What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-09 compared with 2022-05-10 · 294 added, 138 removed, 180 unchanged (71% of the section changed)

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Forward-looking statements in this Quarterly Report include, without limitation, statements regarding:

• our expectations regarding the effects of and our response to the COVID-19 pandemic, including the demand environment for online education or nursing education as the pandemic abates, impacts on business operations and our financial results, and our ability to comply with regulations related to emergency relief;

• our expectations regarding the effects of and our response to the ongoing COVID-19 pandemic, including the demand environment for online education or nursing education as the pandemic abates and impacts on business operations and our financial results;

• integration of Rasmussen University, or RU, and Graduate School USA, or GSUSA;

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• our maintenance and expansion of our relationships and partnerships and the development of new relationships and partnerships;

• actions by the Department of Defense, or DoD, or branches of the United States Armed Forces, including actions related to the disruption and suspension of DoD tuition assistance, or TA, programs, and ArmyIgnitED, and expectations regarding the effects of those actions;

• actions by the U.S.

Department of Defense, or DoD, or branches of the U.S.

Armed Forces, including actions related to the disruption of DoD tuition assistance programs, or TA, and ArmyIgnitED, and expectations regarding the effects of those actions;

• changes in and our ability to comply with the extensive regulatory framework applicable to our industry, as well as state law and regulations and accrediting agency requirements;

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• our failure to comply with regulatory and accrediting agency requirements or to maintain institutional accreditation;

• our loss of eligibility to participate in Title IV programs or ability to process Title IV financial aid;

• our loss of eligibility to participate in student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or Title IV programs, or ability to process Title IV financial aid;

• risks related to business combinations and acquisitions, including integration challenges, business disruption, dilution of stockholder value, and diversion of management attention;

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We undertake no obligation to publicly update any forward-looking statements except as required by law.

American Public Education, Inc., or APEI, is a provider of online and campus-based postsecondary education, and with the acquisition of Graduate School USA, career learning, to approximately 107,100 students through four subsidiary institutions.

We are a provider of online and campus-based postsecondary education, and with the acquisition of GSUSA, career learning, to approximately 104,900 students through four subsidiary institutions.

Our subsidiary institutions offer education programs and career learning designed to prepare individuals for productive contributions to their professions and society, and to offer opportunities designed to advance students in their current professions or to help them prepare for their next career.

Our 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.

Our 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 American Public University System, Inc., or APUS, RU, and HCN are certified by the United States Department of Education, or ED, to participate in Title IV programs.

On September 1, 2021, or the RU Closing Date, we completed the Rasmussen Acquisition for an adjusted aggregate purchase price, subject to post-closing working capital adjustments, of $325.5 million in cash, net of cash acquired.

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For more information on this financing, please refer to “– Liquidity and Capital Resources – Liquidity – Acquisition of Rasmussen University” below and “Note 8.

Long-Term Debt” included on the Consolidated Financial Statements in this Quarterly Report.

On January 1, 2022, or the GSUSA Closing Date, we completed our acquisition of substantially all the assets of American Public Training LLC, which is referred to herein as Graduate School USA, or GSUSA for $1.0 million, subject to working capital adjustments.

Long-Term Debt” included in the Consolidated Financial Statements in this Quarterly Report.

On January 1, 2022, or the GSUSA Closing Date, our wholly owned subsidiary, American Public Training, LLC, completed our acquisition of substantially all the assets of GSUSA, or the Seller, for $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.

Our consolidated results for the three months March 31, 2021 do not reflect the operations of RU and GSUSA.

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.

Our consolidated results for the three and six months ended June 30, 2021 do not reflect the operations of RU and GSUSA.

We did not consolidate the RU Segment or GSUSA results prior to the respective acquisition closing dates.

Adjustments to reconcile segment results to the Consolidated Financial Statements are included in “Corporate and Other”, which includes unallocated corporate activity and eliminations, and for the three months ended March 31, 2022, the operational activities of GSUSA.

Our results for the three months ended March 31, 2022, included approximately $0.9 million of acquisition-related expenses related to RU and GSUSA, and our results for the three months ended March 31, 2021, include approximately $0.6 million of acquisition-related expenses related to RU, respectively.

Adjustments to reconcile segment results to the Consolidated Financial Statements are included in “Corporate and Other”, which includes unallocated corporate activity and eliminations, and for the three and six months ended June 30, 2022, the operational activities of GSUSA.

Our results for the three and six months ended June 30, 2022 respectively, include approximately $0.4 million and $1.3 million of acquisition-related expenses related to RU and GSUSA, and our results for the three and six months ended June 30, 2021 included approximately $3.1 million and $3.6 million of acquisition-related expenses related to RU, respectively.

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

For more information on the Rasmussen and GSUSA Acquisitions, please refer to, “Note 3.

Acquisition Activity” included on the Consolidated Financial Statements in this Quarterly Report.

Acquisition Activity” included in the Consolidated Financial Statements in this Quarterly Report.

We have continued to monitor the impact of the COVID-19 pandemic and adjust our operations as appropriate in light of state and federal guidance.

The COVID-19 pandemic did not materially impact our results of operations during the three month period ended March 31, 2022.

For more information on the potential risks related to COVID-19, please refer to our Annual Report and the sections entitled “Results of Operations”, and “Risk Factors”.

The COVID-19 pandemic did not materially impact our results of operations during the three and six months ended June 30, 2022.

For more information on the potential risks related to COVID-19, please refer to our Annual Report, “Results of Operations” below, and the section of this Quarterly Report entitled “Risk Factors”.

Our wholly owned operating subsidiary institutions include the following:

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American Military University, or AMU, and American Public University, or APU.

As of March 31, 2022, approximately 64% of APUS students self-reported that they served in the military on active duty at the time of initial enrollment.

As of June 30, 2022, approximately 64% of APUS students self-reported that they served in the military on active duty at the time of initial enrollment.

• Rasmussen College, LLC, referred to herein as Rasmussen University, or RU, provides nursing- and health sciences-focused postsecondary education to over 15,900 students at its 23 campuses in six states and online.

As of March 31, 2022, approximately 8,400 students are pursuing nursing degrees at RU, approximately 90% of whom are enrolled in RU’s pre-licensure degree programs.

As of June 30, 2022, approximately 8,200 students are pursuing nursing degrees at RU, approximately 90% of whom are enrolled in RU’s pre-licensure degree programs.

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

• National Education Seminars, Inc., referred to herein as Hondros College of Nursing, or HCN, provides nursing education to approximately 2,400 students at six campuses in Ohio and a campus in Indianapolis, Indiana.

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

A campus in Detroit, Michigan is expected to open in fall of 2022, and HCN has received initial regulatory approvals for the Diploma in Practical Nursing Program at the campus.

All of HCN’s students are enrolled in its pre-licensure degree programs.

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GSUSA operational activities are presented within “Corporate and Other”.

Cost and Expense Reductions

On January 14, 2022, RU completed a reduction in force that resulted in the termination of nine full-time faculty members and 19 non-faculty employees across a variety of roles and departments at RU, representing approximately 3.0% of RU’s full-time faculty workforce, and 2.1% of RU’s non-faculty workforce.

We incurred an aggregate of approximately $0.4 million of pre-tax cash expenses associated with employee severance benefits.

The reduction in force is expected to result in pre-tax labor and benefit savings in the range of $2.5 million to $3.5 million in 2022.

These cost savings do not include expenses associated with employee severance benefits.

Regulatory and Legislative Activity

ED recently engaged in negotiated rulemaking processes to develop regulations related to participation in the student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or the HEA.

Topics addressed include modifications to what is commonly referred to as the 90/10 Rule, which imposes sanctions on institutions that derive more than 90% of their total revenue on a cash accounting basis from Title IV programs, as calculated under ED’s regulations, 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.

Any final regulations adopted by ED are not expected to go into effect until July 1, 2023 at the earliest.

