APEI filing — read by section

Item 2. Management’s Discussion and Analysis

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
 
 In this Quarterly Report on Form 10-Q, or Quarterly Report, “we,” “our,” “us,” “the Company” and similar terms refer to American Public Education, Inc., or “APEI,” and its subsidiary institutions collectively unless the context indicates otherwise. All quarterly information in this Management’s Discussion and Analysis is unaudited. The following discussion of our historical results of operations and our liquidity and capital resources should be read in conjunction with the Consolidated Financial Statements and related notes that appear elsewhere in this Quarterly Report and the audited financial information and related notes, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations and other disclosures, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, or our Annual Report. 
 
 Forward-Looking Statements 
 
 This Quarterly Report contains forward-looking statements intended to be covered by the safe harbor provisions for forward-looking statements in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We may use words such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “will,” or “may,” or other words that convey uncertainty of future events, conditions, circumstances, or outcomes to identify these forward-looking statements. Forward-looking statements in this Quarterly Report include, without limitation, statements regarding: 
 
 • integration of Rasmussen University, or RU, and Graduate School USA, or GSUSA; 
 • changes to and expectations regarding our student enrollment, net course registrations, and the composition of our student body, including the pace of such changes; 
 • 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; 
 • our ability to maintain, develop, and grow our technology infrastructure to support our student body; 
 • our conversion of prospective students to enrolled students and our retention of active students; 
 • our ability to update and expand the content of existing programs and develop new programs to meet emerging student needs and marketplace demands, and our ability to do so in a cost-effective manner or on a timely basis; 
 • our plans for, marketing of, and initiatives at, our institutions; 
 • our ability to leverage our investments in support of our initiatives, students, and institutions; 
 • our maintenance and expansion of our relationships and partnerships and the development of new relationships and partnerships; 
 • 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; 
 • our ability to undertake initiatives to improve the learning experience and attract students who are likely to persist; 
 • changes in enrollment in postsecondary degree-granting institutions and workforce needs; 
 • the competitive environment in which we operate; 
 • our cash needs and expectations regarding cash flow from operations; 
 • our ability to recognize the benefits of our cost savings efforts; 
 • our ability to manage and influence our bad debt expense; 
 • our ability to manage, grow, and diversify our business and execute our business initiatives and strategy; and 
 • our financial performance generally. 
 
 Forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance, taking into account information currently available to us and are not guarantees of future results. There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. Risks and uncertainties involved in forward-looking statements include, among others: 
 
 • the impacts of inflation, increases in labor costs, and enrollment trends, including on our operating margins; 
 • our dependence on the effectiveness of our ability to attract students who persist in our institutions’ programs; 
 • changing market demands; 
 • our inability to effectively market our programs; 
 • our inability to maintain strong relationships with the military and maintain enrollments from military students; 
 • the loss of our ability to receive funds under TA programs or the reduction, elimination, or suspension of TA; 
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 • the effects, duration and severity of the ongoing COVID-19 pandemic and the adverse effects on demand for online education or nursing education as impacts of the pandemic abate, and the actions we have taken or may take in response, particularly at Hondros College of Nursing, or HCN, and RU; 
 • adverse effects of changes our institutions make to improve the student experience and enhance their ability to identify and enroll students who are likely to succeed; 
 • our need to successfully adjust to future market demands by updating existing programs and developing new programs; 
 • our failure to comply with regulatory and accrediting agency requirements or to maintain institutional accreditation; 
 • 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; 
 • risks related to the acquisition of RU, or the Rasmussen Acquisition, including regulatory approvals, limitations on growth and expansion at RU, effective integration of RU’s business, and our ability to realize the expected benefits of the acquisition; 
 • risks related to incurring substantial debt under the debt facilities that we entered into in connection with financing the Rasmussen Acquisition, the cost of servicing that debt, and our ability in the future to service that debt; and 
 • our dependence on and need to continue to invest in our technology infrastructure. 
 
 Forward-looking statements should be considered in light of these factors and the factors described elsewhere in this Quarterly Report, including in the “Risk Factors” section, in the “Risk Factors” section of our Annual Report, and in our various filings with the Securities and Exchange Commission, or the SEC. It is important that you read these factors and the other cautionary statements made in this Quarterly Report as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report. If any of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance, or achievements may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. You should also read the more detailed description of our business in our Annual Report when considering forward-looking statements. We caution readers not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to publicly update any forward-looking statements except as required by law. 
 
 Overview 
 
 Background 
 
 We are a provider of online and campus-based postsecondary education, and with the acquisition of GSUSA, career learning, to approximately 105,100 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 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. 
 
 Acquisitions 
 
 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. Upon completion of the Rasmussen Acquisition, RU, became a wholly owned subsidiary of APEI. On September 9, 2021, RU timely submitted a change in ownership and control application to ED seeking approval to participate in the Title IV programs under our ownership. ED and RU entered into a Temporary Provisional Program Participation Agreement, effective as of October 14, 2021, that allows RU to continue disbursing Title IV funds while ED reviews the change in ownership application. 
 
 We relied on debt financing pursuant to a Credit Agreement with Macquarie Capital Funding LLC, or the Credit Agreement, as administrative agent and collateral agent, Macquarie Capital USA Inc. and Truist Securities, Inc., as lead arrangers and joint bookrunners, and certain lenders party thereto, or the Lenders, to fund a portion of the consideration for the Rasmussen Acquisition. 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 in the Notes to the Consolidated Financial Statements in this Quarterly Report. 
 
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 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 the Seller post-closing and additional adjustments to the estimated net working capital at closing. 
 
