What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-14 compared with 2022-03-02 · 425 added, 329 removed, 828 unchanged (48% of the section changed)

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We have audited the accompanying consolidated balance sheets of American Public Education, Inc.

and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes and the schedule listed in Item 15(c) (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accounting for Acquisition of Rasmussen University — Refer to Note 3 to the financial statements

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill and Intangible Assets — RU Reporting Unit — Refer to Notes 2 and 6 to the financial statements

Critical Audit Matter Description

As discussed in Note 3 of the financial statements, the Company acquired Rasmussen University on September 1, 2021 for a total purchase price of $325.5 million.

The Company allocated the purchase price, on a preliminary basis, to the assets acquired and liabilities assumed based on their respective fair values, resulting in goodwill of approximately $216.9 million.

Given the significant estimates and assumptions made by management to estimate the fair value of net identifiable assets and the sensitivity of the estimated fair value to changes in those estimates and assumptions, performing audit procedures to evaluate the reasonableness of management's estimates and assumptions utilized in its fair value analysis, particularly the revenue growth rates and the selection of discount rates, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

These assumptions related to the future performance of the acquired business, are forward-looking and could be affected by future economic and market conditions.

As part of the acquisition of Rasmussen we assessed the reasonableness of managements assumptions used to determine the purchase price allocated to identifiable assets.

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

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

In connection with the Company’s September 1, 2021 acquisition of Rasmussen University (“RU”), the Company recorded $217.4 million of goodwill, representing the excess of the purchase price over the amount assigned to the new assets acquired and the fair value assigned to identified intangible assets.

Additionally, the Company recorded an initial fair value of $86.5 million related to intangible assets acquired with the acquisition.

Goodwill is tested for impairment annually as of October 31, through a qualitative or quantitative assessment and when events and circumstances indicate that the estimated fair value of a reporting unit may no longer exceed its carrying value.

When it is determined that a quantitative impairment test should be performed, if the fair value of the reporting unit is less than its carrying amount, goodwill is impaired and the excess of the reporting unit's carrying value over the fair value is recognized as an impairment loss.

During the second quarter of 2022, the Company concluded it was more likely than not the fair value of the Company’s RU Segment was less than its carrying amount.

Therefore, the Company performed a quantitative impairment test for the Rasmussen University Segment (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 of $36.0 million, to reduce the carrying value of the RU Segment goodwill.

Additionally, the Company impaired the value of intangible assets acquired with RU.

During the second quarter of 2022, the Company recorded a non-cash impairment charge of $13.5 million to reduce the carrying value of RU Segment accreditation, licensing, and Title IV indefinite lived intangible asset.

As of December 31, 2022, the Company concluded an additional impairment of $2.0 million for Accreditation, Licensing, and Title IV Intangible Asset acquired with the acquisition of RU.

Given the significant estimates and assumptions made by management to estimate the fair value of the RU reporting unit at the interim impairment test date and the annual impairment test date, and the sensitivity of the estimated fair value to changes in those estimates and assumptions, performing audit procedures to evaluate the reasonableness of management's estimates and assumptions utilized in its impairment analyses, particularly the revenue growth rate, the EBITDA margin, the selection of the discount rate, and the selection of the royalty rate, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

We tested the effectiveness of internal controls over management’s valuation analysis, including those over the forecasts of future sales and selection of the discount rate.

To test the estimated fair value of the net identifiable assets, we evaluated the appropriateness of the valuation methodologies utilized and evaluated the reasonableness of the significant assumptions, such as growth rates, by comparing management’s estimates with:

Our audit procedures included evaluating management's fair value estimate and significant assumptions, projections of expected revenue growth rate, EBITDA margin, discount rate and royalty rate, used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Our audit procedures related to the revenue growth rate, EBITDA margin, discount rate and royalty rate included the following, among others:

• We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of RU, such as controls related to management’s revenue growth rates, EBITDA margin, the selection of the discount rate and selection of the royalty rate.

• We evaluated the reasonableness of management’s revenue growth rates and EBITDA margin by comparing management’s rates with:

◦ historical results;

◦ prior forecasts;

◦ internal communications to the Company’s management and the board of directors;

◦ forecasted information included in the Company’s press releases as well as in analyst and industry reports of the Company and companies in its peer group.

With the assistance of our fair value specialists, we evaluated the valuation methodology and discount rates used, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rate selected by management.

• We considered the impact of changes in the regulatory environment on management’s forecasts.

We also considered the impact of the COVID-19 Global Pandemic and inquired of the effects of the pandemic on the Company’s enrollments and forecasts.

• We evaluated the impact of changes in management’s forecasts from the interim impairment test date of May 31, 2022 and the annual impairment test date of October 31, 2022.

• With the assistance of our fair value specialists, we evaluated the valuation methodology, discount rate used, and royalty rates used, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rate and royalty rate selected by management.

• We compared the carrying value for the Reporting Unit to amounts recorded by the Company.

• We recalculated the excess or deficit of fair value over the carrying value for the Reporting Unit.

Preferred Stock Equity Raise— Refer to Note 11 to the financial statements

Critical Audit Matter Description

On December 28, 2022 (the “Closing Date”), the Company issued $40 million of the Series A Senior Preferred Stock, $0.01 par value per share (the “Preferred Stock”), to affiliates of Redwood Capital Management, LLC and MSD Partners, L.P., affiliates of each of which are existing common stockholders of the Company (the “Investors”).

The sale of the Preferred Stock was consummated on the Closing Date pursuant to a purchase agreement (the “Purchase Agreement”) among the Company and the Investors.

We identified auditing the Company’s evaluation of the accounting treatment for the Series A Senior Preferred Stock and embedded derivative features, specifically the qualification for permanent equity accounting and identification of the embedded features as a critical audit matter.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the classification of the Series A Senior Preferred Stock included the following:

• Obtained and reviewed the Purchase Agreement to understand the terms and conditions, economic substance, and redemption rights.

• Obtained an understanding of management’s process for determining the qualification of the stock issuance for equity accounting treatment, we verified management's records of new equity instruments by reading the original agreements for the equity instruments and assessing the terms relating to the technical accounting guidance.

• Obtained an understanding of management’s process for identifying embedded derivative features in the Purchase Agreement and the valuation process for the derivatives.

• We consulted with subject matter experts with specialized skill and knowledge in technical accounting with respect to the application of accounting literature to the transaction, and evaluated the related accounting conclusions, including the classification of the transaction in permanent equity.

Furthermore, we consulted on the reasonableness of the embedded derivative features identified based on guidance.

• We assessed the required financial statement disclosures related to the transactions for completeness and accuracy.

• We tested the effectiveness of controls over management’s technical accounting analysis for the issuance, including analysis of related disclosures.

/s/ Deloitte & Touche LLP

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As of December 31,

(In thousands)

(In thousands, except per share amounts)

Current assets:

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Operating lease assets, net 77,943 108,870

Deferred income taxes — 35,355

Intangible assets, net 85,082 54,734

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Deferred revenue and student deposits 21,776 23,760

Income tax payable 178 —

Operating lease liabilities, current 2,392 13,705

Lease liabilities, current 13,705 14,396

Long-term debt, current 8,750 —

Total current liabilities 83,678 70,758

Operating lease liability, long term 6,455 69,488

Lease liabilities, long term 69,488 101,420

Deferred income taxes 5,059 —

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authorized shares - 10,000,000 ;

no shares issued or outstanding

Series A Senior Preferred Stock, no shares issued or outstanding in 2021;

400 shares issued and outstanding in 2022 ($ 155,587 liquidation preference per share, $ 62,235 in aggregate)

Common Stock, $ .01 par value;

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Loss on disposals of long-lived assets 851 1,282 1,176

Impairment of goodwill 7,336 — —

Impairment of goodwill and intangible assets — — 146,900

Depreciation and amortization 12,984 17,832 32,127

Total costs and expenses 297,028 388,432 743,676

Income from operations before interest and income taxes 12,756 24,757 30,371

Income (loss) from operations before interest and income taxes 24,757 30,371 ( 137,348 )

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

Interest income (expense) 1,092 ( 4,277 ) ( 17,728 )

Income from operations before income taxes 16,664 25,849 26,094

Income tax expense 5,187 7,020 7,511

Income (loss) from operations before income taxes 25,849 26,094 ( 151,248 )

Income tax expense (benefit) 7,020 7,511 ( 36,276 )

Equity investment loss ( 7 ) ( 831 ) ( 21 )

Net income $ 10,013 $ 18,822 $ 17,752

Net income per common share:

Net income (loss) 18,822 17,752 ( 114,993 )

Preferred stock dividends — — 48

Net income (loss) available to common stockholders $ 18,822 $ 17,752 $ ( 115,041 )

Net income (loss) per common share:

Basic $ 1.27 $ 0.98 $ ( 6.10 )

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(In thousands)

Net income $ 10,013 $ 18,822 $ 17,752

Net income (loss) $ 18,822 $ 17,752 $ ( 114,993 )

Other comprehensive income, net of tax:

Unrealized gain on hedging derivatives, net of taxes — 108 2,994

Comprehensive income $ 10,013 $ 18,822 $ 17,860

Comprehensive income (loss) $ 18,822 $ 17,860 $ ( 111,999 )

The accompanying notes are an integral part of these consolidated statements.

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Consolidated Statements of Stockholders’ Equity

(In thousands)

(In thousands, except shares)

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

Shares Amount

Preferred Stock Common Stock

Shares Amount Shares Amount

Balance as of December 31, 2019

— $ — 15,177,864 $ 152 $ 190,620 — $ 105,961 $ 296,733

Issuance of common stock under employee benefit plans — — 257,718 2 ( 2 ) — — —

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Balance as of December 31, 2020

— — 14,809,172 148 195,597 — 111,180 306,925

Issuance of common stock in public offering 3,680,000 37 86,168 — — 86,205

Issuance of common stock under employee benefit plans — — 319,468 3 ( 3 ) — — —

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Stock-based compensation — — — — 7,654 — — 7,654

Repurchased and retired shares of common stock ( 548 ) ( 5 ) — — ( 13,603 ) ( 13,608 )

Unrealized gain on hedging derivatives, net of taxes — — — 108 — 108

Net income — — — — — — 17,752 17,752

Balance as of December 31, 2021

Issuance of common stock in public offering 3,680 37 86,168 — — 86,205

— — 18,709,171 187 286,385 108 128,932 415,612

Issuance of preferred stock in private offering 400 39,691 — — — — — 39,691

Preferred Stock Dividends — — — — — — ( 48 ) ( 48 )

Issuance of common stock under employee benefit plans — — 264,384 3 ( 3 ) — — —

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Unrealized gain on hedging derivatives, net of taxes — — — 2,994 — 2,994

Net income — — — — 17,752 17,752

Net loss — — — — — — ( 114,993 ) ( 114,993 )

Balance as of December 31, 2022

400 $ 39,691 18,892,791 $ 189 $ 292,854 $ 3,102 $ 13,891 $ 349,727

The accompanying notes are an integral part of these consolidated statements.