ED recently engaged in negotiated rulemaking processes to develop proposed regulations related to participation in the student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or the HEA.

Topics included modifications to what is commonly referred to as the 90/10 Rule, which imposes sanctions on for-profit institutions that derive more than 90% of their total revenue on a cash accounting basis from Title IV programs, as calculated under ED’s regulations, 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 in ownership and change in control rules and procedures, financial responsibility standards, and standards of administrative capability, among others.

Any final regulations adopted by ED are not expected to go into effect until July 1, 2023 at the earliest (assuming ED publishes the final regulations by November 1, 2022).

ED already has published some proposed regulations relating to these topics for public notice and comment, and ED has indicated that it will release other proposed regulations at later dates.

Please refer to “Risk Factors - Recent ED negotiated rulemakings could result in regulations that materially and adversely affect our business.”

In July 2022, HCN received a final program review determination from ED closing the previously disclosed open program review from July 2021.

ED made final determinations with respect to all outstanding findings, resulting in total liabilities of approximately $12,000.

Reportable Segments

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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, we have three reportable segments:

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

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

the RU Segment;

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

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

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

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We did not consolidate the financial results of these companies prior to their respective acquisition closing dates.

Accordingly, the financial results for the three months ended March 31, 2021 do not include the results of operations of RU and GSUSA, and therefore the prior year period presented is not directly comparable to the current period.

For the three months ended March 31, 2022, our consolidated revenue increased to $154.7 million from $88.5 million, or by 74.8%, compared to the prior year period.

Our operating margins decreased to 3.4% from 12.0% for the three months ended March 31, 2022, compared to the prior year period.

Net income decreased to $5.3 million from $8.1 million, a decrease of $2.8 million compared to the prior year period.

We expect our operating margins to remain below prior year levels for the remainder of 2022, including as a result of the impacts of inflation, increases in labor costs, particularly at Rasmussen and HCN, and enrollment trends, particularly at Rasmussen.

For the three months ended March 31, 2022, while net course registrations at APUS increased to approximately 94,000 from approximately 92,900, or approximately 1.2%, compared to the prior year period, APUS Segment revenue decreased to $73.1 million from $77.5 million, or by 5.7%, compared to the prior year period.

The increase in net course registrations was

primarily due to an increase in military-related registrations from students utilizing TA.

We believe the decrease in APUS Segment revenue was a result of two key factors:

the difference in timing of registrations within the quarter as compared with the prior year and lower revenue per net course registration due to an increase in TA registrations which have a lower revenue per net course registration than other funding sources.

Accordingly, the financial results for the three and six months ended June 30, 2021, do not include the results of operations of RU and GSUSA, and therefore the prior year period presented is not directly comparable to the current period.

For the three months ended June 30, 2022, our consolidated revenue increased to $149.6 million from $78.0 million, or by 91.8%, compared to the prior year period.

Our operating margins decreased to negative 94.4% for the three months ended June 30, 2022 from 2.6% in the prior year period.

The net loss for the three months ended June 30, 2022 was $110.0 million compared to net income of $0.5 million during the three months ended June 30, 2021.

Results for the three months ended June 30, 2022 include a non-cash impairment charge of $144.9 million in our RU Segment to reduce the carrying value of RU Segment goodwill and intangible assets, and to reflect the corresponding tax impact.

Excluding the impact of the non-cash impairment charge, for the three months ended June 30, 2022, our operating margin was 2.4% and our net loss was $1.1 million.

For the six months ended June 30, 2022, our consolidated revenue increased to $304.4 million from $166.6 million, or 82.7%, compared to the prior year period.

Our operating margins decreased to negative 44.7% for the six months ended June 30, 2022 from 7.5% in the prior year period.

The net loss for the six months ended June 30, 2022 was $104.7 million compared to net income of $8.6 million during the six months ended June 30, 2021.

Results for the six months ended June 30, 2022 include a non-cash impairment charge of $144.9 million in our RU Segment to reduce the carrying value of RU Segment goodwill and intangible assets and the corresponding tax impact.

Excluding the non-cash impairment charge for the six months ended June 30, 2022, our operating margin was 2.9% and our net income was $4.2 million.

Excluding the impact of the impairment charge, we expect our operating margins to remain below prior year levels for the remainder of 2022, including as a result of the impacts of inflation, increases in labor costs, particularly at RU and HCN, and enrollment trends, particularly at

Even to the extent that we take efforts to control our labor costs, we expect to continue to evaluate and may implement increases to wages and salaries to be more competitive with the market.

For the three months ended June 30, 2022, net course registrations at APUS increased to approximately 83,500 from approximately 82,600, or approximately 1.1%, compared to the prior year period.

APUS Segment revenue increased to $69.9 million from $66.9 million, or by 4.4%, compared to the prior year period.

For the six months ended June 30, 2022, net course registrations at APUS increased to approximately 177,400 from approximately 175,600, or approximately 1.0%, compared to the prior year period, APUS Segment revenue decreased to $143.0 million from $144.4 million, or by 1.0%, compared to the prior year period.

In both the three and six months ended June 30, 2022, the increase in net course registrations was primarily due to an increase in military-related registrations from students utilizing TA.

We believe the difference in the change in net course registrations as compared to the change in APUS Segment revenue was a result of two key factors:

the difference in timing of registrations during the three and six months ended June 30, 2022, as compared with the prior year;

and lower revenue per net course registration due to a change in the mix of registrations toward a greater percentage of military registrations, which generate lower revenue per registration than non-military registrations.

Net course registrations represent the total number of courses for which students remain enrolled after the date by which they may drop a course without financial penalty.

APUS Segment operating margins decreased to 18.0% from 18.1% for the three months ended March 31, 2022, compared to the prior year period.

For the three months ended March 31, 2022, HCN Segment revenue increased to $11.5 million from $11.1 million, or by 3.7%, compared to the prior year period.

Total enrollment at HCN for the three months ended March 31, 2022 increased to approximately 2,500 from approximately 2,300, or approximately 8.1%, as compared to the prior year period.

We believe that the increase in total student enrollment at HCN was due in part to an increase in marketing expenditures and the continued impact of initiatives implemented in 2019 and 2020, such as the direct entry ADN Program and the institutional affordability grant.

For the three months ended June 30, 2022, APUS Segment operating margins increased to 19.5% from 13.6% in the prior year period.

For the six months ended June 30, 2022, APUS Segment operating margins increased to 18.7% from 16.0% in the prior year period.

The increase in the operating margin was due to decreases in employee compensation costs, advertising costs and professional services costs.

For the three months ended June 30, 2022, HCN Segment revenue increased to $11.5 million from $11.1 million, or by 3.2%, compared to the prior year period.

Total enrollment at HCN was approximately 2,400 for both the three months ended June 30, 2022 and 2021.

For the six months ended June 30, 2022, HCN Segment revenue increased to $23.0 million from $22.3 million, or by 3.4%, compared to the prior year period.

Total enrollment at HCN for the six months ended June 30, 2022 increased approximately 5.4% as compared to the prior year period.

We believe that the increase in total student enrollment at HCN was due primarily to the opening of the Akron campus in April 2021 and to the Indianapolis campus, which effective for the 2022 calendar year can enroll up to 200 students per calendar year compared to 30 students in 2021.

HCN total student enrollment represents the total number of students enrolled in a course immediately after the date by which students may drop a course without financial penalty.

HCN Segment operating margins decreased to a negative 8.6% from 7.0% for the three months ended March 31, 2022, compared to the prior year period.

The decrease in the operating margin is due to increases in nursing faculty compensation costs and other employee costs, an increase in marketing expenditures as compared to the prior year period, and costs associated with the ongoing start-up of the new campus in Akron, Ohio, which opened in April 2021.

RU enrollment was approximately 16,200 during the three months ended March 31, 2022, which compares to 17,300 during the three months ended March 31, 2021.

