AMERICAN PUBLIC EDUCATION INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS American Public Education, Inc. and Subsidiaries Page American Public Education, Inc. and Subsidiaries: Report of Independent Registered Public Accounting Firm (PCAOB ID 34 ) 98 Consolidated Balance Sheets as of December 31, 2021 and 2022 101 Consolidated Statements of Income for the years ended December 31, 2020, 2021, and 2022 102 Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2021, and 2022 103 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2021, and 2022 104 Consolidated Statements of Cash Flows for the years ended December 2020, 2021 and 2022 105 Notes to Consolidated Financial Statements 106 97 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of American Public Education, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of American Public Education, Inc. 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. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter 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 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 98 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 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; and ◦ 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. • 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. 99 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 McLean, VA March 14, 2023 We have served as the Company's auditor since 2018. 100 AMERICAN PUBLIC EDUCATION, INC. Consolidated Balance Sheets As of December 31, 2021 2022 (In thousands, except per share amounts) Assets Current assets: Cash, cash equivalents, and restricted cash (Note 2) $ 149,627 $ 129,458 Accounts receivable, net of allowance of $ 11,396 in 2021 and $ 13,328 in 2022 36,026 42,353 Prepaid expenses 11,681 11,409 Income tax receivable 5,303 2,871 Total current assets 202,637 186,091 Property and equipment, net 102,417 100,892 Operating lease assets, net 77,943 108,870 Deferred income taxes — 35,355 Intangible assets, net 85,082 54,734 Goodwill 243,486 112,593 Other assets, net 14,043 16,521 Total assets $ 725,608 $ 615,056 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 13,497 $ 3,808 Accrued compensation and benefits 15,131 15,010 Accrued liabilities 10,819 13,784 Deferred revenue and student deposits 21,776 23,760 Lease liabilities, current 13,705 14,396 Long-term debt, current 8,750 — Total current liabilities 83,678 70,758 Lease liabilities, long term 69,488 101,420 Deferred income taxes 5,059 — Long-term debt, net 151,771 93,151 Total liabilities 309,996 265,329 Commitments and contingencies (Note 12) Stockholders’ equity: Preferred Stock, $ .01 par value; authorized shares - 10,000,000 ; 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) — 39,691 Common Stock, $ .01 par value; authorized shares - 100,000,000 ; 18,709,171 issued and outstanding in 2021; 18,892,791 issued and outstanding in 2022 187 189 Additional paid-in capital 286,385 292,854 Accumulated other comprehensive income 108 3,102 Retained earnings 128,932 13,891 Total stockholders’ equity 415,612 349,727 Total liabilities and stockholders’ equity $ 725,608 $ 615,056 The accompanying notes are an integral part of these consolidated statements. 101 AMERICAN PUBLIC EDUCATION, INC. Consolidated Statements of Income Year Ended December 31, 2020 2021 2022 (In thousands, except per share amounts) Revenue $ 321,785 $ 418,803 $ 606,328 Costs and expenses: Instructional costs and services 122,161 172,622 288,472 Selling and promotional 72,989 93,317 154,649 General and administrative 88,043 103,379 120,352 Loss on disposals of long-lived assets 851 1,282 1,176 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 (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 (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 (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 ) Diluted $ 1.25 $ 0.97 $ ( 6.08 ) Weighted average number of shares outstanding: Basic 14,876 18,085 18,859 Diluted 15,047 18,255 18,914 The accompanying notes are an integral part of these consolidated statements. 102 AMERICAN PUBLIC EDUCATION, INC. Consolidated Statements of Comprehensive Income 2020 2021 2022 (In thousands) 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 (loss) $ 18,822 $ 17,860 $ ( 111,999 ) The accompanying notes are an integral part of these consolidated statements. 103 AMERICAN PUBLIC EDUCATION, INC. Consolidated Statements of Stockholders’ Equity (In thousands, except shares) Additional Paid-In Capital Accumulated Other Comprehensive Income (loss) Retained Earnings Total Stockholders’ Equity 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 ) — — — Deemed repurchased shares of common and restricted stock for tax withholding — — ( 78,847 ) ( 1 ) ( 2,096 ) — — ( 2,097 ) Stock-based compensation — — — — 7,075 — — 7,075 Repurchased and retired shares of common stock — — ( 547,563 ) ( 5 ) — — ( 13,603 ) ( 13,608 ) Net income — — — — — — 18,822 18,822 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 ) — — — Deemed repurchased shares of common and restricted stock for tax withholding — — ( 99,469 ) ( 1 ) ( 3,031 ) — — ( 3,032 ) Stock-based compensation — — — — 7,654 — — 7,654 Unrealized gain on hedging derivatives, net of taxes — — — 108 — 108 Net income — — — — — — 17,752 17,752 Balance as of December 31, 2021 — — 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 ) — — — Deemed repurchased shares of common and restricted stock for tax withholding — — ( 80,764 ) ( 1 ) ( 1,537 ) — — ( 1,538 ) Stock-based compensation — — — — 8,009 — — 8,009 Unrealized gain on hedging derivatives, net of taxes — — — 2,994 — 2,994 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. 