AMERICAN PUBLIC EDUCATION INC 10-Q

Item 1. Financial Statements AMERICAN PUBLIC EDUCATION, INC. Consolidated Balance Sheets (In thousands, except share and per share amounts) As of March 31, 2024 As of December 31, 2023 ASSETS (Unaudited) Current assets: Cash, cash equivalents, and restricted cash (Note 2) $ 153,197 $ 144,342 Accounts receivable, net of allowance of $ 18,744 in 2024 and $ 15,359 in 2023 44,571 50,973 Prepaid expenses 17,110 13,032 Income tax receivable 318 474 Assets held for sale 8,561 8,561 Total current assets 223,757 217,382 Property and equipment, net 89,822 87,503 Operating lease assets, net 97,585 100,023 Deferred income taxes 51,017 51,360 Intangible assets, net 30,282 31,539 Goodwill 59,593 59,593 Other assets, net 6,924 9,986 Total assets $ 558,980 $ 557,386 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 7,338 $ 8,663 Accrued compensation and benefits 16,742 16,711 Accrued liabilities 15,364 11,476 Deferred revenue and student deposits 26,934 23,830 Lease liabilities, current 13,247 13,309 Total current liabilities 79,625 73,989 Lease liabilities, long-term 95,842 96,739 Long-term debt, net 95,040 94,682 Total liabilities 270,507 265,410 Commitments and contingencies (Note 9) Stockholders’ equity: Preferred stock, $ .01 par value; 10,000,000 shares authorized; 400 shares issued and outstanding in 2024 and 2023, respectively. ($ 133,053 and $ 138,132 liquidation preference per share, $ 53,221 and $ 55,253 in aggregate, for 2024 and 2023, respectively) (Note 11) 39,691 39,691 Common stock, $ .01 par value; 100,000,000 shares authorized; 17,571,095 issued and outstanding in 2024; 17,604,371 issued and outstanding in 2023 176 176 Additional paid-in capital 300,137 299,561 Accumulated other comprehensive income 1,350 1,644 Accumulated deficit ( 52,881 ) ( 49,096 ) Total stockholders’ equity 288,473 291,976 Total liabilities and stockholders’ equity $ 558,980 $ 557,386 The accompanying notes are an integral part of these Consolidated Financial Statements. 3 AMERICAN PUBLIC EDUCATION, INC. Consolidated Statements of Income (In thousands, except per share amounts) Three Months Ended March 31, 2024 2023 (Unaudited) Revenue $ 154,432 $ 149,689 Costs and expenses: Instructional costs and services 72,425 73,889 Selling and promotional 32,456 39,924 General and administrative 36,277 33,489 Depreciation and amortization 5,128 7,756 Loss on leases (Note 4) 2,936 — Loss on disposals of long-lived assets 28 1 Total costs and expenses 149,250 155,059 Income (loss) from operations before interest and income taxes 5,182 ( 5,370 ) Interest expense, net ( 126 ) ( 1,779 ) Income (loss) before income taxes 5,056 ( 7,149 ) Income tax expense (benefit) 1,213 ( 1,414 ) Equity investment loss ( 3,327 ) ( 5 ) Net income (loss) 516 $ ( 5,740 ) Preferred stock dividends 1,535 1,457 Net loss available to common stockholders $ ( 1,019 ) $ ( 7,197 ) Loss per common share: Basic $ ( 0.06 ) $ ( 0.38 ) Diluted $ ( 0.06 ) $ ( 0.38 ) Weighted average number of common shares: Basic 17,510 18,982 Diluted 17,811 19,072 The accompanying notes are an integral part of these Consolidated Financial Statements. 4 AMERICAN PUBLIC EDUCATION, INC. Consolidated Statements of Comprehensive Income (Loss) (In thousands) Three Months Ended March 31, 2024 2023 (Unaudited) Net income (loss) $ 516 $ ( 5,740 ) Other comprehensive (loss) income, net of tax: Unrealized gain (loss) on hedging derivatives 396 ( 28 ) Tax effect ( 98 ) 6 Unrealized gain (loss) on hedging derivatives, net of taxes 298 ( 22 ) Reclassification of gains to net income ( 787 ) ( 602 ) Tax effect 195 149 Reclassifications of gains to net income, net of taxes ( 592 ) ( 453 ) Total other comprehensive loss ( 294 ) ( 475 ) Comprehensive income (loss) $ 222 $ ( 6,215 ) The accompanying notes are an integral part of these Consolidated Financial Statements. 5 AMERICAN PUBLIC EDUCATION, INC. Consolidated Statements of Stockholders’ Equity (Unaudited) (In thousands, except share amounts) Additional Paid-in Capital Accumulated Other Comprehensive Income (loss) Accumulated Deficit Total Stockholders’ Equity Preferred Stock Common Stock Shares Amount Shares Amount Balance as of December 31, 2023 400 $ 39,691 17,604,371 $ 176 $ 299,561 $ 1,644 $ ( 49,096 ) $ 291,976 Preferred Stock dividends — — — — — — ( 1,535 ) ( 1,535 ) Issuance of common stock under employee benefit plans — — 331,781 3 ( 3 ) — — — Deemed repurchased shares of common and restricted stock for tax withholding — — ( 113,911 ) ( 1 ) ( 1,339 ) — — ( 1,340 ) Stock-based compensation — — — — 1,918 — — 1,918 Repurchased and retired shares of common stock — — ( 251,146 ) ( 2 ) — — ( 2,766 ) ( 2,768 ) Other comprehensive loss — — — — — ( 294 ) — ( 294 ) Net income — — — — — — 516 516 Balance as of March 31, 2024 400 $ 39,691 17,571,095 $ 176 $ 300,137 $ 1,350 $ ( 52,881 ) $ 288,473 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, 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 ) — — — Deemed repurchased shares of common and restricted stock for tax withholding — — ( 85,023 ) ( 1 ) ( 994 ) — — ( 995 ) Stock-based compensation — — — — 2,224 — — 2,224 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 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. 