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2020 2021 2022

(In thousands)

Operating activities

Net income $ 10,013 $ 18,822 $ 17,752

Operating activities (In thousands)

Net income (loss) $ 18,822 $ 17,752 $ ( 114,993 )

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

Depreciation and amortization 12,984 17,832 32,127

Amortization of debt issuance costs — — 885

Amortization and write-off of debt issuance costs — 885 6,480

Stock-based compensation 7,075 7,654 8,009

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Loss on disposal of long-lived assets 851 1,282 1,176

Impairment of goodwill 7,336 — —

Gain on acquisition — — ( 3,828 )

Impairment of goodwill and intangible assets — — 146,900

Other 24 15 16

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Cash received from issuance of common stock — 86,205 —

Cash paid for principal on borrowings — — ( 2,188 )

Cash received from issuance of preferred stock — — 39,691

Cash paid for principal on borrowings and finance leases — ( 2,188 ) ( 73,864 )

Cash received from borrowings — 175,000 —

Cash paid for debt issuance costs — ( 13,644 ) —

Net cash used in financing activities ( 40,506 ) ( 15,705 ) 242,341

Net cash (used in) provided by financing activities ( 15,705 ) 242,341 ( 35,711 )

Net increase (decrease) in cash, cash equivalents, and restricted cash 24,946 ( 78,059 ) ( 20,169 )

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Notes to Consolidated Financial Statements

Nature of Business

American Public Education, Inc., or APEI, which together with its subsidiaries is referred to as the “Company,” is a provider of online and campus-based postsecondary education to students through the following subsidiary institutions:

Nature of the Business

American Public Education, Inc., or APEI, which together with its subsidiaries is referred to as the “Company,” is a provider of online and campus-based postsecondary education and, with the acquisition of Graduate School USA, career learning to students through the following subsidiary institutions:

• American Public University System, Inc., or APUS, provides online postsecondary education directed primarily at the needs of the military, military-affiliated, public service and service-minded communities through American Military University, or AMU, and American Public University, or APU.

APUS is institutionally accredited by the Higher Learning Commission, or HLC, as an Open Pathways institution.

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

• Rasmussen College, LLC, which is referred to herein as Rasmussen University, or RU, a nursing- and health sciences-focused institution, provides postsecondary education to students at its 22 campuses across six states and online.

The Company completed the acquisition of Rasmussen University, or the Rasmussen Acquisition, on September 1, 2021, or the Closing Date.

The Company completed the acquisition of RU, or the Rasmussen Acquisition, on September 1, 2021, or the RU Closing Date.

Please refer to “Note 3.

Acquisition Activity” for more information on this acquisition.

Acquisition Activity” in these Consolidated Financial Statements 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 Closing Date.

RU is institutionally accredited by HLC as an Open Pathways institution.

• 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, including a campus in Akron that opened in April 2021, and one campus in Indianapolis, Indiana, to serve the needs of the nursing and healthcare communities.

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

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

The Company’s institutions are licensed or otherwise authorized to offer postsecondary education programs by state authorities to the extent the institutions believe such licenses or authorizations are required, and 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.

• American Public Training LLC, which is referred to herein as Graduate School USA, or GSUSA, provides career learning and leadership training in-person and online to the federal workforce.

The Company completed the acquisition of substantially all the assets of GSUSA, or the GSUSA Acquisition, on January 1, 2022, or the GSUSA Closing Date.

Please refer to “Note 3.

Acquisition Activity” in these Consolidated Financial Statements for more information on this acquisition.

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

GSUSA is accredited by the Accrediting Council for Continuing Education and Training, or ACCET.

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

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

Please refer to “Note 14.

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.

During the third quarter of 2021, the Company revised its reportable segments, as discussed further in “Note 14.

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

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

• American Public University System, or APUS Segment.

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

• American Public University System Segment, or APUS Segment.

This segment reflects the operational activities of APUS.

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This segment reflects the operational activities of HCN.

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

Adjustments to reconcile segment results to the Consolidated Financial Statements are included in “Corporate and Other”.

These adjustments include unallocated corporate activity and eliminations, which generally were previously reported within the APEI Segment, and effective January 1, 2022, the operational activities of GSUSA.

Significant Accounting Policies

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The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP.

Certain prior year amounts have been reclassified for comparative purposes to conform with the 2021 presentation.

Specifically, at December 31, 2021, Intangible assets, net are presented on the Consolidated Balance Sheet as a separate financial statement line item, and investments are no longer separately presented and are now presented in other assets, net.

Prior to December 31, 2021, intangible assets, net, were presented in other assets, net on the Consolidated Balance Sheet, and investments were presented as a separate financial statement line item.

Business combinations.

The Company accounts for business combinations in accordance with FASB, ASC 805, Business Combinations , which requires the acquisition method to be used for all business combinations.

The Company accounts for business combinations in accordance with Financial Accounting Standards Board Accounting Standards Codification 805, Business Combinations , or FASB ASC 805, which requires the acquisition method to be used for all business combinations.

Under ASC 805, the assets and liabilities of an acquired company are reported at business fair value along with the fair value of acquired intangible assets at the date of acquisition.

Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed, and the fair value assigned to identifiable intangible assets.

On September 1, 2021, the Company completed the Rasmussen Acquisition.

Accordingly, the financial results of the Company as of and for any periods ended prior to September 1, 2021 do not include the financial results of RU and therefore are not directly comparable.

The Company completed the Rasmussen and GSUSA Acquisitions on September 1, 2021 and January 1, 2022, respectively.

Accordingly, the financial results of the Company as of and for any periods ended prior to the respective acquisition dates do not include the financial results of RU and GSUSA and therefore are not directly comparable.

Principles of consolidation.

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The Company evaluates these estimates and judgments on an ongoing basis and bases its estimates on experience, current and expected future conditions and various other assumptions that the Company believes are reasonable under the circumstances.

Actual results may differ from those estimates under different assumptions or conditions, and the impact of such differences may be material to the Company’s Consolidated Financial Statements.

Actual results may differ from those estimates under different assumptions or conditions, and the impact of such differences may be material to the Consolidated Financial Statements.

Cash and cash equivalents.

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Restricted cash.

Cash and cash equivalents include funds held for students for unbilled educational services that were received from Title IV programs.

Restricted cash includes funds held for students for unbilled educational services that were received from Title IV programs.

As a trustee of these Title IV program funds, the Company is required to maintain and restrict these funds pursuant to the terms of the program participation agreement with ED.

Cash and cash equivalents also includes amounts to secure letters of credit, including $ 24.2 million in a restricted certificate of deposit account to secure a letter of credit for the benefit of the ED on behalf of RU in connection with RU’s 2020 composite score, which is used by ED for determining compliance with financial responsibility standards, being below the minimum required, and a $ 0.6 million restricted certificate of deposit to secure a letter of credit in lieu of a security deposit for a RU leased campus.

Restricted cash on the Company’s Consolidated Balance Sheets as of December 31, 2020 and 2021, excluding the restricted certificates of deposit, was $ 1.2 million and $ 2.2 million, respectively.

Total restricted cash as of December 31, 2020 and 2021 is $ 1.2 million and $ 27.0 million, respectively.

Restricted cash also includes amounts to secure letters of credit, including $ 24.2 million in a restricted certificate of deposit account to secure a letter of credit for the benefit of ED on behalf of RU in connection with RU’s 2020 composite score, which is used by ED for determining compliance with financial responsibility standards, being below the minimum required, and a $ 0.7 million restricted certificate of deposit to secure a letter of credit in lieu of a security deposit for a RU leased campus.

Restricted cash on the Consolidated Balance Sheets as of December 31, 2021 and 2022, excluding the restricted certificates of deposit, was $ 2.2 million and $ 2.0 million, respectively.

Total restricted cash as of December 31, 2021 and 2022 was $ 27.0 million and $ 26.9 million, respectively.

Accounts receivable.

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Students may remit tuition payments upon enrollment or they may elect various other payment options with payment terms extending beyond the start of the course or term.

These other payment options include payments by sponsors, financial aid, alternative loans, or tuition assistance programs that remit payments directly to the subsidiary.

HCN also offers an extended payment plan option.

These other payment options include payments by sponsors, financial aid, alternative loans, or tuition assistance programs that remit payments directly to the subsidiary institution.

RU and HCN also offer extended payment plan options.

When a student remits payment after a course or term has begun, accounts receivable is reduced.

If payment is made prior to the start of a course or term, the payment is recorded as a student deposit, and the student is provided access to the online classroom when courses start, in the case of APUS, or allowed to start the term, in the case of RU and HCN.

If payment is made prior to the start of a course or term, the payment is recorded as a student deposit, and the student is provided access to the course when courses start, in the case of APUS and GSUSA, or allowed to start the term, in the case of RU and HCN.

If a payment option is confirmed, the student is allowed to start the course or term.

Generally, if no receipt is confirmed or payment option secured, the student will be dropped from the online course or not allowed to start the term.

Therefore, billed amounts represent charges that have been prepared and sent to students or the applicable third-party payor according to the terms agreed upon in advance.

Generally, if no receipt is confirmed or payment option secured, the student will be dropped from the course or not allowed to start the term.

Therefore, billed accounts receivable represent charges that have been prepared and sent to students or the applicable third-party payor according to the terms agreed upon in advance.

TA is billed by branch of service on a course-by-course basis when a student starts a course, whereas Title IV programs are billed based on the courses included in a student’s term.

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Recoveries of receivables previously written off are recorded when received.

APUS and RU do not charge interest on past due accounts receivable.

APUS, RU, and GSUSA do not charge interest on past due accounts receivable.

HCN charges interest on payment plans when a student leaves the payment plan program upon graduation or exits the program.

Interest charged by HCN on payment plans was not material for the periods presented.

Property and equipment.

All property and equipment is carried at cost less accumulated depreciation, except the acquired assets of RU, which were recorded at fair value at the Closing Date.

All property and equipment is carried at cost less accumulated depreciation, except the acquired assets of RU and GSUSA, which were recorded at fair value at the Closing Date.

Depreciation and amortization are calculated on a straight-line basis over the estimated useful lives of the assets.

Leasehold improvement depreciation is calculated on a straight-

line basis over the lesser of the estimated useful life of the asset or the term of the lease.

Leasehold improvement depreciation is calculated on a straight-line basis over the lesser of the estimated useful life of the asset or the term of the lease.

For tax purposes, different methods are used.

Maintenance and repairs are expensed as incurred, while other costs are capitalized if they extend the useful life of the asset.

The Company’s Partnership At a Distance system, or PAD, is a customized student information and services system used by APUS to manage admissions, online orientation, course registrations, tuition payments, grade reporting, progress toward degrees, and various other functions.

Costs associated with this system have been capitalized in accordance with FASB ASC 350-40, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use , and classified as property and equipment.

The Company capitalizes certain costs for software development in accordance with FASB ASC 350-40, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use , and these costs are classified as property and equipment in the Consolidated Balance Sheets.

These costs are amortized over the estimated useful life of five years .

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The Company determines if there is a lease at inception.

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

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

Operating leases are included in the Operating lease assets, net, and Operating lease liabilities, current and long-term on the Consolidated Balance Sheets as of December 31, 2020 and 2021.

These assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

The Company analyzes each lease arrangement to determine whether it should be classified as an operating lease or a finance lease.

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

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

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

When the lease does not provide an implicit interest rate, the Company uses an incremental borrowing rate based on information available at lease commencement to determine the present value of the lease payments.