We believe this decline in enrollment, which also reflects year over year declines in total nursing enrollment and enrollment from new nursing students, may have been caused, in part, due to a moderation in near-term demand for RU’s programs due to the abatement of the COVID-19 pandemic, record low unemployment in some RU local markets, and increasing pay for nurses resulting in fewer available nursing faculty to educate and oversee clinicals.

The factors adversely impacting RU enrollments, including nursing enrollments, are expected to continue to negatively impact RU’s results, and we are unable to predict when we will return to enrollment growth at RU.

RU Segment revenue totaled approximately $67.1 million for the three months ended March 31, 2022.

For the three months ended June 30, 2022, HCN Segment operating margins decreased to negative 5.5% from 1.1% in the prior year period.

For the six months ended June 30, 2022, HCN Segment operating margins decreased to negative 7.1% from 4.0% in the prior year period.

The decrease in the operating margin is due to increases in nursing faculty compensation costs and other employee costs and an increase in marketing expenditures as compared to the prior year period.

RU Segment revenue totaled approximately $63.9 million and $131.0 million for the three and six months ended June 30, 2022, respectively.

RU enrollment was approximately 15,900 during the three months ended June 30, 2022, which compares to 17,000 during the three months ended June 30, 2021.

We believe this decline in enrollment, which reflects year-over-year declines in total nursing enrollment and enrollment from new nursing students, may have been caused, in part, due to a moderation in near-term demand for RU’s programs due to the abatement of the COVID-19 pandemic, record low unemployment in some RU local markets, and increasing pay for nurses resulting in fewer available nursing faculty to educate and oversee clinicals.

In July 2022, we implemented a voluntary enrollment reduction in RU’s Bloomington, Minnesota ADN Program as part of an effort to meet desired faculty to student ratios and improve student performance.

In addition, as described in “Risk Factors” below, RU is now required to maintain a specified faculty to student ratio in 2023 for the Bloomington ADN Program, which constrains our ability to increase enrollments for that program based on our ability to attract and retain qualified faculty.

The various factors adversely impacting RU enrollments, including nursing enrollments, are expected to continue to negatively impact RU’s results, and we are unable to predict when we will return to enrollment growth at RU.

During the three months ended June 30, 2022, RU completed an interim goodwill and intangible asset impairment test as a result of circumstances that included RU’s continued performance against revised 2022 internal targets and overall 2022 financial performance.

The test determined the fair value was less than the carrying value and as a result, we recorded a non-cash impairment charge of $144.9 million to reduce the carrying value of our RU Segment goodwill and intangible assets during the period, and to reflect the corresponding tax impact.

Critical Accounting Policies and Use of Estimates

For information regarding our Critical Accounting Policies and Use of Estimates, see the “Critical Accounting Policies and Use of Estimates” section of “Item 7.

Goodwill and indefinite-lived intangible assets.

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.

The process of evaluating goodwill and indefinite-lived intangibles for impairment is subjective and requires significant judgment and estimates at many points during the analysis.

When performing an optional qualitative analysis, we consider many factors including:

general economic conditions, industry and market conditions, certain cost factors, financial performance and key business drivers, long-term operating plans, and potential changes to significant assumptions and estimates used in the most recent fair value analysis.

Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions and estimates.

Actual results may differ and have a material impact or our results of operations and financial position, and subsequent events are not necessarily indicative of the reasonableness of the original assumptions or estimates.

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 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.

We evaluated events and circumstances related to the valuation of goodwill of HCN for the three months ended June 30, 2022 and determined there were no 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.

Our October 31, 2021 annual assessment concluded that the fair value of HCN exceeded the carrying value by approximately $20.1 million, or 51.8%.

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 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 more information regarding our Critical Accounting Policies and Use of Estimates, see the “Critical Accounting Policies and Use of Estimates” section of “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

Results of Operations

Below we have included a discussion of our operating results and material changes in our operating results during the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Below we have included a discussion of our operating results and material changes in our operating results during the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021.

Our revenue and operating results normally fluctuate as a result of seasonal or other variations in our enrollments and the level of expenses in our reportable segments.

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We expect quarterly fluctuations in operating results to continue as a result of various enrollment patterns and changes in revenue and expenses, including as a result of the Rasmussen and GSUSA acquisitions.

We believe the increase in net registrations at APUS for the three months ended March 31, 2022, was due to increases in military-related registrations from students utilizing TA at APUS and as a result of improvements made by the Army to the ArmyIgnitED system.

For more information on the impacts of the Army TA program delays on the Company and the risks related to these impacts, please refer to “Overview” in this Management’s Discussion and Analysis of Financial Condition and Results of Operation and the section entitled “Risk Factors” in our Annual Report.

We believe that the increase in enrollment at HCN for the three months ended March 31, 2022 as compared to the prior year period is due in part to an increase in marketing expenditures and the continued impact of initiatives implemented in 2019 and 2020, such as the direct entry ADN Program and the institutional affordability grant.

Our consolidated results for the three months ended March 31, 2022 and 2021 reflect the operations of our APUS and HCN Segments only and include the results for our RU Segment and GSUSA for the three months ended March 31, 2022.

We believe the increase in net registrations at APUS for the three and six months ended June 30, 2022, was due to increases in military-related registrations from students utilizing TA and as a result of improvements made by the Army to the ArmyIgnitED system.

For more information on the impacts of the Army TA program delays on the Company and the risks related to these impacts, please refer to “Liquidity and Capital Resources – Liquidity” in this Management’s Discussion and Analysis of Financial Condition and Results of Operation and the section entitled “Risk Factors.”

We believe that the increase in enrollment at HCN for the six months ended June 30, 2022 as compared to the prior year period is due primarily to the opening of the Akron campus in April 2021 and to the Indianapolis campus, which effective for the 2022 calendar year can enroll up to 200 students per calendar year compared to 30 students in 2021.

Our consolidated results for the three and six months ended June 30, 2022 and 2021 reflect the operations of our APUS and HCN Segments and only include the results for our RU Segment and GSUSA for the three and six months ended June 30, 2022.

We did not consolidate the RU Segment or GSUSA prior to the respective acquisition closing dates.

RU enrollment was

approximately 16,200 during the three months ended March 31, 2022, which compares to 17,300 during the three months ended March 31, 2021.

RU enrollment was approximately 15,900 during the three months ended June 30, 2022, which compares to 17,000 during the three months ended June 30, 2021.

We believe this decline in enrollment may have been caused, in part, due to a moderation in near-term demand for RU’s programs due to the abatement of the COVID-19 pandemic, record low unemployment, and challenges in filling open nursing faculty positions.

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The following table sets forth statements of income data as a percentage of revenue for each of the periods indicated:

Three Months Ended March 31,

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

Revenue 100.0 % 100.0 % 100.0 % 100.0 %

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General and administrative 20.0 32.6 19.6 29.4

Impairment of goodwill and intangible assets 96.9 — 47.6 —

Loss on disposals of long-lived assets — 0.2 0.3 0.1

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Total costs and expenses 194.4 97.4 144.7 92.5

Income from operations before interest and income taxes 3.4 12.0

Income (loss) from operations before interest and income taxes (94.4) 2.6 (44.7) 7.5

Gain on acquisition (0.5) — 1.3 —

Interest (expense) income (2.3) — (2.2) 0.1

Income from operations before income taxes 4.1 12.1

Income tax expense 0.7 3.0

Income (loss) from operations before income taxes (97.2) 2.6 (45.6) 7.6

Income tax (benefit) expense (23.6) 0.8 (11.3) 2.0

Equity investment loss — (1.1) — (0.5)

Net income 3.4 % 9.1 %

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Our consolidated revenue for the three months ended March 31, 2022 was $154.7 million, an increase of $66.2 million, or 74.8%, compared to $88.5 million for the three months ended March 31, 2021.

