What changed in this filing

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Item 1. Financial Statements

2023-05-09 compared with 2022-11-08 · 226 added, 297 removed, 428 unchanged (55% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

(In thousands)

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

(In thousands, except share and per share amounts)

As of March 31, 2023 As of December 31, 2022

ASSETS (Unaudited)

15 unchanged sentences

Current liabilities:

Accounts payable and accrued liabilities $ 26,577 $ 24,316

Accounts payable $ 6,797 $ 3,808

Accrued compensation and benefits 16,363 15,010

Accrued liabilities 13,783 13,784

Deferred revenue and student deposits 28,866 23,760

Lease liabilities, current 13,517 14,396

Long-term debt, current 8,750 8,750

Total current liabilities 79,326 70,758

Lease liabilities, long-term 102,726 101,420

Deferred income taxes — 5,059

Long-term debt, net 93,557 93,151

4 unchanged sentences

10,000,000 shares authorized;

no shares issued or outstanding

400 shares issued and outstanding in 2023 and 2022, respectively.

($ 151,905 and $ 155,587 liquidation preference per share, $ 60,762 and $ 62,235 in aggregate, for 2023 and 2022, respectively) (Note 12)

39,691 39,691

Common stock, $ .01 par value;

11 unchanged sentences

(In thousands, except per share amounts)

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

Three Months Ended March 31,

Revenue $ 149,689 $ 154,747

3 unchanged sentences

General and administrative 33,489 29,589

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

Loss on disposals of long-lived assets 1 793

8 unchanged sentences

Net (loss) income $ ( 5,740 ) $ 5,333

Net (loss) income per common share:

Preferred stock dividends 1,457 —

Net (loss) income available to common stockholders $ ( 7,197 ) $ 5,333

Earnings per common share:

Basic $ ( 0.38 ) $ 0.28

7 unchanged sentences

(In thousands)

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

Three Months Ended March 31,

Net (loss) income $ ( 5,740 ) $ 5,333

Other comprehensive (loss) income, net of tax:

Unrealized gain on hedging derivatives, net of taxes 1,195 — 3,029 —

Unrealized (loss) gain on hedging derivatives ( 28 ) 1,761

Tax effect 6 ( 437 )

Unrealized gains (losses) on hedging derivatives, net of taxes ( 22 ) 1,324

Reclassification of (gains) losses to net income ( 602 ) —

Tax effect 149 —

Reclassifications of (gains) losses to net income, net of taxes ( 453 ) —

Total other comprehensive (loss) income ( 475 ) 1,324

Comprehensive (loss) income $ ( 6,215 ) $ 6,657

2 unchanged sentences

Consolidated Statements of Stockholders’ Equity (Unaudited)

(In thousands)

(In thousands, except share amounts)

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

Shares Amount

Preferred Stock Common Stock

Shares Amount Shares Amount

Balance as of December 31, 2021 — $ — 18,709,171 $ 187 $ 286,385 $ 108 $ 128,932 $ 415,612

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

Issuance of common stock under employee benefit plans — — 218,512 3 ( 3 ) — — —

1 unchanged sentence

Stock-based compensation — — — — 2,356 — — 2,356

Other comprehensive gain — — — — — 1,324 — 1,324

Net income — — — — — — 5,333 5,333

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

Balance as of March 31, 2022 — $ — 18,856,352 $ 189 $ 287,295 $ 1,432 $ 134,265 $ 423,181

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

Shares Amount

Preferred Stock Common Stock

Shares Amount Shares Amount

Balance as of December 31, 2022 400 $ 39,691 18,892,791 $ 189 $ 292,854 $ 3,102 $ 13,891 $ 349,727

Preferred Stock dividends — — — — — — ( 1,457 ) ( 1,457 )

Issuance of common stock under employee benefit plans — — 245,638 3 ( 3 ) — — —

1 unchanged sentence

Stock-based compensation — — — — 2,224 — — 2,224

Unrealized gain on hedging derivatives, net of taxes — — — 3,029 — 3,029

Repurchased and retired shares of common stock — — ( 75,000 ) ( 1 ) 1 — ( 371 ) ( 371 )

Other comprehensive loss — — — — — ( 475 ) — ( 475 )

Net loss — — — — — — ( 5,740 ) ( 5,740 )

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

Balance as of March 31, 2023 400 $ 39,691 18,978,406 $ 190 $ 294,082 $ 2,627 $ 6,323 $ 342,913