104 AMERICAN PUBLIC EDUCATION, INC. Consolidated Statements of Cash Flows Year Ended December 31, 2020 2021 2022 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 and write-off of debt issuance costs — 885 6,480 Stock-based compensation 7,075 7,654 8,009 Equity investment loss 7 831 21 Deferred income taxes ( 811 ) 5,530 ( 41,910 ) Loss on disposal of long-lived assets 851 1,282 1,176 Gain on acquisition — — ( 3,828 ) Impairment of goodwill and intangible assets — — 146,900 Other 24 15 16 Changes in operating assets and liabilities: Accounts receivable, net of allowance for bad debt ( 6,327 ) ( 7,637 ) ( 2,045 ) Prepaid expenses 320 ( 614 ) 354 Income tax receivable/payable 1,935 ( 5,481 ) 2,432 Operating lease assets, net ( 16 ) 2,606 1,373 Other assets ( 165 ) ( 1,517 ) 519 Accounts payable ( 86 ) 8,026 ( 10,207 ) Accrued compensation and benefits 1,907 ( 3,406 ) ( 141 ) Accrued liabilities 3,612 ( 4,432 ) 2,917 Deferred revenue and student deposits 4,678 ( 23,061 ) 15 Net cash provided by operating activities 44,810 16,265 29,215 Investing activities Cash paid for acquisition, net of cash acquired — ( 325,509 ) 1,951 Capital expenditures ( 4,926 ) ( 11,828 ) ( 16,389 ) Proceeds from the sale of real property 767 672 765 Net cash used in investing activities ( 4,159 ) ( 336,665 ) ( 13,673 ) Financing activities Cash paid for repurchase of common/restricted stock ( 15,705 ) ( 3,032 ) ( 1,538 ) Cash received from issuance of common stock — 86,205 — 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) 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 ) Cash, cash equivalents, and restricted cash at beginning of period 202,740 227,686 149,627 Cash, cash equivalents, and restricted cash at end of period $ 227,686 $ 149,627 $ 129,458 Supplemental disclosures of cash flow information Interest paid $ — $ 3,676 $ 12,496 Income taxes paid $ 5,898 $ 7,464 $ 3,996 The accompanying notes are an integral part of these consolidated statements. 105 Notes to Consolidated Financial Statements Note 1. 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. • 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 RU, or the Rasmussen Acquisition, on September 1, 2021, or the RU 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 RU for any periods prior to the Closing Date. RU is institutionally accredited by HLC. • National Education Seminars, Inc., which is referred to herein as Hondros College of Nursing, or HCN, provides nursing education to students enrolled at six campuses in Ohio, 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. • 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. Segment Information”. Prior period segment disclosures have been restated to conform to the current period presentation. 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. • Rasmussen University Segment, or RU Segment . This segment reflects the operational activities of RU. • Hondros College of Nursing Segment, or HCN Segment. This segment reflects the operational activities of HCN. 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. Note 2. Significant Accounting Policies A summary of the Company’s significant accounting policies follows: 106 Basis of presentation and accounting. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. 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. 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. The accompanying consolidated financial statements include the accounts of APEI and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. Use of estimates. In preparing financial statements in conformity with GAAP, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. 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 Consolidated Financial Statements. Cash and cash equivalents. The Company considers all short-term highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of demand deposits with financial institutions, money market funds, and U.S. Treasury bills. Cash and cash equivalents are Level 1 assets in the fair value reporting hierarchy. Restricted cash. 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. 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. The Company accounts for receivables in accordance with FASB ASC 310, Receivables. Course tuition is recorded as accounts receivable and deferred revenue at the time students begin a course or term. 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 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 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 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. Billed accounts receivable are considered past due if the invoice has been outstanding for more than 30 days. 107 Allowance for doubtful accounts. 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, 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 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. 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 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 . The Company also capitalizes certain costs for academic program development and these costs are amortized over an estimated life not to exceed three years . Leases. The Company accounts for lease arrangements in accordance with FASB ASC 842, Leases . The Company determines if there is a lease at inception. 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. 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 Accounting Standards Update, or ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . The Company’s goodwill and intangible assets are deductible for tax purposes. 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” in these Consolidated Financial Statements. Valuation of long-lived assets. The Company accounts for the valuation of long-lived assets under FASB ASC 360, Accounting for the Impairment or Disposal of Long-Lived Assets. ASC 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 108 Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. Investments. The Company accounts for its investments in less than majority owned companies in accordance with FASB ASC 323, Investments - Equity Method and Joint Ventures and FASB ASC 321, Investments - Equity Securities. The Company applies ASC 323, Investments - Equity Method and Joint Ventures to investments w hen it has the ability to exercise significant influence but does not control the operating and financial policies of the company. This is generally represented by equity ownership of at least 20 percent but not more than 50 percent. Investments accounted for under the equity method are initially recorded at cost and subsequently adjusted by the Company’s share of equity in income or losses after the date of acquisition. 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 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, 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. If it is probable that the Company will not recover the carrying amount of the investment, the impairment is considered other-than-temporary and recorded in equity investment loss, and the equity investment balance is reduced to its fair value accordingly. 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. Management must exercise significant judgment in evaluating the potential impairment of its equity investments. The Company’s equity investments are included in other assets on the accompanying Consolidated Balance Sheets. Derivatives and hedging. 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. Deferred revenue and student deposits. Deferred revenue and student deposits at December 31, 2021 and 2022 was $ 21.8 million and $ 23.8 million, respectively. 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. 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, 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. Revenue from fees is recognized as information or services are delivered to students, assuming all other revenue recognition criteria are met. For additional information regarding revenue recognition, please refer to “Note 4. Revenue” in these Consolidated Financial Statements. 109 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. Scholarship assistance and technology fee grants of $ 45.6 million, $ 54.6 million, and $ 68.8 million were provided for the years ended December 31, 2020, 2021 and 2022, respectively, and are included as a reduction to revenue in the accompanying Consolidated Statements of Income. Advertising costs. Advertising costs are expensed as incurred during the year. Advertising expenses for the years ended December 31, 2020, 2021 and 2022 were $ 51.3 million, $ 60.3 million, and $ 90.5 million, respectively, and are included in selling and promotional expenses in the accompanying Consolidated Statements of Income. Income taxes. Deferred taxes are determined using the liability method, whereby deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. As these differences reverse, they will enter into the determination of future taxable income. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. 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 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. Uncertain tax positions are recognized when a tax position, based solely on its technical merits, is determined more likely than not to not be sustained upon examination. Upon determination, uncertain tax positions are measured to determine the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. An uncertain tax position is reversed if it no longer meets the more likely than not threshold of being sustained. There were no material uncertain tax positions as of December 31, 2020, 2021 or 2022. The Company has not recorded any material interest or penalties during any of the years presented. 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 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 Company’s Board of Directors. It is measured using the Company’s closing stock price on the date of the grant. An accelerated one-year period is used to recognize stock-based compensation cost for employees who have reached certain service and retirement eligibility criteria on the date of grant. The fair value of each option award is estimated at the date of grant using a Black-Scholes option-pricing model that uses certain assumptions. The Company makes assumptions with respect to expected stock price volatility based on the average historical volatility of the Company’s common stock. In addition, the Company determines the risk-free interest rate by selecting the U.S. Treasury constant maturity for the same maturity as the estimated life of the option quoted on an investment basis in effect at the time of grant for that business day. Judgment is required in estimating the percentage of share-based awards that are expected to vest, and in the case of performance stock units, or PSUs, the level of performance that will be achieved and the number of shares that will be earned. The Company estimates forfeitures of share-based awards at the time of grant and revises such estimates in subsequent periods if actual forfeitures differ from original estimates. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. If actual results differ significantly from these estimates, stock-based compensation expense could be higher and have a material impact on the Company’s consolidated financial statements. Estimates of fair value are subjective and are not intended to predict actual future events, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made under ASC 718 . For additional information regarding stock-based compensation, please refer to “Note 11. Stockholders’ Equity” in these Consolidated Financial Statements. Income per common share. Basic net income per common share is based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share increases the shares used in the per share calculation by the dilutive effects of options, warrants, and restricted stock. Fair value of financial instruments. The Company measures certain financial assets at fair value for disclosure purposes, as well as on a nonrecurring basis when they are deemed to be other-than-temporary impairments. 110 Fair value represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. Assets and liabilities recorded at fair value are measured and classified in accordance with a three-tier fair value hierarchy based on the observability of the inputs available in the market used to measure fair value: Level 1 - inputs to the valuation techniques that are quoted prices in active markets for identical assets or liabilities; Level 2 - inputs to the valuation techniques that are other than quoted prices but are observable for the assets or liabilities, either directly or indirectly; or Level 3 - inputs to the valuation techniques that are unobservable for the assets or liabilities. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company’s cash, cash equivalents, and restricted cash, accounts receivable, accounts payable and accrued liabilities are all short-term in nature. 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 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. As such, the Company’s interest rate cap falls within Level 2 of the fair value hierarchy. The carrying value of long-term debt approximates fair value as it is based on a variable rate index. Concentration of credit risk. The Company maintains its cash, cash equivalents, and restricted cash in bank deposit accounts with various financial institutions. Cash, cash equivalents, and restricted cash balances may exceed the FDIC insurance limit. The Company has historically not experienced any losses in such accounts. Recent Accounting Pronouncements. 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. Note 3. Acquisition Activity 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. Goodwill reflects the fair value associated with the RU workforce and synergies expected from cost savings, operations, and revenue enhancements of the combined company that are expected to result from the acquisition. 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. 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. 111 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 $ 329,000 Working capital adjustment and additional cash contributions 2,333 Total consideration 331,333 Assets acquired: Cash and cash equivalents 5,200 Accounts receivable 10,700 Prepaid expenses 4,600 Property and equipment, net 36,996 Operating lease assets 75,800 Deferred tax asset 3,049 Intangible assets 86,500 Other assets 600 Total assets acquired 223,445 Liabilities assumed: Accounts payable and accrued liabilities 7,342 Deferred revenue 22,700 Operating lease liabilities, current 11,200 Operating lease liabilities, long-term 67,000 Other liabilities 1,300 Total liabilities assumed 109,542 Net assets acquired 113,903 Goodwill $ 217,430 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): Intangible Assets Useful life Amount Trade name Indefinite $ 26,500 Accreditation, licensing, and Title IV Indefinite 24,500 Student roster 2 years 20,000 Curricula 3 years 14,000 Lead conversions 2 years 1,500 $ 86,500 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. 112 Pro Forma Financial Information The following unaudited pro forma information is presented as if the Rasmussen Acquisition occurred at the beginning of the earliest period presented. In preparing the pro forma results, the Company is required to make estimates and assumption including with respect to underlying financial performance, purchase accounting, appropriate depreciation and amortization methods, effective tax rate, and future interest rates, among other estimates and assumptions. The Company believes that these estimates and assumptions are reasonable under the circumstances. The pro forma results do not represent what may occur in the future as actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to the Company’s Consolidated Financial Statements. The table below presents the Company’s pro forma combined revenue and net income (in thousands): Year Ended December 31, 2020 2021 (Unaudited) Revenue $ 583,330 $ 600,984 Net Income 25,876 21,933 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): 113 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 $ 965 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. 114 Note 4. Revenue The following is a description of principal activities from which the Company generates its revenue. Instructional services. 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. Generally, instructional services are billed when a course or term begins and paid within thirty days of the bill date. Graduation fees . APUS graduation fee revenue represents a one-time, non-refundable $ 100 fee per degree, charged to students upon submission of a program graduation application. The fee covers administrative costs associated with completing a review of the student’s academic and financial standing prior to graduation. The Company recognizes revenue once graduation review services are completed. Generally, graduation fees are billed and paid when the student submits the graduation application. Textbook and other course material fees . Textbook and other course materials revenue represent fees related to the sale of textbooks and other course materials to RU and HCN students. Revenue is recognized at the beginning of the term when the textbooks and other course materials fees are billed. Payment is generally received within thirty days of the bill date. Sales tax collected from students on the sale of textbooks and other course materials is excluded from revenue. Other fees . Other fees revenue represents one-time, non-refundable fees such as application, enrollment, transcript, and other miscellaneous fees. Generally, other fees revenue is recognized when the fee is charged to the student, which coincides with the completion of the specific performance obligation to the student. APUS provides an APUS-funded tuition grant to support students who are U.S. 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 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. 115 Disaggregation of Revenue In the following table, revenue, shown net of grants and scholarships, is disaggregated by type of service provided. The table also includes a reconciliation of the disaggregated revenue with the reportable segments (in thousands): Year Ended December 31, 2020 APUS RU HCN Corporate and Other Consolidated Instructional services, net of grants and scholarships $ 283,827 $ — $ 30,346 $ ( 243 ) $ 313,930 Graduation fees 1,336 — — — 1,336 Textbook and other course materials — — 5,197 — 5,197 Other fees 775 — 548 ( 1 ) 1,322 Total Revenue $ 285,938 $ — $ 36,091 $ ( 244 ) $ 321,785 Year Ended December 31, 2021 APUS RU HCN Corporate and Other Consolidated Instructional services, net of grants and scholarships $ 281,689 $ 74,515 $ 38,569 $ ( 183 ) $ 394,590 Graduation fees 1,309 — — — 1,309 Textbook and other course materials — 13,461 6,695 — 20,156 Other fees 702 1,507 539 — 2,748 Total Revenue $ 283,700 $ 89,483 $ 45,803 $ ( 183 ) $ 418,803 Year Ended December 31, 2022 APUS RU HCN Corporate and Other Consolidated Instructional services, net of grants and scholarships $ 283,079 $ 211,253 $ 39,505 $ 20,865 $ 554,702 Graduation fees 1,348 — — — 1,348 Textbook and other course materials — 38,740 6,964 — 45,704 Other fees 701 3,264 609 — 4,574 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 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 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 $ 23.8 116 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 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. 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. 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 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. Due to the short duration of the courses, and the refund policy described above, any uncertainty regarding a student’s withdrawal is resolved in a short time period. Based on measurement and analysis, the Company determined that a significant reversal in the cumulative amount of revenue recognized is not expected. The Company includes this estimate in the transaction price. 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. 117 Note 5. Property and Equipment Property and equipment consisted of the following: As of December 31, Useful Life 2021 2022 (in thousands) Land — $ 8,952 $ 8,798 Building and building improvements 15 - 39 years 51,936 50,589 Leasehold improvements up to 15 years 30,342 37,157 Office equipment 5 years 1,139 1,461 Computer equipment 3 - 5 years 22,509 23,658 Furniture and fixtures 5 - 7 years 15,433 17,924 Other capital assets 5 years 168 168 Software development 3 - 5 years 79,088 74,314 Program development 3 years 11,062 11,631 220,629 225,700 Accumulated depreciation and amortization 118,212 124,808 $ 102,417 $ 100,892 The Company disposed of long-lived assets resulting in a loss of $ 0.9 million, $ 1.3 million, and $ 1.2 million during the years ended December 31, 2020, 2021, and 2022, respectively. The disposals and losses were primarily related to assets no longer in use. 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, 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. Note 6. Goodwill and Intangible Assets 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 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 the 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. 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 118 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. 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): APUS Segment RU Segment HCN Segment Total Goodwill Goodwill as of December 31, 2020 $ — $ — $ 26,563 $ 26,563 Goodwill acquired 217,203 217,203 Impairment — — — — Adjustments ( 280 ) ( 280 ) Goodwill as of December 31, 2021 $ — $ 216,923 $ 26,563 $ 243,486 Goodwill acquired — — — — Impairment — ( 131,400 ) — ( 131,400 ) Adjustments — 507 — 507 Goodwill as of December 31, 2022 $ — $ 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. 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. 119 At the acquisition dates, the useful life assigned to each type of intangible asset with a definite useful life was as follows: Useful Life 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 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 Student roster $ 20,000 $ 3,333 $ — $ 16,667 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 Trade name 28,498 — — 28,498 Accreditation, licensing, and Title IV 26,186 — — 26,186 Affiliation agreements 37 — — 37 Total indefinite-lived intangible assets 54,721 — — 54,721 Total intangible assets $ 94,582 $ 9,500 $ — $ 85,082 120 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 roster $ 20,000 $ 13,333 $ — $ 6,667 Curricula 14,563 6,680 — 7,883 Student and customer contracts and relationships 4,614 4,168 — 446 Lead conversions 1,500 1,000 — 500 Non-compete agreements 86 86 — — Tradename 35 35 — — Accreditation and licensing 28 11 — 17 Total finite-lived intangible assets $ 40,826 $ 25,313 $ — $ 15,513 Indefinite-lived intangible assets Trade name 28,498 — — 28,498 Accreditation, licensing, and Title IV 26,186 — 15,500 10,686 Affiliation agreements 37 — — 37 Total indefinite-lived intangible assets 54,721 — 15,500 39,221 Total intangible assets $ 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 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 2023 12,195 2024 3,318 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. It is not possible at this time to determine if any such future impairment charge would result or whether such charge would be material. Note 7. Leases 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; or • the asset is specialized with no alternative use to the lessor at the end of the term. 121 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. These 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. Lease expense for operating leases is recognized on a straight-line basis over the lease term. There are no variable lease payments. Lease expense for the years ended December 31, 2020, 2021, and 2022 was approximately $ 2.9 million, $ 7.5 million, and $ 19.9 million, respectively. These costs are primarily related to long-term operating leases, but also include amounts for short-term leases with terms greater than 30 days that are not material. Cash paid for amounts included in the present value of operating lease liabilities during the years ended December 31, 2021 and 2022 was $ 7.2 million and $ 19.5 million, respectively, and is included in operating cash flows. 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 ( 27,855 ) ( 9 ) Present value of operating lease liabilities $ 115,598 $ 218 Less: lease liabilities, current ( 14,289 ) ( 107 ) Lease liabilities, long-term $ 101,309 $ 111 122 Balance Sheet Classification Current Operating lease liabilities, current $ 14,289 Finance lease liabilities, current 107 Long-term Operating lease liabilities, long-term 101,309 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 Operating leases 4.2 % Finance leases 3.8 % Note 8. Long-Term Debt 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. The Credit Agreement provides for (i) a senior secured term loan facility in an aggregate original principal amount of $ 175.0 million, or the Term Loan, with a scheduled maturity date of September 1, 2027 and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $ 20.0 million, or the Revolving Credit Facility, and, together with the Term Loan, is referred to as the Facilities, with a scheduled maturity date of September 1, 2026, the full capacity of which may be utilized for the issuance of letters of credit. 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 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. The Interest Coverage Ratio is also defined in the Credit Agreement and reflects a ratio of consolidated EBITDA to consolidated interest expense. 123 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 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”). 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. 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, 2021 2022 Credit agreement $ 172,813 $ 99,063 Deferred financing fees ( 12,292 ) ( 5,912 ) 160,521 93,151 Less: Current portion ( 8,750 ) — $ 151,771 $ 93,151 124 Scheduled maturities of long-term debt at December 31, 2022 are as follows (in thousands): Maturities of Long-Term Debt Loan Payments 2027 99,063 Total $ 99,063 Derivatives and Hedging The Company is subject to interest rate risk as all outstanding borrowings under the Credit Agreement are subject to a variable rate of interest. On September 30, 2021, the Company entered into an interest rate cap agreement to manage its exposure to the variable rate of interest with a total notional value of $ 87.5 million. This interest rate cap agreement, designated as a cash flow hedge, provides the Company with interest rate protection in the event the LIBOR rate exceeds 2.0 %. 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 $ 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. Note 9. Income Taxes The components of income tax expense were as follows (in thousands): Year Ended December 31, 2020 2021 2022 Current income tax expense (benefit): Federal $ 5,685 $ 513 $ 4,293 State 2,146 1,535 2,086 7,831 2,048 6,379 Deferred income tax expense (benefit): Federal ( 608 ) 4,948 ( 36,395 ) State ( 203 ) 515 ( 6,260 ) ( 811 ) 5,463 ( 42,655 ) Income Tax Expense (Benefit) $ 7,020 $ 7,511 $ ( 36,276 ) 125 The tax effects of principal temporary differences are as follows (in thousands): As of December 31, 2021 2022 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 Accrued vacation and severance 768 727 Investment 774 771 Other 716 206 Stock option compensation expense 159 232 Deferred revenue — 36 Net operating loss 3,338 — Total gross deferred tax assets 29,862 70,741 Valuation allowance ( 743 ) ( 547 ) Total net deferred tax assets 29,119 70,194 Deferred tax liabilities Income tax deductible capitalized software development costs ( 2,121 ) ( 1,273 ) Operating lease asset ( 19,442 ) ( 27,026 ) Property and equipment ( 10,110 ) ( 3,622 ) Accounts receivable — ( 1,434 ) Prepaid expenses ( 1,136 ) ( 437 ) Goodwill and intangibles ( 1,302 ) — Other comprehensive income- unrealized gain on interest rate cap ( 67 ) ( 1,047 ) Total deferred tax liabilities ( 34,178 ) ( 34,839 ) 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. 126 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, 2020 2021 2022 Amount % Amount % Amount % Tax expense at statutory rate $ 5,427 21.00 % $ 5,305 21.00 % $ ( 31,778 ) 21.00 % State taxes, net 1,156 4.48 % 1,576 6.24 % ( 4,163 ) 2.75 % Permanent differences 491 1.90 % 678 2.68 % 318 ( 0.21 ) % 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 ) % — — % — — % Uncertain tax position 49 0.19 % — — % — — % Valuation allowance 287 1.11 % 206 0.82 % ( 197 ) 0.13 % Other ( 18 ) ( 0.07 ) % ( 35 ) ( 0.14 ) % 12 ( 0.01 ) % $ 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, 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. Interest and penalties associated with uncertain income tax positions would be classified as income tax expense. The Company has not recorded any material interest or penalties during any of the years presented. The Company is subject to U.S. federal income taxes as well as income tax of multiple state jurisdictions. For U.S. federal and state tax purposes, tax years 2019-2021 remain open to examination. Note 10. Other Employee Benefits 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 Internal Revenue Service limits. The plan provides for Company discretionary profit-sharing contributions at matching percentages. Employees immediately vest 100 % in all salary reduction contributions and employer contributions. 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 ESPP with quarterly enrollment periods. Eligible participants may only enter the plan and establish their withholdings at the start of an enrollment period. Participating employees may withdraw from the plan and end payroll deductions at any time up to five days before the share purchase date and funds will be returned to them. Under the ESPP, participating employees may purchase shares of the Company’s common stock, subject to certain limitations, at 85 % of its fair market value on the last day of the quarterly period. The total value of contributions per participant may not exceed $ 21,000 annually or the value of the common stock purchased per participant cannot exceed $ 25,000 . 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 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. 127 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: Purchase Date Shares Common Stock Fair Value Purchase Price Compensation Expense March 31, 2020 3,922 $ 23.93 $ 20.34 $ 14,078 June 30, 2020 2,737 $ 29.60 $ 25.16 $ 12,152 September 30, 2020 4,015 $ 28.19 $ 23.96 $ 16,977 December 31, 2020 3,550 $ 30.48 $ 25.91 $ 16,231 Total/Weighted Average 14,224 $ 27.86 $ 23.68 $ 59,438 March 31, 2021 3,284 $ 35.63 $ 30.29 $ 17,550 June 30, 2021 3,527 $ 28.34 $ 24.09 $ 14,993 September 30, 2021 5,203 $ 25.61 $ 21.77 $ 19,987 December 31, 2021 5,583 $ 22.25 $ 18.91 $ 18,633 Total/Weighted Average 17,597 $ 26.96 $ 22.92 $ 71,163 March 31, 2022 9,112 $ 21.24 $ 18.05 $ 29,031 June 30, 2022 12,380 $ 16.16 $ 13.74 $ 30,009 September 30, 2022 23,407 $ 9.14 $ 7.77 $ 32,091 December 31, 2022 15,947 $ 12.86 $ 10.93 $ 30,762 Total/Weighted Average 60,846 $ 13.36 $ 11.35 $ 121,893 Note 11. Stockholders’ Equity Stock Incentive Plans The American Public Education, Inc. 2017 Omnibus Incentive Plan, or 2017 Incentive Plan, became effective on May 12, 2017, or the Effective Date. Upon effectiveness of the 2017 Incentive Plan, the Company ceased making awards under the American Public Education, Inc. 2011 Omnibus Incentive Plan, or the 2011 Incentive Plan. The 2017 Incentive Plan allows the Company to grant up to 1,675,000 shares, as well as shares of the Company’s common stock that were available for issuance under the 2011 Incentive Plan as of the Effective Date. In addition, the number of shares of common stock available under the 2017 Incentive Plan was increased from time to time by the number of shares subject to outstanding awards granted under the 2011 Incentive Plan that terminate by expiration, forfeiture, cancellation or otherwise without issuance of such shares following the Effective Date. 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. The 2017 Incentive Plan includes a provision that allows individuals who have reached certain service and retirement eligibility criteria on the date of grant an accelerated service period of one year . The Company recognizes compensation expense for these individuals over the accelerated period. As of December 31, 2022, all shares subject to outstanding awards are under the 2017 Incentive Plan. Restricted Stock and Restricted Stock Unit Awards 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 Company’s 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. To the extent performance goals are not met, compensation cost is not ultimately recognized against the goals and, to the extent previously recognized, compensation cost is reversed. The Company also estimates forfeitures of share-based awards at the time of grant and revises such estimates in subsequent periods if actual forfeitures differ from original estimates. 128 The table below sets forth the restricted stock and restricted stock unit activity for the year ended December 31, 2020: Number of Shares Weighted Average Grant Price and Fair Value Non vested, December 31, 2019 546,940 $ 27.81 Shares granted 396,976 24.94 Vested shares ( 307,937 ) 26.95 Shares forfeited ( 109,179 ) 26.56 Non vested, December 31, 2020 526,800 $ 26.43 The table below sets forth the restricted stock and restricted stock unit activity for the year ended December 31, 2021: Number of Shares Weighted Average Grant Price and Fair Value Non vested, December 31, 2020 526,800 $ 26.43 Shares granted 343,851 29.50 Vested shares ( 268,329 ) 26.66 Shares forfeited ( 95,535 ) 28.78 Non vested, December 31, 2021 506,787 $ 27.68 The table below sets forth the restricted stock and restricted stock unit activity for the year ended December 31, 2022: Number of Shares Weighted Average Grant Price and Fair Value Non vested, December 31, 2021 506,787 $ 27.68 Shares granted 617,830 20.10 Vested shares ( 267,554 ) 27.29 Shares forfeited ( 187,390 ) 24.20 Non vested, December 31, 2022 669,673 $ 22.00 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, 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: 73,808 shares for $ 1,855,784 in 2020, 89,944 shares for $ 2,581,284 in 2021, and 181,801 shares for $ 4,339,191 in 2022. Option Awards The fair value of each option award is estimated at the date of grant using a Black-Scholes option-pricing model. The Company makes assumptions with respect to expected stock price volatility based on the average historical volatility of the Company’s common stock. In addition, the Company determines the risk-free interest rate by selecting the U.S. Treasury constant maturity for the same maturity as the estimated life of the option , quoted on an investment basis in effect at the time of grant for that business day. Estimates of fair value are subjective and are not intended to predict actual future events, and 129 subsequent events are not necessarily indicative of the reasonableness of the original estimates of fair value made under FASB ASC Topic 718. Options currently outstanding vest ratably over a period of three years and expire in ten years from the date of grant. The table below sets forth stock option activity for the year ended December 31, 2020: Number of Options Weighted Average Exercise Price Weighted Average Contractual Life (years) Aggregate Intrinsic Value (in thousands) Outstanding, December 31, 2019 43,134 $ 23.77 9.73 $ 156 Options granted 17,370 33.11 10 $ — Awards exercised — — Options forfeited — — Outstanding, December 31, 2020 60,504 $ 26.45 8.96 $ 264 Exercisable, December 31, 2020 14,378 $ 23.77 8.73 $ 88 The table below sets forth stock option activity for the year ended December 31, 2021: Number of Options Weighted Average Exercise Price Weighted Average Contractual Life (years) Aggregate Intrinsic Value (in thousands) Outstanding, December 31, 2020 60,504 $ 26.45 8.96 $ 264 Options granted 51,230 27.72 10 $ — Awards exercised — — Options forfeited ( 10,214 ) 30.83 Outstanding, December 31, 2021 101,520 $ 26.65 8.39 $ — Exercisable, December 31, 2021 34,547 $ 25.34 7.10 $ — The table below sets forth stock option activity for the year ended December 31, 2022: Number of Options Weighted Average Exercise Price Weighted Average Contractual Life (years) Aggregate Intrinsic Value (in thousands) Outstanding, December 31, 2021 101,520 $ 26.65 8.39 $ — Options granted 56,249 13.90 10 $ — Awards exercised — — Options forfeited ( 24,181 ) 27.99 Outstanding, December 31, 2022 133,588 $ 21.04 8.09 $ 37 Exercisable, December 31, 2022 58,782 $ 25.19 6.59 $ — 130 The following table sets forth the assumptions used in calculating the fair value at the date of grant of each option award granted: Year Ended December 31, 2020 2021 2022 Expected volatility 48.74 % 44.18 % 48.08 % Expected dividends — % — % — % Expected term, in years 10 10 10 Risk-free interest rate 0.68 % 1.35 % 2.95 % Weighted-average fair value of options granted during the year $ 18.99 $ 15.13 $ 8.53 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 For the years ended December 31, 2020, 2021, and 2022, the Company recognized stock-based compensation expense as follows: Year Ended December 31, 2020 2021 2022 (In thousands) Instructional costs and services $ 1,535 $ 1,480 $ 1,254 Selling and promotional 1,007 771 823 General and administrative 4,533 5,403 5,932 Total stock-based compensation expense $ 7,075 $ 7,654 $ 8,009 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. Repurchase 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 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. Subject to market conditions, applicable legal requirements, and other factors, the repurchases may be made from time to time in the open market or in privately negotiated transactions. The authorization does not obligate the Company to acquire any shares, and purchases may be commenced or suspended at any time based on market conditions and other factors the Company deem appropriate. The Company may purchase shares at management’s discretion in the open market, in privately negotiated transactions, in transactions structured through investment banking institutions, or a combination of the foregoing. The Company may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of shares under this authorization. The amount and timing of repurchases are subject to a variety of factors, including liquidity, cash flow, stock price and general business and market conditions. 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 its equity incentive and stock purchase plan. 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 131 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 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. 132 Note 12. Contingencies The Company accrues for costs associated with contingencies including, but not limited to, regulatory compliance and legal matters when such costs are probable and can be reasonably estimated. Liabilities established to provide for contingencies are adjusted as further information develops, circumstances change, or contingencies are resolved. The Company bases these accruals on management’s estimate of such costs, which may vary from the ultimate costs and expenses, associated with any such contingency. From time to time the Company may be involved in legal matters in the normal course of its business. Note 13. Concentration Our students utilize various payment sources and programs to finance their education expenses, including funds from: Department of Defense, or DoD, tuition assistance programs, or TA, education benefit programs administered by the U.S. Department of Veteran’s Affairs, or VA, and federal student aid from Title IV programs, as well as cash and other sources. As of December 31, 2022, approximately 65 % of APUS students self-reported that they served in the military on active-duty at the time of initial enrollment. Active-duty military students generally take fewer courses per year on average than non-military students. A summary of APUS Segment revenue derived from students by primary funding source is as follows: Year Ended December 31, 2020 2021 2022 DoD tuition assistance programs 43 % 45 % 47 % VA education benefits 22 % 21 % 21 % Title IV programs 21 % 20 % 18 % Cash and other sources 14 % 14 % 13 % A summary of RU Segment revenue derived from students by primary funding source is as follows: Year Ended December 31, 2020 2021 2022 Title IV programs 77 % 76 % 74 % Cash and other sources 21 % 22 % 24 % VA education benefits 2 % 2 % 2 % A summary of HCN Segment revenue derived from students by primary funding source is as follows: Year Ended December 31, 2020 2021 2022 Title IV programs 82 % 81 % 80 % Cash and other sources 16 % 17 % 18 % VA education benefits 2 % 2 % 2 % Reductions in or changes to TA, VA education benefits, Title IV programs and other payment sources could have a significant impact on the Company’s operations and financial condition. 133 Note 14. Segment Information 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 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; the RU Segment; and the HCN Segment. 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. In accordance with FASB ASC 280, Segment Reporting , the chief operating decision-maker has been identified as the Company’s Chief Executive Officer. 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. 134 A summary of financial information by reportable segment is as follows (in thousands): Year Ended December 31, 2020 2021 2022 Revenue APUS Segment $ 285,938 $ 283,700 $ 285,128 RU Segment — 89,483 253,257 HCN Segment 36,091 45,803 47,078 Corporate and Other ( 244 ) ( 183 ) 20,865 Total revenue $ 321,785 $ 418,803 $ 606,328 Depreciation and amortization APUS Segment $ 12,323 $ 9,064 $ 6,373 RU Segment — 7,989 24,206 HCN Segment 620 738 958 Corporate and Other 41 41 590 Total depreciation and amortization $ 12,984 $ 17,832 $ 32,127 Income (loss) from operations before interest and income taxes APUS Segment $ 43,438 $ 51,050 $ 58,452 RU Segment — 1,630 ( 166,557 ) HCN Segment 722 1,829 ( 4,011 ) Corporate and Other ( 19,403 ) ( 24,138 ) ( 25,232 ) Total income (loss) from operations before interest and income taxes $ 24,757 $ 30,371 $ ( 137,348 ) Interest income (expense) APUS Segment $ 303 $ 210 $ 219 RU Segment — 132 79 HCN Segment 17 9 23 Corporate and Other 772 ( 4,628 ) ( 18,049 ) Total interest income (expense) $ 1,092 $ ( 4,277 ) $ ( 17,728 ) Income tax expense (benefit) APUS Segment $ 11,127 $ 14,023 $ 16,465 RU Segment — 509 ( 41,651 ) HCN Segment 193 522 ( 1,026 ) Corporate and Other ( 4,300 ) ( 7,543 ) ( 10,064 ) Total income tax expense (benefit) $ 7,020 $ 7,511 $ ( 36,276 ) Capital expenditures APUS Segment $ 4,724 $ 3,902 $ 3,817 RU Segment — 5,987 9,263 HCN Segment 202 1,939 3,134 Corporate and Other — — 175 Total capital Expenditures $ 4,926 $ 11,828 $ 16,389 135 A summary of the Company’s consolidated assets by reportable segment is as follows (in thousands): As of December 31, 2021 2022 Assets APUS Segment $ 126,926 $ 113,551 RU Segment 429,299 300,625 HCN Segment 51,936 59,820 Corporate and Other 117,447 141,060 Total assets $ 725,608 $ 615,056 Note 15. Subsequent Events The Company has reviewed its business activities and has no subsequent events to report. Note 16. Quarterly Financial Summary (unaudited) The following unaudited consolidated interim financial information presented should be read in conjunction with other information included in the Company’s Consolidated Financial Statements. In the opinion of management, the following unaudited consolidated financial information reflects all adjustments necessary for the fair presentation of the results of interim periods. Historical results are not necessarily indicative of the results of operations to be expected for future periods. The following tables set forth selected unaudited quarterly financial information for each of the Company’s last eight quarters: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter (in thousands, except per share data) 2021 Revenue $ 88,541 $ 78,014 $ 98,248 $ 154,000 Income (loss) from operations before income taxes 10,751 1,999 ( 43 ) 13,387 Net income (loss) available to common stockholders 8,107 531 ( 267 ) 9,381 Net income (loss) per common share: Basic $ 0.50 $ 0.03 $ ( 0.01 ) $ 0.50 Diluted $ 0.49 $ 0.03 $ ( 0.01 ) $ 0.50 2022 Revenue $ 154,747 $ 149,608 $ 149,535 $ 152,438 Income (loss) from operations before income taxes 6,378 ( 145,355 ) ( 4,620 ) ( 7,651 ) Net income (loss) available to common stockholders 5,333 ( 110,029 ) ( 3,762 ) ( 6,583 ) Net income (loss) per common share: Basic $ 0.28 $ ( 5.83 ) $ ( 0.20 ) $ ( 0.35 ) Diluted $ 0.28 $ ( 5.82 ) $ ( 0.20 ) $ ( 0.35 ) 136 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.