 Our financial results do not include the RU Segment or GSUSA results prior to the respective acquisition closing dates. Therefore, our consolidated results for the three and nine months ended September 30, 2021 include the operations of RU for the month of September 2021 only, and the consolidated results do not reflect the operations of GSUSA in the 2021 periods. 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 nine months ended September 30, 2022, the operational activities of GSUSA. 
 
 Our results for the three and nine months ended September 30, 2022 include approximately $0.3 million and $1.6 million, respectively, of acquisition-related expenses related to RU and GSUSA, and our results for the three and nine months ended September 30, 2021 included approximately $1.5 million and $5.0 million, respectively, of acquisition-related expenses related to RU. 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 in the Notes to 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 and nine months ended September 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: 
 
 • American Public University System, Inc., referred to herein as APUS, provides online postsecondary education to approximately 87,700 adult learners, directed primarily at the needs of the military, military-affiliated, public service and service-minded communities through two brands: American Military University, or AMU, and American Public University, or APU. As of September 30, 2022, approximately 65% 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 15,000 students at its 23 campuses in six states and online. As of September 30, 2022, approximately 7,700 students are pursuing nursing degrees at RU, approximately 90% of whom are enrolled in RU’s pre-licensure degree programs. 
 
 • 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 suburban Detroit, Michigan opened in October 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. 
 
 • American Public Training LLC, referred to herein as Graduate School USA, or GSUSA, provides career learning to the federal government workforce through a catalog of over 300 courses specializing in foundational and continuing professional development, as well as leadership training to advance the performance of government agencies through the competency and career advancement of their employees. GSUSA operational activities are presented within “Corporate and Other”. 
 
 Cost and Expense Reductions 
 
 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 
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 approximately $13.5 million on an annualized basis. These cost savings do not include expenses associated with employee severance benefits. 
 
 The headcount reductions reflect ongoing efforts focused on realigning our organizational structure, eliminating redundancies, and optimizing certain functions. There can be no assurance that we will be successful or recognize the benefits we anticipate. Furthermore, the savings anticipated in 2022 will 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. 
 
 Regulatory and Legislative Activity 
 
 Rulemakings 
 
 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, borrower defenses to repayment, or BDTR, mandatory pre-dispute arbitration, prohibition of class-action lawsuits, closed school discharges, 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. In October 2022, ED published final regulations relating to the 90/10 Rule, BDTR, mandatory pre-dispute arbitration, prohibition of class-action lawsuits, and change in ownership and change in control rules and procedures. ED has also published for public notice and comment proposed regulations relating to some of the other topics that were the subject of the negotiated rulemaking processes, 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.” 
 
 Program Reviews 
 
 In July 2022, HCN received a final program review determination from ED closing the previously disclosed open program review from July 2021, and in September 2022, RU received a program review report from ED with respect to the previously disclosed open program review for the 2015-2016 and 2016-2017 award years. Please refer to “Risk Factors - ED has conducted and may in the future conduct compliance reviews of our institutions, which could disrupt our institutions’ operations and adversely affect their performance. 
 
 Cohort Default Rate 
 
 To remain eligible to participate in Title IV programs, an educational institution’s student loan cohort default rates must remain below certain levels. Pursuant to requirements of the Higher Education Act, as amended, if the cohort default rate for any year exceeds 40% in any single year, or exceeds 30% for three consecutive years, an institution loses eligibility to participate in Title IV programs. If an institution’s cohort default rate is equal to or greater than 30% in any year, it must establish a default prevention task force. 
 
 In September 2022, ED released final official cohort default rates for institutions for federal fiscal year 2019, with ED reporting a 2.4% cohort default rate for APUS, a 1.6% cohort default rate for RU, and a 1.1% cohort default rate for HCN. Additional information regarding student loan default rates, prior year default rates, and potential risks associated with them is available in our Annual Report. 
 
 Reportable Segments 
 
 Our operations are organized into three reportable segments: 
 • American Public University System Segment, or APUS Segment. This segment reflects the operational activities of APUS. 
 
 • Rasmussen University Segment, or RU Segment . This segment reflects the operational activities of RU. 
 
 • Hondros College of Nursing Segment, or HCN Segment. This segment reflects the operational activities of HCN. 
 
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 Prior to the Rasmussen Acquisition, we had two reportable segments: the American Public Education, Inc. 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 former APEI Segment; the RU Segment; and the HCN Segment. The APEI Segment previously reported the results of both APUS and unallocated Company expenses. GSUSA does not meet the quantitative thresholds to qualify as a reportable segment; 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 former APEI Segment. Prior periods have been updated to conform to the revised presentation. 
 
 Summary of Results 
 
 As discussed above, we completed the Rasmussen and GSUSA Acquisitions on September 1, 2021, and January 1, 2022, respectively. Our financial results do not include the financial results of these companies prior to their respective acquisition closing dates. Accordingly, the financial results for the three and nine months ended September 30, 2021 include results of operations of RU for the month of September 2021 and do not include the results of operations of GSUSA. Therefore, the prior year period presented is not directly comparable to the current period. 
 
 For the three months ended September 30, 2022, our consolidated revenue increased to $149.5 million from $98.2 million, or by 52.2%, compared to the prior year period. Our operating margins decreased to negative 0.7% for the three months ended September 30, 2022 from 1.2% in the prior year period. The net loss for the three months ended September 30, 2022 was $3.8 million compared to net loss of $0.3 million during the three months ended September 30, 2021. 
 