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

2 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities

7 unchanged sentences

Loss on disposals of long-lived assets 1 793

Impairment of goodwill and intangible assets 144,900 —

Gain on acquisition — ( 4,533 )

5 unchanged sentences

Other assets ( 268 ) 241

Accounts payable and accrued liabilities 1,743 2,573

Accounts payable 2,989 ( 2,492 )

Accrued compensation and benefits 1,353 2,401

Accrued liabilities ( 1 ) 2,492

Deferred revenue and student deposits 5,106 4,175

7 unchanged sentences

Cash paid for repurchase of common stock ( 1,366 ) ( 1,444 )

Cash received from issuance of common stock — 86,205

Preferred stock dividends paid ( 1,455 ) —

Cash paid for principal on borrowings and finance leases ( 28 ) ( 2,216 )

Cash received from borrowings — 175,000

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

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

Net cash used in financing activities ( 2,849 ) ( 3,660 )

Net increase in cash, cash equivalents, and restricted cash 6,703 21,316

8 unchanged sentences

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 Education, Inc., or APEI, which together with its subsidiaries is referred to herein as the “Company,” is a provider of online and campus-based postsecondary education, and career learning through Graduate School USA, 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 23 campuses in 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” included in the Notes to the Consolidated Financial Statements in this Quarterly Report on Form 10-Q, or this Quarterly Report, for more information on this acquisition.

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

RU is institutionally accredited by HLC.

• National Education Seminars, Inc., which is referred to herein as Hondros College of Nursing, or HCN, provides nursing education to students enrolled at six campuses in Ohio, one campus in Indianapolis, Indiana, and one campus in suburban Detroit, Michigan that opened in October 2022, to serve the needs of the nursing and healthcare communities.

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

RU is institutionally accredited by the HLC.

• National Education Seminars, Inc., which is referred to herein as Hondros College of Nursing, or HCN, provides postsecondary nursing education to students enrolled at its eight campuses in three states.

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 in-person and online to the federal workforce through a catalog of over 300 courses specializing in foundational and continuing professional development, as well as leadership training to advance the performance of government agencies through the competency and career advancement of their employees.

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” 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.

• 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.

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 9.

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 9.

Segment Information”.

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

The Company’s subsidiary institutions are licensed or otherwise authorized by state authorities to offer 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.

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

6 unchanged sentences

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.

These adjustments include unallocated corporate activity and eliminations, and the operational activities of GSUSA.

GSUSA operates as a stand-alone subsidiary of APEI, but does not meet the quantitative thresholds to qualify as a reportable segment, and does not have other requisite characteristics as a reportable segment.

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

Please refer to “Note 9.

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

Summary of Significant Accounting Policies

3 unchanged sentences

Business Combinations

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

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

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

4 unchanged sentences

Unaudited Interim Financial Information

The unaudited interim Consolidated Financial Statements do not include all of the information and notes required by GAAP for audited annual financial statement presentations.

The unaudited interim Consolidated Financial Statements do not include all the information and notes required by GAAP for audited annual financial statement presentations.

In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of the Company’s financial position, results of operations, and cash flows.

Operating results for any interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

This Quarterly Report should be read in conjunction with the Consolidated Financial Statements and accompanying notes in its audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, or the Annual Report.

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

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

This Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying notes in its audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, or the Annual Report.

Use of Estimates

10 unchanged sentences

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 September 30, 2022 and December 31, 2021, excluding the restricted certificates of deposit, was $ 1.8 million and $ 2.2 million, respectively.

Total restricted cash as of September 30, 2022 and December 31, 2021 was $ 26.7 million and $ 27.0 million, respectively.

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 March 31, 2023 and December 31, 2022, excluding the restricted certificates of deposit, was $ 2.2 million and $ 2.0 million, respectively.

Total restricted cash as of March 31, 2023 and December 31, 2022 was $ 27.2 million and $ 26.9 million, respectively.

Goodwill and Intangible Assets

1 unchanged sentence

Goodwill is not amortized.

Intangible assets are recorded at their estimated fair value as of the acquisition date and are classified as either indefinite-lived or definite-lived.

Goodwill and indefinite-lived intangible assets are assessed at least annually for impairment or more frequently if circumstances indicate potential impairment.

Definite-lived intangible assets are amortized on a straight-line basis over the estimated useful life of the asset.

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.

