What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-07 · 276 added, 134 removed, 216 unchanged (65% of the section changed)

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• our maintenance and expansion of our relationships and partnerships and the development of new relationships and partnerships;

• actions by the Department of Defense, or DoD, or branches of the United States Armed Forces, including actions related to the disruption and suspension of DoD tuition assistance, or TA, programs and ArmyIgnitED, and expectations regarding the effects of those actions;

• actions by the Department of Defense, or DoD, or branches of the United States Armed Forces, including actions related to the disruption and suspension of DoD tuition assistance, or TA, programs and ArmyIgnitED, our responses to those actions, and expectations regarding the effects of those actions and responses;

• federal appropriations and other budgetary matters, including government shutdowns;

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• the competitive environment in which we operate;

• our ability to recognize the benefits of our cost savings efforts and their benefits;

• our ability to recognize the intended benefits of our cost savings and revenue-generating efforts;

• challenges related to insourcing and outsourcing information technology services to our operations and third-party vendors, respectively;

• our ability to manage and influence our bad debt expense;

• the expected impact on our students and our business from campus closures and consolidations;

• our financial performance generally;

• our expectations and estimates regarding tax and accounting matters.

Forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance, taking into account information currently available to us and are not guarantees of future results.

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American Military University, or AMU, and American Public University, or APU.

As of March 31, 2024, approximately 66% of APUS students self-reported that they served in the military on active duty at the time of initial enrollment.

As of June 30, 2024, approximately 66% of APUS students self-reported that they served in the military on active duty at the time of initial enrollment.

• Rasmussen College, LLC, referred to herein as Rasmussen University, or RU, provides nursing- and health sciences-focused postsecondary education to approximately 13,600 students at 20 campuses in six states and online.

As of March 31, 2024, on-ground enrollment was 6,300, of which approximately 5,500 students were pursuing nursing

degrees at RU, approximately 90% of whom were enrolled in RU’s pre-licensure nursing degree programs.

At March 31, 2024, online enrollment was approximately 7,200 students.

As of June 30, 2024, on-ground enrollment was 6,200, of which approximately 5,500 students were pursuing nursing degrees at RU, approximately 90% of whom were enrolled in RU’s pre-licensure nursing degree programs.

At June 30, 2024, online enrollment was approximately 7,400 students.

• National Education Seminars, Inc., referred to herein as Hondros College of Nursing, or HCN, provides nursing education to approximately 3,300 students at eight campuses in three states.

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Even after these tuition and fee increases, we believe that APUS’s tuition and fees remain lower than the average in-state cost at public universities.

RU implemented modest tuition increases effective in the first quarter of 2023 and 2024 for select programs, and HCN implemented a 5% increase in tuition and fees effective in the second quarter of 2023 across all programs.

At RU and HCN, the tuition increases are intended to reflect adjustments to be consistent with the local campus markets.

RU implemented modest tuition increases effective in the first quarter of 2023 and 2024 for select programs and plans to implement modest increases for new students in August 2024 and returning students in October 2024.

HCN implemented a 5% increase in tuition and fees effective in the second quarter of 2023 across all programs.

The tuition and fee increases at RU and HCN are intended to reflect adjustments to be consistent with the local campus markets.

Even inclusive of these increases, RU and HCN’s tuition and fees are designed to be affordable and competitive when compared to the tuition and fees at similar institutions offering the same level of flexibility, accessibility, and student experience.

Campus Closures

During the six months ended June 30, 2024, our RU Segment consolidated two Minnesota campuses, and in May 2024, RU notified the Wisconsin Educational Approval Program, or EAP, that it intends to voluntarily close its two Wisconsin campuses, effective December 31, 2025, and 2026, respectively.

All students enrolled at the two Wisconsin campuses have expected graduation dates on or before the applicable campus closing date.

These actions are expected to directly impact approximately 90 students, or less than 1% of RU’s current total enrollment.

Regulatory and Legislative Activity

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A team of Higher Learning Commission, or HLC, peer reviewers conducted a focused visit at APUS in March 2024, after HLC raised concerns regarding compliance with standards related to program development oversight and program assessment processes as a result of course availability in one program.

The results of the focused visit will be sent to the HLCs Institutional Action Council, or IAC, for review and action.

The next meeting of the IAC is scheduled for June 2024, at which time the focused visit results may or may not be on the agenda.

Following the focused visit, the team found that the concerns were appropriately addressed, and no additional monitoring is required.

Their recommendations were sent to the HLCs Institutional Action Council, or IAC, for review and action.

At the June 2024 meeting, the IAC concurred with the team’s findings and affirmed that APUS addressed all concerns regarding compliance with HLC standards.

In July 2024, ED notified APUS that it had approved APUS’s continued participation in the Title IV programs under a Provisional Program Participation Agreement, or PPPA, that is effective July 15, 2024, and expires June 30, 2026.

ED granted approval on a provisional basis because APUS is subject to an open program review at the time of recertification.

The PPPA imposes new reporting requirements on APUS related to accrediting agency actions, governmental actions, and class actions.

Additionally, APEI co-signed the PPPA pursuant to new regulations effective July 1, 2024, which require an entity with a direct or indirect ownership interest and the power to exercise control over the institution to co-sign the PPPA and assume joint and several liability for the participating institution’s Title IV liabilities.

Rasmussen University

In March 2024, the Florida Board of Nursing, or FBN, placed RU’s ADN programs at its Tampa/Brandon, and Ocala, Florida, campuses, along with the Ocala campus satellite program at North Orlando, Florida, on probationary status due to two consecutive years of NCLEX pass rates not meeting the state standard.

In March 2024, the Florida Board of Nursing, or FBN, placed RU’s Associate Degree in Nursing, or ADN, programs at its Tampa/Brandon, and Ocala, Florida, campuses, along with the Ocala campus satellite program at North Orlando, Florida, on probationary status due to two consecutive years of NCLEX pass rates not meeting the state standard.

If a program’s pass rate continues to not satisfy the required standard in any of the two years following the program’s placement on probationary status, but the program shows adequate progress toward the required pass rate, FBN may allow the program to continue on probation for one additional year.

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If the program fails to show adequate progress toward the required pass rate, FBN may choose to disapprove the program.

As of March 31, 2024, enrollment in these Florida programs represents approximately 10% of RU’s current total enrollment.

At its May 2024 meeting, the Florida Commission on Independent Education, or FCIE, reviewed RU for a substantive change due to financial stability concerns and the Fort Myers, Ocala and Tampa, Florida ADN programs being placed on probation by FBN.

FCIE subsequently placed RU on a provisional license, which will run through November 30, 2024.

To fulfil a condition of licensure, RU submitted an interim report on its financial condition and NCLEX pass rates for the Fort Myers, Ocala and Tampa, Florida ADN programs to FCIE in July 2024.

RU’s annual renewal will be reviewed by FCIE in November 2024.

Failure to improve financial stability and NCLEX pass rates by that time could lead to further adverse action by FCIE, which could have an adverse impact on RU’s ability to enroll students and to continue offering ADN programs in Florida.

In September 2022, ACEN granted RU’s ADN and PN programs in Moorhead, Minnesota and RU’s ADN program in Overland Park, Kansas continued accreditation with conditions, in each case because the program experienced first-time NCLEX pass rates below ACEN’s required threshold.

For the two Moorhead, Minnesota programs, ACEN also identified evidence of noncompliance with respect to analysis and use of assessment data in program decision-making.

The ADN programs have two years, and the PN program has 18 months, from the date the conditions were imposed, to demonstrate compliance with all criteria related to the standard for which the programs were found to be in noncompliance, though ACEN does not necessarily have to take action on any particular timetable.

If compliance is not achieved by the end of the monitoring period, ACEN may deny continuing accreditation absent good cause.

In April 2024, ACEN removed the conditions, granting Continuing Accreditation with the next evaluation in Spring 2030, after review of the follow-up report for RU’s Moorhead, Minnesota PN program.

In July 2024, RU’s Moorhead, MN ADN program and the Overland Park, KS ADN program submitted to ACEN their follow-up reports and applications for continuing accreditation for good cause.

If ACEN determines areas of non-compliance remain in the program, ACEN could withdraw either ADN program’s accreditation or grant it continuing accreditation for good cause.

RU’s Moorhead, Minnesota PN program is currently approved with the MBN, but first-time NCLEX pass rates have been below the standard for three consecutive years.

On August 1, 2024, MBN placed RU’s Moorhead, Minnesota PN program on conditional approval status and issued a corrective action order.

Gainful Employment

Pursuant to new gainful employment, or GE, regulations, that will take effect July 1, 2024, ED will determine the Title IV eligibility of GE programs based in part on satisfaction of specified performance levels of two new measures, as discussed in more detail in our Annual Report.

Institutions will generally be required to report certain information used to calculate these measures to ED by July 31 of each year.

However, on March 29, 2024, ED announced that the reporting deadline for 2024 had been extended from July 31, 2024, to October 1, 2024.

Pursuant to new gainful employment, or GE, regulations that took effect July 1, 2024, ED will determine the Title IV eligibility of GE programs based in part on satisfaction of specified performance levels of two new measures, as discussed in more detail in our Annual Report.

Institutions will generally be required to report certain information used to calculate these measures to ED by July 31 of each year, provided that for 2024, ED announced that the reporting deadline was October 1, 2024.

Other Recent Legislative and Regulatory Activity

On July 17, 2024, ED proposed regulations related to, among other matters, distance education and Return to Title IV, or R2T4, rules.

Proposed changes related to distance education include additional reporting requirements for programs offered entirely through distance education and students’ distance education status, in part to allow students to obtain closed school loan discharges when an institution ends a program offered in-person or online.

Proposed changes related to R2T4 rules, which govern an institution’s obligations to return Title IV funds to ED when a student withdraws, would require an institution to take

attendance, for purposes of the R2T4 calculation, for each course offered entirely through distance education.

Under the Higher Education Act of 1965, as amended, the earliest any final regulations would be effective is July 1, 2025.

Reportable Segments

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Summary of Results

Consolidated revenue for the three months ended March 31, 2024, increased to $154.4 million from $149.7 million, or by 3.2%, compared to the prior year period.

Our net income for the three months ended March 31, 2024, was $0.5 million, compared to a net loss of $5.7 million in the prior year period, an increase of $6.3 million.

The results for the three months ended March 31, 2024, include a non-cash impairment loss on investments of $3.3 million in Corporate and Other on one of our cost method equity investments, 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, a $2.9 million pre-tax loss on leases in our RU Segment, and $1.9 million in information technology transition service costs.

The results in the prior year period include $2.4 million in transition service fees related to the termination of a marketing contract.

Our operating margins improved to 3.4% for the three months ended March 31, 2024, compared to negative 3.7%, in the prior year period.

APUS net course registrations for the three months ended March 31, 2024, increased to approximately 99,000 from approximately 96,300, an increase of 2,700, or 2.8%, compared to the prior year period.

APUS Segment revenue for the three months ended March 31, 2024, increased to $80.7 million from $74.0 million, or by 9.0%, compared to the prior year period.

The revenue increase for the period was greater than the increase in net course registrations due to the tuition and fee increases in the second and third quarters of 2023.

For the three months ended March 31, 2024, APUS Segment operating margins increased to 28.6% from 23.1% in the prior year period.

RU total enrollment for the three months ended March 31, 2024, decreased to approximately 13,500 from approximately 14,300, a decrease of 800, or 5.6%, compared to the prior year period.

RU Segment revenue for the three months ended March 31, 2024, decreased to $53.1 million from $57.5 million, or by 7.5%, compared to the prior year period.

The revenue decrease was greater than the enrollment decrease due to a change in student mix to more online students that have lower revenue per enrollment.

For the three months ended March 31, 2024, RU Segment operating margins improved to negative 16.9% from negative 22.4% in the prior year period.

HCN total enrollment for the three months ended March 31, 2024, increased to approximately 3,300 from approximately 2,700, an increase of 600, or 20.5%, compared to the prior year period.

HCN Segment revenue for the three months ended March 31, 2024, increased to $16.4 million from $13.1 million, or by 25.2%, compared to the prior year period.

The revenue increase was greater than the enrollment increase due to tuition increases in the second quarter of 2023.

For the three months ended March 31, 2024, HCN Segment operating margins improved to negative 1.8% from negative 9.9% in the prior year period.

Consolidated revenue for the three months ended June 30, 2024, increased to $152.9 million from $147.2 million, or by 3.9%, as compared to the prior year period.

Our net income for the three months ended June 30, 2024, was $0.4 million, compared to a net loss of $51.2 million in the prior year period, an increase of $51.6 million.

The results for the three months ended June 30, 2024, include a $1.1 million non-cash loss on sale of an equity investment in Corporate and Other, a $0.8 million pre-tax loss on leases in our RU Segment, $0.5 million in severance costs related to the former president of GSUSA in Corporate and Other, and the planned closure of the Wisconsin campuses in our RU Segment, and $0.2 million in information technology transition service costs in our APUS and HCN Segments as well as Corporate and Other.

Our operating margin improved to 1.5% for the three months ended June 30, 2024, compared to negative 44.3% in the prior year period.

Excluding the loss on leases, severance costs and information technology transition service costs in 2024, and the non-cash impairment charge on goodwill and intangible assets in 2023, our operating margin was 2.4% for the three months ended June 30, 2024, compared to negative 0.9% for the three months ended June 30, 2023.

Consolidated revenue for the six months ended June 30, 2024, increased to $307.3 million from $296.9 million, or by 3.5%, as compared to the prior year period.