 For the nine months ended September 30, 2022, our consolidated revenue increased to $453.9 million from $264.8 million, or 71.4%, compared to the prior year period. Our operating margins decreased to negative 30.1% for the nine months ended September 30, 2022 from 5.3% in the prior year period. The net loss for the nine months ended September 30, 2022 was $108.5 million compared to net income of $8.4 million during the nine months ended September 30, 2021. Results for the nine months ended September 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 nine months ended September 30, 2022, our operating margin was 1.7% and our net income was $0.4 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 RU. 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 September 30, 2022, net course registrations at APUS increased to approximately 85,800 from approximately 83,100, or approximately 3.2%, compared to the prior year period. APUS Segment revenue increased to $68.7 million from $65.9 million, or by 4.3%, compared to the prior year period. For the nine months ended September 30, 2022, net course registrations at APUS increased to approximately 263,200 from approximately 258,700, or approximately 1.7%, compared to the prior year period, and APUS Segment revenue increased to $211.7 million from $210.3 million, or by 0.7%, compared to the prior year period. We believe the difference in the change in net course registrations as compared to the change in APUS Segment revenue for the nine months ended September 30, 2022, was primarily due to an increase in military related registrations from students utilizing TA, which generate a lower revenue per registration. 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. 
 
 For the three months ended September 30, 2022, APUS Segment operating margins increased to 18.2% from 11.9% in the prior year period. For the nine months ended September 30, 2022, APUS Segment operating margins increased to 18.6% from 14.7% in the prior year period. The increase in the operating margin was due to decreases in professional fees and employee compensation costs during the three months ended September 30, 2022. For the nine months ended September 30, 2022, the increase in the operating margin was due to decreases in professional fees, employee compensation costs, and advertising costs, partially offset by increases in graduation event costs after returning to an in-person graduation ceremony. 
 
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 For the three months ended September 30, 2022, HCN Segment revenue increased to $11.4 million from $11.2 million, or by 1.5%, compared to the prior year period. Total enrollment at HCN increased to approximately 2,400 from approximately 2,300, or approximately 3.7%, compared to prior year period. For the nine months ended September 30, 2022, HCN Segment revenue increased to $34.4 million from $33.5 million, or by 2.8%, compared to the prior year period. Total enrollment at HCN for the nine months ended September 30, 2022 increased approximately 4.8% 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 Indiana State Board of Nursing, or IBN, action to increase maximum enrollment at 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. 
 
 For the three months ended September 30, 2022, HCN Segment operating margins decreased to negative 12.2% from 4.0% in the prior year period. For the nine months ended September 30, 2022, HCN Segment operating margins decreased to negative 8.8% 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 compensation costs, technology costs, advertising costs, and Title IV costs, as compared to the prior year period. 
 
 RU Segment revenue totaled approximately $61.5 million and $192.5 million for the three and nine months ended September 30, 2022, respectively. RU full-term enrollment was approximately 15,000 during the three months ended September 30, 2022, which compares to 16,300 during the three months ended September 30, 2021. We believe this decline in enrollment, which reflects year-over-year declines in total nursing enrollment and enrollment from new nursing students, as well as enrollment declines in non-nursing programs including online enrollments, 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 markets, and increasing pay for nurses resulting in fewer available nursing faculty to educate and oversee clinicals. Further, in February 2022, the Illinois ADN Program was placed on probationary status by the Illinois Department of Professional Regulation, or IDPR, as a result of which RU is required to temporarily reduce enrollment in the program by 25% and has two years to demonstrate evidence of implementing strategies to correct deficiencies and satisfy the required NCLEX pass rate. Additionally, 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. 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. Finally, based on the first-time NCLEX pass rate in the Bloomington ADN Program in the third quarter of 2022, RU has informed the Minnesota Board of Nursing, or MBN, that RU will voluntarily further reduce enrollments in the program starting with the quarterly cohort in January. The various factors adversely impacting RU enrollments, including nursing enrollments, are expected to continue to negatively impact RU’s results. 
 
 Critical Accounting Policies and Use of Estimates 
 
 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. 
 
 In the second quarter of 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. Therefore, the Company proceeded with a quantitative impairment test of RU Segment goodwill as of May 31, 2022. The implied fair value of RU Segment 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 of $36.0 million, to reduce the carrying value of RU Segment goodwill. There were no indicators of goodwill impairment at HCN. 
 
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 In the second quarter of 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. There we no indicators of intangible asset impairment at HCN. 
 
 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 of $36.0 million. 
 
 The goodwill impairment charge recorded in the quarter ended June 30, 2022 eliminated the difference between the fair value of RU Segment 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. 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%. 
 
 We evaluated events and circumstances related to the valuation of goodwill and intangible assets of RU and HCN for the three months ended September 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. 
 
 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, changes in the regulatory environment, 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, as well as the market price for our stock, 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. 
 
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 Results of Operations 
 
 Below we have included a discussion of our operating results and material changes in our operating results during the three and nine months ended September 30, 2022 compared to the three and nine months ended September 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. Our student population varies as a result of new enrollments, graduations, student attrition, the success of our marketing programs, and other reasons that we cannot always anticipate. 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 and nine months ended September 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 information on the impacts of the recent Army TA program disruption 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 nine months ended September 30, 2022 as compared to the prior year period is due primarily to the opening of the Akron campus in April 2021 and to IBN action to increase maximum enrollment at 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. 
 
 RU full-term enrollment was approximately 15,000 during the three months ended September 30, 2022, which compares to 16,300 during the three months ended September 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. Further, in February 2022, the Illinois ADN Program was placed on probationary status by the Illinois Department of Professional Regulation, or IDPR, as a result of which RU is required to temporarily reduce enrollment in the program by 25% and has two years to demonstrate evidence of implementing strategies to correct deficiencies and satisfy the required NCLEX pass rate. Additionally, 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. 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. Finally, based on the first-time NCLEX pass rate in the Bloomington ADN Program in the third quarter of 2022, RU has informed the MBN that RU will voluntarily further reduce enrollments in the program starting with the quarterly cohort in January. 
 
 For a more detailed discussion of our results by reportable segment, refer to “Analysis of Operating Results by Reportable Segment” below. 
 
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 Analysis of Consolidated Statements of Income 
 
 The following table sets forth statements of income data as a percentage of revenue for each of the periods indicated: 
 
 Three Months Ended September 30, Nine Months Ended September 30, 
 2022 2021 2022 2021 
 (Unaudited) (Unaudited) 
 Revenue 100.0 % 100.0 % 100.0 % 100.0 % 
 Costs and expenses: 
 Instructional costs and services 48.0 43.3 47.5 39.7 
 Selling and promotional 27.4 23.9 25.6 22.8 
 General and administrative 19.8 27.1 19.6 28.5 
 
 Impairment of goodwill and intangible assets — — 31.9 — 
 Loss on disposals of long-lived assets 0.1 — 0.2 0.1 
 Depreciation and amortization 5.3 4.5 5.3 3.6 
 Total costs and expenses 100.7 98.8 130.1 94.7 
 
 Income (loss) from operations before interest and income taxes (0.7) 1.2 (30.1) 5.3 
 Gain on acquisition — — 0.8 — 
 Interest expense (2.4) (1.3) (2.3) (0.4) 
 
 Income (loss) from operations before income taxes (3.1) (0.1) (31.6) 4.9 
 Income tax (benefit) expense (0.6) 0.2 (7.7) 1.3 
 Equity investment loss — — — (0.3) 
 Net (loss) income (2.5) % (0.3) % (23.9) % 3.3 % 

 Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021 
 
 Revenue. Our consolidated revenue for the three months ended September 30, 2022 was $149.5 million, an increase of $51.3 million, or 52.2%, compared to $98.2 million for the three months ended September 30, 2021. The increase in revenue was primarily due to the inclusion of RU Segment and GSUSA revenue for the three months ended September 30, 2022 of $40.4 million and $7.9 million, respectively, compared to one month of RU Segment revenue and no GSUSA revenue in the prior year period. In addition, APUS and HCN Segment revenue increased $2.8 million, or 4.3%, and $0.2 million, or 1.5%, respectively. The APUS Segment revenue increase was primarily due to a 3.2% increase in net course registrations as compared to the prior year period. The HCN Segment revenue increase was primarily due to a 3.7% increase in total student enrollment as compared to the prior year period. 
 
 Costs and expenses. Costs and expenses for the three months ended September 30, 2022 were $150.6 million, an increase of $53.6 million, or 55.2%, compared to $97.0 million for the three months ended September 30, 2021. The increase in costs and expenses for the three months ended September 30, 2022, was primarily the result of the inclusion of our RU Segment and GSUSA costs and expenses of $47.3 million and $6.3 million, respectively, for the three months ended September 30, 2022, compared to one month of RU Segment costs and expenses and no GSUSA costs and expenses in the prior year period. Other increases in costs and expenses include increases in employee compensation costs in our HCN Segment and Corporate and Other, increases in marketing support costs and advertising costs in our APUS Segment, as well as increases in faculty compensation costs in our APUS and HCN Segments, and Title IV costs, and bad debt expense in our HCN Segment. The increase in expenses was partially offset by a decrease in professional fees in our APUS Segment and decreases in advertising costs, marketing support costs, and legal costs in Corporate and Other. Results for the three months ended September 30, 2022 include the following costs on a pre-tax basis: $0.9 million in information technology costs related to our multi-year technology transformation program in our APUS Segment; and $0.3 million in professional fees associated with the Rasmussen and GSUSA acquisitions in Corporate and Other. Results for the three months ended September 30, 2021 included the following costs on a pre-tax basis: $1.8 million in professional fees primarily related to the Rasmussen Acquisition in Corporate and Other and $1.7 million in information technology costs related to our multi-year technology transformation program in our APUS 
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 Segment. Costs and expenses as a percentage of revenue increased to 100.7% for the three months ended September 30, 2022 from 98.8% for the three months ended September 30, 2021. 
 
 Instructional costs and services expenses. Our instructional costs and services expenses for the three months ended September 30, 2022 were $71.8 million, an increase of $29.3 million, or 68.8%, compared to $42.5 million for the three months ended September 30, 2021. The increase in instructional costs and services expenses was primarily due to the inclusion of our RU Segment and GSUSA instructional costs and services expenses of $23.0 million and $3.9 million, respectively, for the three months ended September 30, 2022, compared to one month of RU Segment instructional costs and services expenses and no GSUSA instructional costs and services expenses in the prior year period. In addition, there were increases in faculty compensation costs and course materials costs in our APUS and HCN Segments and an increase in other costs in our APUS Segment. Instructional costs and services expenses as a percentage of revenue increased to 48.0% for the three months ended September 30, 2022 from 43.3% for the three months ended September 30, 2021. 
 
 Selling and promotional expenses. Our selling and promotional expenses for the three months ended September 30, 2022 were $40.9 million, an increase of $17.5 million, or 74.4%, compared to $23.5 million for the three months ended September 30, 2021. The increase in selling and promotional expenses was primarily due to the inclusion of our RU Segment and GSUSA selling and promotional expenses of $16.0 million and $1.1 million, respectively, for the three months ended September 30, 2022, compared to one month of RU Segment selling and promotional expenses and no GSUSA selling and promotional expenses in the prior year period. In addition, there were increases in marketing support costs, advertising costs, and professional fees in our APUS Segment, partially offset by decreases in advertising costs and marketing support materials costs in Corporate and Other. Selling and promotional expenses as a percentage of revenue increased to 27.4% for the three months ended September 30, 2022 from 23.9% for the three months ended September 30, 2021. 
 
