What changed in this filing

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Item 1. Financial Statements

2022-11-08 compared with 2022-08-09 · 103 added, 74 removed, 622 unchanged (22% of the section changed)

3 unchanged sentences

(In thousands)

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

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

ASSETS (Unaudited)

43 unchanged sentences

(In thousands, except per share amounts)

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

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

2022 2021 2022 2021

6 unchanged sentences

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

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

Loss on disposals of long-lived assets 178 — 962 182

Depreciation and amortization 7,982 4,386 24,249 9,561

Total costs and expenses 150,561 96,986 590,976 250,929

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

(Loss) income from operations before interest and income taxes ( 1,026 ) 1,262 ( 137,086 ) 13,874

Gain on acquisition (Note 3) — — 3,828 —

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

Interest expense ( 3,594 ) ( 1,305 ) ( 10,339 ) ( 1,167 )

(Loss) income before income taxes ( 4,620 ) ( 43 ) ( 143,597 ) 12,707

12 unchanged sentences

(In thousands)

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

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

2022 2021 2022 2021

16 unchanged sentences

Net income — — — — 8,371 8,371

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

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

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

6 unchanged sentences

Net loss — — — — ( 108,458 ) ( 108,458 )

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

Balance as of September 30, 2022 18,892 $ 189 $ 291,552 $ 3,137 $ 20,474 $ 315,352

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

2 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Operating activities

28 unchanged sentences

Cash paid for principal on borrowings and finance leases ( 6,649 ) —

Cash received from borrowings — 175,000

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

Net cash (used in) provided by financing activities ( 8,183 ) 244,544

15 unchanged sentences

Please refer to “Note 3.

Acquisition Activity” for more information on this acquisition.

Acquisition Activity” 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 this acquisition.

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

RU is institutionally accredited by HLC.

• National Education Seminars, Inc., which is referred to herein as Hondros College of Nursing, or HCN, provides nursing education to students enrolled at six campuses in Ohio 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.

• 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, one campus in Indianapolis, Indiana, and one campus in suburban Detroit, Michigan that opened in October 2022, to serve the needs of the nursing and healthcare communities.

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

8 unchanged sentences

Please refer to “Note 9.

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.

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

The Company’s subsidiary institutions are licensed or otherwise authorized by state authorities to offer postsecondary education programs to the extent the institutions believe such licenses or authorizations are required, and APUS, RU, and HCN are certified by the United States Department of Education, or ED, to participate in student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or Title IV programs.

28 unchanged sentences

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.

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

Use of Estimates

12 unchanged sentences

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.

Restricted cash on the Consolidated Balance Sheets as of September 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 September 30, 2022 and December 31, 2021 was $ 26.7 million and $ 27.0 million, respectively.

Goodwill and Intangible Assets

14 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 six months ended June 30, 2022 and 2021 was as follows (in thousands):

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

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

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

2022 2021 2022 2021

10 unchanged sentences

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.

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.

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

The Company recognized an aggregate expense associated with the Company’s current year annual incentive-based compensation plans of approximately $ 0.6 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 recognized an aggregate expense associated with the Company’s current year annual incentive-based compensation plans of approximately $ 0.4 million and $ 2.9 million during the three and nine months ended September 30, 2022, respectively, compared to an aggregate expense of approximately $ 0.1 million and $ 2.6 million during the three and nine months ended September 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.

8 unchanged sentences

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

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

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

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

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

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

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

The Company reflected measurement period adjustments in the period in which the adjustments occurred.

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.

36 unchanged sentences

Goodwill and Intangible Assets”.

Pro Forma Financial Information

The following unaudited pro forma information is presented as if the Rasmussen Acquisition occurred at the beginning of the earliest period presented.

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

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

The pro forma results do not represent what may occur in the future as actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to the Company’s Consolidated Financial Statements.

Pro forma results for the three and nine months ended September 30, 2022 are not presented below because the results of Rasmussen are included in the Company’s September 30, 2022 unaudited Consolidated Statements of Income.