6 AMERICAN PUBLIC EDUCATION, INC. Consolidated Statements of Cash Flows (In thousands) Three Months Ended March 31, 2024 2023 (Unaudited) Operating activities Net income (loss) $ 516 $ ( 5,740 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 5,128 7,756 Amortization of debt issuance costs 383 431 Stock-based compensation 1,918 2,224 Equity investment loss 3,327 5 Deferred income taxes 343 688 Loss on disposals of long-lived assets 28 1 Changes in operating assets and liabilities: Accounts receivable, net of allowance for bad debt 6,402 5,280 Prepaid expenses ( 4,078 ) ( 6,025 ) Income tax receivable/payable 156 ( 2,318 ) Operating leases, net 1,507 1,277 Other assets ( 584 ) ( 268 ) Accounts payable ( 1,325 ) 2,989 Accrued compensation and benefits 31 1,353 Accrued liabilities 3,888 ( 1 ) Deferred revenue and student deposits 3,104 5,106 Net cash provided by operating activities 20,744 12,758 Investing activities Capital expenditures ( 6,218 ) ( 3,206 ) Net cash used in investing activities ( 6,218 ) ( 3,206 ) Financing activities Cash paid for repurchase of common stock ( 4,108 ) ( 1,366 ) Preferred stock dividends paid ( 1,535 ) ( 1,455 ) Cash paid for principal on borrowings and finance leases ( 28 ) ( 28 ) Net cash used in financing activities ( 5,671 ) ( 2,849 ) Net increase in cash, cash equivalents, and restricted cash 8,855 6,703 Cash, cash equivalents, and restricted cash at beginning of period 144,342 129,458 Cash, cash equivalents, and restricted cash at end of period $ 153,197 $ 136,161 Supplemental disclosure of cash flow information Interest paid $ 2,713 $ 2,511 Income taxes paid $ 618 $ 62 The accompanying notes are an integral part of these Consolidated Financial Statements. 7 AMERICAN PUBLIC EDUCATION, INC. 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 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 21 campuses in six states and online. 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 at 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 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. 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: • 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, 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 with and presented within Corporate and Other. Please refer to “Note 8. Segment Information” for more information on the Company’s reporting segments. Note 2. Summary of Significant Accounting Policies A summary of the Company’s significant accounting policies follows: Basis of Presentation and Accounting The accompanying unaudited, interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. 8 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. Principles of Consolidation The accompanying unaudited interim Consolidated Financial Statements include the accounts of APEI and its wholly owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. Unaudited Interim Consolidated Financial Information 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, 2024. This Quarterly Report on Form 10-Q, or 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 fiscal year ended December 31, 2023, or the Annual Report. 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 $ 24.9 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. Restricted cash on the Consolidated Balance Sheets as of March 31, 2024, and December 31, 2023, excluding the restricted certificate of deposit, was $ 3.0 million and $ 2.7 million, respectively. Total restricted cash as of March 31, 2024, and December 31, 2023, was $ 27.9 million and $ 27.7 million, respectively. 9 Cash and cash equivalents and restricted cash as of March 31, 2024, and December 31, 2023, were as follows (in thousands): As of March 31, 2024 As of December 31, 2023 (Unaudited) Cash, cash equivalents, and restricted cash $ 153,197 $ 144,342 Less: restricted cash ( 27,856 ) ( 27,682 ) Total unrestricted cash $ 125,341 $ 116,660 Assets Held for Sale Assets held for sale represent excess real property located in Charles Town, West Virginia for the Company’s APUS Segment. Long-lived assets are classified as held for sale when the assets are expected to be sold within the next 12 months and meet the other relevant held for sale criteria. As such, the property is recorded at the lower of the carrying value or fair value, less costs to sell, until such time the asset is sold. 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 and the fair value assigned to identifiable intangible assets. 