The increase in revenue was primarily due to the inclusion of RU Segment revenue and GSUSA revenue for the three months ended March 31, 2022 of $67.1 million and $3.1 million, respectively, and a $0.4 million, or 3.7% increase, in revenue in our HCN Segment, partially offset by a $4.4 million, or 5.7% decrease, in our APUS Segment revenue.

Net (loss) income (73.6) % 0.7 % (34.3) % 5.1 %

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Our consolidated revenue for the three months ended June 30, 2022 was $149.6 million, an increase of $71.6 million, or 91.8%, compared to $78.0 million for the three months ended June 30, 2021.

The increase in revenue was primarily due to the inclusion of RU Segment and GSUSA revenue for the three months ended June 30, 2022 of $63.9 million and $4.4 million, respectively.

In addition, APUS and HCN Segment revenue increased $3.0 million, or 4.4%, and $0.4 million, or 3.2%, respectively.

The APUS Segment revenue increase was primarily due to an 1.1% increase in net course registrations as compared to the prior year period.

The HCN Segment revenue increase was primarily due to an 2.7% increase in total student enrollment as compared to the prior year period.

The APUS Segment revenue decrease was primarily due to the timing of registrations within the quarter and lower revenue per net course registrations due to a change in the mix of registrations toward a greater percentage of military registrations, which generate lower revenue per registration than non-military registrations.

Costs and expenses.

Costs and expenses for the three months ended March 31, 2022 were $149.5 million, an increase of $71.6 million, or 92.0%, compared to $77.9 million for the three months ended March 31, 2021.

The increase in costs and expenses as compared to the prior year period was primarily due to the inclusion of our RU Segment costs and expenses, and GSUSA costs and expenses for the three months ended March 31, 2022 of $66.2 million and $4.7 million, respectively, as well as increases in faculty and employee compensation costs in our HCN Segment and increased employee compensation costs in Corporate and Other, advertising costs in our APUS and HCN Segments, and professional fees in Corporate and Other, partially offset by decreases in employee compensation costs, professional fees, and legal costs in our APUS Segment.

Results for the three months ended March 31, 2022 include the following costs on a pre-tax basis:

$0.9 million in professional fees associated with the Rasmussen and GSUSA Acquisitions in Corporate and Other;

Costs and expenses for the three months ended June 30, 2022 were $290.9 million, an increase of $214.8 million, or 282.5%, compared to $76.0 million for the three months ended June 30, 2021, and include a non-cash impairment charge of $144.9 million to reduce the carrying value of RU segment goodwill and intangible assets, and to reflect the corresponding tax impact.

The increase in costs and expenses for the three months ended June 30, 2022, was also the result of the inclusion of RU Segment and GSUSA costs and expenses of $65.5 million and $6.1 million, respectively, excluding the goodwill and intangible assets impairment charge in our RU Segment.

Other increases in costs and expenses include increases in employee compensation costs in our HCN Segment and Corporate and Other, an increase in faculty compensation costs in our HCN Segment, and an increase in graduation event costs in our APUS Segment, partially offset by decreases in professional fees in Corporate and Other and advertising costs, employee compensation costs, and professional fees in our APUS Segment.

Results for the three months ended June 30, 2022 include the following costs on a pre-tax basis:

a $144.9 million non-cash impairment charge to reduce the carrying value of RU Segment goodwill and intangible assets, and the corresponding tax impact;

$0.9 million in information technology costs related to our multi-year technology transformation program in our APUS Segment;

and $0.4 million in professional fees associated with the Rasmussen and GSUSA acquisitions in Corporate and Other.

Results for the three months ended June 30, 2021 included the following costs on a pre-tax basis:

$3.3 million in professional fees primarily related to the Rasmussen Acquisition in Corporate and Other;

and $1.6 million in information technology costs related to our multi-year technology transformation program in our APUS Segment.

Results for the three months ended March 31, 2021 included the following costs on a pre-tax basis:

Costs and expenses as a percentage of revenue increased to 194.4% for the three months ended June 30, 2022 from 97.4% for the three months ended June 30, 2021.

Instructional costs and services expenses.

Our instructional costs and services expenses for the three months ended June 30, 2022 were $72.1 million, an increase of $41.7 million, or 137.2%, compared to $30.4 million for the three months ended June 30, 2021.

The increase in instructional costs and services expenses was primarily due to the inclusion of RU Segment and GSUSA instructional costs and services expenses of $35.6 million and $3.6 million, respectively, as well as an increase in graduation event costs in our APUS Segment and an increase in faculty compensation costs in our HCN Segment.

Instructional costs and services expenses as a percentage of revenue increased to 48.2% for the three months ended June 30, 2022 from 39.0% for the three months ended June 30, 2021.

Selling and promotional expenses.

Our selling and promotional expenses for the three months ended June 30, 2022 were $35.8 million, an increase of $18.4 million, or 105.0%, compared to $17.5 million for the three months ended June 30, 2021.

The increase in selling and promotional expenses was primarily due to the inclusion of RU Segment and GSUSA selling and promotional expenses of $17.7 million and $1.2 million, respectively, partially offset by a decrease in advertising costs in our APUS Segment.

Selling and promotional expenses as a percentage of revenue increased to 24.0% for the three months ended June 30, 2022 from 22.4% for the three months ended June 30, 2021.

General and administrative expenses.

Our general and administrative expenses for the three months ended June 30, 2022 were $29.9 million, an increase of $4.4 million, or 17.5%, compared to $25.5 million for the three months ended June 30, 2021.

The increase in general and administrative expenses for the three months ended June 30, 2022 as compared to the prior year period was primarily due to the inclusion of RU Segment and GSUSA general and administrative expenses of $6.2 million and $1.2 million, respectively, as well as an increase in employee compensation costs in Corporate and Other, partially offset by decreases in employee compensation costs and professional fees in our APUS Segment.

For the three months ended June 30, 2022, APUS Segment general and administrative expenses include the following costs on a pre-tax basis:

$0.9 million of information technology costs related to our multi-year technology transformation program in our APUS Segment;

and $0.4 million in professional fees associated with the Rasmussen and GSUSA acquisitions included in Corporate and Other.

For the three months ended June 30, 2021, general and administrative expenses include the following costs on a pre-tax basis:

$3.3 million in professional fees primarily related to the Rasmussen Acquisition in Corporate and Other, and approximately $1.6 million of information technology costs related to our multi-year technology transformation program in our APUS Segment.

Consolidated bad debt expense for the three months ended June 30, 2022 was $2.9 million, or 2.0% of revenue, compared to $1.4 million, or 1.8% of revenue in the prior year period.

General and administrative expenses as a percentage of revenue decreased to 20.0% for the three months ended June 30, 2022 from 32.6% for the three months ended June 30, 2021.

As we continue to evaluate strategic growth opportunities and enhancements to our business capabilities, we expect to incur additional costs and that our general and administrative expenses related to professional fees will vary from time to t ime.

(Gain) loss on disposals of long-lived assets.

The gain on disposals of long-lived assets was $9,000 for the three months ended June 30, 2022 compared to a loss of $0.2 million for the three months ended June 30, 2021.

Impairment of goodwill and intangible assets.

For the three months ended June 30, 2022, the non-cash impairment of goodwill of $144.9 million resulted from the reduction of the carrying value of goodwill and intangible assets in our RU Segment, and the corresponding tax impact.

For additional information regarding the impairment of goodwill and intangible assets, and a discussion of the potential for future impairment charges for goodwill and intangible assets, please refer to the discussion in “Note 6.

Goodwill and Intangible Assets” included in the Consolidated Financial Statements in this Quarterly Report.

Depreciation and amortization expenses.

Depreciation and amortization expenses were $8.1 million and $2.5 million for the three months ended June 30, 2022 and 2021, respectively.

The increase in depreciation and amortization expenses for the three months ended June 30, 2022 as compared to the prior year period was primarily due to the inclusion of the RU Segment depreciation and amortization expenses of $6.2 million.