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 date and are amortized on a straight-line basis over the estimated useful life of the asset.

The Company reviews its indefinite-lived intangible assets for impairment annually, or more frequently if 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.

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 Company employees and the graded-vesting method for members of the Company’s Board of Directors, or the Board, and is measured using the Company’s closing stock price on the date of the grant.

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, including assumptions with respect to expected stock price volatility and the risk-free interest rate.

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.

1 unchanged sentence

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 Consolidated Financial Statements.

Estimates are subjective and are not intended to predict actual future events, and subsequent events are not indicative of the reasonableness of the original estimates of fair value.

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

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

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.

Stock-based compensation expense for the three months ended March 31, 2023 and 2022 was as follows (in thousands):

Three Months Ended March 31,

Instructional costs and services $ 279 $ 459

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For the years ending December 31, 2023 and 2022, the Management Development and Compensation Committee of the Board approved an annual incentive arrangement for senior management employees.

The aggregate amount of any awards payable is dependent upon the achievement of certain Company financial and operational goals, as well as the satisfaction of individual performance goals.

The aggregate amount of awards payable, if any, is dependent upon the achievement of certain Company financial and operational goals and the satisfaction of individual performance goals.

Given that the awards are generally contingent upon achieving annual objectives, final determination of the current year incentive awards cannot be made until after the results for the year are finalized.

The Company recognizes the estimated fair

value of performance-based restricted stock units by assuming the satisfaction of any performance-based objectives at the “target” level, which is the most probable outcome determined for accounting purposes at the time of grant and multiplying the corresponding number of shares earned based upon such achievement by the closing price of the Company’s stock on the date of grant.

The Company recognizes the estimated fair value of performance-based restricted stock units by assuming the satisfaction of any performance-based objectives at the “target” level, which is the most probable outcome determined for accounting purposes at the time of grant, and multiplying the corresponding number of shares earned based upon such achievement by the closing price of the Company’s stock on the date of grant.

To the extent performance goals are not met, compensation cost is not ultimately recognized against the goals and, to the extent previously recognized, compensation cost is reversed.

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

The Company recognized an aggregate expense associated with the Company’s current year annual incentive-based compensation plans of approximately $ 0.4 million and $ 2.9 million during the three and nine months ended September 30, 2022, respectively, compared to an aggregate expense of approximately $ 0.1 million and $ 2.6 million during the three and nine months ended September 30, 2021, respectively.

The Company recognized an aggregate expense associated with the Company’s current year annual incentive-based compensation plans of approximately $ 2.0 million during the three months ended March 31, 2023, compared to an aggregate expense of approximately $ 1.8 million during the three months ended March 31, 2022.

The Company determines its interim tax provision by applying the estimated income tax rate expected for the full calendar year to income before income taxes for the period adjusted for discrete items.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates, or ASUs, issued by the FASB.

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

All ASUs issued subsequent to the filing of the Annual Report on March 14, 2023 were assessed and determined to be either inapplicable or not expected to have a material impact on the Company’s consolidated financial position and/or results of operations.

Acquisition Activity

Acquisition of Rasmussen University

On the RU Closing Date, the Company completed the Rasmussen Acquisition pursuant to a membership interest purchase agreement dated October 28, 2020, or the Purchase Agreement, acquiring RU for an adjusted aggregate purchase price, subject to post-closing working capital adjustments, and net of cash acquired, of $ 325.5 million in cash.

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 net assets 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 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.

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

During the three months ended March 31, 2022, the Company recorded a $ 0.5 million increase in goodwill recorded in connection with the Rasmussen Acquisition based on the final working capital adjustment.

During the three months ended June 30, 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”.

The following table summarizes the components of the estimated 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 trade name, student roster, and lead conversions identified intangible assets were determined using the income-based approach.

The fair value of the curricula and accreditation, licensing, and Title IV 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

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

During the three months ended June 30, 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 assets, as discussed further in “Note 6.

Goodwill and Intangible Assets”.

Pro Forma Financial Information

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

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

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

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

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

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

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

Revenue $ 143,082 $ 446,984

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

Acquisition of Graduate School USA

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.

On January 1, 2022, or the GSUSA Closing Date, the Company completed the GSUSA Acquisition pursuant to an Asset Purchase Agreement dated August 10, 2021 by and between 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 for the nine months ended September 30, 2022.

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

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 three months ended June 30, 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.