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 in the fourth quarter, or more frequently if events or changes in 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. Indefinite-lived and finite-lived intangible assets acquired in business combinations are recorded at fair value on the acquisition date. Finite-lived intangible assets are amortized on a straight-line basis over the estimated useful life of the asset. The Company reviews its 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, an 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 intangible assets, please refer to “Note 5. Goodwill and Intangible Assets” in these Consolidated Financial Statements. 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 to investments when it can 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 income or loss. Investments that do not meet the equity method requirements are accounted for using the cost method under ASC 321 with changes in the fair value of the investment reported in the Consolidated Statements of Income as equity investment income or loss. The Company periodically evaluates its equity method investment for indicators of an other-than-temporary impairment. Factors the Company considers when evaluating for an other-than-temporary impairment 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 based on 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 10 considered other-than-temporary and recorded in equity investment income or 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 price changes. Factors the Company may consider when evaluating an observable price change may include significant changes in the regulatory, economic or technological environment, changes in general market conditions, 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 and cost method investments. During the first quarter of 2024, the Company evaluated its equity and cost method investments for indicators of impairment and concluded the fair value of a cost method investment was less than its carrying amount. As a result, during the three months ended March 31, 2024, the Company recorded an investment loss of $ 3.3 million on a 2015 cost method investment. This investment loss is included in equity investment loss in the Consolidated Statements of Income and is due to the investee entering into a new convertible debt agreement which resulted in the conversion of the Company’s preferred stock holdings in the investee into common shares, and the dilution of the Company’s ownership percentage. The investment loss recorded reduced the book value of the cost method investment to zero . There were no indicators of impairment during the three months ended March 31, 2023. The Company’s equity method and cost method investments are included in Other assets, net on the accompanying Consolidated Balance Sheets. As of March 31, 2024, the aggregate carrying amount of the Company’s investments accounted for under ASC 323 and ASC 321 was $ 1.1 million and zero , respectively. 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 or lower 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. 11 Stock-based compensation expense for the three months ended March 31, 2024, and 2023 was as follows (in thousands): Three Months Ended March 31, 2024 2023 (Unaudited) Instructional costs and services $ 223 $ 279 Selling and promotional 139 229 General and administrative 1,556 1,716 Total stock-based compensation expense $ 1,918 $ 2,224 Incentive-based Compensation The Company provides incentive-based compensation opportunities to certain employees through cash incentive and equity awards. The expense associated with these awards is reflected within the Company’s operating expenses. For the years ending December 31, 2024, and 2023, the Management Development and Compensation Committee of the Board approved an annual incentive arrangement for senior management employees. 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. 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. During the three months ended March 31, 2024, and 2023, the Company recognized an aggregate expense of $ 1.9 million and $ 2.0 million, respectively. Income Taxes The Company accounts for income taxes in accordance with FASB ASC 740, Accounting for Income Taxes . 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 ASUs issued by the FASB. All ASUs issued subsequent to the filing of the Annual Report on March 5, 2024, 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. 12 Note 3. Revenue 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): Three Months Ended March 31, 2024 (Unaudited) APUS RU HCN Corporate and Other Consolidated Instructional services, net of grants and scholarships $ 79,805 $ 44,677 $ 13,600 $ 4,194 $ 142,276 Graduation fees 660 — — — 660 Textbook and other course materials — 7,911 2,553 — 10,464 Other fees 191 547 294 — 1,032 Total Revenue $ 80,656 $ 53,135 $ 16,447 $ 4,194 $ 154,432 Three Months Ended March 31, 2023 (Unaudited) APUS RU HCN Corporate and Other Consolidated Instructional services, net of grants and scholarships $ 73,422 $ 48,196 $ 10,981 $ 5,104 $ 137,703 Graduation fees 369 — — — 369 Textbook and other course materials — 8,707 1,994 — 10,701 Other fees 187 564 165 — 916 Total Revenue $ 73,978 $ 57,467 $ 13,140 $ 5,104 $ 149,689 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 March 31, 2024, and December 31, 2023. 