Depreciation and amortization as a percentage of revenue increased to 5.3% for the three months ended June 30, 2022 from 3.2% for the three months ended June 30, 2021.

Stock-based compensation expenses.

Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses were $2.4 million and $2.0 million for the three months ended June 30, 2022 and 2021, respectively.

Stock-based compensation costs include accelerated expense for retirement-eligible employees and performance stock unit incentive costs.

Gain on acquisition.

The $0.7 million decrease in the gain on acquisition during the three months ended June 30, 2022 was due to the final working capital adjustment in connection with the GSUSA Acquisition.

Interest (expense) income.

Interest expense was $3.4 million for the three months ended June 30, 2022, compared to interest income of $24,000 for the three months ended June 30, 2021.

The increase in interest expense was due to a senior secured term

loan facility in an aggregate original principal amount of $175.0 million, or the Term Loan, issued in connection with the Rasmussen Acquisition.

Income tax (benefit) expense.

We recognized an income tax benefit of $35.3 million for the three months ended June 30, 2022, compared to income tax expense of $0.6 million for the three months ended June 30, 2021, or an effective tax rate benefit of 24.3% in 2022 compared to an income tax expense rate of 54.9% in 2021.

The three months ended June 30, 2022 includes a $36.0 million income tax benefit related to the impairment of goodwill and intangible assets.

Excluding the $36.0 million tax benefit, tax expense for the three months ended June 30, 2022 was $0.7 million, or a negative effective tax rate of 144.9%.

The higher effective tax rate in 2022, excluding the impairment charge and the corresponding tax impact, is due to higher non-deductible expenses in relation to the pre-tax loss for the period.

Equity investment loss.

Equity investment loss was $6,000 for the three months ended June 30, 2022 compared to $0.8 million for the three months ended June 30, 2021.

The equity investment loss for the three months ended June 30, 2021 includes an impairment loss of $0.8 million on one of our cost method investments.

Net (loss) income.

Our net loss was $110.0 million for the three months ended June 30, 2022, compared to net income of $0.5 million for the three months ended June 30, 2021, a decrease of $110.6 million.

This decrease was related to the factors discussed above.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Our consolidated revenue for the six months ended June 30, 2022 was $304.4 million, an increase of $137.8 million, or 82.7%, compared to $166.6 million for the six months ended June 30, 2021.

The increase in revenue was primarily due to the inclusion of RU Segment and GSUSA revenue for the six months ended June 30, 2022 of $131.0 million and $7.5 million, respectively.

In addition, HCN Segment revenue increased $0.8 million, or 3.4%, and APUS Segment revenue decreased $1.4 million, or 1.0%.

The HCN Segment revenue increase was primarily due to an 5.4% increase in total student enrollment as compared to the prior year period.

Costs and expenses.

Costs and expenses for the six months ended June 30, 2022 were $440.4 million, an increase of $286.5 million, or 186.1%, compared to $153.9 million for the six months ended June 30, 2021, and include a non-cash impairment charge of $144.9 million to reduce the carrying value of RU segment goodwill and intangible assets, and to reflect the corresponding tax impact.

The increase in costs and expenses for the six months ended June 30, 2022, was also the result of the inclusion of our RU Segment and GSUSA costs and expenses of $131.8 million and $10.8 million, respectively, excluding the goodwill and intangible assets impairment charge in the RU Segment.

Other increases in costs and expenses include increases in employee compensation costs in our HCN Segment and Corporate and Other, increases in faculty compensation costs and advertising costs in our HCN Segment, and an increase in graduation event costs in our APUS Segment, partially offset by decreases in employee compensation costs, professional fees, and advertising costs in our APUS Segment.

Results for the six months ended June 30, 2022 include the following costs on a pre-tax basis:

a $144.9 million non-cash impairment charge to reduce the carrying value of RU Segment goodwill and intangible assets, and the corresponding tax impact;

$1.7 million in information technology costs related to our multi-year technology transformation program in our APUS Segment;

and $0.6 million in professional fees associated with the Rasmussen Acquisition in Corporate and Other.

Costs and expenses as a percentage of revenue increased to 96.6% for the three months ended March 31, 2022, from 88.0% for the three months ended March 31, 2021.

and $1.3 million in professional fees associated with the Rasmussen and GSUSA acquisitions in Corporate and Other.

Results for the six months ended June 30, 2021 included the following costs on a pre-tax basis:

$3.7 million in professional fees associated with the Rasmussen Acquisition in Corporate and Other, and $3.4 million in information technology costs related to our multi-year technology transformation program in our APUS Segment.

Costs and expenses as a percentage of revenue increased to 144.7% for the six months ended June 30, 2022 from 92.5% for the six months ended June 30, 2021.

Instructional costs and services expenses.

Our instructional costs and services expenses for the three months ended March 31, 2022 were $71.7 million, an increase of $39.4 million, or 121.8%, compared to $32.3 million for the three months ended March 31, 2021.

The increase in instructional costs and services expenses was primarily due to the inclusion of RU Segment instructional costs and services expenses and GSUSA instructional costs and services expenses of $35.9 million and $2.9 million, respectively, as well as increases in faculty costs in our HCN Segment.

Instructional costs and services expenses as a percentage of revenue increased to 46.3% for the three months ended March 31, 2022, from 36.5% for the three months ended March 31, 2021.

Our instructional costs and services expenses for the six months ended June 30, 2022 were $143.8 million, an increase of $81.1 million, or 129.3%, compared to $62.7 million for the six months ended June 30, 2021.

The increase in instructional costs and services expenses was primarily due to the inclusion of RU Segment and GSUSA instructional costs and services expenses of $71.4 million and $6.4 million, respectively, as well as an increase in faculty costs in our HCN Segment and an increase in graduation event costs in our APUS Segment, partially offset by a decrease in employee compensation costs in our APUS Segment.

Instructional costs and services expenses as a percentage of revenue increased to 47.2% for the six months ended June 30, 2022 from 37.7% for the six months ended June 30, 2021.

Selling and promotional expenses.

Our selling and promotional expenses for the three months ended March 31, 2022 were $39.3 million, an increase of $19.9 million, or 102.7%, compared to $19.4 million for the three months ended March 31, 2021.

The increase in selling and promotional expenses was primarily due to the inclusion of RU Segment selling and promotional expenses and GSUSA selling and promotional expenses of $18.1 million and $0.8 million, respectively, as well as increases in advertising costs in our APUS and HCN Segments and an increase in employee compensation costs in our HCN Segment partially offset by decreases in employee compensation costs in our APUS Segment.

Advertising costs increased $0.9 million in our APUS and HCN Segments compared to the prior year period.

Selling and promotional expenses as a percentage of revenue increased to 25.4% for the three months ended March 31, 2022, from 21.9% for the three months ended March 31, 2021.

Our selling and promotional expenses for the six months ended June 30, 2022 were $75.2 million, an increase of $38.3 million, or 103.7%, compared to $36.9 million for the six months ended June 30, 2021.

The increase in selling and promotional expenses was primarily due to the inclusion of RU Segment and GSUSA selling and

promotional expenses of $35.7 million and $2.0 million, respectively, as well as increases in employee compensation costs in our HCN Segment and Corporate and Other and an increase in advertising costs in our HCN Segments, partially offset by decreases in advertising costs and employee compensation costs in our APUS Segment.

Selling and promotional expenses as a percentage of revenue increased to 24.7% for the six months ended June 30, 2022 from 22.2% for the six months ended June 30, 2021.

General and administrative expenses.

Our general and administrative expenses for the three months ended March 31, 2022 were $29.6 million, an increase of $6.1 million, or 25.8%, compared to $23.5 million for the three months ended March 31, 2021.

The increase in general and administrative expenses for the three months ended March 31, 2022 as compared to the prior year period was primarily due to the inclusion of RU Segment general and administrative expenses and GSUSA general and administrative expenses of $6.2 million and $0.9 million, respectively, as well as an increase in employee compensation costs and professional fees in Corporate and Other, partially offset by decreases in employee compensation costs, professional fees, and legal costs in our APUS Segment.