There was no goodwill recorded as a result of the GSUSA Acquisition, but an approximate $ 4.5 million noncash, non-taxable gain on the acquisition was recorded and is included as a separate line item on the Consolidated Statements of Income for the three months ended March 31, 2022.

The preliminary opening balance sheet was subject to adjustment based on a final assessment of the fair value of certain acquired assets and liabilities assumed.

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

The Company completed its assessment of the fair values of certain acquired assets and liabilities assumed during the measurement period, and, as a result, during the second quarter of 2022, the Company recorded a $ 0.7 million decrease in the gain on acquisition for a net gain of $ 3.8 million in connection with the GSUSA Acquisition based on the final working capital adjustment.

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

Purchase Price Allocation (Unaudited) Amount

Purchase Price Allocation Amount

Cash and cash equivalents $ 1,000

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

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

The agreed upon purchase price 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 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 that reflected the fact that GSUSA may need additional capital to fund operating losses.

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

The fair values of the 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 (Unaudited) Useful life Amount

Intangible Assets Useful life Amount

Customer contracts and relationships 2.5 years $ 744

3 unchanged sentences

Pro forma financial information relating to the GSUSA Acquisition is not presented because the GSUSA Acquisition did not represent a significant business acquisition for the Company.

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

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

Disaggregation of Revenue

1 unchanged sentence

The table also includes a reconciliation of the disaggregated revenue with the reportable segments (in thousands):

Three Months Ended September 30, 2022

APUS RU HCN Corporate and Other Consolidated

Instructional services, net of grants and scholarships $ 68,173 $ 50,973 $ 9,619 $ 7,843 $ 136,608

Graduation fees 374 — — — 374

Textbook and other course materials — 9,814 1,631 — 11,445

Other fees 188 761 159 — 1,108

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

Three Months Ended September 30, 2021

APUS RU HCN Corporate and Other Consolidated

Instructional services, net of grants and scholarships $ 65,321 $ 17,838 $ 9,534 $ ( 30 ) $ 92,663

Graduation fees 397 — — — 397

Textbook and other course materials — 3,282 1,556 — 4,838

Other fees 188 12 150 — 350

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

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

APUS RU HCN Corporate and Other Consolidated

4 unchanged sentences

Total Revenue $ 73,978 $ 57,467 $ 13,140 $ 5,104 $ 149,689

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

APUS RU HCN Corporate and Other Consolidated

4 unchanged sentences

Total Revenue $ 73,090 $ 67,099 $ 11,541 $ 3,017 $ 154,747

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 September 30, 2022.

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

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

The elimination of this intersegment revenue is included within Corporate and Other.

Corporate and Other includes tuition and contract training revenue earned by GSUSA and the elimination of intersegment revenue for courses taken by employees of one segment at other segments.

Contract Balances and Performance Obligations

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

The Company recognizes a contract liability, or deferred revenue, when a student begins an online course or term, in the case of APUS, starts a term, in the case of RU and HCN, or begins a long-term program, open enrollment program or government contract, in the case of GSUSA.

Deferred revenue at September 30, 2022 was $ 27.6 million and includes $ 15.8 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $ 11.8 million in consideration received in advance for future courses or terms, or student deposits.

The Company had no contract assets or deferred contract costs as of March 31, 2023 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 March 31, 2023 was $ 28.9 million and included $ 17.1 million in future revenue that had not yet been earned for courses and terms that were in progress, as well as $ 11.8 million in consideration received in advance for future courses or terms, or student deposits.

Deferred revenue at December 31, 2022 was $ 23.8 million and included $ 13.0 million in future revenue that had not yet been earned for courses and terms that were in progress, as well as $ 10.8 million in student deposits.

13 unchanged sentences

Interest charged by HCN on payment plans was immaterial for the periods presented.

The Company’s principal leasing activities include facilities, classified as operating leases, and, as a result of the GSUSA Acquisition, copiers and printers, classified as finance leases.

The Company’s principal leasing activities include leases for facilities, which are classified as operating leases, and, as a result of the GSUSA Acquisition, leases for copiers and printers, 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:

8 unchanged sentences

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 under an operating lease that expires in May 2023.

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, respectively.

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

The HCN Segment leases administrative office space in suburban Columbus, Ohio, and leases eight campuses located in three states under operating leases that expire through June 2032.

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

8 unchanged sentences

There are no variable lease payments.