The ROU asset includes all lease payments and excludes lease incentives.

The Company has elected the following practical expedients and elected the following accounting policies related to this standard:

• carry forward of historical lease classification;

• short-term lease accounting policy election allowing lessees to not recognize ROU assets and lease liabilities for leases with a term of 12 months or less;

• not to separate lease and non-lease components for office space and campus leases.

Goodwill and indefinite-lived intangible assets.

Leases with a term of 12 months or less are not recorded on the balance sheet.

The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The Company has elected to combine lease and non-lease components as a single component when calculating the ROU asset and lease liability.

Goodwill and 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 Company accounts for goodwill and indefinite-lived intangible assets in accordance with FASB ASC 350, Intangibles Goodwill and Other, and in 2018 adopted Accounting Standards Update, or ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

The Company accounts for goodwill and indefinite-lived intangible assets in accordance with FASB ASC 350, Intangibles Goodwill and Other, and Accounting Standards Update, or ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment .

The Company annually assesses goodwill for impairment, or more frequently if events and circumstances indicate that goodwill might be impaired.

The Company’s goodwill and intangible assets are deductible for tax purposes.

In connection with the Company’s September 1, 2021 acquisition of RU, the Company recorded $ 217.2 million of goodwill, representing the excess of the purchase price over the amount assigned to the assets acquired, and the fair value assigned to intangible assets and liabilities assumed.

The Company also recorded identified intangible assets with an indefinite useful life in the aggregate amount of $ 51.0 million respectively, which includes trade name, accreditation, licensing and Title IV, and recorded $ 35.5 million respectively, of identified intangible assets with a definite useful life which includes student roster, curricula, and lead conversions.

The Company previously recorded goodwill in the amount of $ 38.6 million in connection with its acquisition of HCN, and later recorded charges reducing the carrying value of our goodwill to $ 26.6 million.

The Company also recorded $ 3.7 million of indefinite-lived intangible assets as part of the HCN acquisition.

APEI utilizes the services of an independent valuation firm to estimate fair value of goodwill and indefinite-lived intangibles.

In completing their analysis, the valuation firm uses a discounted cash flow analysis as well as other valuation methods.

The discounted cash flow analysis includes significant estimates and assumptions from management, including revenue growth rates, operating margins and future economic and market conditions, among others.

Additionally, the valuation firm’s analysis includes significant assumptions with respect to discount rates and assumed royalty rates.

If the fair value is less than the carrying value, the asset is reduced to fair value.

During the year ended December 31, 2019, the Company used an independent valuation firm to complete interim assessments of goodwill after qualitative analysis indicated that goodwill at HCN might be impaired.

The valuations performed during the first and third quarters of 2019, determined that the fair value was less than the carrying value.

As a result, the Company recorded pretax, non-cash impairment charges of $ 7.3 million at HCN during the year ended December 31, 2019.

The Company completed its annual assessment of goodwill as of October 31, 2021 and concluded that HCN’s fair value was more than the carrying value.

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

The Company evaluated events and circumstances related to the valuation of goodwill through the year ended December 31, 2021 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.

Indefinite-lived intangible assets are tested at least annually for impairment by comparing the fair value of the asset to the carrying value.

Interim and annual testing concluded that the indefinite-lived assets were not impaired.

The Company annually assesses goodwill for impairment, or more frequently if events and circumstances indicate that goodwill might be impaired.

Goodwill impairment testing consists of an optional qualitative assessment as well as a quantitative test.

The quantitative test compares the fair value of a reporting unit to its carrying value.

If the carrying value of the reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment.

If the carrying value is greater than the fair value, the difference between the two values is recorded as an impairment.

Finite-lived intangible assets acquired in business combinations are recorded at fair value on their acquisition dates and are amortized on a straight-line basis over the estimated useful life of the asset.

The Company reviews its finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

If such assets are not recoverable, a potential impairment loss is recognized to the extent the carrying amount of the assets exceeds the fair value of the assets.

For additional details regarding goodwill and indefinite-lived intangible assets, please refer to “Note 6.

Goodwill and Intangible Assets” below in these Consolidated Financial Statements.

Goodwill and Intangible Assets” in these Consolidated Financial Statements.

Valuation of long-lived assets.

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The pro-rata share of the operating results of the investee is reported in the Consolidated Statements of Income as equity investment loss.

Investments that do not meet the equity method requirements are accounted for under ASC 321, Investments - Equity Securities, with changes in the fair value of the investment reported in the Consolidated Statements of Income as equity investment loss.

Investments that do not meet the equity method requirements are accounted for using the cost method under ASC 321, Investments - Equity Securities, with changes in the fair value of the investment reported in the Consolidated Statements of Income as equity investment loss.

The Company periodically evaluates its equity method investment for indicators of other-than-temporary impairments.

Factors the Company considers when evaluating for other-than-temporary impairments include the duration and severity of the impairment, the reasons for the decline in value, including the impact of COVID-19, and the potential recovery period.

For an investee with impairment indicators, the Company measures fair value on the basis of discounted cash flows or other appropriate valuation methods.

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In each reporting period, the Company evaluates its cost method investments for observable prices changes.

Factors the Company may consider when evaluating an observable price may include significant changes in the regulatory, economic or technological environment, changes in the general market condition, bona fide offers to purchase or sell similar investments, and other criteria, including the impact of the COVID-19 pandemic.

Management must exercise significant judgment in evaluating the potential impairment of its equity investments.

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Derivatives and hedging.

Derivative financial instruments are recorded on the Consolidated Balance Sheet as assets or liabilities and re-measured at fair value at each reporting date.

Derivative financial instruments are recorded on the Consolidated Balance Sheets as assets or liabilities and re-measured at fair value at each reporting date.

For derivatives designated as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as other comprehensive income and reclassified into earnings in the same period during which the hedged transaction affects earnings.

Self-Insured Liabilities.

RU has a partially self-insured health plan, or the Plan, for employee health benefits and records self-insurance liabilities based on claims filed and an estimate of claims incurred but not yet reported.

The Plan carries insurance with a yearly loss limit per person of $ 225,000 and a maximum claims expense of 125 % of the average claim value.

Self-insurance liabilities for employee health benefits claims are recorded in the accrued compensation and benefits line item of the Consolidated Balance Sheet and are $ 1.0 million as of December 31, 2021.

Deferred revenue and student deposits.

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Deferred revenue includes payments that have been received from students for courses or terms that are still in process and student deposits represent cash received from students prior to the commencement of a course or term and are refundable to the student in the event the student withdrawals before the start of the course or term.

Student deposits at December 31, 2020 and 2021 were $ 8.4 million and $ 8.9 million, respectively.

Series A Senior Preferred Stock.

The Company accounts for preferred equity in accordance with FASB ASC 480, Distinguishing Liabilities from Equity, and has classified its Series A Senior Preferred Stock as permanent equity on the accompanying Consolidated Balance Sheets.

The Series A Senior Preferred Stock is recorded net of issuance costs.

Dividends on the Series A Senior Preferred Stock are included in preferred stock dividends on the Consolidated Statements of Income.

The Preferred Stock Series A is a cumulative, perpetual, redeemable instrument.

Dividends will be accrued as contractually obligated and paid upon approval by the Company’s Board of Directors.

Revenue recognition.

The Company recognizes revenue in accordance with accounting standard, ASC 606, Revenue from Contracts with Customers .

The Company recognizes revenue in accordance with accounting standard, FASB ASC 606, Revenue from Contracts with Customers .

Under ASC 606, revenue is recognized when evidence of a contract exists, delivery has occurred or as instructional services are delivered, the price is determinable, and collectability is reasonably assured.

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For additional information regarding revenue recognition, please refer to “Note 4.

Revenue” below in these Consolidated Financial Statements.

Revenue” in these Consolidated Financial Statements.

The Company provides scholarships and grants and, in the case of APUS, technology fee grants to certain students to assist them financially and promote their enrollment.

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Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment of such changes.

Under ASC 740, the Company is required to determine whether uncertain tax positions should be recognized within the Company’s financial statements.

Under FASB ASC 740, Income Taxes , the Company is required to determine whether uncertain tax positions should be recognized within the Company’s financial statements.

The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax expense.

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Stock-based compensation.

The Company accounts for stock-based compensation in accordance with FASB ASC 718, Stock Compensation , which requires companies to expense share-based compensation based on fair value, and adopted ASU 2016-09, Compensation-Stock Compensation (Topic 718):

Improvements to Employee Share-Based Payment Accounting in January 2017.

The Company accounts for stock-based compensation in accordance with FASB ASC 718, Stock Compensation , which requires companies to expense share-based compensation based on fair value, and ASU 2016-09, Compensation-Stock Compensation (Topic 718):

Improvements to Employee Share-Based Payment Accounting .

Stock-based payments may include incentive stock options or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance shares, performance units, cash-based awards, other stock-based awards, including unrestricted shares, or any combination of the foregoing.

Stock-based compensation cost is recognized as expense generally over a three-year vesting period using the straight-line method for employees and the graded-vesting method for members of the Board of Directors.

It is measured using the Company’s closing stock price on the date of the grant.

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Stockholders’ Equity” in these Consolidated Financial Statements.

Common Stock:

On March 1, 2021, the Company completed an underwritten public offering of 3,680,000 shares of its common stock at a price to the public of $ 25.00 per share for net proceeds of approximately $ 86.2 million, after deducting underwriting discounts and commissions and other offering expenses.

Income per common share.

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As such, their carrying amounts approximate fair value and fall within Level 1 of the fair value hierarchy.

The valuation of the interest rate cap is measured as the present value of all expected future cash flows based on the LIBOR-based yield curves.

The valuation of the interest rate cap is measured as the present value of all expected future cash flows based on the London Interbank Offered Rate, or LIBOR-based, yield curves.

The present value calculation uses discount rates that have been adjusted to reflect the credit quality of the Company and its counterparty.

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Recent Accounting Pronouncements.

The Company considers the applicability and impact of all ASUs.

The Company considers the applicability and impact of all ASUs, issued by the FASB.

ASUs issued but not listed were assessed and determined to be either not applicable or expected to have minimal impact on its consolidated financial position and/or results of operations.

Acquisition Activity

On September 1, 2021, the Company completed the Rasmussen Acquisition.

The Rasmussen Acquisition was completed pursuant to a Membership Interest Purchase Agreement, or the Purchase Agreement, dated October 28, 2020, by and among the Company, FAH Education, LLC, or Seller, Rasmussen, LLC, or Rasmussen, and Rasmussen College, LLC, or Rasmussen College, a wholly owned subsidiary of Rasmussen.

Pursuant to the Purchase Agreement, on the Closing Date, the Company purchased from Seller all membership interests in RU for an adjusted aggregate purchase price, subject to post-closing working capital adjustments, and net of cash acquired, of $ 325.5 million in cash.

Upon completion of the Rasmussen Acquisition, Rasmussen merged into Rasmussen College and Rasmussen College became a wholly owned subsidiary of the Company.

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

The Company applied the acquisition method of accounting to the Rasmussen Acquisition, whereby the excess of the acquisition date fair value of consideration transferred over the fair value of identifiable assets and liabilities assumed was allocated to goodwill.

