment reflects the operational activities of APUS.

3 unchanged sentences

This segment reflects the operational activities of HCN.

Adjustments to reconcile segment results to the Consolidated Financial Statements are included in “Corporate and Other”.

These adjustments include unallocated corporate activity and eliminations, which generally were previously reported within the APEI Segment, and, effective January 1, 2022, the operational activities of GSUSA.

Summary of Significant Accounting Policies

A summary of the Company’s significant accounting policies follows:

Basis of Presentation and Accounting

The accompanying unaudited, interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP.

Business Combinations

The Company accounts for business combinations in accordance with Financial Accounting Standards Bureau, or FASB, Accounting Standards Codification 805, Business Combinations , or ASC 805, which requires the acquisition method to be used for all business combinations.

Under ASC 805, the assets and liabilities of an acquired company are reported at business fair value along with the fair value of acquired intangible assets at the date of acquisition.

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

Principles of Consolidation

5 unchanged sentences

Operating results for any interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

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.

This Quarterly Report on Form 10-Q should be read in conjunction with the 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, 2021, or the Annual Report.

Use of Estimates

In preparing financial statements in conformity with GAAP, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.

The Company evaluates these estimates and assumptions on an ongoing basis and bases its estimates on experience, current and expected future conditions, and various other assumptions that the Company believes are reasonable under the circumstances.

Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to the Company’s Consolidated Financial Statements.

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.

Factors the Company considers when evaluating for an other-than-temporary impairment include the duration and severity of the impairment, the reasons for the decline in value, and the potential recovery period.

For an investee with impairment indicators, the Company measures fair value on the basis of discounted cash flows or other appropriate valuation methods.

If it is probable that the Company will not recover the carrying amount of the investment, the impairment is considered other-than-temporary and recorded in equity investment loss, and the equity investment balance is reduced to its fair value.

For each reporting period, the Company evaluates its cost method investments for observable price changes.

Factors the Company may consider when evaluating an observable price may include significant changes in the regulatory, economic or technological environment, changes in the general market condition, bona fide offers to purchase or sell similar investments, and other criteria.

Management must exercise significant judgment in evaluating the potential impairment of its equity and cost method investments.

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.

The Company evaluates these estimates and judgments on an ongoing basis and bases its estimates on experience, current and expected future conditions, and various other assumptions that the Company believes are reasonable under the circumstances.

Actual results may differ from those estimates under different assumptions or conditions, and the impact of such differences may be material to the Consolidated Financial Statements.

Cash and Cash Equivalents

The Company considers all short-term highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

Cash and cash equivalents consist of demand deposits with financial institutions, money market funds, and U.S.

Treasury bills.

Cash and cash equivalents are Level 1 assets in the fair value reporting hierarchy.

Restricted Cash

Restricted cash includes funds held for students for unbilled educational services that were received from Title IV programs.

As a trustee of these Title IV program funds, the Company is required to maintain and restrict these funds pursuant to the terms of the program participation agreement with ED.

Restricted cash also includes 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 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 a RU leased campus.

Restricted cash on the Consolidated Balance Sheets as of

March 31, 2022 and December 31, 2021, excluding the restricted certificates of deposit, was $ 1.6 million and $ 2.2 million, respectively.

Total restricted cash as of March 31, 2022 and December 31, 2021 was $ 26.4 million and $ 27.0 million, respectively.

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.

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

Goodwill is not amortized.

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.

2 unchanged sentences

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 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.

Stock-based compensation cost is recognized as expense, generally over a three-year vesting period, using the straight-line method for employees and the graded-vesting method for members of the Board of Directors, and is measured using the Company’s closing stock price on the date of the grant.

An accelerated one-year period is used to recognize stock-based compensation cost for employees who have reached certain service and retirement eligibility criteria on the date of grant.

3 unchanged sentences

The forfeiture assumption is ultimately adjusted to the actual forfeiture rate.

If actual results differ significantly from these estimates, stock-based compensation expense could be higher and have a material impact on the Company’s Consolidated Financial Statements.

If actual results differ significantly from these estimates, stock-based compensation expense could be higher and have a material impact on the Consolidated Financial Statements.