Our net income for the six months ended June 30, 2024, was $0.9 million, compared to a net loss of $57.0 million in the prior year period, an increase of $57.9 million.

The results for the six months ended June 30, 2024, include non-cash losses on investments of $4.4 million in Corporate and Other, a $3.7 million pre-tax loss on leases in our RU Segment, $2.0 million in information technology transition service costs in our APUS and HCN Segments as well as Corporate and Other, and $0.5 million in severance costs related to the former president of GSUSA in Corporate and Other, and the planned closure of the Wisconsin campuses in our RU Segment.

The results in the prior year period include a non-cash impairment charge of $64.0 million in our RU Segment to reduce the carrying value of RU Segment goodwill and intangible assets and reflect the corresponding tax impact and $2.4 million in transition service fees related to the termination of the Collegis LLC, or Collegis, marketing contract in our RU Segment.

Our operating margin improved to 2.4% for the six months ended June 30, 2024, compared to negative 23.8%, in the prior year period.

Excluding the loss on leases, information technology transition service costs and severance costs in 2024, and the non-cash impairment charge on goodwill and intangible assets and marketing transition services fees in 2023, our operating margin was 4.4 % for the six months ended June 30, 2024, compared to negative 1.4% for the six months ended June 30, 2023.

APUS net course registrations for the three months ended June 30, 2024, increased to approximately 89,800 from approximately 88,300, an increase of 1,500, or 1.7%, as compared to the prior year period.

APUS Segment revenue for the three months ended June 30, 2024, increased to $77.0 million from $73.6 million, or by 4.7%, as compared to the prior year period.

The revenue increase for the period was greater than the increase in net course registrations due to the tuition and fee increases in the second and third quarters of 2023 and the second quarter of 2024, and the timing of course starts within the respective periods.

APUS net course registrations for the six months ended June 30, 2024, increased to approximately 188,800 from approximately 184,500, an increase of 4,300, or 2.3%, as compared to the prior year period.

APUS Segment revenue for the six months ended June 30, 2024, increased to $157.7 million from $147.5 million, or by 6.9%, as compared to the prior year period.

The revenue increase for the period was greater than the increase in net course registrations due to the tuition and fee increases in 2023 and 2024 and the timing of course starts within the respective periods.

APUS Segment operating margin decreased to 23.7% for the three months ended June 30, 2024, from 25.8% in the prior year period and increased to 26.2% from 24.4% for the six months ended June 30, 2024, as compared to the prior year period.

RU total enrollment for the three months ended June 30, 2024, decreased to approximately 13,600 from approximately 13,900, a decrease of 300, or 2.2%, as compared to the prior year period.

RU Segment revenue for the three months ended June 30, 2024, increased to $53.0 million from $52.0 million, or by 2.0%, as compared to the prior year period.

The revenue increase, when compared to the first quarter total enrollment decrease, was primarily due to a tuition increase in the first quarter of 2024.

RU total enrollment for the six months ended June 30, 2024, decreased approximately 3.9%, as compared to the prior year period.

RU Segment revenue for the six months ended June 30, 2024, decreased to $106.2 million from $109.4 million, or by 3.0%, as compared to the prior year period.

Excluding the impact of the non-cash impairment charge in the prior year period, RU Segment operating margin improved to negative 16.6% from negative 25.5% for the three months ended June 30, 2024, and improved to negative 16.8% from negative 23.9% for the six months ended June 30, 2024, as compared to the prior year period.

HCN total enrollment for the three months ended June 30, 2024, increased to approximately 3,300 from approximately 3,000, an increase of 300, or 9.4%, as compared to the prior year period.

HCN Segment revenue for the three months ended June 30, 2024, increased to $16.4 million from $14.3 million, or by 15.0%, as compared to the prior year period.

The revenue increase was greater than the enrollment increase due to a 5% tuition increase across all programs implemented in the second quarter of 2023.

HCN total enrollment for the six months ended June 30, 2024, increased approximately 14.7%, as compared to the prior year period, primarily due to enrollment growth at the Detroit, Michigan campus.

HCN Segment revenue for the six months ended June 30, 2024, increased to $32.9 million from $27.4 million, or by 19.9%, as compared to the prior year period.

The revenue increase was greater than the enrollment increase due to the tuition increase in the second quarter of 2023.

HCN Segment operating margin decreased to negative 4.5% from negative 1.6% for the three months ended June 30, 2024, and improved to negative 3.2% from negative 5.6% for the six months ended June 30, 2024, as compared to the prior year period.

Critical Accounting Policies and Use of Estimates

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In connection with our acquisitions of RU and HCN, we recorded $217.4 million and $38.6 million of goodwill, respectively, in our RU and HCN Segments.

The Company later recorded non-cash impairment charges reducing the carrying value of RU and HCN Segment goodwill to $ 33.0 million and $ 26.6 million, respectively.

We later recorded non-cash impairment charges reducing the carrying value of RU and HCN Segment goodwill to $ 33.0 million and $ 26.6 million, respectively.

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

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In addition to goodwill, in connection with the acquisitions of RU and HCN, we recorded identified intangible assets with an indefinite useful life in the aggregate amount of $51.0 million and $3.7 million, respectively, in our RU and HCN Segments, which include intangible assets related to trade name, accreditation, licensing, and Title IV, and affiliate agreements.

The Company later recorded non-cash impairment charges reducing the carrying value of RU indefinite-lived identified intangible assets to $ 24.5 million.

We later recorded non-cash impairment charges reducing the carrying value of RU indefinite-lived identified intangible assets to $ 24.5 million.

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

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We incorporate the use of projected financial information and a discount rate that are developed using market participant-based assumptions.

The cash-flow projections are based on three-year financial forecasts developed by management that include revenue projections, capital spending trends, and investment in working capital to support anticipated revenue growth, which are updated at least annually and approved by management.

are updated at least annually and approved by management.

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

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Our methodology for determining fair values remained consistent for the periods presented.

At October 31, 2023, we completed our annual assessment of goodwill and indefinite-lived intangibles for our RU and HCN Segments.

The annual assessment concluded that the fair value of our RU and HCN Segments exceeded their carrying values by approximately $32.4 million, or 25%, and $7.4 million, or 21%, respectively.

Significant assumptions in the RU Segment forecast used in the discounted cash flow valuation model include the recovery in RU enrollment and the impact of cost containment measures.

Significant assumptions in the HCN Segment forecast used in the discounted cash flow valuation model include the addition of a medical assistant program in all Ohio campuses, a future campus opening and future tuition increases.

These assumptions could be negatively affected by any of the following including, but not limited to, changes in our regulatory environment, declines in student enrollment, adverse actions by state boards of nursing including enrollment caps, and increases in our expenses not in our plan.

In addition, the annual assessment determined the fair value of RU and HCN Segment indefinite-lived intangible assets were greater than their carrying value, and therefore, no impairment charge was recorded.

During the three months ended March 31, 2024, and 2023, we completed a qualitative assessment of 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 this qualitative assessment, we concluded it was more likely than not that the fair value of the RU and HCN Segments were greater than the carrying values, and therefore no quantitative impairment test and no impairment charge was necessary.

During the three months ended June 30, 2024, we completed a qualitative assessment of RU and HCN Segment goodwill and indefinite-lived intangible assets.

As part of the assessment, we 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 this qualitative assessment, we concluded it was more likely than not that the fair value of each of the RU and HCN Segments was greater than the respective carrying value, and therefore no quantitative impairment test and no impairment charge was necessary.

During the three months ended June 30, 2023, we completed a qualitative assessment of RU and HCN Segment goodwill to determine if an interim goodwill impairment testing was necessary.

This evaluation included consideration of enrollment trends and financial performance, as well as industry and market conditions.

We concluded it was more likely than not that the fair value of the RU Segment was less than its carrying amount resulting from RU’s underperformance when compared to 2023 internal targets, projected enrollment trends, the decline in financial performance projected for the remainder of 2023, as compared to prior projections, and our market value.

There were no indicators of impairment at HCN.

As a result, we completed a quantitative impairment test related to the valuation of RU Segment goodwill during the second quarter of 2023.

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

As a result, we recorded a non-cash impairment charge of $53.0 million and the corresponding tax impact of $15.8 million to reduce the carrying value of RU Segment goodwill to $33.0 million during the three months ended June 30, 2023.

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

We also evaluated events and circumstances related to the valuation of intangible assets recorded within our RU and HCN Segments to determine if there were indicators of impairment.

We concluded there were indicators of impairment during the three months ended June 30, 2023, of the RU Segment intangible assets.

There were no indicators of impairment at HCN.

As a result, we recorded a non-cash impairment charge of $11.0 million to reduce the carrying values of the RU Segment trade name and RU Segment accreditation, licensing and Title IV indefinite-lived intangible assets during the second quarter of 2023 to $18.5 million and $6.0 million, respectively.

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

Significant assumptions inherent to valuation methodologies for goodwill include, but are not limited to, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in the higher education market.

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Results of Operations

Below we have included a discussion of our operating results and material changes in our operating results during the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

Below we have included a discussion of our operating results and material changes in our operating results during the three and six months ended June 30, 2024, compared to the three and six months ended June 30, 2023.

Our revenue and operating results normally fluctuate as a result of seasonal or other variations in our enrollments and the level of expenses in our reportable segments.

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We expect quarterly fluctuations in operating results to continue as a result of various enrollment patterns and changes in revenue and expenses.

APUS net course registrations for the three months ended March 31, 2024, increased to approximately 99,000 from approximately 96,300, an increase of 2,700, or 2.8%, compared to the prior year period.

The increase in net course registrations during the three months ended March 31, 2024, was primarily due to an increase in registrations by military students utilizing TA and military-affiliated students utilizing VA.

APUS Segment operating margins increased to 28.6% for the three months ended March 31, 2024, from 23.1% in the prior year period.

The increase in the operating margin was primarily due to increases in revenue during the three months ended March 31, 2024, and decreases in advertising costs and payment processing fees, partially offset by increases in employee compensation costs, information technology transition service costs, and bad debt expense as compared to the prior year period.

RU total enrollment for the three months ended March 31, 2024, was 13,500 compared to 14,300 for the three months ended March 31, 2023, a decrease of 800, or 5.6%, driven by a 11.3% decrease in on-ground enrollment.

We believe this decline in enrollment, which reflects the year-over-year decline in on-ground enrollment, with online enrollment remaining flat, can be attributed to several factors, including caps on nursing student enrollment and low NCLEX pass rates at certain RU campuses, and the overall environment in which RU operates, including as a result of the effects of regulatory matters and competition.

RU Segment operating margin improved to negative 16.9% for the three months ended March 31, 2024 from negative 22.4% in the prior year period.

The improvement in the operating margin was primarily due to decreases in advertising and marketing support costs primarily related to the termination of the Collegis LLC, or Collegis, marketing contract during the three months ended March 31, 2023, and decreases in depreciation and amortization expenses, and employee compensation costs during the three months ended March 31, 2024, partially offset by the impact of lower revenue and the loss on leases in the current year period.

HCN total enrollment for the three months ended March 31, 2024, increased to approximately 3,300 from approximately 2,700, an increase of 600, or 20.5%, compared to the prior year period.

The increase in total student enrollment is primarily due to the opening of the Detroit, Michigan campus in October 2022.

For the three months ended March 31, 2024, HCN Segment operating margin improved to negative 1.8% from negative 9.9% in the prior year period.

The improvement in the operating margin is primarily due to an increase in revenue, partially offset by increases in employee compensation costs, classroom costs, and bad debt expense, as compared to the prior year period.

The increase in net course registrations was primarily due to an increase in registrations by military-affiliated students utilizing education benefit programs administered by the U.S.

Department of

Veterans Affairs, or VA.

APUS Segment operating margin decreased to 23.7% from 25.8% for the three months ended June 30, 2024,and increased to 26.2% from 24.4% for the six months ended June 30, 2024, as compared to the prior year period.

The decrease in operating margin for the three months ended June 30, 2024, was primarily due to increases in information technology costs, including transition service costs, employee compensation costs, and advertising costs, as compared to the prior year period.

The increase in operating margin for the six months ended June 30, 2024, was primarily due to an increase in revenue and a decrease in advertising costs, partially offset by increases in employee compensation costs and information technology costs, including transition service costs, as compared to the prior year period.

RU total enrollment for the three months ended June 30, 2024, decreased to approximately 13,600 from 13,900 for the three months ended June 30, 2023, a decrease of 300, or 2.2%, driven by a 8.8% decrease in on-ground enrollment, partially offset by a 4.2% increase in online enrollment, which has a lower revenue per student.

RU total enrollment for the six months ended June 30, 2024, decreased approximately 3.9%, driven by a 10.1% decrease in on-ground enrollment, partially offset by a 2.1% increase in online enrollment, as compared to the prior year period.

We believe the decline in on-ground enrollment can be attributed to several factors, including caps on nursing student enrollment and low NCLEX pass rates at certain RU campuses, and the overall environment in which RU operates, including as a result of the effects of regulatory matters and competition.

Excluding the loss on leases and severance costs in 2024 and the non-cash impairment charge on goodwill and intangible assets, and marketing transition services fees in 2023, RU Segment operating margin improved to negative 15.0% from negative 25.5% for the three months ended June 30, 2024, and improved to negative 13.2% from negative 21.7% for the six months ended June 30, 2024, as compared to the prior year period.

The improvement in the operating margin for the three and six months ended June 30, 2024, was primarily due to decreases in depreciation and amortization expenses, and decreases in employee compensation costs.