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, 2024, was $ 26.9 million and included $ 16.5 million in future revenue that had not yet been earned for courses and terms that were in progress, as well as $ 10.5 million in consideration received in advance for future courses or terms, or student deposits. Deferred revenue at December 31, 2023, was $ 23.8 million and included $ 13.8 million in future revenue that had not yet been earned for courses and terms that were in progress, as well as $ 10.0 million in student deposits. Deferred revenue represents the Company’s performance obligation to transfer future instructional services to students. The Company’s remaining performance obligations represent the transaction price allocated to future reporting periods. 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 performing its obligations, a contract receivable is created, resulting in accounts receivable on the Consolidated Balance Sheets. The Company accounts for receivables in accordance with FASB ASC 310, Receivables . The Company uses the portfolio approach, a practical expedient, to evaluate if a contract exists and to assess collectability at the time of contract inception based on historical experience. Contracts are subsequently reviewed for collectability if significant events or circumstances indicate a change. 13 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 graduates or otherwise exits the program. Interest charged by HCN on payment plans was immaterial for the periods presented. Note 4. Leases The Company’s principal leasing activities include leases for facilities, which are classified as operating leases, and leases for copiers and printers, which are 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 that 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. 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 July 2024 and January 2026, respectively. The RU Segment leases administrative office space in suburban Chicago, Illinois, and Minneapolis, Minnesota, and leases 21 campuses located in six states under operating leases that expire through March 2034. 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 December 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 right-of-use, or ROU, assets, which represent the right to use the underlying assets for the lease term. Operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating leases are included in the Operating lease assets, net, and 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 assets include all remaining lease payments and exclude 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 three months ended March 31, 2024, and 2023 was $ 5.2 million and $ 5.3 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 months ended March 31, 2024, and 2023, was $ 4.8 million and $ 4.9 million, respectively, and is included in operating cash flows. In February 2024, the Company elected to terminate its RU Segment lease for a planned Dallas, Texas campus. The Company paid a lease termination fee of $ 2.2 million and recorded a loss of $ 2.1 million as a result of this lease termination. Additionally, in the first quarter of 2024, the Company’s RU Segment began consolidating two Minnesota campuses and recorded a loss of $ 0.8 million on the Minnesota campus lease obligations. Lease losses on lease termination and campus consolidation totaling $ 2.9 million for the three months ended March 31, 2024, are included in Loss on leases in the Consolidated Statements of Income. In conjunction with the lease termination and campus consolidation, the Company reduced Operating lease assets, net, and Lease liabilities, current and long term by $ 5.0 million and $ 4.2 million, respectively. 14 Finance Leases The Company leases copiers and printers that are classified as finance leases that expire in 2027. The Company pledged the assets financed to secure the outstanding leases. As of March 31, 2024, the total finance lease liability was $ 0.6 million, with an average interest rate of 6.60 %. 