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

For the year ended December 31, 2021, the Company incurred approximately $ 6.3 million of acquisition-related expenses, respectively, which are included in general and administrative on the Consolidated Statements of Income.

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 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.

During the fourth quarter of 2021, the Company recorded a $ 0.3 million reduction in goodwill recorded in connection with the RU Acquisition.

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

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.

The Company completed its assessment of the fair value of certain acquired assets and liabilities assumed during the measurement period, and, as a result, during the first quarter of 2022, recorded a $ 0.5 million increase in goodwill in connection with the Rasmussen Acquisition based on the final working capital adjustment.

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

Goodwill and Intangible Assets” in these Consolidated Financial Statements.

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

Purchase Price Allocation Amount

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Liabilities assumed:

Accounts payable 1,200

Accrued expenses 6,142

Accounts payable and accrued liabilities 7,342

Deferred revenue 22,700

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Goodwill $ 217,430

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

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

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

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

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

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Lead conversions 2 years 1,500

During the second and fourth quarters of 2022, the Company recorded non-cash impairment charges of $ 13.5 million and $ 2.0 million, respectively, to reduce the carrying value of RU Segment accreditation, licensing, and Title IV indefinite lived intangible assets, as discussed further in “Note 6.

Goodwill and Intangible Assets” in these Consolidated Financial Statements.

Pro Forma Financial Information

The following unaudited pro forma information is presented as if the Rasmussen Acquisition occurred on January 1, 2020.

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.

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Net Income 25,876 21,933

Graduate School USA

On August 11, 2021, the Company announced that it had entered into an agreement to acquire substantially all of the assets of Graduate School USA, or GSUSA, one of the largest providers of training to the federal government workforce, for approximately $ 1.0 million.

On January 1, 2022, the Company completed its acquisition of GSUSA.

Acquisition of Graduate School USA

On the GSUSA Closing Date, the Company completed the GSUSA Acquisition pursuant to an Asset Purchase Agreement dated August 10, 2021 by and among American Public Training LLC, and Graduate School USA, or the Seller, for an aggregate purchase price of $ 1.0 million, subject to working capital adjustments.

At closing, the Company received approximately $ 1.9 million from the Seller, which represents the estimated net working capital at closing net of the initial cash payment to the Seller of $ 0.5 million which is the purchase price less $ 0.5 million retained by the Company to secure the indemnification obligations of the Seller.

The purchase price reflects the $ 0.5 million due to 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 .

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.

The Company has up to one year from the GSUSA 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 in the period in which the adjustments occur.

During the second quarter of 2022, the Company recorded a $ 0.7 million decrease in the gain on acquisition in connection with the GSUSA Acquisition based on the final working capital adjustment.

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

Purchase Price Allocation Amount

Cash and cash equivalents $ 1,000

Working capital adjustment ( 2,450 )

Total consideration ( 1,450 )

Assets acquired:

Accounts receivable 4,282

Prepaid expenses 1,096

Property and equipment, net 400

Operating lease assets 31,635

Intangible assets 965

Total assets acquired 38,378

Liabilities assumed:

Accounts payable and accrued liabilities 810

Deferred revenue 1,969

Lease liabilities, current 1,179

Lease liabilities, long-term 30,779

Deferred income taxes 1,263

Total liabilities assumed 36,000

Net assets acquired 2,378

Gain on acquisition $ 3,828

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 gain on acquisition was primarily the result of prior financial results, a lack of access to capital by the Seller, and the agreed upon purchase price which reflected the fact that GSUSA may need additional capital to fund operating losses.

The fair value of the identified intangible assets, including customer contracts and relationships and trade name were determined using the income-based approach.

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

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

Intangible Assets Useful life Amount

Customer contracts and relationships 2.5 years $ 744

Curricula 3 years 158

Trade name 1 year 35

Accreditation and licensing 2.5 years 28

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.

The Company incurred approximately $ 7.6 million and $ 1.9 million of acquisition-related expenses related to RU and GSUSA, for the years ended December 31, 2021 and December 31, 2022, respectively.

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

The following is a description of principal activities from which the Company generates its revenue.

Instructional services.

Instructional services revenue includes tuition, technology, and laboratory fees.

The Company generally recognizes revenue ratably as instructional services are provided over the period or term, which is, for APUS, either an eight- or sixteen-week period, and for RU and HCN, a quarterly term.

Instructional services revenue includes tuition, contract training, technology, and laboratory fees.

The Company generally recognizes revenue ratably as instructional services are provided over the course or term, which is, for APUS, either an eight- or sixteen-week course, for RU and HCN, a quarterly term, and for GSUSA, the length of the training program.

Tuition is charged by course or term, technology fees are charged to APUS students on a per course basis, and technology and laboratory fees are charged to RU and HCN students on a per term basis, when applicable.

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Military active-duty service members, National Guard members, reservists, military spouses and dependents, and, until January 2020, veterans, as well as a grant to cover the technology fee for students using TA.

RU provides a RU-funded military grant pursuant to which active duty servicemembers receive reduced tuition of $ 167 per credit hour.

In addition, National Guard, Reserve, retired military and veterans enrolling in a degree, Diploma or Certificate program are eligible for a 10% tuition grant through RU.

RU also provides an RU-funded tuition grant to support students who are U.S.

Military active-duty service members, National Guard, Reserve, retired military and veterans enrolling in a degree, Diploma or Certificate program.

RU also extends the grant to eligible spouses and dependents of active-duty military, retired military, and veterans.

APUS, RU, and HCN also provide grants and scholarships to certain students to assist them financially with their educational goals.

For the years ended December 31, 2020 and 2021, there were no material adverse impacts to revenue, deferred revenue, or accounts receivable due to the COVID-19 pandemic.

Disaggregation of Revenue

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Year Ended December 31, 2020

APUS RU HCN Intersegment Consolidated

APUS RU HCN Corporate and Other Consolidated

Instructional services, net of grants and scholarships $ 283,827 $ — $ 30,346 $ ( 243 ) $ 313,930

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Year Ended December 31, 2021

APUS RU HCN Intersegment Consolidated

APUS RU HCN Corporate and Other Consolidated

Instructional services, net of grants and scholarships $ 281,689 $ 74,515 $ 38,569 $ ( 183 ) $ 394,590

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Year Ended December 31, 2022

APUS RU HCN Intersegment Consolidated

APUS RU HCN Corporate and Other Consolidated

Instructional services, net of grants and scholarships $ 283,079 $ 211,253 $ 39,505 $ 20,865 $ 554,702

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Total Revenue $ 285,128 $ 253,257 $ 47,078 $ 20,865 $ 606,328

The RU Segment reflects the operations of RU, which was acquired on the Closing Date, through December 31, 2021.

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

The APUS Segment charges the HCN Segment and corporate employees for the value of courses taken at APUS.

The intersegment elimination represents the elimination of this intersegment revenue in consolidation.

The RU Segment reflects the operations of RU, which was acquired on the RU Closing Date.

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

Corporate and Other includes tuition and contract training revenue earned by GSUSA from the GSUSA Closing Date through December 31, 2022, and the elimination of intersegment revenue.

The APUS Segment charges the HCN Segment and corporate employees for the value of courses taken at APUS by HCN Segment employees and corporate employees.

Contract Balances and Performance Obligations

The Company has no contract assets or deferred contract costs as of December 31, 2021.

The Company recognizes a contract liability, or deferred revenue, when a student begins an online course, in the case of APUS, or starts a term, in the case of RU and HCN, and revenue is recognized as described earlier in this footnote.

Deferred revenue at December 31, 2020 was $ 22.1 million and includes $ 13.7 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $ 8.4 million in consideration received in advance for future courses or terms,

or student deposits, and represents the Company’s performance obligation to transfer future instructional services to students.

Deferred revenue at December 31, 2021 was $ 21.8 million and includes $ 12.9 million in future revenue that has not yet been earned for courses and terms that are in progress as well as $ 8.9 million in student deposits.

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

The Company recognizes a contract liability, or deferred revenue, when a student begins a course, in the case of APUS and GSUSA, or starts a term, in the case of RU and HCN.

Deferred revenue at December 31, 2021 was $ 21.8 million and includes $ 12.9 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $ 8.9 million in consideration received in advance for future courses or terms, or student deposits, and represents the Company’s performance obligation to transfer future instructional services to students.

Deferred revenue at December 31, 2022 was $ 23.8

million and includes $ 13.0 million in future revenue that has not yet been earned for courses and terms that are in progress as well as $ 10.8 million in student deposits.

The Company has elected, as a practical expedient, not to disclose additional information about unsatisfied performance obligations for contracts with students that have an expected duration of one year or less.

When the Company begins providing the performance obligations, a contract receivable is created, resulting in accounts receivable on the Company’s Consolidated Balance Sheets.

The Company accounts for receivables in accordance with ASC 310, Receivables .

The Company uses the portfolio approach, a practical expedient, to evaluate if a contract exists and to assess collectability at the time of contract inception based on historical experience.

Contracts are subsequently reviewed for collectability if significant events or circumstances indicate a change.

The allowance for doubtful accounts is based on management’s evaluation of the status of existing accounts receivable.

Among other factors, management considers the age of the receivable, the anticipated source of payment, and historical allowance considerations.

Consideration is also given to any specific known risk areas among the existing accounts receivable balances.

Recoveries of receivables previously written off are recorded when received.

APUS and RU do not charge interest on past due accounts receivable.

HCN charges interest on payment plans when a student leaves the payment plan program upon graduation or exit of the program.

Interest charged by HCN on payment plans was not material for the periods presented.

Refund Policies

The Company provides a stated period of time during which students may withdraw from a course for APUS, or a term for RU and HCN, without further financial obligation resulting in a refund liability.

The refund policy for each subsidiary is as follows:

American Public University System

APUS’s tuition revenue varies from period to period based on the number of students enrolled, the number of net course registrations, the volume of undergraduate versus graduate registrations, and student payor source.

Students may remit tuition payments through the online registration process upon enrollment or they may elect various payment options, including payments by sponsors, alternative loans, financial aid, or TA, which remits payments directly to APUS.

If one of the various other payment options is confirmed as secured, the student is allowed to start the course.

These other payment options can delay the receipt of payment up until the course starts or longer, resulting in the recording of an account receivable at the beginning of each session.

Tuition revenue that has not yet been earned by APUS is presented as deferred revenue in the accompanying Consolidated Balance Sheets.

APUS refunds 100 % of tuition for courses that are dropped before the conclusion of the week of a course, 75 % for courses dropped during week two, and a 50 % refund for courses dropped during weeks three and four.

No refund is given for courses dropped during weeks five through eight.

For sixteen-week courses, APUS refunds 100 % of tuition for courses that are dropped before the conclusion of the first two weeks of a course, 75 % for courses dropped during weeks three and four, and 50 % for courses dropped during weeks five through eight.

No refund is given for courses dropped during weeks nine through sixteen.

Students affiliated with certain organizations may have an alternate refund policy.

The Company does not recognize revenue for dropped courses.

If a student withdraws during the academic term, APUS calculates the portion of instructional services and technology fees that are non-refundable based on the tuition refund policy and recognizes it as revenue in the period the withdrawal occurs.