HCN total enrollment for the three months ended June 30, 2024, increased to approximately 3,300 from approximately 3,000, an increase of 300, or 9.4%, as compared to the prior year period.

HCN total enrollment for the six months ended June 30, 2024 increased approximately 14.7%, as compared to the prior year period.

The increase in total student enrollment is primarily due to enrollment growth at the Detroit, Michigan campus.

The decrease in the operating margin for the three months ended June 30, 2024, was primarily due to increases in employee compensation costs, classroom costs, information technology costs, and bad debt expense, partially offset by an increase in revenue, as compared to the prior year period.

The increase in the operating margin for the six months ended June 30, 2024, was primarily due to an increase in revenue, partially offset by increases in employee compensation costs, classroom costs, and bad debt expense, as compared to the prior year period.

For a more detailed discussion of our results by reportable segment, refer to “Analysis of Operating Results by Reportable Segment” below.

1 unchanged sentence

The following table sets forth statements of income data as a percentage of revenue for each of the periods indicated:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Revenue 100.0 % 100.0 % 100.0 % 100.0 %

4 unchanged sentences

Depreciation and amortization 3.4 5.4 3.4 5.3

Impairment of goodwill and intangible assets — 43.5 — 21.6

Loss on leases 0.5 — 1.2 —

Loss on disposals of long-lived assets 0.1 — 0.1 —

Total costs and expenses 98.5 144.3 97.6 123.8

2 unchanged sentences

Income (loss) from operations before income taxes 0.9 (45.1) 2.1 (24.8)

Income tax expense (benefit) 0.8 (0.9)

Income tax (benefit) expense — (10.3) 0.4 (5.6)

Equity investment loss (0.7) — (1.4) —

2 unchanged sentences

Net loss available to common shareholders (0.8) % (35.8) % (0.7) % (20.2) %

Three Months Ended March 31, 2024, Compared to Three Months Ended March 31, 2023

Our consolidated revenue for the three months ended March 31, 2024, was $154.4 million, an increase of $4.7 million, or 3.2%, compared to $149.7 million for the three months ended March 31, 2023.

The increase in revenue was primarily due to a $6.7 million, or 9.0% increase in revenue in our APUS Segment, a $3.3 million, or 25.2%, increase in revenue in our HCN Segment, partially offset by $4.3 million, or 7.5%, decrease in revenue in our RU Segment, and a $0.9 million, or 17.2%, decrease in GSUSA revenue included in Corporate and Other.

The APUS Segment revenue increase was primarily due to a 2.8% increase in net course registrations and tuition and fee increases implemented in the second and third quarters of 2023, as compared to the prior year period.

The HCN Segment revenue increase was primarily due to a 20.5% increase in total student enrollment, as well as a 5% tuition increase implemented during the second quarter of 2023, compared to the prior year period.

The RU Segment revenue decrease was primarily due to a 5.6% decrease in total student enrollment driven by a 11.3% decrease in on-ground enrollment, with online enrollment remaining flat, as compared to the prior year period.

Three Months Ended June 30, 2024, Compared to Three Months Ended June 30, 2023

Our consolidated revenue for the three months ended June 30, 2024, was $152.9 million, an increase of $5.7 million, or 3.9%, compared to $147.2 million for the three months ended June 30, 2023.

The increase in revenue was primarily due to a $3.5 million, or 4.7%, increase in revenue in our APUS Segment, a $2.1 million, or 15.0%, increase in revenue in our HCN Segment, a $1.1 million, or 2.0%, increase in revenue in our RU Segment, partially offset by a $1.0 million, or 13.1%, decrease in GSUSA revenue included in Corporate and Other.

The APUS Segment revenue increase was primarily due to a 1.7% increase in net course registrations and tuition and fee increases in the second and third quarters of 2023 and the second quarter of 2024, and the timing of course starts within the respective periods, as compared to the prior year period.

The HCN Segment revenue increase was primarily due to a 9.4% increase in total student enrollment and a 5% tuition increase across all programs implemented in the second quarter of 2023, as compared to the prior year period.

The RU Segment revenue increase was primarily due to an increase in tuition in the first quarter of 2024, which was partially offset by a 2.2% decrease in total student enrollment driven by an 8.8% decrease in on-ground enrollment, partially offset by a 4.2% increase in online enrollment, which has a lower revenue per student, as compared to the prior year period.

Costs and expenses.

Costs and expenses for the three months ended March 31, 2024, were $149.3 million, a decrease of $5.8 million, or 3.7%, compared to $155.1 million for the three months ended March 31, 2023.

Costs and expenses for the three months ended March 31, 2024, include a $2.9 million pre-tax loss on leases in our RU Segment and $1.9 million in information technology transition service costs.

Costs and expenses for the three months ended March 31, 2023, include a pre-tax charge of $2.4 million in transition services fees in our RU Segment selling and promotional expenses related to the termination of the marketing contract with Collegis, effective January 31, 2023.

Other decreases in costs and expenses for the three months ended March 31, 2024, as compared to the prior year period were due primarily to decreases in advertising costs, depreciation and amortization expenses, marketing support costs, and other technology costs, partially offset by increases in employee compensation costs.

Costs and expenses as a percentage of revenue decreased to 96.6% for the three months ended March 31, 2024, from 103.7% for the three months ended March 31, 2023.

Costs and expenses for the three months ended June 30, 2024, were $150.7 million, a decrease of $61.8 million, or 29.1%, compared to $212.5 million for the three months ended June 30, 2023.

Costs and expenses for the three months ended June 30, 2024, include $0.8 in pre-tax loss on leases in our RU Segment, $0.5 million in severance costs related to the former president of GSUSA in Corporate and Other, and the planned closure of the Wisconsin campuses in our RU Segment, and $0.2 million in information technology transition service costs in our APUS and HCN Segments as well as Corporate and Other.

Costs and expenses for the three months ended June 30, 2023, include a non-cash impairment charge of $64.0 million to reduce the carrying value of RU Segment goodwill and intangible assets and reflect the corresponding tax impact.

Costs and expenses for the three months ended June 30, 2024, as compared to the prior year period, excluding loss on leases, severance costs, and information technology transition services costs in 2024 and goodwill and intangible asset impairment charges in 2023, increased $0.7 million, due primarily to increases in other technology costs, advertising costs and bad debt expense, partially offset by decreases in depreciation and amortization expenses.

Costs and expenses as a percentage

of revenue decreased to 98.5% for the three months ended June 30, 2024, from 144.3% for the three months ended June 30, 2023.

Instructional costs and services expenses.

Our instructional costs and services expenses for the three months ended March 31, 2024, were $72.4 million, a decrease of $1.5 million, or 2.0%, compared to $73.9 million for the three months ended March 31, 2023.

The decrease in instructional costs and services expenses was primarily due to decreases in employee

compensation costs in our RU Segment due to lower revenue, and in Corporate and Other, decreases in technology costs and professional fees in our RU Segment, and payment processing costs in our APUS Segment, partially offset by increases in employee compensation costs in our APUS and HCN Segments due to an increase in registrations at APUS and enrollments at HCN.

Instructional costs and services expenses as a percentage of revenue decreased to 46.9% for the three months ended March 31, 2024, from 49.4% for the three months ended March 31, 2023.

Our instructional costs and services expenses for the three months ended June 30, 2024, were $76.2 million, an increase of $1.2 million, or 1.6%, compared to $75.0 million for the three months ended June 30, 2023.

The increase in instructional costs and services expenses was primarily due to increases in employee compensation costs in our APUS and HCN Segments due to an increase in registrations at APUS and enrollments at HCN, as well as graduation event costs in our APUS Segment and classroom costs in our HCN Segment, partially offset by decreases in employee compensation costs in our RU Segment and Corporate and Other, and a decrease in professional fees in our APUS and RU Segments.

Instructional costs and services expenses as a percentage of revenue decreased to 49.8% for the three months ended June 30, 2024, from 50.9% for the three months ended June 30, 2023.

Selling and promotional expenses.

Our selling and promotional expenses for the three months ended March 31, 2024, were $32.5 million, a decrease of $7.5 million, or 18.7%, compared to $39.9 million for the three months ended March 31, 2023.

Selling and promotional expenses for the three months ended March 31, 2023, include $2.4 million in transition services fees in our RU Segment related to the termination of the Collegis marketing contract effective January 31, 2023.

Other decreases in selling and promotional expenses were primarily due to decreases in advertising costs in all our segments, a decrease in marketing support costs in our RU Segment and Corporate and Other and decreases in employee compensation costs in our RU Segment.

Selling and promotional expenses as a percentage of revenue decreased to 21.0% for the three months ended March 31, 2024, from 26.7% for the three months ended March 31, 2023.

Our selling and promotional expenses for the three months ended June 30, 2024, were $33.8 million, an increase of $0.9 million, or 2.6%, compared to $33.0 million for the three months ended June 30, 2023.

The increase in selling and promotional expenses was primarily due to increases in advertising costs in all our segments and increases in professional fees and marketing support costs in our APUS and RU Segments, partially offset by decreases in employee compensation costs in our RU and APUS Segments.

Selling and promotional expenses as a percentage of revenue decreased to 22.1% for the three months ended June 30, 2024, from 22.4% for the three months ended June 30, 2023.

General and administrative expenses.

Our general and administrative expenses for the three months ended March 31, 2024, were $36.3 million, an increase of $2.8 million, or 8.3%, compared to $33.5 million for the three months ended March 31, 2023.

General and administrative expenses for the three months ended March 31, 2024, include $1.9 million in information technology transition service costs.

Other increases in general and administrative expenses were due to increases in employee compensation costs in our RU and HCN Segments and professional fees in Corporate and Other, partially offset by a decrease in employee compensation costs in our APUS Segment and Corporate and Other.

Consolidated bad debt expense for the three months ended March 31, 2024, was $4.2 million, or 2.7% of revenue, compared to $3.9 million, or 2.6% of revenue in the prior year period.

General and administrative expenses as a percentage of revenue increased to 23.5% for the three months ended March 31, 2024, from 22.4% for the three months ended March 31, 2023.

Our general and administrative expenses for the three months ended June 30, 2024, were $34.4 million, an increase of $1.9 million, or 5.8%, compared to $32.5 million for the three months ended June 30, 2023.

General and administrative expenses for the three months ended June 30, 2024, include $0.2 million in information technology transition service costs in our APUS and HCN Segments as well as Corporate and Other.

The increase in general and administrative expenses is primarily due to increases in information technology costs in all our segments, employee compensation costs in our RU and HCN Segments, and bad debt expense in our HCN and APUS Segments, partially offset by decreases in employee compensation costs in our APUS Segment and Corporate and Other and professional fees in Corporate and Other.

Consolidated bad debt expense for the three months ended June 30, 2024, was $4.3 million, or 2.8% of revenue, compared to $3.9 million, or 2.7% of revenue in the prior year period.

General and administrative expenses as a percentage of revenue increased to 22.5% for the three months ended June 30, 2024, from 22.1% for the three months ended June 30, 2023.

As we continue to evaluate enhancements to our business capabilities, particularly in technology, we expect to incur additional costs and that our general and administrative expenses will vary from time to time.

Depreciation and amortization expenses.

Depreciation and amortization expenses were $5.2 million for three months ended June 30, 2024, compared to $8.0 million in the prior year period, a decrease of $2.7 million, primarily related to the full amortization of certain definite lived intangible assets in our RU Segment in 2023.

Depreciation and amortization expenses as a percentage of revenue was 3.4% and 5.4% for the three months ended June 30, 2024, and 2023, respectively.

Impairment of goodwill and intangible assets.

For the three months ended June 30, 2023, the non-cash impairment of goodwill and intangible assets of $64.0 million resulted from the reduction of the carrying value of goodwill and intangible assets in our RU Segment and the corresponding tax impact.

For additional information regarding the impairment of goodwill and intangible assets, and a discussion of the potential for future impairment charges for goodwill and intangible assets, please refer to the discussion in “Note 5.

Goodwill and Intangible Assets” included in the Consolidated Financial Statements in this Quarterly Report.

There was no impairment of goodwill and intangible assets for the three months ended June 30, 2024.

Loss on leases.

RU Segment loss on leases was $0.8 million for the three months ended June 30, 2024.

There were no losses on leases in the prior year period.

Loss on disposals of long-lived assets.

The loss on disposal of long-lived assets was $28,000 for the three months ended March 31, 2024, compared to a loss of $1,000 for the three months ended March 31, 2023.

The loss on disposal of long-lived assets was $0.2 million for the three months ended June 30, 2024, compared to a loss of $32,000 for the three months ended June 30, 2023.

Stock-based compensation expenses.

Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses were $1.8 million and $2.1 million for the three months ended June 30, 2024, and 2023, respectively.

The decrease in stock compensation for the three months ended June 30, 2024 compared to the prior period was primarily due to fewer shares granted in 2024 compared to 2023.

Stock-based compensation costs include accelerated expense for retirement-eligible employees and performance stock unit incentive costs.

Interest expense, net.

Interest expense, net of interest and other income, was $0.8 million and $1.1 million for the three months ended June 30, 2024, and 2023, respectively.

The decrease in net interest expense was primarily due to the increase in interest income earned in the three months ended June 30, 2024, as compared to the prior year period.

Income tax (benefit) expense.

We recognized an income tax benefit of $16,000 and $15.1 million for the three months ended June 30, 2024, and 2023, respectively, or a negative effective tax rate of 4.5%, compared to an effective tax rate benefit of 22.8%, respectively.

The decrease in the effective tax rate in 2024 is primarily due to a decrease in non-deductible stock compensation of approximately $0.2 million, partially offset by the $1.1 million equity investment loss not deductible for tax purposes in the three months ended June 30, 2024.