For the three months ended March 31, 2022, APUS Segment general and administrative expenses include the following costs on a pre-tax basis:

$0.9 million in professional fees associated with the Rasmussen and GSUSA Acquisitions, included in Corporate and Other;

Our general and administrative expenses for the six months ended June 30, 2022 were $59.5 million, an increase of $10.5 million, or 21.5%, compared to $49.0 million for the six months ended June 30, 2021.

The increase in general and administrative expenses for the six months ended June 30, 2022 as compared to the prior year period was primarily due to the inclusion of RU Segment and GSUSA general and administrative expenses of $12.4 million and $2.1 million, respectively, as well as an increase in employee compensation costs and professional fees in Corporate and Other, partially offset by decreases in employee compensation costs and professional fees in our APUS Segment and a decrease in professional fees in Corporate and Other.

For the six months ended June 30, 2022, APUS Segment general and administrative expenses include the following costs on a pre-tax basis:

$1.7 million of information technology costs related to our multi-year technology transformation program in our APUS Segment;

and $1.3 million in professional fees associated with the Rasmussen and GSUSA acquisitions, included in Corporate and Other.

For the six months ended June 30, 2021, general and administrative expenses include the following costs on a pre-tax basis:

$3.7 million in professional fees primarily related to the Rasmussen Acquisition in Corporate and Other;

and $3.4 million of information technology costs related to our multi-year technology transformation program in our APUS Segment.

For the three months ended March 31, 2021, general and administrative expenses include the following costs on a pre-tax basis:

$1.8 million in information technology costs related to our multi-year technology transformation program in our APUS Segment;

and $0.6 million in professional fees associated with the Rasmussen Acquisition in Corporate and Other.

Consolidated bad debt expense for the three months ended March 31, 2022 was $2.8 million, or 1.8% of revenue, compared to $1.5 million, or 1.7% of revenue in the prior year period.

General and administrative expenses as a percentage of revenue decreased to 19.1% for the three months ended March 31, 2022, from 26.6% for the three months ended March 31, 2021.

Consolidated bad debt expense for the six months ended June 30, 2022 was $5.7 million, or 1.9% of revenue, compared to $2.9 million, or 1.7% of revenue in the prior year period.

General and administrative expenses as a percentage of revenue decreased to 19.6% for the six months ended June 30, 2022 from 29.4% for the six months ended June 30, 2021.

Loss on disposals of long-lived assets.

The loss on disposals of long-lived assets were $0.8 million and $8,000 for the three months ended March 31, 2022 and 2021, respectively.

The loss on disposals for long-lived assets for the three months ended March 31, 2022 was primarily related to the sale of excess facilities located in Charles Town, West Virginia.

The loss on disposals of long-lived assets was $0.8 million and $0.2 million for the six months ended June 30, 2022 and 2021, respectively.

The loss on disposals for long-lived assets for the six months ended June 30, 2022 was primarily related to the sale of excess facilities located in Charles Town, West Virginia.

Impairment of goodwill and intangible assets.

For the six months ended June 30, 2022, the non-cash impairment of goodwill and intangible assets of $144.9 million resulted from the reduction of the carrying value of goodwill and intangible assets in our RU Segment, and the corresponding tax impact.

Goodwill and Intangible Assets” included in the Consolidated Financial Statements in this Quarterly Report.

Depreciation and amortization expenses.

Depreciation and amortization expenses were $8.1 million and $2.7 million for the three months ended March 31, 2022 and 2021, respectively.

The increase in depreciation and amortization expenses for the three months ended March 31, 2022 as compared to the prior year period was primarily due to the inclusion of the RU Segment depreciation and amortization expenses of $6.1 million.

Depreciation and amortization as a percentage of revenue increased to 5.3% for the three months ended March 31, 2022, from 3.0% for the three months ended March 31, 2021.

Depreciation and amortization expenses were $16.3 million and $5.2 million for the six months ended June 30, 2022 and 2021, respectively.

The increase in depreciation and amortization expenses for the six months ended June 30, 2022 as compared to the prior year period was primarily due to the inclusion of the RU Segment depreciation and amortization expenses of $12.2 million.

Depreciation and amortization as a percentage of revenue increased to 5.3% for the six months ended June 30, 2022 from 3.1% for the six months ended June 30, 2021.

Stock-based compensation expenses.

Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses were $2.4 million and $2.2 million for the three months ended March 31, 2022 and 2021, respectively.

Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses were $4.7 million and $4.2 million for the six months ended June 30, 2022 and 2021, respectively.

Stock-based compensation costs include accelerated expense for retirement-eligible employees and performance stock unit incentive costs.

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Interest (expense) income.

Interest expense was $3.4 million for the three months ended March 31, 2022, compared to interest income of $0.1 million for the three months ended March 31, 2021.

Interest expense was $6.7 million for the six months ended June 30, 2022, compared to interest income of $0.1 million for the six months ended June 30, 2021.

The increase in interest expense was due to a senior secured term loan facility in an aggregate original principal amount of $175.0 million, or the Term Loan, issued in connection with the Rasmussen Acquisition.

Income tax expense.

We recognized income tax expense of $1.0 million and $2.6 million for the three months ended March 31, 2022 and 2021, respectively, or effective tax rates of 16.3% and 24.6%, respectively.

In 2022, the gain on acquisition resulting from the GSUSA Acquisition is not included in taxable income resulting in a lower effective tax rate.

Excluding the non-recurring gain on acquisition, the effective tax rate was 56.4%, which increased from the three months ended March 31, 2021 due primarily to the impact of non-deductible stock compensation and shortfalls from vesting of restricted stock units recorded in the period.

We recognized an income tax benefit of $34.3 million for the six months ended June 30, 2022, compared to income tax expense of $3.3 million for the six months ended June 30, 2021, or an effective tax rate benefit of 24.7% in 2022 compared to an income tax rate expense of 27.6% in 2021.

The six months ended June 30, 2022, includes a $36.0 million income tax benefit related to the impairment of goodwill and intangible assets.

Excluding the $36.0 million tax

benefit, the tax expense for the six months ended June 30, 2022 was $1.7 million, or an effective tax rate of 28.9%.

The higher effective tax rate in 2022, excluding the impairment charge and the corresponding tax impact, is due to higher non-deductible expenses in relation to the pre-tax income for the period.

Equity investment loss.

Equity investment loss was $5,000 for the three months ended March 31, 2022 and 2021, respectively.

Our net income was $5.3 million for the three months ended March 31, 2022, compared to net income of $8.1 million for the three months ended March 31, 2021, a decrease of $2.8 million.

Equity investment loss was $11,000 for the six months ended June 30, 2022 compared to $0.8 million for the six months ended June 30, 2021.

The equity investment loss for the six months ended June 30, 2021 includes an impairment loss of $0.8 million on one of our cost method investments.

Our net loss was $104.7 million for the six months ended June 30, 2022, compared to net income of $8.6 million for the six months ended June 30, 2021, a decrease of $113.3 million.

This decrease was related to the factors discussed above.

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The following table provides details on our operating results by reportable segment for the respective periods (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

For the three months ended March 31, 2022, while net course registrations at APUS increased 1.2% to approximately 94,000 from approximately 92,900 as compared to the same period in 2021, the $4.4 million, or 5.7%, decrease to approximately $73.1 million in revenue in our APUS Segment was attributable to the timing of registrations within the quarter and lower revenue per net course registration due to a change in mix to a greater percentage of military registrations.

Income from operations before interest and income taxes decreased to $13.2 million during the three months ended March 31, 2022, from $14.0 million, a decrease of $0.8 million compared to the prior year as a result of the decrease in revenue.

For the three months ended March 31, 2022, RU Segment revenue was $67.1 million and RU Segment income from operations before interest and income taxes was $0.9 million for the period.

RU enrollment was approximately 16,200 during the three months ended March 31, 2022, which compares to 17,300 during the three months ended March 31, 2021.

We believe this decline in enrollment may have been caused, in part, due to a moderation in near-term demand for RU’s programs due to the abatement of the COVID-19 pandemic, record low unemployment in local RU markets, and challenges in filling open

nursing faculty and clinical positions.

For the three months ended March 31, 2022 the $0.4 million, or 3.7%, increase to approximately $11.5 million in revenue in our HCN Segment was attributable to an increase in total student enrollment.

HCN total student enrollment increased 8.1% to approximately 2,500 from approximately 2,300 students during the three months ended March 31, 2022 compared to the same period in 2021, due in part to an increase in marketing expenditures and the continued impact of initiatives implemented in 2019 and 2020, such as the direct entry ADN Program and the institutional affordability grant.

The loss from operations before interest and income taxes in our HCN Segment was $0.9 million during the three months ended March 31, 2022, compared to income from operations of $0.8 million in the same period in 2021, a decrease of $1.8 million, primarily due to increases in nursing faculty compensation costs and other employee costs, an increase in marketing expenditures as compared to the prior year period, and costs associated with the ongoing start-up of the new campus in Akron, Ohio, which opened in April 2021.

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

For the three months ended June 30, 2022, the $3.0 million, or 4.4%, increase to approximately $69.9 million in revenue in our APUS Segment was attributable to the timing of registrations within the quarter and higher net course registrations, primarily as a result of military-related registrations from students utilizing TA.

Net course registrations at APUS increased 1.1% to approximately 83,500 from approximately 82,600 as compared to the same period in 2021.

Income from operations before interest and income taxes increased to $13.6 million, or 49.5%, during the three months ended June 30, 2022 from $9.1 million in the prior year period as a result of the increase in revenue and an overall decrease in expenses as compared to the same period in 2021.

For the six months ended June 30, 2022, the $1.4 million, or 1.0%, decrease to approximately $143.0 million in revenue in our APUS Segment was primarily due to the timing of registrations within the quarter and lower revenue per net course registration due to a change in the mix of registrations toward a greater percentage of military-related registrations from students utilizing TA, which generate lower revenue per registration than non-military registrations.

Net course registrations at APUS increased 1.0% to approximately 177,400 for the six months ended June 30, 2022 from approximately 175,600 during the same period in 2021.

Income from operations before interest income and income taxes in our APUS Segment was $26.8 million during the six months ended June 30, 2022, an increase of $3.7 million, or 15.8%, compared to the same period in 2021, as a result of decreases in costs and expenses including employee compensation costs, professional fees, and advertising costs.

For the three and six months ended June 30, 2022, RU Segment revenue was $63.9 million and $131.0 million, respectively.

The RU Segment loss from operations before interest and income taxes was $146.6 million and $145.7 million for the three and six months ended June 30, 2022, respectively, primarily due to a goodwill and intangible asset impairment charge, and the corresponding tax impact, of $144.9 million.

RU enrollment was approximately 15,900 during the three months ended June 30, 2022, which compares to 17,000 during the three months ended June 30, 2021.

RU total student enrollment decreased 6.4% during the six months ended June 30, 2022 compared to the same period in 2021.

We believe this decline in enrollment may have been caused, in part, due to a moderation in near-term demand for RU’s programs due to the abatement of the COVID-19 pandemic, record low unemployment in local RU markets, and challenges in filling open nursing faculty and clinical positions.

For the three months ended June 30, 2022, the $0.4 million, or 3.2%, increase to approximately $11.5 million in revenue in our HCN Segment was attributable to an increase in total student enrollment.

HCN total student enrollment increased 2.7% during the three months ended June 30, 2022 compared to the same period in 2021, due primarily to the opening of the Akron campus in April 2021 and to the Indianapolis campus which, effective for the 2022 calendar year can enroll up to 200 students per calendar year compared to 30 students in 2021.

The HCN Segment loss from operations before interest and income taxes was $0.6 million during the three months ended June 30, 2022, compared to income from operations before interest and income taxes of $0.1 million in the same period in 2021, a decrease of $0.7 million, primarily due to increases in faculty and employee compensation costs and an increase in marketing expenditures as compared to the prior year period.

For the six months ended June 30, 2022, the $0.8 million, or 3.4%, increase to approximately $23.0 million in revenue in our HCN Segment was primarily attributable to an increase in student enrollment.

HCN total student enrollment increased 5.4% during the six months ended June 30, 2022 compared to the same period in 2021.

The HCN Segment loss from operations before interest and income taxes was $1.6 million during the six months ended June 30, 2022, compared to income from operations before interest and income taxes of $0.9 million in the same period in 2021, a decrease of $2.5 million, primarily as a result of increases in expenses as discussed above.

Liquidity and Capital Resources

Cash and cash equivalents were $170.9 million and $149.6 million at March 31, 2022 and December 31, 2021, respectively, representing an increase of $21.3 million, or 14.2%.

The increase in cash was due to cash provided by operating activities and $1.9 million of net cash received as a result of the GSUSA Acquisition, partially offset by increases in capital expenditures and payments of principal and interest on our debt obligations.

Cash and cash equivalents were $184.5 million and $149.6 million at June 30, 2022 and December 31, 2021, respectively, representing an increase of $34.9 million, or 23.3%.

The increase in cash was due to cash provided by operating activities, partially offset by increases in capital expenditures and payments of principal and interest on our debt obligations.

We have historically financed operating activities and capital expenditures with cash provided by operating activities.

We anticipate that our cash flow from operations and our existing cash and cash equivalents will provide adequate funds for our working capital needs, capital expenditures, lease commitments, and debt interest and principal obligations for at least the next 12 months and the foreseeable future.

For more on our material cash requirements from known contractual and other obligations, please refer to the section entitled “Contractual Obligations” in Item 7 of Part II of our Annual Report.

We derive a significant portion of our revenue from our participation in ED’s Title IV programs, for which disbursements are governed by federal regulations.

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Generally, these funds are received within 60 days of the start of the courses to which they relate.

In 2021, disruptions related to the Army’s transition to a new system for soldiers to use to request TA adversely impacted APUS’s ability to invoice the Army for Army registrations and adversely impacted accounts receivable balances and cash flow from operations.

During the three months ended March 31, 2022 we saw improvement in Army’s processing of invoices and payments to APUS.

During the period Army paid approximately $20.6 million to APUS.

As of March 31, 2022, approximately $19.4 million in accounts receivable, of which $10.5 million is older than 60 days from the course start date, was due from the Army as a result of the disruption associated with the transition to ArmyIgnitED.

This improvement may not continue, and therefore we cannot predict when this disruption will be resolved with the Army’s systems fully operational or the timing of expected cash receipts from the Army.

We have historically financed operating activities and capital expenditures with cash provided by operating activities.

We expect to continue to fund our costs and expenses through cash generated from operations.

We believe that our cash flow from operations and our existing cash and cash equivalents will provide adequate funds for ongoing operations, debt and interest obligations, and planned capital expenditures for the foreseeable future.

For more on our material cash requirements from known contractual and other obligations, please refer to our Annual Report and to the section entitled “Contractual Obligations”.

In 2021, disruptions related to the Army’s transition to ArmyIgnitED, a new system for soldiers to use to request TA adversely impacted APUS’s ability to invoice the Army for Army registrations and adversely impacted accounts receivable balances and cash flow from operations.

During the six months ended June 30, 2022 we saw improvement in Army’s processing of invoices and payments.

APUS received approximately $38.8 million in payments from the Army during the six months ended June 30, 2022.

As of June 30, 2022, approximately $12.5 million in accounts receivable, of which $6.9 million is older than 60 days from the course start date, was due from the Army as a result of the disruption associated with the transition to ArmyIgnitED.