Rasmussen University

RU’s tuition revenue varies from period to period based on the number of students enrolled and the program type in which they are enrolled.

Students may remit tuition payments upon enrollment, or they may elect various payment options that can delay receipt of payment up until the term starts or longer.

These other payment options include payments by sponsors, financial aid, and alternative loans.

Generally, financial aid is awarded prior to the start of the term and requests for authorization of disbursement begin in the second week of the term.

Tuition revenue that has not yet been earned by RU is presented as deferred revenue in the accompanying Consolidated Balance Sheet.

RU allows students to withdraw from a term with no financial obligation through the end of the first week of the term.

Any student withdrawals during the second week of the term through the 60 % point of the term result in a prorated tuition refund.

There are no refunds after the 60 % of the term.

If a student withdraws during the term, RU calculates the portion of tuition that is non-refundable based on the tuition refund policy and the applicable state laws.

RU recognizes the non-refundable tuition as revenue in the period the withdrawal occurs.

Hondros College of Nursing

HCN’s tuition revenue varies from period to period based on the number of students enrolled and the program type in which they are enrolled.

Students may remit tuition payments upon enrollment, or they may elect various payment options that can delay receipt of payment up until the term starts or longer.

These other payment options include payments by sponsors, financial aid, and alternative loans.

HCN offers its students an extended payment plan option designed to assist students with educational costs consisting of tuition, textbooks, and fees.

The extended payment plan option is only available after all other student financial assistance has been applied to those costs.

The payment plan requires monthly payments while the student is enrolled in a program and extends for a period up to six months after the last day of attendance or graduation.

To the extent interest is applied, it is generally fixed and does not accrue until the student departs the program or graduates.

The extended payment plan option does not impose any origination fees.

Borrowers are advised about the terms of the loans and counseled to use all federal funding options.

In addition, beginning January 1, 2020, HCN began offering an institutional grant to students demonstrating financial need to cover the difference between the total cost of tuition and fees less the amount of all eligible financial aid resources.

The grant is designed to limit a student’s monthly payment to $ 200 through an award of up to $ 200 per month or $ 600 per term after consideration of financial aid, employer tuition reimbursement, and other financial resources.

HCN awarded approximately $ 0.2 million and $ 0.6 million of institutional grants during the years ended December 31, 2020 and 2021, respectively.

Generally, financial aid is awarded prior to the start of the term and requests for authorization of disbursement begin in the second week of the term.

Tuition revenue that has not yet been earned by HCN is presented as deferred revenue in the accompanying Consolidated Balance Sheets.

HCN’s refund policy for Ohio campuses complies with the rules of the Ohio State Board of Career Colleges and Schools and is applicable to each term.

For a course with an on-campus or other in-person component, the date of withdrawal is determined by a student’s last attended day of clinical offering, laboratory session, or lecture.

For an online course, the date of withdrawal is determined by a student’s last submitted assignment in the course.

HCN refunds 100 % of tuition for courses that are dropped before the first full calendar week of the quarter, 75 % for courses dropped during the first full calendar week of the quarter, 50 % refund for courses dropped during the second full week of the quarter and a 25 % refund for courses dropped during the third full calendar week of the quarter.

No refund is given for all withdrawals after the third full calendar week of the quarter.

HCN’s refund policy for the Indiana campus complies with the rules of the Indiana Board of Proprietary Education and is determined based upon percentage of completion of the assignments.

If a student withdrawals within six days of signing the contract, a full refund of any money paid will be issued and there will be no further obligation owed from the student.

Once the student completes 75 % of the assignments, the student is responsible for the full amount of tuition.

A portion of the tuition will be refunded if a student withdraws after six days of signing the contract and prior to completing 75 % of the assignments.

If a student withdraws during the term, HCN calculates the portion of tuition that is non-refundable based on the tuition refund policy and recognizes it as revenue in the period the withdrawal occurs.

If a student withdraws during the academic term, the Company calculates the portion of tuition that is non-refundable based on the tuition refund policy and the applicable state laws and recognizes it as revenue in the period the withdrawal occur.

For GSUSA, a refund is provided only if the student cancels before the start of a course.

Refund Liability

APUS uses the portfolio approach and applies the expected value method to determine if a refund liability exists.

The Company uses the portfolio approach and applies the expected value method to determine if a refund liability exists.

This requires management judgment and the use of estimates and historical data to assess the likelihood and magnitude of a revenue reversal due to a refund liability.

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The Company includes this estimate in the transaction price.

The refund liabilities for APUS, included in deferred revenue, are not material for all periods presented.

APUS updates the measurement of the refund liability at the end of each reporting period for changes in expectations, and if the reversal becomes significant, recognizes corresponding adjustments to revenue.

Because RU and HCN’s terms coincide with the Company’s fiscal quarter period, there are no refund liabilities as of December 31, 2020 and 2021 for RU or HCN.

The refund liabilities for APUS and GSUSA, which are included in deferred revenue, are not material for all periods presented.

APUS and GSUSA update the measurement of the refund liability at the end of each reporting period for changes in expectations, and if the reversal becomes significant, recognizes corresponding adjustments to revenue.

Because RU and HCN’s terms coincide with the Company’s fiscal quarter periods, there are no refund liabilities as of December 31, 2021 and 2022 for RU or HCN.

Property and Equipment

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Leasehold improvements up to 15 years

30,342 37,157

Office equipment 5 years

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Furniture and fixtures 5 - 7 years

15,433 17,924

Other capital assets 5 years

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The losses on long-lived assets are included as loss on disposals of long-lived assets in these Consolidated Financial Statements.

For the years ended December 31, 2020 and 2021, the Company’s APUS Segment sold certain excess real property located in Charles Town, West Virginia, for a net sales price of $ 0.8 million and $ 0.7 million, respectively, resulting in a loss on disposals of long-lived assets of $ 0.4 million and $ 0.5 million, respectively.

The loss was included in loss on disposals of long-lived assets in these Consolidated Financial Statements.

For the years ended December 31, 2020, 2021, and 2022, the APUS Segment sold certain excess real property located in Charles Town, West Virginia, for a net sales price of $ 0.8 million, $ 0.7 million, and $ 0.8 million, respectively, resulting in a loss on disposals of long-lived assets of $ 0.4 million, $ 0.5 million, and $ 0.4 million, respectively.

The loss is included in loss on disposals of long-lived assets in these Consolidated Financial Statements.

During the years ended December 31, 2020, 2021, and 2022, the Company recorded depreciation expense of $ 13.0 million, $ 12.7 million and $ 16.2 million, respectively.

Goodwill and Intangible Assets

In connection with the Rasmussen Acquisition, the Company applied FASB ASC 805, Business Combinations , using the acquisition method of accounting, and recorded $ 217.2 million of goodwill, representing the excess of the purchase price over the fair value of assets acquired and liabilities assumed, including identifiable intangible assets.

The Company previously recorded goodwill in the amount of $ 38.6 million in connection with its acquisition of HCN, and later recorded impairment charges reducing the carrying value of our goodwill to $ 26.6 million.

The Company accounts for goodwill and indefinite-lived intangible assets in accordance with FASB ASC 350, Intangibles Goodwill and Other, and in 2018 adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

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

The Company recorded $ 217.4 million and $ 38.6 million of goodwill in connection with the RU and HCN acquisitions, respectively, representing the excess of the purchase price over the fair value of assets acquired and liabilities assumed, including identifiable intangible assets.

The Company later recorded impairment charges reducing the carrying value of RU and HCN goodwill to $ 86.0 million and $ 26.6 million, respectively.

There was no goodwill recorded in connection with the acquisition of GSUSA.

The Company accounts for goodwill and indefinite-lived intangible assets in accordance with FASB ASC 350, Intangibles Goodwill and Other, and ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment.

The Company annually assesses goodwill for impairment, or more frequently if events and circumstances, including a review of any impacts related to the COVID-19 pandemic, indicate that goodwill might be impaired.

The Company annually assesses goodwill for impairment, or more frequently if events and circumstances indicate that goodwill might be impaired.

Goodwill impairment testing consists of an optional qualitative assessment as well as a quantitative test.

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If the carrying value is greater than the fair value, the difference between the two values is recorded as an impairment.

During the year ended December 31, 2019, as a result of circumstances that included HCN’s continued underperformance against revised 2019 internal targets and overall 2019 financial performance, the Company completed interim goodwill impairment tests during the first and third quarters.

The implied fair value of goodwill was calculated and compared to the recorded goodwill, and the Company determined the fair value of goodwill was $ 26.6 million, or $ 7.3 million

less than its carrying value.

There was no impairment of the intangible assets.

As a result, the Company recorded a pretax, non-cash charge of $ 7.3 million to reduce the carrying value of its goodwill in the HCN Segment during 2019.

There was no impairment of goodwill or the intangible assets during the years ended December 31, 2020 and 2021.

The Company engaged an independent valuation firm to assist with the valuation and determination of the fair value of HCN for both assessments.

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

(1) discounted cash flows;

(2) guideline company;

(3) guideline transaction for comparable transactions;

and (4) guideline transaction for private equity transactions.

Under the discounted cash flow method, cash flows were discounted by an estimated risk weighted average cost of capital, which was intended to reflect the overall level of inherent risk of HCN.

Under the guideline company method, valuation metrics from other education companies were used to determine the value.

Under the comparable transaction method, pricing terms from other transactions in the higher education market were used to determine the value.

Under the private equity method, pricing terms from private equity transactions were used to determine the value.

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

The goodwill impairment charges recorded in 2019 eliminated the difference between the fair value of goodwill and the carrying value of goodwill.

For the year ended December 31, 2020, the Company completed its annual assessment of goodwill and concluded that HCN’s fair value was more than the carrying value;

During the second quarter of 2022, 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 compared to projections at the time of acquisition, along with the decline in market value of the Company and comparable companies.

Therefore, during

the second quarter, the Company proceeded with an interim quantitative impairment test for the RU Segment.

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

As a result, during the second quarter, the Company recorded a non-cash impairment charge of $ 131.4 million, and the corresponding tax impact of $ 36.0 million, to reduce the carrying value of RU Segment goodwill.

The goodwill impairment charge recorded eliminated the difference between the fair value of goodwill and the book value of goodwill.

During the fourth quarter of 2022, the Company completed its annual assessment of RU Segment goodwill for impairment and determined that the fair value was greater than the carrying value and therefore there was no impairment of RU Segment goodwill as of the valuation date which was October 31.

The Company engaged an independent valuation firm to assist with the valuations.

The independent valuation firm weights the results of three different valuation methods to determine fair value:

(1) discounted cash flow;

(2) guideline public company;

and (3) guideline transaction for comparable transactions.

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

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

Under the comparable transaction method, pricing terms from other transactions in the higher education market were used to determine the fair value.

Values derived under the three valuation methods were then weighted to estimate RU and HCN’s enterprise values.

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

For the years ended December 31, 2020, 2021, and 2022, the Company completed its annual assessment of HCN goodwill and concluded that HCN’s fair value was more than the carrying value;

consequently, there was no impairment.

For the year ended December 31, 2021, the Company completed its annual assessment of goodwill and concluded that the fair value of HCN exceeded the carrying value by approximately $ 20.1 million, or 51.8 %.