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 $ 27,000 for both the three months ended March 31, 2024, and 2023, and is recorded in Depreciation and amortization expense in 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, 2024 (dollars in thousands): Maturity of Lease Liabilities (Unaudited) Operating Leases Finance Leases 2024 (remaining) 13,803 244 2025 17,748 212 2026 17,089 212 2027 16,870 35 2028 15,177 — 2029 12,306 — 2030 and beyond 44,404 — Total future minimum lease payments $ 137,397 $ 703 Less: imputed interest ( 28,949 ) ( 62 ) Present value of operating lease liabilities $ 108,448 $ 641 Less: lease liabilities, current ( 12,985 ) ( 262 ) Lease liabilities, long-term $ 95,463 $ 379 Balance Sheet Classification (Unaudited) Current: Operating lease liabilities, current $ 12,985 Finance lease liabilities, current 262 Long-term: Operating lease liabilities, long-term 95,463 Finance lease liabilities, long-term 379 Total lease liabilities $ 109,089 Other Information (Unaudited) Weighted average remaining lease term (in years): Operating leases 8.29 Finance leases 2.63 Weighted average discount rate: Operating leases 4.9 % Finance leases 6.6 % 15 Note 5. Goodwill and Intangible Assets In connection with its acquisitions of RU and HCN, the Company applied FASB ASC 805 and recorded goodwill of $ 217.4 million and $ 38.6 million, 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 for RU and HCN Segment goodwill reducing the carrying value to $ 33.0 million and $ 26.6 million, respectively. There was no goodwill recorded in connection with the acquisition of GSUSA. There is no goodwill recorded in the APUS Segment. 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 Segment indefinite-lived intangible assets to $ 24.5 million. There were no indefinite-lived intangible assets recorded in conjunction with the acquisition of GSUSA. There are no indefinite-lived intangible assets in the 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 the APUS Segment. For the three months ended March 31, 2024, and 2023, the Company recorded amortization expense related to definite-lived intangible assets of $ 1.3 million and $ 3.9 million, respectively. The Company accounts for goodwill and intangible assets with an indefinite life 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 and indefinite-lived intangible assets for impairment, or more frequently if events or changes in circumstances indicate that goodwill and indefinite-lived intangible assets 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 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 three months ended March 31, 2024, the Company performed a qualitative assessment for potential impairment of the RU and HCN Segments’ goodwill and indefinite-lived intangible assets. As part of the assessment, the Company considered the events and circumstances expressly required by ASC 350, in addition to other entity-specific factors. Factors considered included RU and HCN’s financial and enrollment performance against internal targets, economic factors, and the continued favorable growth outlook for nursing education. After completing the qualitative review of goodwill and indefinite-lived intangible assets for the RU and HCN Segments, the Company concluded it was more likely than not that the fair value of the RU and HCN Segments was more than the carrying value, and therefore no quantitative impairment test and no impairment charge was necessary. The Company’s 2023 annual quantitative assessment for impairment concluded that the fair value of RU and HCN Segments exceeded their carrying values by approximately $ 32.4 million, or 25 %, and $ 7.4 million, or 21 %, respectively. The following table summarizes the changes in the carrying amount of goodwill by reportable segment for the three months ended March 31, 2024 (in thousands): APUS Segment RU Segment HCN Segment Total Goodwill (Unaudited) Goodwill as of December 31, 2023 $ — $ 33,030 $ 26,563 $ 59,593 Goodwill acquired — — — — Impairment — — — — Goodwill as of March 31, 2024 $ — $ 33,030 $ 26,563 $ 59,593 The following table represents the balance of the Company’s intangible assets as of March 31, 2024 (in thousands): 16 Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount (Unaudited) Finite-lived intangible assets Student roster $ 20,000 $ 20,000 $ — $ — Curricula 14,563 12,579 — 1,984 Student and customer contracts and relationships 4,614 4,540 — 74 Lead conversions 1,500 1,500 — — Non-compete agreements 86 86 — — Tradename 35 35 — — Accreditation and licenses 28 25 — 3 Total finite-lived intangible assets $ 40,826 $ 38,765 $ — $ 2,061 Indefinite-lived intangible assets Trade name 28,498 — 8,000 20,498 Accreditation, licensing, and Title IV 26,186 — 18,500 7,686 Affiliation agreements 37 — — 37 Total indefinite-lived intangible assets 54,721 — 26,500 28,221 Total intangible assets $ 95,547 $ 38,765 $ 26,500 $ 30,282 The following table represents the balance of the Company’s intangible assets as of December 31, 2023 (in thousands): Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount Finite-lived intangible assets Student roster $ 20,000 $ 20,000 $ — $ — Curricula 14,563 11,400 — 3,163 Student and customer contracts and relationships 4,614 4,465 — 149 Lead conversions 1,500 1,500 — — Non-compete agreements 86 86 — — Tradename 35 35 — — Accreditation and licenses 28 22 — 6 Total finite-lived intangible assets $ 40,826 $ 37,508 $ — $ 3,318 Indefinite-lived intangible assets Trade name 28,498 — 8,000 20,498 Accreditation, licensing, and Title IV 26,186 — 18,500 7,686 Affiliation agreements 37 — — 37 Total indefinite-lived intangible assets 54,721 — 26,500 28,221 Total intangible assets $ 95,547 $ 37,508 $ 26,500 $ 31,539 For additional information on goodwill and intangible assets, see the Consolidated Financial Statements and accompanying notes in the Annual Report. 17 Note 6. Loss Per Common Share Loss per common share is calculated by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Net loss available to common stockholders is net income (loss) adjusted for preferred stock dividends declared. Diluted loss per common share is calculated by dividing net loss 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 loss per common share and the weighted average number of common shares outstanding, on an as if converted basis, used in computing basic and diluted loss per common share (in thousands, expect per share amounts). Three Months Ended March 31, 2024 2023 (Unaudited) Loss per common share Net income (loss) $ 516 $ ( 5,740 ) Preferred Stock Dividend 1,535 1,457 Net loss available to common shareholders $ ( 1,019 ) $ ( 7,197 ) Basic weighted average shares outstanding 17,510 18,982 Loss per common share $ ( 0.06 ) $ ( 0.38 ) Diluted loss per common share Net loss available to common shareholders $ ( 1,019 ) $ ( 7,197 ) Basic weighted average shares outstanding 17,510 18,982 Effect of dilutive restricted stock and options 301 90 Diluted weighted average shares outstanding 17,811 19,072 Diluted loss per common share $ ( 0.06 ) $ ( 0.38 ) The table below reflects a summary of securities that could potentially dilute basic loss per common share in future periods that were not included in the computation of diluted loss per share because the effect would have been antidilutive (in thousands). Three Months Ended March 31, 2024 2023 (Unaudited) Antidilutive securities: Stock options 136 136 Restricted shares 74 666 Total antidilutive securities 210 802 Note 7. Long-Term Debt In connection with the acquisition of RU, 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 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, 2024, and December 31, 2023, 18 the remaining unamortized deferred financing fees were $ 4.0 million and $ 4.4 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, 2024, and December 31, 2023. In June 2023, in connection with the cessation of publication of the London Interbank Offered Rate, or LIBOR, the Credit Agreement was amended to change the applicable floating index rate at which interest on borrowings under the Facilities would accrue from LIBOR to Term Secured Overnight Financing Rate, or Term SOFR (as defined in the Credit Agreement, as amended), a forward-looking term rate. Outstanding borrowings under the Facilities bear interest at a per annum rate equal to Term SOFR (plus a credit spread adjustment ranging from 0.11448 % to 0.42826 % depending on the interest period selected by APEI and subject to a 0.75 % floor after giving effect to such adjustment) 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 March 31, 2024, the Facilities borrowing rate was 10.94 %, 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. Interest expense, including offsets from the interest rate cap agreement, was $ 1.9 million for both the three months ended March 31, 2024, and 2023. 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 2.00 to 1.00. As of March 31, 2024, 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 11. Preferred Stock” in these Consolidated Financial Statements. Long-term debt consists of the following as of March 31, 2024, and December 31, 2023 (in thousands): As of March 31, 2024 As of December 31, 2023 (Unaudited) Credit agreement $ 99,063 $ 99,063 Deferred financing fees ( 4,023 ) ( 4,381 ) Total debt 95,040 94,682 Less: Current portion — — Long-Term Debt $ 95,040 $ 94,682 Scheduled maturities of long-term debt at March 31, 2024, are as follows (in thousands): Maturities of Long-Term Debt (Unaudited) Loan Payments 2027 $ 99,063 Total $ 99,063 19 Derivatives and Hedging The Company is subject to interest rate risk, including because 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, provided the Company with interest rate protection in the event LIBOR exceeded 2.0 %. The interest rate cap was effective October 1, 2021 and was scheduled to expire on January 1, 2025. In connection with cessation of publication of LIBOR, the Company terminated its existing interest rate cap agreement and entered into a new interest rate cap agreement that transitioned the benchmark rate to Term SOFR effective June 30, 2023. The new interest rate cap agreement is structured in a way that there is no change in the value to the Company and provides the Company with interest rate protection in the event that the Term SOFR rate exceeds 1.78 %. The new interest rate cap agreement will expire on December 31, 2024. 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 March 31, 2024, and December 31, 2023, the fair value of the interest rate cap totaled $ 2.2 million and $ 2.6 million, respectively, and was recorded in Other assets, net on the Consolidated Balance Sheets. The unrealized gain of and $ 0.4 million and the unrealized loss of $ 28,000 are included in accumulated other comprehensive income as of March 31, 2024, and 2023. During the three months ended March 31, 2024, and 2023, the Company reclassified $ 0.8 million and $ 0.6 million, respectively, from other comprehensive income to interest expense. The Company estimates that approximately $ 2.2 million will be reclassified from accumulated other comprehensive income into interest expense during the next twelve months. Note 8. Segment Information 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; 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. 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. A summary of financial information by reportable segment is as follows (in thousands): 20 Three Months Ended March 31, 2024 2023 (Unaudited) Revenue: APUS Segment $ 80,656 $ 73,978 RU Segment 53,135 57,467 HCN Segment 16,447 13,140 Corporate and Other 4,194 5,104 Total Revenue $ 154,432 $ 149,689 Depreciation and amortization: APUS Segment $ 1,240 $ 1,400 RU Segment 3,284 5,927 HCN Segment 322 290 Corporate and Other 282 139 Total Depreciation and amortization $ 5,128 $ 7,756 Income (loss) from operations before interest and income taxes: APUS Segment $ 23,087 $ 17,074 RU Segment ( 8,966 ) ( 12,864 ) HCN Segment ( 304 ) ( 1,303 ) Corporate and Other ( 8,635 ) ( 8,277 ) Total income (loss) from operations before interest and income taxes $ 5,182 $ ( 5,370 ) Interest income (expense): APUS Segment $ 412 $ 160 RU Segment — 1 HCN Segment 25 19 Corporate and Other ( 563 ) ( 1,959 ) Total Interest expense, net $ ( 126 ) $ ( 1,779 ) Income tax expense (benefit): APUS Segment $ 7,481 $ 5,513 RU Segment ( 2,731 ) ( 3,954 ) HCN Segment ( 71 ) ( 345 ) Corporate and Other ( 3,466 ) ( 2,628 ) Total Income tax expense (benefit) $ 1,213 $ ( 1,414 ) Capital expenditures: APUS Segment $ 601 $ 300 RU Segment 2,747 2,006 HCN Segment 2,222 827 Corporate and Other 648 73 Total Capital Expenditures $ 6,218 $ 3,206 A summary of the Company’s consolidated assets by reportable segment is as follows (in thousands): 21 As of March 31, 2024 As of December 31, 2023 (Unaudited) Assets: APUS Segment $ 116,288 $ 108,749 RU Segment 219,526 220,901 HCN Segment 62,230 60,270 Corporate and Other 160,936 167,466 Total Assets $ 558,980 $ 557,386 Note 9. Commitments and 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 is involved in legal matters in the normal course of its business. Note 10. Concentration The Company’s students utilize various payment sources and programs to finance their education expenses, including funds from: the U.S. 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: Three Months Ended March 31, (Unaudited) 2024 2023 DoD tuition assistance programs 48 % 49 % VA education benefits 23 % 21 % Title IV programs 16 % 16 % Cash and other sources 13 % 14 % A summary of RU Segment revenue derived from students by primary funding source is as follows: Three Months Ended March 31, (Unaudited) 2024 2023 Title IV programs 75 % 74 % Cash and other sources 23 % 24 % VA education benefits 2 % 2 % A summary of HCN Segment revenue derived from students by primary funding source is as follows: Three Months Ended March 31, (Unaudited) 2024 2023 Title IV programs 83 % 79 % Cash and other sources 16 % 20 % VA education benefits 1 % 1 % Note 11. 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 an annual rate that is equal to SOFR (selected by the Company for each divided period), plus 10.00 %. 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 6.00 % 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, 2024, the dividend rate was 15.31 % 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 months ended March 31, 2024, $ 1.5 million of dividends were declared and paid on the Series A Senior 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 Series A Senior 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 $ 53.2 million and $ 55.3 million as of March 31, 2024, and December 31, 2023, 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. 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, 2024, and December 31, 2023, the make-whole payment included in the Liquidation Preference was $ 10.2 million and $ 12.3 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 trigger an increase of the dividend rate spread of 6.00 % and an early premium amount, as defined in the Certificate of Designation. The following table lists the components of the liquidation preference for the periods presented below (in thousands): As of March 31, 2024 As of December 31, 2023 (Unaudited) Series A Senior Preferred Stock (plus accrued and unpaid dividends) $ 40,071 $ 40,072 Make whole payment 10,235 12,266 Early redemption premium 2,915 2,915 Liquidation Preference $ 53,221 $ 55,253 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. 22