The income tax benefit for the three months ended June 30, 2023, includes a $15.8 million income tax benefit related to the impairment of goodwill and intangible assets.

Equity investment loss.

Equity investment loss due to the sale of our remaining equity method investment was $1.1 million for the three months ended June 30, 2024, compared to equity investment loss of $4,000 in the prior year period.

Net income (loss).

Our net income was $0.4 million, compared to a net loss of $51.2 million, for the three months ended June 30, 2024, and 2023, respectively, an increase of $51.6 million.

This increase was related to the factors discussed above.

Preferred stock dividends.

Preferred stock dividends were $1.5 million for both the three months ended June 30, 2024, and 2023.

Net loss available to common stockholders.

The net loss available to common stockholders was $1.2 million and $52.7 million for the three months ended June 30, 2024, and 2023 respectively, an improvement in net loss available to common stockholders of $51.6 million.

This improvement was related to the factors discussed above.

Six Months Ended June 30, 2024, Compared to Six Months Ended June 30, 2023

Our consolidated revenue for the six months ended June 30, 2024, was $307.3 million, an increase of $10.4 million, or 3.5%, compared to $296.9 million for the six months ended June 30, 2023.

The increase in revenue was primarily due to a $10.2 million, or 6.9% increase in revenue in our APUS Segment, and a $5.5 million, or 19.9%, increase in revenue in our HCN Segment, partially offset by $3.3 million, or 3.0%, decrease in revenue in our RU Segment, and a $1.9 million, or 14.8%, decrease in GSUSA revenue included in Corporate and Other.

The APUS Segment revenue increase was primarily due to a 2.3% increase in net course registrations, tuition and fee increases in the second and third quarters of 2023 and the second quarter of 2024, and the timing of course starts within the respective periods, as compared to the prior year period.

The HCN Segment revenue increase was primarily due to a 14.7% increase in total student enrollment, and a 5% tuition increase across all programs implemented in the second quarter of 2023, as compared to the prior year period.

The RU Segment revenue decrease, as compared to the prior year period, was primarily due to a 3.9% decrease in total student enrollment driven by a 10.1% decrease in on-ground enrollment, partially offset by a 2.1% increase in online enrollment, which has a lower revenue per student.

Costs and expenses.

Costs and expenses for the six months ended June 30, 2024, were $299.9 million, a decrease of $67.6 million, or 18.4%, compared to $367.5 million for the six months ended June 30, 2023.

Costs and expenses for the six months ended June 30, 2024, include $3.7 million pre-tax loss on leases in our RU Segment, $2.0 million in information technology transition service costs in our APUS and HCN Segments as well as Corporate and Other, and $0.5 million in severance costs related to the former president of GSUSA in Corporate and Other, and the planned campus closures of our campuses located in Wisconsin in our RU Segment.

Costs and expenses for the six months ended June 30, 2023, include a non-cash impairment charge of $64.0 million for our RU Segment and reflect the corresponding tax impact, and a pre-tax charge of $2.4 million in transition services fees in our RU Segment selling and promotional expenses related to the termination of the marketing contract with Collegis effective January 31, 2023.

Costs and expenses for the six months ended June 30, 2024, as compared to the prior year period, excluding loss on leases, information technology transition services costs, and severance costs in 2024, and goodwill and intangible asset impairment charges and marketing transition services fees in 2023, decreased $7.5 million, due primarily to decreases in depreciation and amortization expenses and advertising and marketing support costs, partially offset by increases in other technology costs and professional fees.

Costs and expenses as a percentage of revenue decreased to 97.6% for the six months ended June 30, 2024, from 123.8% for the six months ended June 30, 2023.

Instructional costs and services expenses.

Our instructional costs and services expenses for the six months ended June 30, 2024, were $148.6 million, a decrease of $0.2 million, or 0.2%, compared to $148.9 million for the six months ended June 30, 2023.

The decrease in instructional costs and services expenses was primarily due to decreases in employee compensation costs in our RU Segment and Corporate and Other due to lower enrollments at RU and GSUSA, decreases in technology costs and professional fees in our RU Segment, and payment processing costs in our APUS Segment, partially offset by increases in employee compensation costs in our APUS and HCN Segments due to an increase in registrations at APUS and enrollments at HCN.

Instructional costs and services expenses as a percentage of revenue decreased to 48.4% for the six months ended June 30, 2024, from 50.1% for the three months ended June 30, 2023.

Selling and promotional expenses.

Our selling and promotional expenses for the six months ended June 30, 2024, were $66.3 million, a decrease of $6.6 million, or 9.0%., compared to $72.9 million for the six months ended June 30, 2023.

Selling and promotional expenses for the six months ended June 30, 2023, include $2.4 million in transition services fees in our RU Segment related to the termination of the Collegis marketing contract, effective January 31, 2023.

Other decreases in selling and promotional expenses were primarily due to decreases in advertising costs in our RU and APUS Segments, marketing support costs in our RU Segment and Corporate and Other, and employee compensation costs in our RU Segment.

Selling and promotional expenses as a percentage of revenue decreased to 21.6% for the six months ended June 30, 2024, from 24.6% for the three months ended June 30, 2023.

General and administrative expenses.

Our general and administrative expenses for the six months ended June 30, 2024, were $70.7 million, an increase of $4.7 million, or 7.1%, compared to $66.0 million for the six months ended June 30, 2023.

General and administrative expenses for the six months ended June 30, 2024, include $2.0 million in information technology transition service costs in our APUS and HCN Segments as well as Corporate and Other.

The increase in general and administrative expenses was primarily due to increases in employee compensation costs and professional fees in our RU and HCN Segments and other information technology costs in our APUS and RU Segments, partially offset by a decrease in employee compensation costs in our APUS Segment and Corporate and Other.

Consolidated bad debt expense for the six months ended June 30, 2024, was $8.5 million, or 2.8% of revenue, compared to $7.8 million, or 2.6% of revenue in the prior year period.

General and administrative expenses as a percentage of revenue increased to 23.0% for the six months ended June 30, 2024, from 22.2% for the six months ended June 30, 2023.

Depreciation and amortization expenses.

Depreciation and amortization expenses were $5.1 million for three months ended March 31, 2024, compared to $7.8 million in the prior year period, a decrease of $2.6 million primarily related to the full amortization of certain definite lived intangible assets in our RU Segment in 2023.

Depreciation and amortization expenses as a percentage of revenue was 3.3% and 5.2% for the three months ended March 31, 2024, and 2023, respectively.

Depreciation and amortization expenses were $10.4 million for six months ended June 30, 2024, compared to $15.7 million in the prior year period, a decrease of $5.3 million primarily related to the full amortization of certain definite lived intangible assets in our RU Segment in 2023.