The Company’s 2022 annual assessment concluded that the fair value of RU and HCN exceeded their carrying values by approximately $ 10.0 million, or 5 %, and $ 4.9 million, or 13 %, respectively.

Changes in the carrying amount of goodwill by reportable segment during the years ended December 31, 2021 and 2022 are as follows (in thousands):

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$ — $ — $ 26,563 $ 26,563

Goodwill acquired 217,203 217,203

Impairment — — — —

Adjustments ( 280 ) ( 280 )

Goodwill as of December 31, 2021

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$ — $ 86,030 $ 26,563 $ 112,593

In addition to goodwill, in connection with the acquisitions of RU and HCN, the Company recorded identified intangible assets with an indefinite useful life in the aggregate amount of $ 51.0 million and $ 3.7 million, respectively, which includes trade name, accreditation, licensing and Title IV, and affiliate agreements, and recorded $ 35.5 million and $ 4.4 million, respectively, of identified intangible assets with a definite useful life.

There were no indefinite useful life intangible assets identified as a result of the GSUSA Acquisition.

The Company recorded $ 35.5 million, $ 4.4 million, and $ 1.0 million of identified intangible assets with a definite useful life in connection with the acquisitions of RU, HCN and GSUSA, respectively.

During the years ended December 31, 2021 and 2022, the Company recorded amortization expense related to definite lived intangible assets of $ 5.1 million and $ 15.8 million, respectively.

As of December 31, 2020, all recorded identified intangible assets with a definite useful life related to the acquisition of HCN were fully amortized.

At the acquisition dates, the useful life assigned to each type of intangible asset with a definite useful life was as follows:

Student contracts and relationships 6 years

Student contracts and relationships 2.5 years - 6 years

Non-compete agreements 5 years

Curricula 3 years

Accreditation and licensing 2.5 years

Lead conversions 2 years

Student Roster 2 years

The future amortization of finite-lived intangible assets is as follows (in thousands):

Future Amortization of Intangibles Amortization

2022 $ 15,417

Total $ 30,361

As of December 31, 2020 and 2021, all HCN Segment recorded identified intangible assets with a definite useful life were fully amortized.

RU Segment Intangible assets consist of the following as of December 31, 2021 (in thousands):

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Trade name 1 year

During the second and fourth quarters of 2022, the Company concluded it was more likely than not the fair value of the Company’s RU Segment intangible assets was less than its carrying amount as a result of RU’s under performance compared to projections at the time of acquisition and as compared to revised projections.

As a result, the Company completed impairment tests related to the valuation of its RU Segment intangible assets during the second and fourth quarters.

The implied fair value of intangible assets was calculated and compared to the recorded value and determined the fair value of the accreditation, licensing, and Title IV indefinite lived intangible assets was $ 11.0 million, or $ 13.5 million less than its carrying value during the second quarter, and $ 9.0 million, or $ 2.0 million less than the carrying value in the fourth quarter.

As a result, the Company recorded a non-cash impairment charge of $ 15.5 million to reduce the carrying value of RU Segment indefinite-lived intangible assets during 2022.

The impairment charge recorded eliminated the difference between the fair value of the accreditation, licensing, and Title IV indefinite lived intangible assets, and the book value.

The following table represents the balance of the Company’s intangible assets as of December 31, 2021 (in thousands):

Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount

Finite-lived intangible assets

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Curricula 14,405 1,961 — 12,444

Student contracts and relationships 3,870 3,870 — —

Lead conversions 1,500 250 — 1,250

Non-compete agreements 86 86 — —

Total finite-lived intangible assets $ 39,861 $ 9,500 $ — $ 30,361

Indefinite-lived intangible assets

26,500 — 26,500

Trade name 28,498 — — 28,498

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

24,500 — 24,500

Affiliation agreements 37 — — 37

Total indefinite-lived intangible assets 54,721 — — 54,721

51,000 — 51,000

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

$ 86,500 $ 5,139 $ 81,361

HCN Segment intangible assets consist of the following as of December 31, 2020 and 2021 (in thousands):

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

The following table represents the balance of the Company’s intangible assets as of December 31, 2022 (in thousands):

Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount

Finite-lived intangible assets

Student contracts and relationships

Student roster $ 20,000 $ 13,333 $ — $ 6,667

14,563 6,680 — 7,883

Curricula 405 405 —

Student and customer contracts and relationships 4,614 4,168 — 446

Lead conversions 1,500 1,000 — 500

Non-compete agreements

Tradename 35 35 — —

Accreditation and licensing 28 11 — 17

Total finite-lived intangible assets $ 40,826 $ 25,313 $ — $ 15,513

4,361 4,361 —

Indefinite-lived intangible assets

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Accreditation, licensing, and Title IV 26,186 — 15,500 10,686

1,686 — 1,686

Affiliation agreements 37 — — 37

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$ 95,547 $ 25,313 $ 15,500 $ 54,734

Finite-lived intangible assets are amortized in a manner that reflects the estimated economic benefit of the intangible assets.

Student roster, curricula, lead conversions and non-compete agreements are amortized on a straight-line basis.

Student contracts and relationships were amortized using an accelerated method.

Determining fair value requires judgment and the use of significant estimates and assumptions, including fluctuations in enrollments, revenue growth rates, EBITDA margins, discount rates, and future market conditions, among others.

Given the current competitive and regulatory environment, the impact of COVID-19, and the uncertainties regarding the related impact on the business, there can be no assurance that the estimates and assumptions made for purposes of the Company’s interim and annual goodwill impairment tests will prove to be accurate predictions of the future.

Finite-lived intangible assets are amortized in a manner that reflects the estimated economic benefit of the intangible assets and are amortized on a straight-line basis.

The future amortization of finite-lived intangible assets is as follows (in thousands):

Future Amortization of Intangibles Amortization

Total $ 15,513

Determining fair value requires judgment and the use of significant estimates and assumptions, including fluctuations in enrollments, revenue growth rates, operating margins, discount rates, and future market conditions, among others.

Given the current competitive and regulatory environment and the uncertainties regarding the related impact on the business, there can be no assurance that the estimates and assumptions made for purposes of the Company’s interim and annual goodwill impairment tests will prove to be accurate predictions of the future.

If the Company’s assumptions are not realized, the Company may record additional goodwill impairment charges in future periods.

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The Company has operating leases for office space and campus facilities.

As a result of the GSUSA Acquisition, the Company acquired leases for copiers and printers that have been classified as finance leases.

Leases are classified as operating leases unless they meet any of the criteria below to be classified as a finance lease:

• the lease transfers ownership of the asset at the end of the lease;

• the lease grants an option to purchase the asset which the lessee is expected to exercise;

• the lease term reflects a major part of the asset’s economic life;

• the present value of the lease payments equals or exceeds the fair value of the asset;

• the asset is specialized with no alternative use to the lessor at the end of the term.

Operating Leases

The Company has operating leases for office space and campus facilities.

Some leases include options to terminate or extend for one or more years.

These options are included in the lease term when it is reasonably certain that the option will be exercised.

The Company leases corporate office space in Maryland and, beginning in January 2023, in Florida, under operating leases that expire in May 2024 and January 2026.

The RU Segment leases administrative office space in suburban Chicago, Illinois, and Minneapolis, Minnesota, and leases 22 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, one campus in Indianapolis, Indiana, and one campus in suburban Detroit, Michigan, which opened in October 2022, under operating leases that expire through June 2032.

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 ROU assets, which represent the right to use an underlying asset for the lease term.

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

Operating leases are included in the Operating lease assets, net, and Operating lease liabilities, current and long-term on the Consolidated Balance Sheets as of December 31, 2020 and 2021.

Operating leases are included in the Operating lease assets, net, and Operating lease liabilities, current and long-term on the Consolidated Balance Sheets.

These assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term.

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Cash paid for amounts included in the present value of operating lease liabilities during the years ended December 31, 2021 and 2022 was $ 7.2 million and $ 19.5 million, respectively, and is included in operating cash flows.

The following tables present information about the amount and timing of cash flows arising from the Company’s operating leases as of December 31, 2021 (dollars in thousands):

Maturity of Lease Liabilities Lease Payments

Finance Leases

In connection with the GSUSA Acquisition, the Company acquired leases for copiers and printers that are classified as finance leases and expire on December 31, 2024.

The Company pledged the assets financed to secure the outstanding lease obligations.

As of December 31, 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 $ 0.1 million for the year ended December 31, 2022, and is recorded within Depreciation and amortization expense on the Consolidated Statements of Income.

The following tables present information about the amount and timing of cash flows arising from the Company’s operating and finance leases as of December 31, 2022 (dollars in thousands):

Maturity of Lease Liabilities Operating Leases Finance Leases

2023 $ 18,454 $ 114

2024 17,176 113

2025 15,534 —

2026 15,087 —

2027 14,487 —

2028 and beyond 62,715 —

Total future minimum lease payments $ 143,453 $ 227

Less imputed interest ( 10,244 )

imputed interest ( 27,855 ) ( 9 )

Present value of operating lease liabilities $ 115,598 $ 218

lease liabilities, current ( 14,289 ) ( 107 )

Lease liabilities, long-term $ 101,309 $ 111

Balance Sheet Classification

Operating lease liabilities, current $ 14,289

Finance lease liabilities, current 107

Operating lease liabilities, long-term 101,309

Total operating lease liabilities $ 83,193

Finance lease liabilities, long-term 111

Total lease liabilities $ 115,816

Other Information

Weighted average remaining lease term (in years)

Operating leases 8.97

Finance leases 2.00

Weighted average discount rate

The Company leases corporate office space in Maryland under an operating lease that expires in May 2022, and until May 2021, the APUS Segment leased administrative office space in Virginia.

The RU Segment leases administrative office space in suburban Chicago, Illinois, and Minneapolis, Minnesota, and leases 23 campuses located in six states under operating

leases that expire through October 2033.

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

Operating leases 4.2 %

Finance leases 3.8 %

Long-Term Debt

On the Closing Date, APEI, as borrower, entered into a Credit Agreement with Macquarie Capital Funding LLC, or the Credit Agreement, as administrative agent and collateral agent, or the Agent, Macquarie Capital USA Inc.

In connection with the Rasmussen Acquisition, APEI, as borrower, entered into a Credit Agreement with Macquarie Capital Funding LLC, or the Credit Agreement, as administrative agent and collateral agent, or the Agent, Macquarie Capital USA Inc.

and Truist Securities, Inc., as lead arrangers and joint bookrunners, and certain lenders party thereto, or the Lenders.

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The Revolving Credit Facility also includes a $ 5.0 million sub-facility for swing line loans.

The Term Loan, the proceeds of which were used as part of the cash consideration for the Rasmussen Acquisition, was fully funded on the Closing Date and is presented net of the debt issuance costs of $ 13.1 million in the Consolidated Balance Sheet.

The debt issuance costs are being amortized using the effective interest method over the term of the Term Loan.

Debt issuance costs of $ 0.5 million related to the Revolving Credit Facility were recorded as an asset and are being amortized to interest expense over the term of the Revolving Credit Facility.

There were no borrowings outstanding on the Revolving Credit Facility at December 31, 2021.