Estimates are subjective and are not intended to predict actual future events, and subsequent events are not indicative of the reasonableness of the original estimates of fair value.

Stock-based compensation expense for the three and 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

(Unaudited) (Unaudited)

Stock-based compensation expense for the three months ended March 31, 2022 and 2021 was as follows (in thousands):

Three Months Ended March 31,

Instructional costs and services $ 459 $ 466

1 unchanged sentence

General and administrative 1,601 1,405

Stock-based compensation expense in operating income $ 1,804 $ 1,942 $ 5,969 $ 5,265

Total stock-based compensation expense $ 2,356 $ 2,180

Incentive-based Compensation

2 unchanged sentences

For the years ending December 31, 2022 and 2021, the Management Development and Compensation Committee of the Company’s Board of Directors approved an annual incentive arrangement for senior management employees.

The aggregate amount of any awards payable is dependent upon the achievement of certain Company financial and operational goals, as well as individual performance goals.

The aggregate amount of any awards payable is dependent upon the achievement of certain Company financial and operational goals, as well as the satisfaction of individual performance goals.

Given that the awards are generally contingent upon achieving annual objectives, final determination of the current year incentive awards cannot be made until after the results for the year are finalized.

The Company recognizes the estimated fair value of performance-based restricted stock units by assuming the satisfaction of any performance-based objectives at the “target” level, which is the most probable outcome determined for accounting purposes at the time of grant and multiplying the corresponding number of shares earned based upon such achievement by the closing price of the Company’s stock on the date of grant.

To the extent performance goals are not met, compensation cost is not ultimately recognized against the goals and, to the extent previously recognized, compensation cost is reversed.

To the extent performance goals are not met, compensation cost is not ultimately

recognized against the goals and, to the extent previously recognized, compensation cost is reversed.

Amounts accrued are subject to change in future interim periods if actual future financial results or operational performance are better or worse than expected.

The Company recognized an aggregate expense associated with the Company’s current year annual incentive-based compensation plans of approximately $ 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.

During the three months ended March 31, 2022 and 2021, the Company recognized an aggregate expense associated with the Company’s annual incentive-based compensation plans of $ 1.8 million and $ 1.2 million, respectively.

The Company determines its interim tax provision by applying the estimated income tax rate expected for the full calendar year to income before income taxes for the period adjusted for discrete items.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates, or ASUs, issued by FASB.

The Company considers the applicability and impact of all Accounting Standards Updates, or ASUs, issued by the FASB.

All ASUs issued subsequent to the filing of the Annual Report on March 2, 2022 were assessed and determined to be either inapplicable or not expected to have a material impact on the Company’s consolidated financial position and/or results of operations.

Acquisition Activity

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.

Acquisition of Rasmussen University

On the RU Closing Date, the Company completed the Rasmussen Acquisition pursuant to a membership interest purchase agreement dated October 28, 2020, or the Purchase Agreement, acquiring RU for an adjusted aggregate purchase price, subject to post-closing working capital adjustments, and net of cash acquired, of $ 325.5 million in cash.

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 goodwill recorded as part of the acquisition was allocated to the RU Segment in the amount of $ 217.4 million and is deductible for tax purposes.

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.

The Company has up to one year from the RU 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.

During the three months ended March 31, 2022, the Company recorded a $ 0.5 million increase in goodwill recorded in connection with the Rasmussen Acquisition based on the final working capital adjustment.

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

Purchase Price Allocation (Unaudited) Amount

Purchase Price Allocation Amount

Cash and cash equivalents $ 329,000

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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

Intangible Assets Useful life Amount

Trade name Indefinite 26,500

3 unchanged sentences

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.

Acquisition of Graduate School USA

On the GSUSA Closing Date, the Company completed the GSUSA Acquisition pursuant to an Asset Purchase Agreement dated August 10, 2021 by and among American Public Training LLC, and Graduate School USA, or the Seller, for an aggregate purchase price of $ 1.0 million, subject to working capital adjustments.

At closing, the Company received

approximately $ 1.9 million from the Seller, which represents the estimated net working capital at closing net of the initial cash payment to the Seller of $ 0.5 million which is the purchase price less $ 0.5 million retained by the Company to secure the indemnification obligations of the Seller.

The purchase price reflects the $ 0.5 million due to Seller post-closing, and additional adjustments to the estimated net working capital at closing.

The Company applied the acquisition method of accounting to the GSUSA Acquisition, whereby the assets acquired and liabilities assumed were recognized at fair value on the GSUSA Closing Date.

There was no goodwill recorded as a result of the GSUSA Acquisition, but an approximate $ 4.5 million noncash, non-taxable gain on the acquisition was recorded and is included as a separate line item on the Consolidated Statements of Income for the three months ended March 31, 2022.

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

The Company has up to one year from the GSUSA 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 $ 1,000

Working capital adjustment ( 3,388 )

Total consideration ( 2,388 )

Assets acquired:

Accounts receivable 4,282

Prepaid expenses 1,096

Property and equipment, net 400

Operating lease assets 31,635

Intangible assets 965

Total assets acquired 38,378

Liabilities assumed:

Accounts payable and accrued expenses 810

Deferred revenue 1,969

Lease liabilities, current 1,179

Lease liabilities, long-term 30,779

Deferred tax liability 1,496

Total liabilities assumed 36,233

Net assets acquired 2,145

Gain on acquisition $ 4,533

The gain on acquisition represents the excess of the fair value of net assets acquired over consideration paid.

The consideration paid represents a substantial discount to the book value of GSUSA’s net assets at the GSUSA Closing Date, primarily due to the fair value adjustments related to the trade name, fixed assets, and right-of-use lease assets and liabilities compared to book value.

The gain on acquisition was primarily the result of the impact of the COVID-19 pandemic on GSUSA’s revenue and earnings, and a lack of access to capital by the Seller.

The agreed upon purchase price reflected the fact that GSUSA may need additional capital to fund operating losses.

The fair value of the identified intangible assets, including customer contracts and relationships and trade name were determined using the income-based approach.

The fair value of curricula and accreditation and licensing 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

Customer contracts and relationships 2.5 years 744

Curricula 3 years 158

Trade name 1 year 35

Accreditation and licenses 2.5 years 28

Pro forma financial information relating to the GSUSA Acquisition is not presented because the GSUSA Acquisition did not represent a significant business acquisition for the Company.

For the three months ended March 31, 2022, the Company incurred approximately $ 0.9 million of acquisition-related expenses related to RU and GSUSA, and for the three months ended March 31, 2021, the Company incurred approximately $ 0.6 million of acquisition-related expenses related to RU.

These expenses are included in general and administrative expenses on the Consolidated Statements of Income.

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 September 30, 2021

APUS RU HCN Intersegment Consolidated

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

Graduation fees 397 — — — 397

Textbook and other course materials — 3,282 1,556 — 4,838

Other fees 188 12 150 — 350

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

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

Graduation fees 401 — — — 401

Textbook and other course materials — — 1,411 — 1,411

Other fees 200 — 153 — 353

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

Nine Months Ended September 30, 2021

APUS RU HCN Intersegment Consolidated

Three Months Ended March 31, 2022

APUS RU HCN Corporate and Other Consolidated

Instructional services, net of grants and scholarships $ 72,585 $ 55,917 $ 9,733 $ 3,017 $ 141,252

3 unchanged sentences

Total Revenue $ 73,090 $ 67,099 $ 11,541 $ 3,017 $ 154,747

Nine Months Ended September 30, 2020

APUS RU HCN Intersegment Consolidated

Three Months Ended March 31, 2021

APUS RU HCN Corporate and Other Consolidated

Instructional services, net of grants and scholarships $ 76,885 $ — $ 9,365 $ ( 67 ) $ 86,183

3 unchanged sentences

Total Revenue $ 77,476 $ — $ 11,132 $ ( 67 ) $ 88,541

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.

The RU Segment reflects the operations of RU, which was acquired on the RU Closing Date.

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

Corporate and Other includes tuition and contract training revenue earned by GSUSA from the GSUSA Closing Date through March 31, 2022.

Contract career learning revenue represents both individual and customized training programs and is recognized when the services are performed.

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

The elimination of this intersegment revenue is included within Corporate and Other.

Contract Balances and Performance Obligations

The Company has no contract assets or deferred contract costs as of September 30, 2021 and December 31, 2020.

The Company had no contract assets or deferred contract costs as of March 31, 2022 and December 31, 2021.

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 March 31, 2022 was $ 27.9 million and includes $ 10.7 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $ 17.2 million in consideration received in advance for future courses or terms, or student deposits.

Deferred revenue at December 31, 2021 was $ 21.8 million and includes $ 12.9 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $ 8.9 million in student deposits.

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The Company has elected, as a practical expedient, not to disclose additional information about unsatisfied performance obligations for contracts with students that have an expected duration of one year or less.

When the Company begins performing its obligations, a contract receivable is created, resulting in accounts receivable on the Company’s Consolidated Balance Sheets.

When the Company begins performing its obligations, a contract receivable is created, resulting in accounts receivable on the Consolidated Balance Sheets.

The Company accounts for receivables in accordance with FASB ASC 310, Receivables .

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Recoveries of receivables previously written off are recorded when received.

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

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

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

Interest charged by HCN on payment plans was immaterial for the periods presented.

The Company’s principal leasing activities include facilities, classified as operating leases, and, as a result of the GSUSA Acquisition, copiers and printers, classified as finance leases.

Leases are classified as operating leases unless they meet any of the criteria below to be classified as a finance lease:

• the lease transfers ownership of the asset at the end of the lease;

• the lease grants an option to purchase the asset which the lessee is expected to exercise;

• the lease term reflects a major part of the asset’s economic life;

• the present value of the lease payments equals or exceeds the fair value of the asset;

• the asset is specialized with no alternative use to the lessor at the end of the term.

Operating Leases

The Company has operating leases for office space and campus facilities.

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These options are included in the lease term when it is reasonably certain that the option will be exercised.

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 Company leases corporate office space in Maryland under an operating lease that expires in May 2023.

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.

GSUSA leases classroom and administrative office space in Washington, D.C.

and Honolulu, Hawaii under operating leases that expire through September 2036.

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

Operating lease liabilities represent the obligation to make lease payments arising from the lease.

Operating leases are included in the Operating lease assets, net, and Operating lease liabilities, current and long-term, on the Consolidated Balance Sheets.

These 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.

Operating leases are included in the operating lease assets, net, and lease liabilities, current and long-term, on the Consolidated Balance Sheets.

These assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

When the lease does not provide an implicit interest rate, the Company uses an incremental borrowing rate based on information available at lease commencement to determine the present value of the lease payments.

The ROU assets include all remaining lease payments and exclude lease incentives.

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There are no variable lease payments.

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.

Lease expense for the three month periods ended March 31, 2022 and 2021 was $ 5.0 million and $ 0.8 million, 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 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

Cash paid for amounts included in the present value of operating lease liabilities during the three month periods ended March 31, 2022 and 2021 was $ 4.8 million and $ 0.7 million, respectively, and is included in operating cash flows.

Finance Leases

In connection with the GSUSA Acquisition, the Company acquired leases for copiers and printers that are classified as finance leases and expire on December 31, 2024.

The Company pledged the assets financed to secure the outstanding leases.

As of March 31, 2022, the total finance lease liability was $ 0.3 million with an average interest rate of 3.75 %.

The ROU asset is recorded within Property and equipment, net on the Consolidated Balance Sheets.

Lease amortization expense associated with the Company’s finance leases was approximately $ 0.03 million for the three months ended March 31, 2022 and is recorded within Depreciation and amortization expense on the Consolidated Statements of Income.

The following tables present information about the amount and timing of cash flows arising from the Company’s finance and operating leases as of March 31, 2022 (dollars in thousands):

Maturity of Lease Liabilities (Unaudited) Operating Leases Finance Leases

2022 (remaining) $ 14,148 $ 85

2023 16,072 114

2024 14,436 113

2025 13,284 —

2026 12,830 —

2027 12,586 —

2028 and beyond 55,551 —

Total future minimum lease payments $ 138,907 $ 312

Less imputed interest ( 10,895 )

imputed interest ( 27,928 ) ( 16 )

Present value of operating lease liabilities $ 110,979 $ 296

lease liabilities, current ( 14,312 ) ( 104 )

Lease liabilities, long-term $ 96,667 $ 192

Balance Sheet Classification (Unaudited)

Operating lease liabilities, current $ 14,312

Finance lease liabilities, current 104

Operating lease liabilities, long-term 96,667

Total operating lease liabilities $ 87,296

Finance lease liabilities, long-term 192

Total lease liabilities $ 111,275

Other Information (Unaudited)

Weighted average remaining lease term (in years)

Operating leases 5.35

Finance leases 2.75

Weighted average discount rate

Operating leases 4.0 %

Finance leases 3.8 %

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

In connection with its acquisitions, the Company applied ASC 805, using the acquisition method of accounting.

In connection with the Rasmussen Acquisition, the Company recorded $ 217.4 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 impairment charges reducing the carrying value of our goodwill to $ 26.6 million.

There was no goodwill recorded in connection with the acquisition of GSUSA.

The following table summarizes the changes in the carrying amount of goodwill by reportable segment as of March 31, 2022 (in thousands):

RU Segment HCN Segment Total Goodwill

Goodwill as of December 31, 2021 $ 216,923 $ 26,563 $ 243,486

1 unchanged sentence

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):

Adjustments 507 — 507

Goodwill as of March 31, 2022 $ 217,430 $ 26,563 $ 243,993

There were no indefinite useful life intangible assets identified as a result of the GSUSA Acquisition.

The Company recorded $ 35.5 million, $ 4.4 million and $ 1.0 million, respectively, of identified intangible assets with a definite useful life in connection with the acquisitions of RU, HCN and GSUSA.

Amortization expense related to definite lived intangibles assets was approximately $ 4.0 million for the three months ended March 31, 2022.

The following table represents the balance of the Company’s intangible assets as of March 31, 2022 (in thousands):

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Finite-lived intangible assets

Student roster $ 20,000 5,833 14,167

14,563 3,140 11,423

Student and customer contracts and relationships 4,614 3,944 670

Lead conversions 1,500 438 1,062

Non-compete agreements

Tradename 35 9 26

Accreditation and licenses 28 3 25

Total finite-lived intangible assets $ 40,826 $ 13,453 $ 27,373

Indefinite-lived intangible assets

5 unchanged sentences

54,721 — 54,721

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

Total intangible assets

$ 95,547 $ 13,453 $ 82,094

The following table represents the balance of the Company’s intangible assets as of December 31, 2021 (in thousands):

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

1 unchanged sentence

Student roster $ 20,000 3,333 16,667

14,000 389 13,611

Curricula 14,405 1,961 12,444

Student contracts and relationships 3,870 3,870 —

Lead conversions 1,500 250 1,250

Non-compete agreements 86 86 —

Total finite-lived intangible assets $ 39,861 $ 9,500 $ 30,361

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

Indefinite-lived intangible assets

26,500 — 26,500

Trade name 28,498 — 28,498

Accreditation, licensing and Title IV

26,186 — 26,186

Affiliation agreements 37 — 37

Total indefinite-lived intangible assets

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Total intangible assets $ 94,582 $ 9,500 $ 85,082

$ 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.

The Company evaluated events and circumstances related to the valuation of goodwill and intangibles, recorded within our RU and HCN Segments, through March 31, 2022 and 2021, 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.

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.

These evaluations concluded there were no indicators of impairment during the three months ended March 31, 2022 and 2021, and consequently, there was no impairment of goodwill or intangible assets during those periods.

Determining fair value of goodwill and intangible assets requires judgment and the use of significant estimates and assumptions, including, but not limited to, fluctuations in enrollments, revenue growth rates, operating margins, discount rates, and future market conditions.

Given the current competitive and regulatory environment, the impact of COVID-19, and the uncertainties regarding the related impact on the 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 goodwill impairment charges in future periods.

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

For additional information on goodwill and intangible assets, see the Consolidated Financial Statements and accompanying notes in its audited financial statements included in the Annual Report.

Net Income Per Common Share

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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 September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(Unaudited) (Unaudited)

Three Months Ended March 31,

Basic weighted average shares outstanding 18,805 16,211

2 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 September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(Unaudited) (Unaudited)

Three Months Ended March 31,

Antidilutive securities:

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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.

In connection with the Rasmussen Acquisition, APEI, as borrower, entered into a Credit Agreement with Macquarie Capital Funding LLC, or the Credit Agreement, as administrative agent and collateral agent, Macquarie Capital USA Inc.

and Truist Securities, Inc., as lead arrangers and joint bookrunners, and certain lenders party thereto.

The Credit Agreement provides for (i) a senior secured term loan facility in an aggregate original principal amount of $ 175 million, or 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 $ 20.0 million, or the Revolving Credit Facility, which together with the Term Loan, is referred to as 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 $ 5.0 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 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 at origination of $ 13.1 million on the Consolidated Balance Sheets.

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.

There were no borrowings outstanding on the Revolving Credit Facility at March 31, 2022 and December 31, 2021.

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”).

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, in an amount equal to $ 2.2 million per quarter.

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):

At March 31, 2022, the Company was in compliance with all debt covenants.

Long-term debt consists of the following as of March 31, 2022 (in thousands):

Long-Term debt (Unaudited)

4 unchanged sentences

Long-Term Debt $ 150,212

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

Scheduled maturities of long-term debt at March 31, 2022 are as follows (in thousands):

Maturities of Long-Term Debt (Unaudited) Loan Payments

2022 (remaining) 6,562

Thereafter 129,062

Total 170,625

4 unchanged sentences

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

Changes in the fair value of the interest rate cap designated as a hedging instrument that effectively offset the variability of cash flows associated with our variable-rate, long-term debt obligations are reported in accumulated other comprehensive income.

These amounts subsequently are reclassified into interest expense as a yield adjustment of the hedged interest payments in the same period in which the related interest affects earnings.

At March 31, 2022, the $ 2.3 million fair value of the interest rate cap is recorded in Other assets on the Consolidated Balance Sheets.

The unrealized gain of $ 1.8 million is included as other comprehensive income.

Segment Information

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:

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.

Segment, or APEI Segment, and the Hondros College of Nursing, or 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;

the RU 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.

GSUSA does not meet the quantitative thresholds to qualify as a reportable segment;

therefore, its operational activities are presented below within “Corporate and Other”.

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

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

1 unchanged sentence

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 September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(Unaudited) (Unaudited)

Three Months Ended March 31,

APUS Segment $ 73,090 $ 77,476

31 unchanged sentences

HCN Segment 500 557

Corporate and Other 100 —

Total Capital Expenditures $ 2,965 $ 1,528

A summary of the Company’s consolidated assets by reportable segment is as follows (in thousands):

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

As of March 31, 2022 As of December 31, 2021

APUS Segment $ 136,573 $ 126,926

9 unchanged sentences

Concentration

APUS students utilize various payment sources and programs to finance their educational expenses, including funds from:

Our students utilize various payment sources and programs to finance their education expenses, including funds from:

Department of Defense, or DoD, tuition assistance programs, or TA, education benefit programs administered by the U.S.

Department of Veterans Affairs, or VA;

and federal student aid from Title IV programs, as well as cash and other sources.

Reductions in or changes to TA, VA education benefits, Title IV programs, and other payment sources could have a significant impact on the Company’s operations.

As of 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 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

Department of Veterans Affairs, or VA, and federal student aid from Title IV programs;

and cash and other sources.

A summary of APUS Segment revenue derived from students by primary funding source is as follows (unaudited):

Three Months Ended March 31,

DoD tuition assistance programs 48 % 45 %

2 unchanged sentences

Cash and other sources 13 % 14 %

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

A summary of RU Segment revenue derived from students by primary funding source is as follows (unaudited):

Three Months Ended March 31,

Title IV programs 74 % 76 %

1 unchanged sentence

VA education benefits 2 % 2 %

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.

A summary of HCN Segment revenue derived from students by primary funding source is as follows (unaudited):

Three Months Ended March 31,

Title IV programs 79 % 81 %

Cash and other sources 19 % 18 %

VA education benefits 2 % 1 %

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