 General and administrative expenses. Our general and administrative expenses for the three months ended September 30, 2022 were $29.7 million, an increase of $3.1 million, or 11.5%, compared to $26.6 million for the three months ended September 30, 2021. The increase in general and administrative expenses was primarily due to the inclusion of our RU Segment and GSUSA general and administrative expenses of $4.1 million and $1.2 million, respectively, for the three months ended September 30, 2022, compared to one month of RU Segment general and administrative expenses and no GSUSA general and administrative expenses in the prior year period. In addition, there was an increase employee compensation costs in our HCN Segment and Corporate and Other, and increases in Title IV costs and bad debt expense in our HCN Segment. The increase in expenses was partially offset by decreases in professional fees in our APUS Segment and Corporate and Other and a decrease in legal costs in Corporate and Other. For the three months ended September 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 $0.3 million in professional fees associated with the Rasmussen and GSUSA acquisitions in Corporate and Other. For the three months ended September 30, 2021, general and administrative expenses include the following costs on a pre-tax basis: $1.8 million in professional fees primarily related to the Rasmussen Acquisition in Corporate and Other and $1.7 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 September 30, 2022 was $3.7 million, or 2.5% of revenue, compared to $1.6 million, or 1.6% of revenue in the prior year period. General and administrative expenses as a percentage of revenue decreased to 19.8% for the three months ended September 30, 2022 from 27.1% for the three months ended September 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. 
 
 Loss on disposals of long-lived assets. The loss on disposals of long-lived assets was $0.2 million for the three months ended September 30, 2022. There was no loss on disposal of long-lived assets for the three months ended September 30, 2021 . 
 
 Depreciation and amortization expenses. Depreciation and amortization expenses were $8.0 million and $4.4 million for the three months ended September 30, 2022 and 2021, respectively. The increase in depreciation and amortization expenses for the three months ended September 30, 2022 was primarily due to the inclusion of our RU Segment and GSUSA depreciation and amortization expenses of $4.1 million and $0.1 million, respectively, for the three months ended September 30, 2022, compared to one month of RU Segment depreciation and amortization expenses and no GSUSA depreciation and amortization expenses in the prior year period. Depreciation and amortization expenses as a percentage of revenue increased to 5.3% for the three months ended September 30, 2022 from 4.5% for the three months ended September 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 $2.0 million and $1.8 million for the three months ended September 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. Interest expense was $3.6 million for the three months ended September 30, 2022, compared to $1.3 million for the three months ended September 30, 2021. The increase in interest expense was due to the inclusion of three months of interest expense related to the senior secured term loan facility in an aggregate original principal amount of $175.0 million issued in connection with the Rasmussen Acquisition, compared to one month of interest expense in the prior year period. 
 
 Income tax (benefit) expense. We recognized an income tax benefit of $0.9 million for the three months ended September 30, 2022, compared to income tax expense of $0.2 million for the three months ended September 30, 2021, or an effective tax rate benefit of 18.6% in 2022 compared to a negative tax rate in 2021. 
 
 Net (loss) income. Our net loss was $3.8 million for the three months ended September 30, 2022, compared to a net loss of $0.3 million for the three months ended September 30, 2021, an increase in the net loss of $3.5 million. This increase in the net loss was related to the factors discussed above. 
 
 Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021 
 
 Revenue. Our consolidated revenue for the nine months ended September 30, 2022 was $453.9 million, an increase of $189.1 million, or 71.4%, compared to $264.8 million for the nine months ended September 30, 2021. The increase in revenue was primarily due to the inclusion of our RU Segment and GSUSA revenue for the nine months ended September 30, 2022 of $171.4 million and $15.2 million, respectively, compared to one month of RU Segment revenue and no GSUSA revenue in the prior year period. In addition, APUS Segment revenue increased $1.4 million, or 0.7% and HCN Segment revenue increased $0.9 million, or 2.8%. The APUS Segment revenue increase was primarily due to a 1.7% increase in net course registrations as compared to the prior year period. The HCN Segment revenue increase was primarily due to an 4.8% increase in total student enrollment as compared to the prior year period. 
 
 Costs and expenses. Costs and expenses for the nine months ended September 30, 2022 were $591.0 million, an increase of $340.0 million, or 135.5%, compared to $250.9 million for the nine months ended September 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 was also the result of the inclusion of our RU Segment and GSUSA costs and expenses of $179.1 million and $17.1 million, respectively, excluding the goodwill and intangible assets impairment charge in the RU Segment, for the nine months ended September 30, 2022, compared to one month of RU Segment costs and expenses and no GSUSA costs and expenses in the prior year period. Other increases in costs and expenses include increases in employee compensation costs in our HCN Segment and Corporate and Other, increases in graduation event costs and marketing support costs in our APUS Segment, increases in faculty compensation costs, advertising costs, Title IV costs, and bad debt expense in our HCN Segment, partially offset by decreases in professional fees and employee compensation costs in our APUS Segment and decreases in legal costs and advertising costs in Corporate and Other. Results for the nine months ended September 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; $2.6 million in information technology costs related to our multi-year technology transformation program in our APUS Segment; and $1.6 million in professional fees associated with the Rasmussen and GSUSA acquisitions in Corporate and Other. Results for the nine months ended September 30, 2021 included the following costs on a pre-tax basis: $5.8 million in professional fees associated with the Rasmussen Acquisition in Corporate and Other, and $5.0 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 130.1% for the nine months ended September 30, 2022 from 94.7% for the nine months ended September 30, 2021. 
 