The Credit Agreement provides APEI with the option, subject to certain conditions, including obtaining commitments from one or more lenders, to increase the total commitments under the Revolving Credit Facility, increase the amount of the Term Loan and/or incur incremental term loan facilities in an aggregate amount not to exceed the sum of (A) the greater of (1) $ 91.0 million and (2) an amount equal to consolidated EBITDA on a pro forma basis for the most recently ended four-quarter period (less the aggregate amount of certain other incremental indebtedness permitted to be incurred by APEI, and plus the aggregate amount of voluntary prepayments of certain other incremental indebtedness permitted to be incurred by APEI) and (B) an amount (1) in the case of secured incremental facilities that rank pari passu with the Facilities, such that the First Lien Net Leverage Ratio would not be greater than 1.50 to 1.00 and the Total Net Leverage Ratio would not be greater than 2.00 to 1.00, (2) in the case of secured incremental facilities that rank junior to the Facilities, such that the Secured Net Leverage Ratio would not be greater than 1.75 to 1.00 and the Total Net Leverage Ratio would not be greater than 2.00 to 1.00, and (3) in the case of unsecured incremental facilities, such that the Total Net Leverage Ratio would not be greater than 2.00 to 1.00 or the Interest Coverage Ratio would not be less than 2.00 to 1.00.

The Term Loan, the proceeds of which were used as part of the cash consideration for the Rasmussen Acquisition, was fully funded on the Closing Date and is presented net of deferred financing fees on the Consolidated Balance Sheets.

Deferred financing fees are being amortized using the effective interest method over the term of the Term Loan.

As of December 31, 2021 and 2022, the remaining unamortized deferred financing fees were $ 12.3 million and $ 5.9 million, respectively.

Deferred financing fees 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 as of December 31, 2021 and 2022.

The Credit Agreement provides the Company with the option, subject to certain conditions, including obtaining commitments from one or more lenders, to increase the total commitments under the Revolving Credit Facility, increase the amount of the Term Loan and/or incur incremental term loan facilities in an aggregate amount not to exceed the sum of (A) the greater of (1) $ 91.0 million and (2) an amount equal to consolidated EBITDA on a pro forma basis for the most recently ended four-quarter period (less the aggregate amount of certain other incremental indebtedness permitted to be incurred by APEI, and plus the aggregate amount of voluntary prepayments of certain other incremental indebtedness permitted to be incurred by APEI) and (B) an amount (1) in the case of secured incremental facilities that rank pari passu with the Facilities, such that the First Lien Net Leverage Ratio would not be greater than 1.50 to 1.00 and the Total Net Leverage Ratio would not be greater than 2.00 to 1.00, (2) in the case of secured incremental facilities that rank junior to the Facilities, such that the Secured Net Leverage Ratio would not be greater than 1.75 to 1.00 and the Total Net Leverage Ratio would not be greater than 2.00 to 1.00, and (3) in the case of unsecured incremental facilities, such that the Total Net Leverage Ratio would not be greater than 2.00 to 1.00 or the Interest Coverage Ratio would not be less than 2.00 to 1.00.

The First Lien Net Leverage Ratio, the Secured Net Leverage Ratio and the Total Net Leverage Ratio are each defined in the Credit Agreement and reflect a ratio of (x) in the case of the First Lien Net Leverage Ratio, consolidated first lien indebtedness (net of unrestricted cash and cash equivalents in excess of $ 50.0 million) to consolidated EBITDA, (y) in the case of the Secured Net Leverage Ratio, consolidated secured indebtedness (net of unrestricted cash and cash equivalents in excess of $ 50.0 million) to consolidated EBITDA, and (z) in the case of the Total Net Leverage Ratio, consolidated total indebtedness to consolidated EBITDA.

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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 December 31, 2022, the Facilities borrowing rate was 9.57 %, 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, commencing with the quarter ended December 31, 2021, in an amount equal to $ 2.2 million per quarter.

Subject to certain exceptions, APEI is required to make mandatory prepayments of the Term Loan, with the proceeds of asset sales, casualty and condemnation events, and unpermitted debt issuances.

APEI is required to make principal payments of the Term Loan on the last day of each quarter, commencing with the quarter ended December 31, 2021, in an amount equal to $ 2.2 million per quarter.

During the years ended December 31, 2021 and 2022, APEI paid $ 4.6 million and $ 18.7 million, respectively, of interest, amortization of debt issuance costs, and unused commitment fees related to its Term Loan and Revolving Credit Facility.

In December 2022, APEI made prepayments totaling $ 65.0 million on the Term Loan.

With this prepayment, APEI is not required to make quarterly principal payments until payment of the outstanding principal amount at maturity in September 2027.

In addition, as a result of the debt prepayment, the Company wrote off a proportionate amount of unamortized debt issuance costs in the amount of $ 3.9 million.

The write off is recorded in interest expense on the Consolidated Statements of Income for the year ended December 31, 2022.

Subject to certain exceptions, including debt prepayments, the Term Loan contains mandatory prepayment requirements, including with respect to excess cash flow, proceeds of certain asset sales, casualty and condemnation events, and unpermitted debt issuances.

With the December 2022 debt prepayment, APEI has no mandatory prepayment obligation for the year ended December 31, 2022.

The Facilities are and will be guaranteed by APEI’s subsidiaries and certain of APEI’s future subsidiaries that are required to become a party thereto as guarantors (collectively, the “Guarantors”).

The obligations of APEI and the Guarantors are secured by a pledge of substantially all of their respective assets pursuant to the terms of the Collateral Agreement dated as of the Closing Date by and among APEI, the Agent and the Guarantors from time to time party thereto (the “Collateral Agreement”).

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.

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.

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.

As of December 31, 2022, the Company was in compliance with all debt covenants.

Long-term debt consists of the following as of December 31, 2021 (in thousands):

Please refer to “Note 11.

Stockholders’ Equity” in these Consolidated Financial Statements for information on certain restrictions placed on the Company’s indebtedness pursuant to the terms of the Company’s Series A Senior Preferred Stock.

Long-term debt consists of the following (in thousands):

As of December 31,

Credit agreement $ 172,813 $ 99,063

Deferred financing fees ( 12,292 ) ( 5,912 )

160,521 93,151

Current portion ( 8,750 ) —

$ 151,771 $ 93,151

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

Maturities of Long-Term Debt Loan Payments

Thereafter 129,063

Total $ 99,063

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

The interest rate cap is effective October 1, 2021 and will expire on January 1, 2025.

Changes in the fair value of the interest rate cap designated as a hedging instrument that effectively offset the variability of cash flows associated with our variable-rate, long-term debt obligations are reported in accumulated other comprehensive income.

The interest rate cap was effective October 1, 2021 and will expire on January 1, 2025.

Changes in the fair value of the interest rate cap designated as a hedging instrument that effectively offset the variability of cash flows associated with the Company’s variable-rate, long-term debt obligations are reported in accumulated other comprehensive income.

These amounts subsequently are reclassified into interest expense as a yield adjustment of the hedged interest payments in the same period in which the related interest affects earnings.

At December 31, 2022, the $ 4.5 million fair value of the interest rate cap is recorded in other assets in the Consolidated Balance Sheets.

The unrealized gain of $ 0.1 million is included within our other comprehensive income.

As of December 31, 2021, the Company expects to reclassify immaterial gains included in accumulated other comprehensive income (loss) into earnings during the next 12 months.

The unrealized gain of $ 3.0 million is included within other comprehensive income.

For the year ended December 31, 2022, the Company reclassified approximately $ 0.5 million from other comprehensive income to interest expense.

The Company estimates that approximately $ 2.6 million will be reclassified from accumulated other comprehensive income into interest expense during the next twelve months.

The components of income tax expense were as follows (in thousands):

1 unchanged sentence

2020 2021 2022

Current income tax expense:

Current income tax expense (benefit):

Federal $ 5,685 $ 513 $ 4,293

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7,831 2,048 6,379

Deferred tax expense:

Deferred income tax expense (benefit):

Federal ( 608 ) 4,948 ( 36,395 )

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( 811 ) 5,463 ( 42,655 )

Income Tax Expense $ 5,187 $ 7,020 $ 7,511

Income Tax Expense (Benefit) $ 7,020 $ 7,511 $ ( 36,276 )

The tax effects of principal temporary differences are as follows (in thousands):

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Deferred tax assets

Goodwill and intangibles $ — $ 34,001

Operating lease liability 20,717 28,657

Allowance for doubtful accounts 2,061 3,172

Interest expenses — 1,572

Restricted stock 1,329 1,367

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Stock option compensation expense 159 232

Deferred revenue — 36

Net operating loss 3,338 —

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Property and equipment ( 10,110 ) ( 3,622 )

Accounts receivable — ( 1,434 )

Prepaid expenses ( 1,136 ) ( 437 )

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Total deferred tax liabilities ( 34,178 ) ( 34,839 )

Deferred tax liabilities, net $ ( 2,580 ) $ ( 5,059 )

At December 31, 2021, the Company had net operating loss carryforwards and capital loss carryforwards of $ 15.9 million and $ 1.8 million, respectively, which are available to offset future taxable income.

The capital loss carryforwards will expire in 2026 while the net operating loss can be carried forward indefinitely.

Deferred tax (liabilities) assets, net $ ( 5,059 ) $ 35,355

At December 31, 2022, the Company had state net operating loss carryforwards and federal capital loss carryforwards of $ 56.4 million and $ 1.8 million, respectively, which are available to offset future taxable income.

The federal capital loss carryforwards will expire in 2026 while the state net operating loss carryforwards will begin to expire in various years from 2036 through 2041.

The amount of state net operating losses that can be carried forward indefinitely is $ 28.6 million.

The Company’s utilization of net operating loss carryforwards may be subject to annual limitations due to ownership change provisions of Section 382 of Internal Revenue Code of 1986, as amended.

Income tax expense differs from the amount of tax determined by applying the United States Federal income tax rates to pretax income and loss due to the application of state apportionment laws, permanent tax differences, and other temporary differences (in thousands):

Income tax expense (benefit) differs from the amount of tax determined by applying the United States Federal income tax rates to pretax income and loss due to the application of state apportionment laws, permanent tax differences, and other temporary differences (in thousands):

Year Ended December 31,

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Equity-based compensation benefits ( 305 ) ( 1.18 ) % ( 219 ) ( 0.87 ) % 479 ( 0.32 ) %

Gain on acquisition — — % — — % ( 947 ) 0.63 %

Post-employment benefits ( 67 ) ( 0.26 ) % — — % — — %

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$ 7,020 27.17 % $ 7,511 29.73 % $ ( 36,276 ) 23.97 %

Permanent differences in the table above are mainly attributable to executive and stock compensation, minority investment losses, nondeductible meals and entertainment expenses, and non-deductible employer contributions to the American Public Education, Inc.

Employee Stock Purchase Plan.

Permanent differences in the table above are mainly attributable to executive and stock compensation, nondeductible meals and entertainment expenses, and non-deductible employer contributions to the American Public Education, Inc.

Employee Stock Purchase Plan, or the ESPP.

There were no material uncertain tax positions as of December 31, 2020, 2021, or 2022.

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The Company has established a tax deferred 401(k) retirement plan that provides retirement benefits to its eligible employees.

Participants may elect to contribute up to 60 % of their gross annual earnings not to exceed ERISA and IRS limits.