Lease expense for the three and nine months ended September 30, 2022 was $ 5.0 million and $ 15.1 million, respectively, compared to $ 1.8 million and $ 3.4 million for the three and nine months ended September 30, 2021, respectively.

Lease expense for the three months ended March 31, 2023 and 2022 was $ 5.3 million and $ 5.0 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 three and nine month periods ended September 30, 2022 was $ 4.8 million and $ 14.7 million, respectively, and is included in operating cash flows.

Cash paid for amounts included in the present value of operating lease liabilities during the three and nine months ended September 30, 2021 was $ 1.9 million and $ 3.4 million, respectively, and is included in operating cash flows.

Cash paid for amounts included in the present value of operating lease liabilities during the three month periods ended March 31, 2023 and 2022 was $ 4.9 million and $ 4.8 million, respectively, and is included in operating cash flows.

Finance Leases

1 unchanged sentence

The Company pledged the assets financed to secure the outstanding leases.

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

As of March 31, 2023, the total finance lease liability was $ 0.2 million, with an average interest rate of 3.75 %.

The ROU assets are recorded within Property and equipment, net on the Consolidated Balance Sheets.

Lease amortization expense associated with the Company’s finance leases was approximately $ 0.03 million and $ 0.08 million for the three and nine months ended September 30, 2022, respectively, and is recorded within Depreciation and amortization expense on the Consolidated Statements of Income.

The following tables present information about the amount and timing of cash flows arising from the Company’s finance and operating leases as of September 30, 2022 (dollars in thousands):

Lease amortization expense associated with the Company’s finance leases was approximately $ 0.03 million for both the three months ended March 31, 2023 and 2022, respectively, and is recorded within Depreciation and amortization expense on the Consolidated Statements of Income.

The following tables present information about the amount and timing of cash flows arising from the Company’s operating and finance leases as of March 31, 2023 (dollars in thousands):

Maturity of Lease Liabilities (Unaudited) Operating Leases Finance Leases

25 unchanged sentences

Goodwill and Intangible Assets

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

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

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

In connection with its acquisitions, the Company has 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 non-cash 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.

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.

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.

At March 31, 2023 the Company performed a qualitative analysis for our RU and HCN Segments’ goodwill and indefinite-lived intangible assets.

As part of the analysis, the Company considered all the events and circumstances listed in FASB ASC 350, Intangibles-Goodwill and Other, in addition to other entity-specific factors.

Factors considered include:

RU and HCN’s financial and enrollment performance against internal targets;

economic factors;

RU key leadership changes including the appointment of a new President and appointees to other significant leadership roles;

and the continued favorable growth outlook for nursing education.

In addition, the Company considered the 2022 annual quantitative analysis performed and concluded that the events in the first quarter of 2023 did not have a significant impact on the fair value of our RU Segment.

After completing the qualitative review of goodwill for the RU and HCN Segments for the three months ended March 31, 2023, the Company concluded it was more likely than not that the fair value of the RU and HCN Segments were more than the carrying value and therefore it was not necessary to perform a quantitative impairment test.

The Company determined that there was no impairment of RU or HCN Segment goodwill and indefinite-lived intangible assets during the three months ended March 31, 2023 and 2022.

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.

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.

The following table summarizes the changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2023 (in thousands):

APUS Segment RU Segment HCN Segment Total Goodwill

Goodwill as of December 31, 2022 $ — $ 86,030 $ 26,563 $ 112,593

Goodwill acquired — — — —

Impairment — — — —

Adjustments — — — —

Goodwill as of March 31, 2023 $ — $ 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 include trade name, accreditation, licensing, and Title IV, and affiliate agreements.

The Company later recorded non-cash

impairment charges reducing the carrying value of RU identified intangible assets with an indefinite useful life to $ 35.5 million.

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, respectively, of identified intangible assets with a definite useful life in connection with the acquisitions of RU, HCN and GSUSA.

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

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

There are no indefinite-lived intangible assets in our APUS Segment.

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.

There are no definite-lived intangible assets in our APUS Segment.

During the three months ended March 31, 2023 and 2022, the Company recorded amortization expense related to definite lived intangibles assets of $ 3.9 million and $ 4.0 million, respectively.

The following table represents the balance of the Company’s intangible assets as of March 31, 2023 (in thousands):

Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount

24 unchanged sentences

Non-compete agreements 86 86 — —

Tradename 35 35 — —

Accreditation and licenses 28 11 — 17

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

6 unchanged sentences

Total intangible assets $ 95,547 $ 25,313 $ 15,500 $ 54,734

During the three months ended June 30, 2022, in connection with preparation of the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022, the Company completed a qualitative assessment to determine if an interim goodwill impairment test was necessary.