 Instructional costs and services expenses. Our instructional costs and services expenses for the nine months ended September 30, 2022 were $215.6 million, an increase of $110.3 million, or 104.8%, compared to $105.3 million for the nine months ended September 30, 2021. The increase in instructional costs and services expenses was primarily due to the inclusion of our RU Segment and GSUSA instructional costs and services expenses for the nine months ended September 30, 2022, of $94.5 million and $10.3 million, respectively, compared to one month of RU Segment instructional costs and services expenses and no GSUSA instructional services costs and expenses in the prior year period. In addition, there was an increase in faculty compensation costs and in our HCN Segment and increases in graduation event costs and other costs in our APUS Segment. The increases in expenses were 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 47.5% for the nine months ended September 30, 2022 from 39.7% for the nine months ended September 30, 2021. 
 
 Selling and promotional expenses. Our selling and promotional expenses for the nine months ended September 30, 2022 were $116.1 million, an increase of $55.7 million, or 92.3%, compared to $60.4 million for the nine months ended 
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 September 30, 2021. The increase in selling and promotional expenses was primarily due to the inclusion of our RU Segment and GSUSA selling and promotional expenses, for the nine months ended September 30, 2022, of $51.6 million and $3.1 million, respectively, compared to one month of RU Segment selling and promotional expenses and no GSUSA selling and promotional expenses in the prior year period. In addition, there was an increase in marketing support costs in our APUS Segment, an increase in employee compensation costs in our HCN Segment and Corporate and Other, and an increase in advertising costs in our HCN Segments. The increase in expenses was partially offset by a decrease in employee compensation costs in our APUS Segment, and a decrease in advertising costs in our APUS Segment and Corporate and Other. Selling and promotional expenses as a percentage of revenue increased to 25.6% for the nine months ended September 30, 2022 from 22.8% for the nine months ended September 30, 2021. 
 
 General and administrative expenses. Our general and administrative expenses for the nine months ended September 30, 2022 were $89.2 million, an increase of $13.6 million, or 18.0%, compared to $75.6 million for the nine months ended September 30, 2021. The increase in general and administrative expenses for the nine months ended September 30, 2022 as compared to the prior year period was primarily due to the inclusion of our RU Segment and GSUSA general and administrative expenses, for the nine months ended September 30, 2022, of $16.5 million and $3.2 million, respectively, compared to one month of RU Segment general and administrative expenses and no GSUSA general and administrative expenses in the prior year period. In addition, there was an increase in employee compensation costs in Corporate and Other and our HCN Segment. The increase in expenses was partially offset by a decrease in professional fees in our APUS Segment, our HCN Segment and Corporate and Other, a decrease in employee compensation costs in our APUS Segment, and a decrease in legal costs in Corporate and Other. For the nine months ended September 30, 2022, APUS Segment general and administrative expenses include the following costs on a pre-tax basis: $2.6 million of information technology costs related to our multi-year technology transformation program in our APUS Segment; and $1.6 million in professional fees associated with the Rasmussen and GSUSA acquisitions, included in Corporate and Other. For the nine months ended September 30, 2021, general and administrative expenses include the following costs on a pre-tax basis: $5.8 million in professional fees primarily related to the Rasmussen Acquisition in Corporate and Other; and $5.0 million of information technology costs related to our multi-year technology transformation program in our APUS Segment. Consolidated bad debt expense for the nine months ended September 30, 2022 was $9.4 million, or 2.1% of revenue, compared to $4.4 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 nine months ended September 30, 2022 from 28.5% for the nine months ended September 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. 
 
 Loss on disposals of long-lived assets. The loss on disposals of long-lived assets was $1.0 million and $0.2 million for the nine months ended September 30, 2022 and 2021, respectively. The loss on disposals of long-lived assets for the nine months ended September 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 nine months ended September 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. 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 Notes to the Consolidated Financial Statements in this Quarterly Report. 
 
 Depreciation and amortization expenses. Depreciation and amortization expenses were $24.2 million and $9.6 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in depreciation and amortization expenses for was primarily due to the inclusion of our RU Segment and GSUSA depreciation and amortization expenses for the nine months ended September 30, 2022 of $16.3 million and $0.4 million, respectively, compared to one month of RU Segment depreciation and amortization expenses and no GSUSA depreciation and amortization expenses in the prior year period. Depreciation and amortization expenses as a percentage of revenue increased to 5.3% for the nine months ended September 30, 2022 from 3.6% for the nine months ended September 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 $6.7 million and $6.0 million for the nine months ended September 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 $3.8 million gain on acquisition resulted from the GSUSA Acquisition and represents the excess of the fair value of net assets acquired over consideration paid. 
 
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 Interest expense. Interest expense was $10.3 million for the nine months ended September 30, 2022, compared to $1.2 million for the nine months ended September 30, 2021. The increase in interest expense was due to the inclusion of nine months of interest expense related to the senior secured term loan facility in an aggregate original principal amount of $175.0 million issued in connection with the Rasmussen Acquisition, compared to one month of interest expense in the prior year period. 
 
 Income tax expense. We recognized an income tax benefit of $35.2 million for the nine months ended September 30, 2022, compared to income tax expense of $3.5 million for the nine months ended September 30, 2021, or an effective tax rate benefit of 24.5% in 2022 compared to an income tax rate expense of 29.5% in 2021. The nine months ended September 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 nine months ended September 30, 2022 was $0.8 million, or an effective tax rate of 65.7%. 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 $13,000 for the nine months ended September 30, 2022 compared to $0.8 million for the nine months ended September 30, 2021. The equity investment loss for the nine months ended September 30, 2021 includes an impairment loss of $0.8 million on one of our cost method investments. 
 