Participants may elect to contribute up to 60 % of their gross annual earnings not to exceed ERISA and Internal Revenue Service limits.

The plan provides for Company discretionary profit-sharing contributions at matching percentages.

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The Company made discretionary contributions to the plan of $ 4.2 million, $ 5.1 million, and $ 6.2 million for the years ended December 31, 2020, 2021, and 2022, respectively.

The Company has established the American Public Education, Inc.

Employee Stock Purchase Plan, or the ESPP, with quarterly enrollment periods.

The Company has established the ESPP with quarterly enrollment periods.

Eligible participants may only enter the plan and establish their withholdings at the start of an enrollment period.

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In 2014 and again in 2020 the Company’s stockholders approved amendments to the plan increasing the number of shares available for purchase by participating employees and extended the term of the ESPP.

The term of the ESPP is now extended to May 15, 2030, and at December 31, 2021 there remain 80,926 shares available for purchase under the ESPP.

The current term of the ESPP is now May 15, 2030, and at December 31, 2022 there remain 20,080 shares available for purchase under the ESPP.

Shares purchased in the open market for issuance to employees pursuant to the plan for the years ended December 31, 2020, 2021, and 2022 were as follows:

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On May 15, 2020, the Company’s stockholders approved an amendment to the 2017 Incentive Plan to increase the number of shares available for issuance thereunder by 1,425,000 and to extend the term of the 2017 Plan to May 15, 2030, as well as to clarify limitations on repricing.

On May 20, 2022, the Company’s stockholders approved an amendment to the 2017 Incentive Plan to increase the number of shares available for issuance thereunder by 1,125,000 and to clarify provisions on vesting in dividends or dividend equivalent rights paid on unvested awards and the determination of fair market value.

Grants under the 2017 Incentive Plan generally vest over a period of three years and the Company recognizes compensation expense over that period.

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The fair value of the Company’s restricted stock and restricted stock unit awards is calculated based on the closing price of the Company’s stock on the date of grant.

The estimated fair value of these awards is recognized as stock-based compensation expense and is expensed over the vesting period using the straight-line method for Company employees and the graded-vesting method for members of the Board of Directors.

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.

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There were 48,434 , 3,233 , and 490,127 shares of restricted stock or restricted stock units excluded in the computation of diluted net income per common share for the years ended December 31, 2020, 2021, and 2022, respectively.

At December 31, 2021, total unrecognized compensation expense in the amount of $ 9.3 million relates to non-vested restricted stock, restricted stock units, and stock options, which will be recognized over a weighted average period of 1.7 years.

At December 31, 2022, total unrecognized compensation expense in the amount of $ 8.5 million relates to non-vested restricted stock and restricted stock units, which will be recognized over a weighted average period of 1.8 years.

As a result of termination of employment, the Company accepted the following common shares for forfeiture:

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subsequent events are not necessarily indicative of the reasonableness of the original estimates of fair value made under FASB ASC Topic 718.

Prior to 2012, the Company issued a mix of stock options and restricted stock, but ceased issuing options until 2019.

Options currently outstanding vest ratably over a period of three years and expire in ten years from the date of grant.

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For the years ended December 31, 2020, 2021, and 2022, there were 60,504 , 101,520 , and 133,588 anti-dilutive stock options excluded from the calculation of diluted net income per share, respectively.

At December 31, 2022, total unrecognized compensation expense in the amount of $ 0.6 million relates to non-vested stock options, which will be recognized over a weighted average period of 2.2 years.

Stock-Based Compensation Expense

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The Company recognized income tax benefits of $ 1.9 million, $ 2.3 million, and $ 1.5 million from vested restricted stock and restricted stock units for the years ended December 31, 2020, 2021, and 2022, respectively.

On December 9, 2011, the Company’s Board of Directors approved a stock repurchase program for our common stock, under which the Company could annually purchase up to the cumulative number of shares issued or deemed issued in that year under our equity incentive and stock purchase plans.

The Company’s Board of Directors has approved a stock repurchase program for common stock, under which the Company can annually purchase up to the cumulative number of shares issued or deemed issued in that year under the equity incentive and stock purchase plans.

Repurchases may be made from time to time in the open market at prevailing market prices or in privately negotiated transactions based on business and market conditions.

The stock repurchase program does not obligate the Company to repurchase any shares, may be suspended or discontinued at any time, and is funded using our available cash.

The stock repurchase program does not obligate the Company to repurchase any shares, may be suspended or discontinued at any time, and is funded using available cash.

On May 2, 2019, the Company’s Board of Directors authorized the repurchase of up to $ 35.0 million of the Company’s shares of common stock, and on December 5, 2019, the Board approved an additional authorization of up to $ 25.0 million of shares.

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The Company has no obligation to repurchase shares and may modify, suspend or discontinue the repurchase program at any time.

The authorization under this program is in addition to the Company’s repurchase program under which the Company may annually purchase up to the cumulative number of shares issued or deemed issued in that year under our equity incentive and stock purchase plan.

During the years ended December 31, 2019 and 2020 the Company repurchased 1,416,304 and 547,563 shares of the Company’s common stock, respectively, for approximately $ 39.1 million and $ 13.6 million, respectively.

During the year ended December 31, 2021, the Company did not repurchase shares of common stock.

The Company’s credit agreement includes restrictions on its ability to repurchase its common stock, and the terms of the Series A Senior Preferred Stock require the consent of the holders of at least 60 % of the then outstanding shares of the

Series A Senior Preferred Stock in order for the Company to repurchase more than $ 30.0 million of its common stock in the aggregate.

During the year ended December 31, 2020, the Company repurchased 547,563 shares of the Company’s common stock for approximately $ 13.6 million.

During the years ended December 31, 2021 and 2022, the Company did not repurchase shares of common stock.

As of December 31, 2022, the Company has remaining $ 8.4 million under its share repurchase authorization.

During the years ended December 31, 2020, 2021, and 2022, the Company was deemed to have repurchased 78,847 , 99,469 , and 80,764 shares, respectively, of common stock forfeited by employees to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants.

These repurchases were not part of the stock repurchase programs authorized by our Board of Directors as described above.

These repurchases were not part of the stock repurchase programs authorized by the Company’s Board of Directors as described above.

Series A Senior Preferred Stock

On December 28, 2022, APEI issued $ 40 million of the Series A Senior Preferred Stock, $ 0.01 par value per share, to affiliates of existing common stockholders of the Company.

The Series A Senior Preferred Stock has cumulative dividends that accrue daily at the initial annual rate, which is equal to the Secured Overnight Financing Rate, or SOFR (selected by the Company for each divided period), plus 10.00 %, or an initial rate of 14.55 %.

On the 30-month anniversary of the closing date, the dividend rate spread shall increase by 2.00 % per annum and shall increase by 0.50 % per annum at the beginning of each full fiscal quarter thereafter.

The dividend rate spread increases 6 % in the event of default, a change of control, or other non-compliance as noted in the related Certificate of Designation and the purchase agreement for the shares of Series A Senior Preferred Stock, or the Purchase Agreement.

Other than an increase in the dividend rate spread relating to default, in no event will the dividend rate spread exceed SOFR plus 25.00 %.

Dividend periods will be monthly, quarterly or every six months, at the Company’s option.

Dividends will be paid, after declaration by the Company’s Board of Directors, for each dividend period.

If the Company selects a dividend period longer than three months, an interim dividend payment will be required for each three month period.

The Company evaluated the Series A Senior Preferred Stock at issuance for the embedded derivative features and the potential need for bifurcation under ASC 815-15 Derivatives and Hedging- Embedded Derivatives .

The Company engaged an independent valuation firm to assist with the evaluation.

As of December 31, 2022, the embedded features identified for bifurcation were determined to have minimal or no value and therefore deemed to not be material to the financial statements.

The Series A Senior Preferred Stock has no stated maturity, is not convertible, is not subject to any mandatory redemption, sinking fund or other similar provisions and will remain outstanding unless redeemed at the Company’s option.

The Company has the right to redeem the preferred stock pro rata in whole or in part at the price per share equal to the liquidation preference, plus any applicable early premium amount noted in the Certificate of Designation and Purchase Agreement.

The Liquidation Preference of $ 62.2 million is based on the occurrence of a liquidation event, which is also considered an event of default as defined in the Certificate of Designation, as of December 31, 2022.

Events of default include an increase of the dividend rate spread of 6.00 % and an early premium amount, as defined in the Certificate of Designation.

The Series A Senior Preferred Stock has no voting rights for directors or otherwise, except as required by law or with respect to certain protective provisions.

Without the consent of at least 60 % of the then outstanding shares of Series A Senior Preferred Stock, with certain exceptions, the Company may not, among other things, (i) incur any indebtedness if such incurrence would cause the Company’s Total Net Leverage Ratio (as defined in the Purchase Agreement) to exceed 0.75 :1, (ii) issue any capital stock senior to or pari passu with the Series A Senior Preferred Stock, (iii) declare or pay any cash dividends on the Company’s common stock, or (iv) repurchase more than an aggregate of $ 30 million of the Company’s common stock.

Contingencies

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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 include RU as a reportable segment to reflect the manner in which the chief operating decision-maker evaluates performance and allocates resources.

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

the American Public Education, Inc.

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

Post-acquisition, the Company has three reportable segments:

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

Subsequent to the Rasmussen Acquisition, the Company has three reportable segments:

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

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and the HCN Segment.

The APEI Segment previously reported the results of both APUS and remaining unallocated Company expenses.

The APEI Segment previously reported the results of both APUS and remaining unallocated corporate 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”.

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

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

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The Company’s Chief Executive Officer reviews operating results to make decisions about allocating resources and assessing performance for the APUS, RU, and HCN Segments.

The RU Segment reflects the operations of RU, which was acquired on the Closing Date, through December 31, 2021.

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

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

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Corporate and Other ( 19,403 ) ( 24,138 ) ( 25,232 )

Total income from operations before interest and income taxes $ 12,756 $ 24,757 $ 30,371

Total income (loss) from operations before interest and income taxes $ 24,757 $ 30,371 $ ( 137,348 )

Interest income (expense)

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Corporate and Other ( 4,300 ) ( 7,543 ) ( 10,064 )

Total Income Tax Expense $ 5,187 $ 7,020 $ 7,511

Total income tax expense (benefit) $ 7,020 $ 7,511 $ ( 36,276 )

Capital expenditures

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Subsequent Events

On January 1, 2022, the Company completed its acquisition of GSUSA.

The Company has reviewed its business activities and has no subsequent events to report.

Quarterly Financial Summary (unaudited)

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Income (loss) from operations before income taxes 10,751 1,999 ( 43 ) 13,387

Net income (loss) 2,420 6,689 2,642 7,071

Net income (loss) available to common stockholders 8,107 531 ( 267 ) 9,381

Net income (loss) per common share:

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Income (loss) from operations before income taxes 6,378 ( 145,355 ) ( 4,620 ) ( 7,651 )

Net income (loss) 8,107 531 ( 267 ) 9,381

Net income (loss) available to common stockholders 5,333 ( 110,029 ) ( 3,762 ) ( 6,583 )

Net income (loss) per common share:

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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-K

Item 8. Financial Statements and Supplementary Data