The Company concluded it was more likely than not the fair value of the Company’s RU Segment was less than its carrying amount as a result of RU’s under performance in the second quarter of 2022 compared to projections at the time of acquisition, along with the decline in market value of the Company and comparable companies.

There were no indicators of impairment at HCN.

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

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

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

During the three months ended June 30, 2022, the Company also evaluated events and circumstances related to the valuation of its intangibles recorded within the RU and HCN Segments to determine if there were indicators of impairment.

This evaluation included consideration of enrollment trends and financial performance, as well as industry and market conditions, and the impact of the COVID-19 pandemic.

These evaluations concluded there were indicators of impairment during the three months ended June 30, 2022 of the RU Segment accreditation, licensing, and Title IV indefinite-lived intangible asset.

The Company determined the fair value of the intangible asset was $ 11.0 million, or $ 13.5 million less than its carrying value.

As a result, the Company recorded a non-cash impairment charge of $ 13.5 million to reduce the carrying value of RU Segment indefinite-lived intangible assets.

In total, the Company recorded non-cash impairment charges of $ 144.9 million during the three months ended June 30, 2022 related to RU Segment goodwill and intangible assets, and the corresponding tax impact of $ 36.0 million.

The Company utilized an independent valuation firm to determine the fair value of RU.

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

discounted cash flow and guideline public company.

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

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

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

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

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

Future changes, including minor changes in revenue, operating income, valuation multiples, discount rates, and other inputs to the valuation process may result in future impairment charges, and those charges could be material.

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

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

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

APUS Segment RU Segment HCN Segment Total Goodwill

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

Determining fair value of goodwill and intangible assets requires judgment and the use of significant estimates and assumptions, including, but not limited to, fluctuations in enrollments, revenue growth rates, operating margins, discount rates, changes in the regulatory environment, and future market conditions.

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

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

It is not possible at this time to determine if any such future impairment charge would result or whether such charge would be material.

Estimates are subjective and are not intended to predict actual future events, and subsequent events are not indicative of the reasonableness of the original estimates of fair value.

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

Net 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 restricted stock and option awards.

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

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

Earnings Per Common Share

Earnings per common share is calculated by dividing net (loss) income available to common stockholders by the weighted average number of shares of common stock outstanding during the period.

Net (loss) income available to common stockholders is net (loss) income adjusted for preferred stock dividends declared.

Diluted earnings per common share is calculated by dividing net (loss) income available to common stockholders by the weighted average number of shares of common stock outstanding, increased by the shares used in the per share calculation by the dilutive effects of restricted stock and option awards.

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

Three Months Ended March 31,

Earnings per common share

Net (loss) income $ ( 5,740 ) $ 5,333

Preferred Stock Dividend 1,457 —

Net (loss) income available to common shareholders $ ( 7,197 ) $ 5,333

Basic weighted average shares outstanding 18,982 18,805

(Loss) earnings per common share $ ( 0.38 ) $ 0.28

Diluted earnings per common share

Net (loss) income available to common shareholders $ ( 7,197 ) $ 5,333

Basic weighted average shares outstanding 18,982 18,805

Effect of dilutive restricted stock and options 90 74

Diluted weighted average shares outstanding 19,072 18,879

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

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

Diluted (loss) earnings per common share $ ( 0.38 ) $ 0.28

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

Three Months Ended March 31,

Antidilutive securities:

3 unchanged sentences

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, Macquarie Capital USA Inc.

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

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 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, which 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 RU Closing Date and is presented net of the debt issuance costs at origination of $ 13.1 million on the Consolidated Balance Sheets.

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

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

There were no borrowings outstanding under the Revolving Credit Facility at September 30, 2022 and December 31, 2021.

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 March 31, 2023 and December 31, 2022, the remaining unamortized deferred financing fees were $ 5.5 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 under the Revolving Credit Facility as of March 31, 2023 and December 31, 2022.

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

As of March 31, 2023, the Facilities borrowing rate was 10.13 %, excluding any offset from the interest rate cap agreement described below.

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

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

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 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 on the Term Loan until payment of the outstanding principal amount at maturity in September 2027.

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.