 Net (loss) income. Our net loss was $108.5 million for the nine months ended September 30, 2022, compared to net income of $8.4 million for the nine months ended September 30, 2021, a decrease in net income of $116.8 million. This decrease was related to the factors discussed above. 
 
 Analysis of Operating Results by Reportable Segment 
 
 The following table provides details on our operating results by reportable segment for the respective periods (in thousands): 
 
 Three Months Ended September 30, Nine Months Ended September 30, 
 2022 2021 2022 2021 
 (Unaudited) (Unaudited) 
 Revenue: 
 APUS Segment $ 68,735 $ 65,906 $ 211,729 $ 210,321 
 RU Segment 61,548 21,132 192,538 21,132 
 HCN Segment 11,409 11,240 34,436 33,506 
 Corporate and Other 7,843 (30) 15,187 (156) 
 Total Revenue $ 149,535 $98,248 $ 453,890 $ 264,803 
 Income (loss) from operations before interest and income taxes: 
 APUS Segment $ 12,532 $ 7,825 $ 39,338 $ 30,969 
 RU Segment (7,900) (999) (153,562) (999) 
 HCN Segment (1,392) 448 (3,017) 1,348 
 Corporate and Other (4,266) $ (6,012) (19,845) $ (17,444) 
 Total income (loss) from operations before interest and income taxes $ (1,026) $ 1,262 $ (137,086) $ 13,874 

 APUS Segment 
 
 For the three months ended September 30, 2022, the $2.8 million, or 4.3%, increase to approximately $68.7 million in revenue in our APUS Segment was primarily attributable to the timing of registrations within the quarter. Net course registrations at APUS increased 3.2% to approximately 85,800 from approximately 83,100 as compared to the same period in 2021. Income from operations before interest and income taxes increased to $12.5 million, or 60.2%, during the three months ended September 30, 2022 from $7.8 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 nine months ended September 30, 2022, the $1.4 million, or 0.7%, increase to approximately $211.7 million in 
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 revenue in our APUS Segment was primarily due to the timing of registrations within the period 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 1.7% to approximately 263,200 for the nine months ended September 30, 2022 from approximately 258,700 during the same period in 2021. Income from operations before interest income and income taxes in our APUS Segment was $39.3 million during the nine months ended September 30, 2022, an increase of $8.4 million, or 27.0%, 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. 
 
 RU Segment 
 
 For the three and nine months ended September 30, 2022, RU Segment revenue was $61.5 million and $192.5 million, respectively. The RU Segment loss from operations before interest and income taxes was $7.9 million and $153.6 million for the three and nine months ended September 30, 2022, respectively, and includes a $144.9 million non-cash impairment charge of goodwill and intangible assets in the nine month period, and the corresponding tax impact. RU full-term enrollment was approximately 15,000 during the three months ended September 30, 2022, which compares to 16,300 during the three months ended September 30, 2021. RU total student enrollment decreased 7.0% during the nine months ended September 30, 2022 compared to the same period in 2021. We believe this decline in enrollment, which reflects year-over-year declines in total nursing enrollment and enrollment from new nursing students, as well as enrollment declines in non-nursing programs including online enrollments, 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 markets, and increasing pay for nurses resulting in fewer available nursing faculty to educate and oversee clinicals. Further, in February 2022, the Illinois ADN Program was placed on probationary status by the Illinois Department of Professional Regulation, or IDPR, as a result of which RU is required to temporarily reduce enrollment in the program by 25% and has two years to demonstrate evidence of implementing strategies to correct deficiencies and satisfy the required NCLEX pass rate. Additionally, 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. 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. Finally, based on the first-time NCLEX pass rate in the Bloomington ADN Program in the third quarter of 2022, RU has informed the MBN that RU will voluntarily further reduce enrollments in the program starting with the quarterly cohort in January. 
 
 HCN Segment 
 
 For the three months ended September 30, 2022, the $0.2 million, or 1.5%, increase in revenue to $11.4 million in our HCN Segment was primarily attributable to an increase in total student enrollment of 3.7% during the three months ended September 30, 2022 compared to the same period in 2021, due primarily to the opening of the Akron campus in April 2021 and to IBN action to increase maximum enrollment at 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 $1.4 million during the three months ended September 30, 2022, compared to income from operations before interest and income taxes of $0.4 million in the same period in 2021, a decrease of $1.8 million, primarily due to increases in employee compensation costs as compared to the prior year period. 
 
 For the nine months ended September 30, 2022, the $0.9 million, or 2.8%, increase to approximately $34.4 million in revenue in our HCN Segment was primarily attributable to an increase in student enrollment. HCN total student enrollment increased 4.8% during the nine months ended September 30, 2022 compared to the same period in 2021. The HCN Segment loss from operations before interest and income taxes was $3.0 million during the nine months ended September 30, 2022, compared to income from operations before interest and income taxes of $1.3 million in the same period in 2021, a decrease of $4.4 million, primarily due to increases in employee compensation costs and advertising costs as compared to the prior year period. 
 
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 Liquidity and Capital Resources 
 
 Liquidity 
 
 Cash and cash equivalents were $185.5 million and $149.6 million at September 30, 2022 and December 31, 2021, respectively, representing an increase of $35.9 million, or 24.0%. The increase in cash was due to an increase in net 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. We have typically received disbursements under Title IV programs within 30 days of the start of the applicable course or term. Another significant source of revenue is derived from TA from the DoD and programs from the U.S. Department of Veterans Affairs, or the VA. 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 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. In 2022, prior to the Army’s upgrade from the initial version of ArmyIgnitED to ArmyIgnitED 2.0, we saw an improvement in Army’s processing of invoices and payments. During the nine months ended September 30, 2022, APUS received approximately $47.7 million in payments from the Army. 
 
 While the Army had 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 needed to retroactively seek and obtain TA directly through ArmyIgnitED, and the student process expired on August 26, 2022. Failure to submit a TA request for courses that would have been covered by the alternative process may result in no TA funding being provided. As a result of the previous alternative process for institutions, ArmyIgnitED does not currently reflect all courses previously taken by soldiers at APUS in the relevant period, and ArmyIgnitED therefore understates the amounts due to APUS. We are working with the Army to resolve these discrepancies. 
 
 During the third quarter, the Army transitioned from the initial version of ArmyIgnitED to ArmyIgnitED 2.0, with a new third-party service provider, and announced that all TA requests for courses beginning on or after October 1, 2022 must be submitted via ArmyIgnitED 2.0. As part of this change, the Army stopped allowing institutions to submit invoices July 30, 2022 until August 29, 2022, which has impacted our ability to collect on our accounts receivable and caused our accounts receivable to increase. As of September 30, 2022, approximately $13.8 million, of which $6.3 million is older than 60 days from the course start date, was due from the Army. While we are taking efforts to mitigate any adverse impact of the transition to ArmyIgnitED 2.0 on accounts receivable, bad debt, and cash flow, there can be no assurance that these efforts will be successful or ArmyIgnitED 2.0 will work as expected. Difficulties associated with the upgrade or transition to a new service provider, including the related data migration, could cause further disruption to soldiers’ ability to seek and obtain TA and 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, including as a result of insourcing of information technology functions and marketing services from Collegis, LLC, or Collegis, 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. Professional fees may continue to be elevated or increase as we continue the integration of RU and GSUSA and continue to evaluate investments in strategic growth opportunities and enhancements to our business capabilities. 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 and nine months ended September 30, 2022, we incurred $0.3 million and $1.6 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 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 
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 that we intended to permit both contracts to expire by their terms on September 30, 2024. 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. 
 
 Additionally, we plan to transition all of the information technology 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 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. 
 
 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. 
 
 The headcount reductions reflect ongoing efforts focused on realigning our organizational structure, eliminating redundancies, and optimizing certain functions. There can be no assurance that we will be successful or recognize the benefits we anticipate. Furthermore, the savings anticipated in 2022 will 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 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 in the Notes to the Consolidated Financial Statements in this Quarterly Report. 
 
 Our future capital requirements will depend on a number of factors. There can be no guarantee that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. In addition, upon the occurrence of certain events, such as a change of control, we could be required to repay or refinance our indebtedness. There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. 
 
 Operating Activities 
 
 Net cash provided by operating activities was $52.2 million and $0.6 million for the nine months ended September 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. Cash flow from operations for the nine months ended September 30, 2021 was negatively impacted by the timing of the Rasmussen Acquisition. RU receives the majority of its cash receipts during the first month of each fiscal quarter while disbursements occur throughout the quarter. Pursuant to the terms of the Rasmussen Acquisition, the Seller in the transaction retained substantially all of the cash held by RU on the Closing Date. Accordingly, from the Closing Date through September 30, 2021, and continuing through mid-October when RU received its TPPPA, the majority of RU’s operations were funded by APEI. Accounts receivable at September 30, 2022, decreased approximately $8.5 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 September 30, 2022 were approximately $5.7 million higher than December 31, 2021, primarily due to the timing of payment processing. 
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 Investing Activities 
 
 Net cash used in investing activities was $8.2 million and $331.3 million for the nine months ended September 30, 2022 and 2021, respectively. Investing activities for the nine months ended September 30, 2021 include the Rasmussen Acquisition. Capital expenditures of $10.9 million for the nine months September 30, 2022 were partially offset by net proceeds from the GSUSA Acquisition and the sale of real property of $2.0 million and $0.8 million, respectively. For the nine months ended September 30, 2021, capital expenditures were $5.8 million. The increase in capital expenditures in 2022 as compared to the 2021 period was primarily due to the inclusion of RU Segment capital expenditures of $6.9 million in the 2022 period. 
 
 Financing Activities 
 
 Net cash used in financing activities was $8.2 million for the nine months ended September 30, 2022, compared to $244.5 million of net cash provided by financing activities for the nine months ended September 30, 2021. For the nine months ended September 30, 2022, the cash used in financing activities was largely due to principal payments made on our debt borrowings. For the nine months ended September 30, 2021, the cash provided by financing activities was due to our underwritten public offering of common stock and the long-term debt issuance. 
 
 Contractual Commitments 
 
 We have various contractual obligations consisting of operating leases and purchase obligations. 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 our Annual Report. 
 
 RU is a party to service contracts with a third party, Collegis, to provide marketing and information technology services. The agreements expire September 30, 2024. Notices of the non-renewal of the marketing and information technology services contracts were issued to Collegis in April 2022. On October 17, 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. 
 
 Additionally, we plan to transition all of the information technology 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 marketing services. 
 
 In connection with the GSUSA Acquisition, we assumed an operating lease obligation in the aggregate amount 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 in the Notes to the Consolidated Financial Statements in this Quarterly Report.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
AMERICAN PUBLIC EDUCATION INC 10-Q

Item 2. Management’s Discussion and Analysis