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

Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021

Revenue $ 143,082 $ 446,984

Net (loss) income ( 1,131 ) 12,232

Acquisition of Graduate School USA

1 unchanged sentence

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 $ 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.

25 unchanged sentences

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

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

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

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

9 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 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.

For the three and nine months ended September 30, 2022, respectively, the Company incurred approximately $ 0.3 million and $ 1.6 million of acquisition-related expenses related to RU and GSUSA, and for the three and nine months ended September 30, 2021, respectively, the Company incurred approximately $ 1.5 million and $ 5.0 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 June 30, 2022

Three Months Ended September 30, 2022

APUS RU HCN Corporate and Other Consolidated

4 unchanged sentences

Total Revenue $ 68,735 $ 61,548 $ 11,409 $ 7,843 $ 149,535

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

APUS RU HCN Corporate and Other Consolidated

4 unchanged sentences

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

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

APUS RU HCN Corporate and Other Consolidated

4 unchanged sentences

Total Revenue $ 211,729 $ 192,538 $ 34,436 $ 15,187 $ 453,890

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

APUS RU HCN Corporate and Other Consolidated

6 unchanged sentences

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 June 30, 2022.

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

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

2 unchanged sentences

Contract Balances and Performance Obligations

The Company had no contract assets or deferred contract costs as of June 30, 2022 and December 31, 2021.

The Company had no contract assets or deferred contract costs as of September 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 September 30, 2022 was $ 27.6 million and includes $ 15.8 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $ 11.8 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.

26 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, and beginning in the fall of 2022, one campus in Detroit, Michigan, 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, one campus in Indianapolis, Indiana, and beginning in the fall of 2022, one campus in suburban Detroit, Michigan, under operating leases that expire through June 2029.

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

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

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

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

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

5 unchanged sentences

There are no variable lease payments.

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.

Lease expense for the three and nine months ended September 30, 2022 was $ 5.0 million and $ 15.1 million, respectively, compared to $ 1.8 million and $ 3.4 million for the three and nine months ended September 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 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.

Cash paid for amounts included in the present value of operating lease liabilities during the three and nine month periods ended September 30, 2022 was $ 4.8 million and $ 14.7 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 nine months ended September 30, 2021 was $ 1.9 million and $ 3.4 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 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 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):

As of September 30, 2022, the total finance lease liability was $ 0.2 million with an average interest rate of 3.75 %.

The ROU assets are 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 and $ 0.08 million for the three and nine months ended September 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 September 30, 2022 (dollars in thousands):

Maturity of Lease Liabilities (Unaudited) Operating Leases Finance Leases

32 unchanged sentences

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 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):

Amortization expense related to definite lived intangibles assets was approximately $ 4.0 million and $ 11.9 million for the three and nine months ended September 30, 2022, respectively.

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

Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount

32 unchanged sentences

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

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.

During the three months ended June 30, 2022, in connection with preparation of the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022, 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 RU’s under performance in the second quarter of 2022 compared to projections at the time of acquisition, along with the decline in market value of the Company and comparable companies.

There were no indicators of impairment at HCN.

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

Therefore, the Company proceeded with a quantitative impairment test for the RU Segment 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.

As a result, the Company recorded a non-cash impairment charge of $ 131.4 million, and to reflect the corresponding tax impact of $ 36.0 million, 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.

3 unchanged sentences

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.

4 unchanged sentences

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.

The income and cost approaches were used, as applicable, to value the RU indefinite-lived intangibles assets.

The impairment charge recorded in the quarter ended June 30, 2022 eliminated the difference between the fair value of goodwill and the respective indefinite-lived intangible assets and the book value.

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):

Goodwill is tested for impairment annually and upon occurrence of certain triggering events or substantive changes in circumstances that indicate that fair value may be below carrying value.

Upon review, the Company determined that there were no indicators of impairment at RU or HCN during the three months ended September 30, 2022.

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

APUS Segment RU Segment HCN Segment Total Goodwill

3 unchanged sentences

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.

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

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.

2 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.

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.

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

Net Income Per Common Share

2 unchanged sentences

The table below reflects the calculation of the weighted average number of common shares outstanding, on an as if converted basis, used in computing basic and diluted net income per common share (in thousands).

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

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

2022 2021 2022 2021

4 unchanged sentences

The table below reflects a summary of securities that could potentially dilute basic net income per common share in future periods that were not included in the computation of diluted earnings per share because the effect would have been antidilutive (in thousands).

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

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

2022 2021 2022 2021

12 unchanged sentences

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 June 30, 2022 and December 31, 2021.

There were no borrowings outstanding under the Revolving Credit Facility at September 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.

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

As of September 30, 2022, the Facilities borrowing rate was 8.02 %, excluding any offset from the interest rate cap agreement described below.

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

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

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

transactions, in each case, subject to certain exceptions, as well as customary representations, warranties, events of default, and remedies upon default, including acceleration and rights to foreclose on the collateral securing the Facilities.

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

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):

At September 30, 2022, APEI was in compliance with all debt covenants.

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

Long-Term debt (Unaudited)

4 unchanged sentences

Long-Term Debt $ 147,070

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

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

Maturities of Long-Term Debt (Unaudited) Loan Payments

8 unchanged sentences

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

During the three months ended September 30, 2022, the Company reclassified approximately $ 0.1 million from other comprehensive income to interest expense.

The Company estimates that approximately $ 2.1 million will be reclassified from accumulated other comprehensive income into interest expense during the next twelve months.

At September 30, 2022, the $ 4.5 million fair value of the interest rate cap is recorded in Other assets on the Consolidated Balance Sheets.

The unrealized gain of $ 3.0 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.

In connection with the Rasmussen Acquisition (as further described in “Note 3.

Acquisition Activity”), the Company revised its reportable segments to reflect the manner in which the chief operating decision-maker evaluates performance and allocates resources, and to include RU as a separately reportable segment.

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

the American Public Education, Inc.

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

10 unchanged sentences

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

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

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

2022 2021 2022 2021

17 unchanged sentences

Total (loss) income from operations before interest and income taxes $ ( 1,026 ) $ 1,262 $ ( 137,086 ) $ 13,874

Interest (expense) income:

Interest income (expense):

APUS Segment $ 69 $ 41 $ 146 $ 171

2 unchanged sentences

Corporate and Other ( 3,698 ) ( 1,348 ) ( 10,533 ) ( 1,344 )

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

Total Interest expense $ ( 3,594 ) $ ( 1,305 ) $ ( 10,339 ) $ ( 1,167 )

Income tax expense (benefit):

11 unchanged sentences

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

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

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

APUS Segment $ 116,579 $ 126,926

14 unchanged sentences

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

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

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

2022 2021 2022 2021

4 unchanged sentences

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

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

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

2022 2021 2022 2021

3 unchanged sentences

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

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

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

2022 2021 2022 2021

2 unchanged sentences

VA education benefits 2 % 1 % 2 % 1 %

Subsequent Events

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 October 2022, RU and Collegis mutually agreed to the termination of the marketing services contract effective January 31, 2023, rather than having the contract expire by its terms in September 2024.

Approximately $ 6.5 million in transition related fees will be due to Collegis as specific transition obligations are completed, a portion of which is expected to be incurred in the fourth quarter of 2022 with the remainder expected to be incurred in the first quarter of 2023.

Outsourced information technology services under the Collegis information technology contract will continue until September 30, 2024.

The total minimum value for marketing and information technology services over the remaining periods, excluding the transition-related fees in connection with the termination of the marketing services, are approximately $ 4.5 million and $ 18.1 million, respectively.

On November 2, 2022, we completed a reduction in force that resulted in the termination of 98 non-faculty employees and the elimination of 78 open positions across a variety of roles and departments.

The reductions represent approximately 5.8 % of our non-faculty workforce.

We incurred an aggregate of approximately $ 3.1 million of pre-tax cash expenses associated with employee severance benefits, all of which we expect will be incurred in the fourth quarter of 2022.

The reduction in force is expected to result in pre-tax labor and benefit savings in 2022 of approximately $ 2.3 million, and approximately $ 13.5 million on an annualized basis.

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

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