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

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

Long-Term debt (Unaudited)

As of March 31, 2023, APEI was in compliance with all debt covenants.

For additional information on certain restrictions placed on the Company’s indebtedness pursuant to the terms of the Company’s Series A Senior Preferred stock, please refer to “Note 12.

Preferred Stock” in these Consolidated Financial Statements.

Long-term debt consists of the following as of March 31, 2023 and December 31, 2022 (in thousands):

As of March 31, 2023 As of December 31, 2022

Credit agreement $ 99,063 $ 99,063

3 unchanged sentences

Long-Term Debt $ 93,557 $ 93,151

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

Scheduled maturities of long-term debt at March 31, 2023 are as follows (in thousands):

Maturities of Long-Term Debt (Unaudited) Loan Payments

2022 (remaining) 2,188

Total 166,250

Derivatives and Hedging

1 unchanged sentence

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 three month LIBOR rate exceeds 2.0 %.

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

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.

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

As of March 31, 2023 and December 31, 2022, the fair value of the interest rate cap totaled $ 3.9 million and $ 4.5 million, respectively, and was recorded in Other assets on the Consolidated Balance Sheets.

The unrealized loss of $ 22,000 , net of taxes, is included in accumulated other comprehensive income.

During the three months ended March 31, 2023, the Company reclassified approximately $ 0.6 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.

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

The unrealized gain of $ 3.0 million, net of taxes, is included in accumulated other comprehensive income.

Segment Information

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

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

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.

Post-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 Company expenses.

GSUSA does not meet the quantitative thresholds to qualify as a reportable segment;

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

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

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

The Company has three reportable segments:

the APUS Segment, the RU Segment, and the HCN Segment.

GSUSA does not meet the quantitative thresholds to qualify as a reportable segment, and does not have other requisite characteristics 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, are also included in “Corporate and Other”.

In accordance with FASB ASC 280, Segment Reporting , the chief operating decision-maker has been identified as the Company’s Chief Executive Officer.

1 unchanged sentence

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

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

2022 2021 2022 2021

(Unaudited) (Unaudited)

Three Months Ended March 31,

APUS Segment $ 73,978 $ 73,090

34 unchanged sentences

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

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

As of March 31, 2023 As of December 31, 2022

APUS Segment $ 125,170 $ 113,551

10 unchanged sentences

The Company’s 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 Veterans Affairs, or VA, and federal student aid from Title IV programs;

Department of Defense, or DoD, tuition assistance programs, or TA;

education benefit programs administered by the U.S.

Department of Veterans Affairs, or VA;

federal student aid from Title IV programs;

and cash and other sources.

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

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

2022 2021 2022 2021

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

Three Months Ended March 31,

DoD tuition assistance programs 49 % 48 %

2 unchanged sentences

Cash and other sources 14 % 13 %

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

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

2022 2021 2022 2021

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

Three Months Ended March 31,

Title IV programs 74 % 74 %

1 unchanged sentence

VA education benefits 2 % 2 %

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

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

2022 2021 2022 2021

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

Three Months Ended March 31,

Title IV programs 79 % 79 %

1 unchanged sentence

VA education benefits 1 % 2 %

Subsequent Events

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

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

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

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

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

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

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

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

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

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

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 % for the first dividend period, a quarterly dividend period.

On the 30-month anniversary of issuance, 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 %.

As of March 31, 2023, the dividend rate was 14.88 % based on a three-month dividend period.

Dividend periods will be monthly, every three months or every six months, at the Company’s option, and the Company currently anticipates using a three-month period.

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

If the Company selects a six-month dividend period, an interim dividend payment will be required for each three-month period therein.

During the three-month period ended March 31, 2023, $ 1.5 million of dividends were declared and paid on preferred stock.

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, or the Liquidation Preference, plus any applicable early premium amount noted in the Certificate of Designation and Purchase Agreement.

The Liquidation Preference of $ 60.8 million and $ 62.2 million as of March 31, 2023 and December 31, 2022.

respectively, 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 March 31, 2023 and December 31, 2022, respectively.

The Liquidation Preference includes an early redemption premium amount and a make-whole payment for any redemption of the securities prior to June 30, 2025.

As of March 31, 2023, and December 31, 2022, the make-whole payment included in the Liquidation Preference was $ 17.8 million and $ 19.3 million, respectively.

The make-whole payment included in the Liquidation Preference will be reduced quarterly until June 30, 2025 at which time it will be eliminated.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements