What changed in this filing

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Item 1A. Risk Factors

2022-05-10 compared with 2021-11-08 · 29 added, 59 removed, 5 unchanged (95% of the section changed)

3 unchanged sentences

With the exception of the following, there have been no material changes in the risk factors set forth in the Risk Factors section of our Annual Report.

Our student registrations and revenue have been adversely impacted and we could continue to experience adverse impacts as a result of the Army’s transition from GoArmyEd to ArmyIgnitED.

Army service members participating in TA programs constituted approximately 22.9% of APUS’s adjusted net course registrations for 2020.

APUS relies on the ability of the Army, and the other branches of the Armed Forces, to process service members’ participation in TA programs, and from time to time, changes to processes have impacted the ability of service members to participate in those programs.

For example, the Army previously announced that it would transition from its legacy system, GoArmyEd, to a new system, ArmyIgnitED, that soldiers could use to apply for TA.

As described more fully in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview,” this transition has been beset by delays and resulted in temporary suspension and disruption of the Army’s TA programs.

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

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

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

We continue to experience challenges related to system performance, process changes and software defects, and there is no assurance that the new portal will ever work correctly or efficiently or will not have continuing impacts on soldiers’ ability to participate in the TA programs or receive funds under those programs.

There was an adverse impact on registrations and revenue for the quarters ended June 30, 2021 and September 30, 2021, and we expect some impact to continue for the remainder of 2021.

The inability of soldiers to participate in TA programs, or continued or additional limitations on their ability to apply and participate, would have an adverse effect on our results of operations and financial condition, particularly because soldiers make up the largest group of TA participants at APUS.

In addition, TA will have to be retroactively sought and obtained for soldiers who registered for courses during the period beginning March 8, 2021.

As a result, it is possible that we could incur bad debt expenses if soldiers who expect to receive TA do not receive it and do not otherwise pay the tuition for their courses.

The disruption to the Army’s systems has also adversely impacted APUS’s ability to invoice the Army for Army registrations and has adversely impacted accounts receivable, and may continue to impact future registrations, revenue and accounts receivable balances and cash flow from operations.

Moderating demand for our programs as a result of the abatement of the COVID-19 pandemic could adversely affect our business, financial condition, and results of operations.

In 2020, we experienced an increase in net course registrations at APUS and an increase in student enrollment at HCN, and Rasmussen University similarly experienced an increase in its enrollments.

We believe the increase in net course registrations at APUS was in part due to the impact of the COVID-19 pandemic, and that the increase in student enrollment at Rasmussen University and HCN was due in part to an increase in demand for nursing education and a change in the competitive environment due to COVID-19.

There is no assurance that the increases will be sustained, and recent trends at APUS and Rasmussen University show a moderation in registration and enrollments.

As the COVID-19 pandemic abates, we believe near-term demand for our programs could moderate further.

Rasmussen University is currently on provisional certification with the Department of Education, including because of the recent Rasmussen Acquisition, and the terms of that provisional certification could limit its potential for growth.

In July 2021, ED notified Rasmussen University that in connection with Rasmussen University’s March 2019 change in ownership, ED was imposing certain temporary growth restrictions on the institution, which include maintaining limitations on new programs and locations that were already in place and imposing a cap on the number of students that participate in Title IV programs that can be enrolled.

Additionally, ED continued to require Rasmussen University to submit periodic financial and enrollment reports, a requirement that it had imposed on RU in connection with the financial responsibility letter of credit previously imposed on Rasmussen University.

On September 9, 2021, Rasmussen University timely submitted a change in ownership and control application to ED seeking approval to participate in the Title IV programs under our ownership.

ED and Rasmussen University entered into a Temporary Provisional Program Participation Agreement, or TPPPA, effective as of October 14, 2021, that allows Rasmussen University to continue disbursing Title IV funds during the period of ED’s review of the change in ownership application.

The TPPPA continues the growth restrictions that ED imposed as a result of the March 2019 change in ownership, including the same enrollment cap.

The TPPPA specifies that after ED reviews and accepts financial statements and compliance audits that cover one complete fiscal year of RU’s Title IV participation under APEI’s ownership, RU may seek to have the enrollment cap removed and may seek approval for new programs that replace current programs.

The TPPPA also specifies that at least until after ED reviews and accepts financial statements and compliance audits that cover the second complete fiscal year of RU’s Title IV participation under APEI’s ownership, RU must seek pre-approval for new locations, new programs that are not replacing current programs, and other changes.

These growth restrictions could limit or adversely affect Rasmussen University’s growth opportunities, including restricting its ability to serve additional students, particularly additional nursing students, and limiting its ability to continue to evolve to address current needs by providing new or changed programs.

The growth restrictions could also have an adverse effect on our ability to grow revenues or meet investors’ and financial analysts’ expectations for financial performance.

In addition, if ED were to determine that an institution is unable to meet its responsibilities while it is provisionally-certified, as Rasmussen and APUS currently are, ED can seek to revoke an institutions’ certification to participate in Title IV programs with fewer due process protections than if they were fully-certified.

Limitations on our institutions’ operations could, and the loss of our institutions’ certification to participate in Title IV programs would adversely affect our institutions’ enrollments, and our revenue and results of operations.

Congressional and administrative examination of for-profit institutions has resulted in and could result in further legislative and regulatory changes that may materially and adversely affect our business.

ARPA modifies the 90/10 Rule to require that a for-profit institution derive not less than 10% of its revenue from sources other than “federal education assistance funds.” Prior to going into effect, the provisions of ARPA related to the 90/10 Rule are required to go through a negotiated rulemaking process.

An ED final rule to implement the ARPA provision is not expected to go into effect until July 1, 2023 for the full year ending December 31, 2023 at the earliest, and we cannot predict to what extent ARPA and the final rule will affect us and our institutions.

ARPA does not define “federal education assistance funds”.

However, we expect such definition to be developed as part of the required negotiated rulemaking and anticipate that ED would seek to include TA and VA education benefits in the scope of the definition.

If the rulemaking process results in TA and VA being included in the “90%” side of the ratio, our institutions’ 90/10 Rule percentage will increase.

Recent ED negotiated rulemakings could result in regulations that materially and adversely affect our business.

In March 2022, ED completed negotiated rulemaking processes intended to develop regulations related to Title IV participation.

Topics addressed include 90/10 Rule modifications, gainful employment requirements, public service student loan forgiveness programs, mandatory pre-dispute arbitration, prohibition of class-action lawsuits, ability to benefit provisions, certification procedures for participation in Title IV programs, change of ownership and change in control rules and procedures, financial responsibility standards, and standards of administrative capability, among others.

The negotiated rulemaking committees did not reach consensus on most of the draft regulations that they addressed, which means ED is not bound to use language developed during the negotiated rulemaking process for those regulations, and we cannot predict the nature or final form of any regulations ultimately adopted by ED.

Any final regulations adopted by ED are not expected to go into effect until July 1, 2023 at the earliest, and we cannot ascertain whether those regulations could harm our business or materially and adversely affect our financial conditions and results of operations.

The HEA requires all for-profit education institutions to comply with the 90/10 Rule.

In March 2021, the American Rescue Plan Act of 2021, or ARPA, which modified the 90/10 Rule to require that a for-profit institution derive not less than 10% of its revenue from sources other than “federal education assistance funds,” was signed into law.

One of the recent negotiated rulemaking committees reached consensus on draft regulations to implement ARPA’s modifications to the 90/10 Rule, which means ED is required to use the consensus-based language in the proposed regulations that it publishes for public notice and comment.

This language provides that for fiscal years beginning on or after January 1, 2023, federal funds used to calculate the revenue percentage will include Title IV funds and any other educational assistance funds provided by a federal agency directly to an institution or a student, including the federal portion of any grant funds provided by or administered by a non-federal agency, except for non-Title IV federal funds provided directly to a student to cover expenses other than tuition, fees, and other institutional charges.

The consensus-based language also provides that ED will identify the federal agency and the other educational assistance funds provided by that agency in a notice published in the Federal Register, with updates published as needed.

As a result of this language, we expect that TA and VA benefits will be included in the “90%” side of the ratio, and our institutions’ 90/10 Rule percentages will increase, particularly at APUS.

Inclusion of TA in the 90/10 calculation could also cause other educational institutions to decrease their focus on serving military-affiliated students using TA benefits, and while that could have a positive impact on our enrollments from those students, it could also have an adverse impact on our ability to meet the requirements of the 90/10 Rule.

This change, and any resulting actions we take to adjust the operations of our institutions to comply with the 90/10 Rule, could have a material adverse impact on the financial condition and operations of our institutions.

We cannot predict the likelihood that Congress or the President will continue to modify the 90/10 Rule with respect to relevant sources of funds or other aspects of the calculation.

For example, in recent years Congress has considered various other proposals that would modify the 90/10 Rule, including proposals to decrease the limit on Title IV funds from 90% to 85%.

Such proposals, or other similar legislation, should they become law, could have a material adverse impact on the operations of our institutions.

In addition, one state has passed and other states may in the future pass their own versions of the 90/10 Rule that include TA and VA education benefits or other sources of funds in the “90%” side of the ratio.

To the extent that any additional laws or regulations, including regulations under ARPA, are adopted that limit or condition the participation of for-profit schools or distance education programs in TA or in Title IV programs, or that limit or condition the amount of TA for which for-profit schools or distance education programs are eligible to receive, our financial condition and results of operations could be materially and adversely affected.

We also cannot predict whether ED’s negotiated rulemaking process to address borrower defenses to repayment, public service student loan forgiveness programs, mandatory pre-dispute arbitration and prohibition of class-action lawsuits, among other issues, will result in regulatory changes that would harm our business.

These regulatory changes have the potential to materially and adversely affect our financial conditions and results of operations.

Finally, in October 2021, in what it termed a broad-based initiative to deter for-profit college fraud, the Federal Trade Commission, or FTC, issued informational notices to 70 for-profit higher education institutions, including APUS and Rasmussen University, informing them of certain marketing practices the FTC had previously determined to be deceptive or unfair and therefore unlawful under the FTC Act.

The informational notices were sent in furtherance of an FTC Act provision permitting penalties against those engaging in unfair or deceptive acts or practices with actual knowledge of their unfair or deceptive nature.

The informational notices informed the institutions that engaging in such practices could subject a company to civil penalties under that provision.

By providing the informational notices, the FTC is able to document that the institutions have knowledge that the FTC has found these marketing practices to be unfair or deceptive.

The FTC also announced that it would be enhancing its enforcement cooperation with other agencies with oversight of educational institutions, including ED’s Office of Student Aid and the Department of Veterans Affairs.

In addition, on October 6, 2021, ED announced that it had restored an Office of Enforcement within ED’s Office of Federal Student Aid to strengthen oversight of and enforcement actions against postsecondary institutions that participate in federal student loan, grant, and work-study programs.

Any civil penalties or enforcement actions could have a material and adverse effect on our financial condition and results of operations

A failure of HCN to satisfy ABHES accreditation standards, including specific student achievement indicators, could have a material adverse impact on HCN’s student enrollment and our and HCN’s revenue, cash flows, and results of operations.

ABHES annually reviews student achievement indicators, including retention rate, placement rate, and licensing and credentialing examination pass rate.

Under ABHES policy, ABHES may withdraw accreditation at any time if it determines that an institution fails to demonstrate at least a 70% retention rate for each program, a 70% placement rate for each program, and a 70% pass rate on mandatory licensing and credentialing examinations, or fails to meet state-mandated results for credentialing or licensure.

Alternatively, ABHES may in its discretion provide an opportunity for a program to come into compliance within a period of time specified by ABHES, and ABHES may extend the period for achieving compliance if a program demonstrates improvement over time or other good cause.

For the reporting year ended June 30, 2021, several HCN programs did not satisfy ABHES’s threshold requirements for retention rates.

If any HCN campus or program fails to satisfy ABHES achievement measures, enrollment in such HCN campus or program could decline, or we could be forced to cease enrollments at that campus or in that program, which could have a material adverse impact on HCN’s student enrollment and our and HCN’s revenue, cash flows, and results of operations.

The actions HCN takes to comply with ABHES requirements may not be successful in resolving existing issues and, if those actions are targeted at specific campuses or programs, may fail to prevent additional issues arising with respect to those or other campuses or programs.

Similarly, even if HCN is successful in the long term in complying with these standards, the actions HCN takes to comply could result in increased costs or decreased enrollments, and impairment of goodwill.

The negotiated rulemaking committee focused on draft gainful employment regulations did not reach consensus.

However, in connection with that process, ED released informational rates that it calculated for the two metrics that ED is contemplating using for purposes of determining Title IV eligibility of gainful employment programs.

Those two metrics are referred to as the debt-to-earnings rates (which involve two rates, namely the discretionary earnings rate and the annual earnings rate) and the earnings threshold measure.

In a memorandum accompanying the informational rates and ED’s assessments of whether programs would fail on either of the proposed measures based on those rates, ED explained that the methodology it used to produce this data differed from ED’s proposed methodology from the negotiated rulemaking sessions, that any final regulation’s methodology may change, and that the outcomes depicted in the informational rates for particular programs may differ from those generated by a future gainful employment rule.

ED also made certain assumptions that may not prove to be accurate.

Out of the 30 RU programs, 47 APUS programs, and five HCN programs that ED assessed in the informational rates and subject to the qualifications set forth in ED’s related memorandum, eight RU programs and three APUS programs failed one or both measures.

At this time, the outcome of any future gainful employment rulemaking is uncertain and it is difficult to predict whether our institutions’ programs will satisfy any future gainful employment metrics, including whether any programs

identified as failing in the informational rates will in fact fail or whether other programs will fail or pass.

The failure of any of our institutions’ programs to meet the required metrics could adversely impact those institutions and programs.

Our planned transition away from Collegis for currently outsourced RU information technology and marketing functions may not be timely, efficient, or cost-effective, or may pose other operational challenges.

RU currently relies on Collegis for a variety of outsourced information technology functions, including data center, learning management system, user support, and network and voice services, as well as marketing services.

RU’s contracts with Collegis expire in September 2024, and in April 2022 we notified Collegis that we intend to permit the contracts to expire by their terms, which could have adverse impacts on our ongoing relationship with Collegis or the level of service that they provide.

We plan to transition all of the services currently outsourced to Collegis back to our operations or to one or more other third-party vendors, and we have already begun work on the transition of certain marketing services.

As we are presently preparing transition plans, at this time, we are unable to predict the full costs of the transition, in which periods we will incur those costs, or the impact on our financial results.

However, the transition will cause us to incur significant time and expense, may not be timely, efficient, or cost-effective, or may otherwise be difficult to implement or pose operational challenges, any of which could adversely affect our business, financial condition, results of operations, and cash flows.

This transition will require the efforts of multiple parties, including third-party vendors, and we cannot be assured that the level of cooperation among the parties will not create added challenges.

In addition, there is no assurance that any contracts with third parties that replace Collegis for any of these services will be on terms that are favorable to us.

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 1A. Risk Factors