The improvement may not continue, and therefore we cannot predict when this disruption will be resolved with the Army’s systems fully operational or the timing of expected cash receipts from the Army.

While the Army established alternative processes for soldiers to seek reimbursement for out-of-pocket costs incurred as a result of the disruption and related processes for institutions, in July 2022, the Army ended the alternative process for institutions, meaning that students now need to

retroactively seek and obtain TA on their own, and the student process will expire on August 26, 2022.

Failure to submit a TA request by that date for courses that would have been covered by the alternative process may result in no TA funding being provided.

We believe that the expiration of the alternative process for institutions will adversely impact APUS enrollments in the third quarter of 2022.

The Army has also announced that it will soon transition to an upgraded ArmyIgnitED 2.0, that all TA requests for courses beginning on or after October 1, 2022 will be required to be submitted via ArmyIgnitED 2.0, and that the Army will be transitioning to a new third-party service provider for ArmyIgnitED.

As part of this change, the Army stopped allowing institutions to submit invoices until ArmyIgnitED 2.0 is implemented, which could impact our ability to collect on our accounts receivable and could cause our accounts receivable to increase, and, as a result, we could incur additional bad debt expense.

While we are taking efforts to mitigate the impact of this change in policy, we believe it will not be remedied in full until ArmyIgnitED 2.0 is successfully implemented.

However, there can be no assurance that ArmyIgnitED 2.0 will work as expected or at all or will not cause further disruption to soldiers’ ability to seek and obtain TA or to the Army’s processing of invoices and payments to APUS.

See the section entitled “Risk Factors.”

Capital expenditures could be higher in the future as a result of, among other things, additional expenditures for technology or other business capabilities, the maintenance or relocation of existing campuses at RU and HCN and GSUSA’s classroom and administrative facility, the opening of new campuses at HCN, the acquisition or lease of existing structures or potential new construction projects, and necessary tenant improvements that arise as a result of our ongoing evaluation of our space needs and opportunities for physical growth.

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We also expect to continue to explore opportunities to invest in the education industry, which could include purchasing or investing in other education-related companies or companies developing new technologies.

For the three months ended March 31, 2022 and 2021, we incurred $0.9 million and $0.6 million, respectively, of acquisition-related expenses which are included in general and administrative expenses on the Consolidated Statements of Income.

For the three and six months ended June 30, 2022, we incurred $0.4 million and $1.3 million, respectively, of acquisition-related expenses which are included in general and administrative expenses on the Consolidated Statements of Income.

RU currently relies on Collegis LLC, or Collegis, for a variety of outsourced information technology functions and marketing services under one contract for information technology functions and another for marketing services.

In April 2022, we notified Collegis that we intend to permit both contracts to expire by their terms on September 30, 2024.

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, but the transition may cause us to incur significant costs, which could adversely affect our financial condition, results of operations, and cash flows.

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 transitioned some services and continue work on the transition of certain marketing services.

As we continue to develop our 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, but the transition may cause us to incur significant costs, which could adversely affect our financial condition, results of operations, and cash flows.

Given recent operating results, we have begun to identify certain cost savings efforts focused on realigning our organizational structure, eliminating redundancies, and optimizing certain functions.

While we are working toward implementing these efforts by the end of 2022, there can be no assurance that we will be successful or recognize the benefits we anticipate.

Furthermore, some of the savings that we anticipate would be offset in the short-term by severance and other related costs, and over the long-term may be offset by increases to wages and salaries necessary to remain competitive.

Acquisition of Rasmussen University

In connection with the completion of the Rasmussen Acquisition, on the Closing Date, we entered into the Credit Agreement and, pursuant thereto, the Lenders provided us with (i) the $175.0 million Term Loan, and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $20.0 million, or together with the Term Loan, the Facilities.

In connection with the completion of the Rasmussen Acquisition, on the RU Closing Date, we entered into the Credit Agreement and, pursuant thereto, the Lenders provided us with (i) the $175.0 million Term Loan and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $20.0 million, or together with the Term Loan, the Facilities.

We paid a portion of the consideration for the Rasmussen Acquisition with proceeds from the Term Loan.

For more information on the Facilities and their terms, please refer to “Note 8.

Long-Term Debt” included on the Consolidated Financial Statements in this Quarterly Report.

Long-Term Debt” included in the Consolidated Financial Statements in this Quarterly Report.

Our future capital requirements will depend on a number of factors.

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Operating Activities

Net cash provided by operating activities was $25.3 million and $11.2 million for the three months ended March 31, 2022 and 2021, respectively.

Net cash provided by operating activities was $45.4 million and $8.9 million for the six months ended June 30, 2022 and 2021, respectively.

The increase in cash from operating activities is primarily due to payments received from the Army and other changes in working capital due to the timing of receipts and payments.

Accounts receivable at March 31, 2022, decreased approximately $2.4 million compared to December 31, 2021.

Accounts payable, accrued compensation and benefits, and accrued liabilities at March 31, 2022 were approximately $2.4 million higher than December 31, 2021, primarily due to the inclusion of the RU Segment in 2022.

Accounts receivable at June 30, 2022, decreased approximately $9.2 million compared to December 31, 2021, primarily as a result of improvement in Army’s processing of invoices and payments to APUS.

Accounts payable and accrued liabilities, and accrued compensation and benefits at June 30, 2022 were approximately $4.8 million higher than December 31, 2021, primarily due to the timing of payment processing.

Investing Activities

Net cash used in investing activities was $0.3 million and $1.5 million for the three months ended March 31, 2022 and 2021, respectively.

Capital expenditures of $3.0 million for the three months March 31, 2022 were partially offset by net proceeds from the GSUSA Acquisition and the sale of real property of $1.9 million and $0.8 million, respectively.

For the three months ended March 31, 2021, capital expenditures were $1.5 million.

Net cash used in investing activities was $4.6 million and $3.0 million for the six months ended June 30, 2022 and 2021, respectively.

Capital expenditures of $7.3 million for the six months June 30, 2022 were partially offset by net proceeds from the GSUSA Acquisition and the sale of real property of $1.9 million and $0.8 million, respectively.

For the six months ended June 30, 2021, capital expenditures were $3.0 million.

Financing Activities

Net cash used in financing activities was $3.7 million for the three months ended March 31, 2022, compared to $83.4 million of net cash provided by financing activities for the three months ended March 31, 2021, respectively.

This decrease in cash used in financing activities was largely due to principal payments made on our debt borrowings for the three months ended March 31, 2022.

During the three months ended March 31, 2021, we received net proceeds of approximately $86.2 as a result of our underwritten public offering of common stock.

Net cash used in financing activities was $5.9 million for the six months ended June 30, 2022, compared to $83.4 million of net cash provided by financing activities for the six months ended June 30, 2021.

This increase in cash used in financing activities was largely due to principal payments made on our debt borrowings for the six months ended June 30, 2022.

During the six months ended June 30, 2021, we received net proceeds of approximately $86.2 million as a result of our underwritten public offering of common stock.

Contractual Commitments

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Purchase obligations include agreements with consultants, contracts with third-party service providers, and other future contracts or agreements.

For a summary of our contractual obligations, please refer to Item 7 of Part II of the Annual Report.

For a summary of our contractual obligations, please refer to Item 7 of Part II of our Annual Report.

RU is a party to service agreements with a third party, Collegis, to provide marketing and IT services.

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Notices of the non-renewal of the marketing and IT services agreements were issued to Collegis in April 2022.

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.

We have already transitioned some services and continue work on the transition of certain marketing services.

In connection with the GSUSA Acquisition, we have also assumed an operating lease obligation in the aggregate of $50.0 million over 15 years for GSUSA’s Washington, D.C., headquarters facility.

For more information on the timing and amount of our future lease obligations, please refer to “Note 5.

Leases” included on the Consolidated Financial Statements.

Leases” included in the Consolidated Financial Statements in this Quarterly Report.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis