What changed in this filing

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Item 1. Financial Statements

2022-08-09 compared with 2022-05-10 · 164 added, 112 removed, 532 unchanged (34% of the section changed)

3 unchanged sentences

(In thousands)

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

As of June 30, 2022 As of December 31, 2021

ASSETS (Unaudited)

8 unchanged sentences

Operating lease assets, net 110,062 77,943

Deferred income taxes 28,536 —

Goodwill 112,593 243,486

4 unchanged sentences

Current liabilities:

Accounts payable $ 11,273 $ 13,497

Accounts payable and accrued liabilities $ 26,550 $ 24,316

Accrued compensation and benefits 17,664 15,131

Accrued liabilities 13,791 10,819

Deferred revenue and student deposits 27,389 21,776

24 unchanged sentences

(In thousands, except per share amounts)

Three Months Ended March 31,

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

Revenue $ 149,608 $ 78,014 $ 304,355 $ 166,555

3 unchanged sentences

General and administrative 29,923 25,457 59,512 48,981

Loss on disposals of long-lived assets 793 8

Impairment of goodwill and intangible assets (Note 6) 144,900 — 144,900 —

(Gain) loss on disposals of long-lived assets ( 9 ) 174 784 182

Depreciation and amortization 8,119 2,524 16,267 5,175

3 unchanged sentences

Interest (expense) income ( 3,390 ) 24 ( 6,745 ) 138

Income before income taxes 6,378 10,751

Income tax expense 1,040 2,639

(Loss) income before income taxes ( 145,355 ) 1,999 ( 138,977 ) 12,750

Income tax (benefit) expense ( 35,332 ) 646 ( 34,292 ) 3,285

Equity investment loss ( 6 ) ( 822 ) ( 11 ) ( 827 )

Net income $ 5,333 $ 8,107

Net income per common share:

Net (loss) income $ ( 110,029 ) $ 531 $ ( 104,696 ) $ 8,638

Net (loss) income per common share:

Basic $ ( 5.83 ) $ 0.03 $ ( 5.56 ) $ 0.49

5 unchanged sentences

AMERICAN PUBLIC EDUCATION, INC.

Consolidated Statements of Comprehensive Income

Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

Three Months Ended March 31,

Net income $ 5,333 $ 8,107

Other comprehensive income, net of tax:

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

Net (loss) income $ ( 110,029 ) $ 531 $ ( 104,696 ) $ 8,638

Other comprehensive (loss) income, net of tax:

Unrealized gain on hedging derivatives, net of taxes 618 — 1,834 —

Comprehensive income $ 6,657 $ 8,107

Comprehensive (loss) income $ ( 109,411 ) $ 531 $ ( 102,862 ) $ 8,638

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

10 unchanged sentences

Net income — — — — 8,638 8,638

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

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

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

5 unchanged sentences

Unrealized gain on hedging derivatives, net of taxes — — — 1,834 — 1,834

Net income — — — — 5,333 5,333

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

Net loss — — — — ( 104,696 ) ( 104,696 )

Balance as of June 30, 2022 18,878 $ 189 $ 289,635 $ 1,942 $ 24,236 $ 316,002

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

2 unchanged sentences

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Operating activities

Net income $ 5,333 $ 8,107

Net (loss) income $ ( 104,696 ) $ 8,638

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

5 unchanged sentences

Loss on disposals of long-lived assets 784 182

Impairment of goodwill and intangible assets 144,900 —

Gain on acquisition ( 3,828 ) —

5 unchanged sentences

Other assets 567 ( 875 )

Accounts payable ( 2,492 ) ( 779 )

Accounts payable and accrued liabilities 1,716 ( 1,680 )

Accrued compensation and benefits 2,513 904

Accrued liabilities 2,492 ( 1,159 )

Deferred revenue and student deposits 3,644 ( 479 )

23 unchanged sentences

APUS is institutionally accredited by the Higher Learning Commission, or HLC.

• 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 RU, or the Rasmussen Acquisition, on September 1, 2021, or the RU Closing Date.

4 unchanged sentences

• 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.

A campus in Detroit, Michigan is expected to open in the fall of 2022.

HCN is institutionally accredited by the Accrediting Bureau for Health Education Schools, or ABHES.

5 unchanged sentences

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”.

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

Therefore, GSUSA’s results are combined and presented within “Corporate and Other”.

Please refer to “Note 9.

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

Segment Information” included in the Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q, or this Quarterly Report, 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.

2 unchanged sentences

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

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

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

• American Public University System Segment, or APUS Segment.

21 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 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.

This Quarterly Report should be read in conjunction with the Consolidated Financial Statements and accompanying notes in its audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, or the Annual Report.

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

Specifically, at June 30, 2022, accounts payable and accrued liabilities were combined into a single line item on the Consolidated Balance Sheets.

Use of Estimates

10 unchanged sentences

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.

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 $ 0.7 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 June 30, 2022 and December 31, 2021, excluding the restricted certificates of deposit, was $ 1.8 million and $ 2.2 million, respectively.

Total restricted cash as of June 30, 2022 and December 31, 2021 was $ 26.8 million and $ 27.0 million, respectively.

Goodwill and Intangible Assets

6 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 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 Company employees and the graded-vesting method for members of the Company’s Board of Directors, or the Board, 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.

5 unchanged sentences

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 months ended March 31, 2022 and 2021 was as follows (in thousands):

Three Months Ended March 31,

Stock-based compensation expense for the six months ended June 30, 2022 and 2021 was as follows (in thousands):

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

Instructional costs and services $ 408 $ 389 $ 867 $ 855

5 unchanged sentences

The expense associated with these awards is reflected within the Company’s operating expenses.

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.

For the years ending December 31, 2022 and 2021, the Management Development and Compensation Committee of the Board 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 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.

corresponding number of shares earned based upon such achievement by the closing price of the Company’s stock on the date of grant.

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

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

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 recognized an aggregate expense associated with the Company’s current year annual incentive-based compensation plans of approximately $ 0.6 million and $ 2.4 million during the three and six months ended June 30, 2022, respectively, compared to an aggregate expense of $ 1.3 million and $ 2.5 million during the three and six months ended June 30, 2021, 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.

13 unchanged sentences

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.

During the three months ended June 30, 2022, the Company recorded a non-cash impairment charge of $ 131.4 million to reduce the carrying value of RU Segment goodwill, as discussed further in “Note 6.

Goodwill and Intangible Assets.”

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

14 unchanged sentences

Liabilities assumed:

Accounts payable 1,200

Accrued expenses 6,142

Accounts payable and accrued liabilities 7,342

Deferred revenue 22,700

5 unchanged sentences

Goodwill $ 217,430

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

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

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

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

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

5 unchanged sentences

Lead conversions 2 years 1,500

During the three months ended June 30, 2022, the Company recorded a non-cash impairment charge of $ 13.5 million to reduce the carrying value of RU Segment accreditation, licensing, and Title IV indefinite lived intangible assets, as discussed further in “Note 6.

Goodwill and Intangible Assets.”

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.

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 the 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.

There was no goodwill recorded as a result of the GSUSA Acquisition, but an approximate $ 3.8 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 six months ended June 30, 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.

1 unchanged sentence

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 Company will reflect measurement period adjustments in the period in which the adjustments occur.

During the three months ended June 30, 2022, the Company recorded a $ 0.7 million decrease in the gain on acquisition in connection with the GSUSA 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):

11 unchanged sentences

Liabilities assumed:

Accounts payable and accrued expenses 810

Accounts payable and accrued liabilities 810

Deferred revenue 1,969

1 unchanged sentence

Lease liabilities, long-term 30,779

Deferred tax liability 1,496

Deferred income taxes 1,263

Total liabilities assumed 36,000

14 unchanged sentences

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.

For the three and six months ended June 30, 2022, respectively, the Company incurred approximately $ 0.4 million and $ 1.3 million of acquisition-related expenses related to RU and GSUSA, and for the three and six months ended June 30, 2021, respectively, the Company incurred approximately $ 3.1 million and $ 3.6 million of acquisition-related expenses related to RU.

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

2 unchanged sentences

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

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

APUS RU HCN Corporate and Other Consolidated

4 unchanged sentences

Total Revenue $ 69,904 $ 63,891 $ 11,486 $ 4,327 $ 149,608

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

APUS RU HCN Corporate and Other Consolidated

4 unchanged sentences

Total Revenue $ 66,939 $ — $ 11,134 $ ( 59 ) $ 78,014

Six Months Ended June 30, 2022

APUS RU HCN Corporate and Other Consolidated

Instructional services, net of grants and scholarships $ 141,921 $ 109,240 $ 19,463 $ 7,344 $ 277,968

Graduation fees 715 — — — 715

Textbook and other course materials — 20,092 3,286 — 23,378

Other fees 358 1,658 278 — 2,294

Total Revenue $ 142,994 $ 130,990 $ 23,027 $ 7,344 $ 304,355

Six Months Ended June 30, 2021

APUS RU HCN Corporate and Other Consolidated

Instructional services, net of grants and scholarships $ 143,406 $ — $ 18,756 $ ( 126 ) $ 162,036

Graduation fees 645 — — — 645

Textbook and other course materials — — 3,245 — 3,245

Other fees 364 — 265 — 629

Total Revenue $ 144,415 $ — $ 22,266 $ ( 126 ) $ 166,555

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.

Corporate and Other includes tuition and contract training revenue earned by GSUSA from the GSUSA Closing Date through June 30, 2022.

Contract training 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 and corporate employees at APUS.

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

Contract Balances and Performance Obligations

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 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.

The Company had no contract assets or deferred contract costs as of June 30, 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, starts a term, in the case of RU and HCN, or begins a long-term program, open enrollment program or government contract, in the case of GSUSA.

Deferred revenue at June 30, 2022 was $ 27.4 million and includes $ 12.0 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $ 15.4 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 included $ 12.9 million in future revenue that had not yet been earned for courses and terms that were in progress, as well as $ 8.9 million in student deposits.

Deferred revenue represents the Company’s performance obligation to transfer future instructional services to students.

25 unchanged sentences

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.

The HCN Segment leases administrative office space in suburban Columbus, Ohio, and leases six campuses located in Ohio and one campus in Indianapolis, Indiana, and beginning in the fall of 2022, one campus in Detroit, Michigan, under operating leases that expire through June 2029.

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

8 unchanged sentences

There are no variable lease payments.

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

Lease expense for the three and six months ended June 30, 2022 was $ 5.1 million and $ 10.1 million, respectively, compared to $ 0.8 million and $ 1.6 million for the three and six months ended June 30, 2021, 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 month periods ended March 31, 2022 and 2021 was $ 4.8 million and $ 0.7 million, respectively, and is included in operating cash flows.

Cash paid for amounts included in the present value of operating lease liabilities during the three and six month periods ended June 30, 2022 was $ 5.2 million and $ 10.0 million, respectively, and is included in operating cash flows.

Cash paid for amounts included in the present value of operating lease liabilities during the three and six months ended June 30, 2021 was $ 0.8 million and $ 1.5 million, respectively, and is included in operating cash flows.

Finance Leases

1 unchanged sentence

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 %.

As of June 30, 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):

Lease amortization expense associated with the Company’s finance leases was approximately $ 0.03 million and $ 0.05 million for the three and six months ended June 30, 2022, respectively, 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 June 30, 2022 (dollars in thousands):

Maturity of Lease Liabilities (Unaudited) Operating Leases Finance Leases

25 unchanged sentences

Goodwill and Intangible Assets

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.

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

The Company recorded $ 217.4 million of goodwill in connection with the Rasmussen Acquisition, 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 non-cash impairment charges reducing the carrying value of HCN Segment 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

Goodwill acquired — — —

Impairment — — —

Adjustments 507 — 507

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

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.

1 unchanged sentence

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

Amortization expense related to definite lived intangibles assets was approximately $ 4.0 million and $ 7.9 million for the three and six months ended June 30, 2022, respectively.

The following table represents the balance of the Company’s intangible assets as of June 30, 2022 (in thousands):

Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount

Finite-lived intangible assets

10 unchanged sentences

Accreditation, licensing, and Title IV 26,186 — 13,500 12,686

26,186 — 26,186

Affiliation agreements 37 — — 37

4 unchanged sentences

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

Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount

Finite-lived intangible assets

8 unchanged sentences

Accreditation, licensing, and Title IV 26,186 — — 26,186

26,186 — 26,186

Affiliation agreements 37 — — 37

2 unchanged sentences

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

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.

During the three months ended June 30, 2022, in connection with preparation of this Quarterly Report, the Company completed a qualitative assessment to determine if an interim goodwill impairment test was necessary.

The Company concluded it was more likely than not the fair value of the Company’s RU Segment was less than its carrying amount as a result of circumstances that included RU’s performance to date against 2022 internal targets and overall 2022 financial performance to date.

There were no indicators of impairment at HCN.

Therefore, the Company proceeded with a quantitative impairment test as of May 31, 2022.

The implied fair value of goodwill was calculated and compared to the recorded goodwill.

As a result, the Company recorded a non-cash impairment charge of $ 131.4 million, and to reflect the corresponding tax impact, to reduce the carrying value of RU Segment goodwill.

During the three months ended June 30, 2022, the Company also evaluated events and circumstances related to the valuation of its intangibles recorded within the RU and HCN Segments 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 months ended March 31, 2022 and 2021, and consequently, there was no impairment of goodwill or intangible assets during those periods.

These evaluations concluded there were indicators of impairment during the three months ended June 30, 2022 of the RU Segment accreditation, licensing and Title IV indefinite-lived intangible asset.

The Company determined the fair value of the intangible asset was $ 11.0 million, or $ 13.5 million less than its carrying value.

As a result, the Company recorded a non-cash impairment charge of $ 13.5 million to reduce the carrying value of RU Segment indefinite-lived intangible assets.

In total, the Company recorded non-cash impairment charges of $ 144.9 million during the three months ended June 30, 2022 related to RU Segment goodwill and intangible assets, and the corresponding tax impact.

The Company utilized an independent valuation firm to determine the fair value of RU.

The independent valuation firm weighted the results of two different valuation methods:

discounted cash flow and guideline public company.

Under the discounted cash flow method, fair value was determined by discounting the estimated future cash flows of RU at RU’s estimated weighted-average cost of capital.

Under the guideline public company method, pricing multiples from other public companies in the public higher education market were used to determine the value of RU.

Values derived under the two valuation methods were then weighted to estimate RU’s enterprise value.

The goodwill impairment charge recorded in the quarter ended June 30, 2022 eliminated the difference between the fair value of goodwill and the book value of goodwill.

Future changes, including minor changes in revenue, operating income, valuation multiples, discount rates, and other inputs to the valuation process may result in future impairment charges, and those charges could be material.

The following table summarizes the changes in the carrying amount of goodwill by reportable segment as of December 31, 2021 and June 30, 2022 (in thousands):

APUS Segment RU Segment HCN Segment Total Goodwill

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

Goodwill acquired — — — —

Impairment — ( 131,400 ) — ( 131,400 )

Adjustments — 507 — 507

Goodwill as of June 30, 2022 $ — $ 86,030 $ 26,563 $ 112,593

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.

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 and intangible asset impairment tests will prove to be accurate predictions of the future.

If the Company’s assumptions are not realized, the Company may record goodwill and intangible asset 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.

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.

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.

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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 March 31,

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

Basic weighted average shares outstanding 18,865 18,684 18,835 17,454

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 March 31,

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

Antidilutive securities:

7 unchanged sentences

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 at origination of $ 13.1 million on the Consolidated Balance Sheets.

The Term Loan, the proceeds of which were used as part of the cash consideration for the Rasmussen Acquisition, was fully funded on the RU 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 March 31, 2022 and December 31, 2021.

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

As of June 30, 2022, the Facilities borrowing rate was 6.56 %.

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.

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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.

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):

At June 30, 2022, the Company was in compliance with all debt covenants.

Long-term debt consists of the following as of June 30, 2022 (in thousands):

Long-Term debt (Unaudited)

4 unchanged sentences

Long-Term Debt $ 148,645

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

Scheduled maturities of long-term debt at June 30, 2022 are as follows (in thousands):

Maturities of Long-Term Debt (Unaudited) Loan Payments

4 unchanged sentences

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

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

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

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.

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 the Company’s 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.

At June 30, 2022, the $ 3.0 million fair value of the interest rate cap is recorded in Other assets on the Consolidated Balance Sheets.

The unrealized gain of $ 1.9 million, net of taxes, is included in accumulated other comprehensive income.

Segment Information

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:

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

the American Public Education, Inc.

Segment, or APEI Segment, and the Hondros College of Nursing, or HCN Segment.

Segment, or APEI Segment, and the Hondros College of Nursing Segment, or HCN Segment.

Post-acquisition, the Company has three reportable segments:

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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”.

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

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

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

Three Months Ended March 31,

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

APUS Segment $ 69,904 $ 66,939 $ 142,994 $ 144,415

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Corporate and Other ( 7,701 ) ( 7,255 ) ( 15,579 ) ( 11,432 )

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

Total (loss) income from operations before interest and income taxes $ ( 141,260 ) $ 1,975 $ ( 136,060 ) $ 12,612

Interest (expense) income:

9 unchanged sentences

Corporate and Other ( 8,590 ) ( 2,693 ) ( 12,214 ) ( 4,026 )

Total Income tax expense $ 1,040 $ 2,639

Total Income tax (benefit) expense $ ( 35,332 ) $ 646 $ ( 34,292 ) $ 3,285

Capital expenditures:

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

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

As of June 30, 2022 As of December 31, 2021

APUS Segment $ 126,349 $ 126,926

9 unchanged sentences

Concentration

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

The Company’s 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.

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

Three Months Ended March 31,

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

2022 2021 2022 2021

DoD tuition assistance programs 46 % 41 % 47 % 44 %

3 unchanged sentences

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

Three Months Ended March 31,

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

2022 2021 2022 2021

Title IV programs 74 % 76 % 74 % 76 %

2 unchanged sentences

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

Three Months Ended March 31,

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

2022 2021 2022 2021

Title IV programs 82 % 81 % 80 % 81 %

2 unchanged sentences

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