Depreciation and amortization expenses as a percentage of revenue was 3.4% and 5.3% for the six months ended June 30, 2024, and 2023, respectively.

Impairment of goodwill and intangible assets.

For the six months ended June 30, 2023, the non-cash impairment of goodwill and intangible assets of $64.0 million resulted from the reduction of the carrying value of goodwill and intangible assets in our RU Segment, and the corresponding tax impact.

Goodwill and Intangible Assets” included in the Consolidated Financial Statements in this Quarterly Report.

There were no impairment charges on goodwill and intangible assets for the six months ended June 30, 2024.

Loss on leases.

Loss on leases was $2.9 million for the three months ended March 31, 2024, for leases in our RU Segment.

RU Segment loss on leases was $3.7 million for the six months ended June 30, 2024.

There were no losses on leases in the prior year period.

Loss on disposals of long-lived assets.

The loss on disposal of long-lived assets was $0.2 million for the six months ended June 30, 2024, compared to a loss of $33,000 for the six months ended June 30, 2023.

Stock-based compensation expenses.

Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses were $1.9 million and $2.2 million for the three months ended March 31, 2024, and 2023, respectively.

Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses were $3.7 million and $4.3 million for the six months ended June 30, 2024, and 2023, respectively.

The decrease in stock compensation was due to fewer shares granted in 2024 compared to 2023.

Stock-based compensation costs include accelerated expense for retirement-eligible employees and performance stock unit incentive costs.

Interest expense, net.

Interest expense, net of interest and other income, was $0.1 million and $1.8 million for the three months ended March 31, 2024, and 2023, respectively.

The decrease in net interest expense was primarily due to the increase in interest income earned in the three months ended March 31, 2024, compared to the prior year period.

Income tax expense (benefit).

We recognized income tax expense of $1.2 million for the three months ended March 31, 2024, compared to an income tax benefit of $1.4 million in the prior year period, respectively, or an effective tax rate of 70.2% in 2024, compared to an effective tax rate benefit of 19.8% in 2023.

The increase in the effective tax rate in 2024 is primarily due to the $3.3 million equity investment loss not deductible for tax purposes, and an increase in non-deductible stock compensation expense in relation to taxable income in the three months ended March 31, 2024 as compared to the prior year period.

Interest expense, net of interest and other income, was $0.9 million and $2.9 million for the six months ended June 30, 2024, and 2023, respectively.

The decrease in net interest expense was primarily due to the increase in interest income earned in the six months ended June 30, 2024, as compared to the prior year period.

Income tax (benefit) expense.

We recognized income tax expense of $1.2 million for the six months ended June 30, 2024, compared to an income tax benefit of $16.6 million in the prior year period, or an effective tax rate of 57.4% in 2024, compared to an effective tax rate benefit of 22.5% in 2023.

The increase in the effective tax rate in 2024 is primarily due to the $4.4 million equity investment loss not deductible for tax purposes, and an increase in non-deductible stock compensation expense in relation to taxable income in the six months ended June 30, 2024, as compared to the prior year period.

Equity investment loss.

Equity investment loss was $3.3 million for the three months ended March 31, 2024, compared to equity investment loss of $5,000 in 2023.

The increase is due to a $3.3 million non-cash investment loss on a cost method investment 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.

Equity investment loss was $4.4 million for the six months ended June 30, 2024, compared to equity investment loss of $9,000 in the prior year period.

The increase is due to a $3.3 million non-cash investment loss on an equity investment due to the investee entering into a new convertible debt agreement, which resulted in the conversion of our preferred

stock holdings in the investee into common shares, and the dilution of our ownership percentage, and a $1.1 million loss on the sale of the remaining equity method investment.

Net income (loss).

Our net income was $0.5 million, compared to a net loss of $5.7 million, for the three months ended March 31, 2024, and 2023, respectively, an increase of $6.3 million.

Our net income was $0.9 million, compared to a net loss of $57.0 million, for the six months ended June 30, 2024, and 2023, respectively, an improvement of $57.9 million.

This increase was related to the factors discussed above.

Preferred stock dividends.

Preferred stock dividends were $1.5 million for both the three months ended March 31, 2024, and 2023.

Preferred stock dividends were $3.1 million, compared to $2.9 million, for the six months ended June 30, 2024, and 2023, respectively.

Net loss available to common stockholders.

The net loss available to common stockholders for the three months ended March 31, 2024, was $1.0 million, compared to net loss available to common stockholders of $7.2 million in the prior year, an improvement of $6.2 million.

This improvement in net loss available to common shareholders was related to the factors discussed above.

The net loss available to common stockholders was $2.2 million and $59.9 million for the six months ended June 30, 2024 and 2023, respectively, an improvement in net loss available to common stockholders of $57.7 million.

This improvement was related to the factors discussed above.

Analysis of Operating Results by Reportable Segment

The following table provides details on our operating results by reportable segment for the respective periods (in thousands):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

APUS Segment $ 77,048 $ 73,557 $ 157,704 $ 147,535

9 unchanged sentences

Total income (loss) from operations before interest and income taxes $ 2,220 $ (65,268) $ 7,402 $ (70,638)

For the three months ended March 31, 2024, the $6.7 million, or 9.0%, increase to approximately $80.7 million in revenue in our APUS Segment was primarily attributable to higher net course registrations, and tuition and fee increases in 2023.

Net course registrations increased 2.8% to approximately 99,000 from approximately 96,300 in the prior year period, was primarily due to an increase in registrations by military students utilizing TA and military-affiliated students utilizing VA.

Income from operations before interest and income taxes increased to $23.1 million, or by 35.2%, during the three months ended March 31, 2024, from $17.1 million in the prior year period, an increase of $6.0 million, as a result of the increase in revenue, partially offset by an increase in expenses as compared to the same period in 2023.

For the three months ended March 31, 2024, the $4.3 million, or 7.5%, decrease to approximately $53.1 million in revenue in the RU Segment was primarily due to a 5.6% decrease in total student enrollment, driven by a 11.3% decrease in on-ground enrollment, with online enrollment remaining flat.

We believe this decline in enrollment, which reflects year-over-year declines in total nursing enrollment, can be attributed to several factors, including caps on nursing student enrollment and low NCLEX pass rates at certain RU campuses, and the overall environment in which RU operates, including as a result of the effects of regulatory matters and competition.

The loss from operations before interest and income taxes was $9.0 million and $12.9 million for the three months ended March 31, 2024, and 2023, respectively, an improvement of $3.9 million in the current year period.

For the three months ended March 31, 2024, the $3.3 million, or 25.2% increase to approximately $16.4 million in revenue in our HCN Segment was primarily due to year-over-year increase in total student enrollment, as well as a 5% tuition increase implemented during the second quarter of 2023.

Total student enrollment increased 20.5% to approximately 3,300 students as compared to the same period in 2023.

The increase in total student enrollment is primarily due to the opening of the Detroit, Michigan campus in October 2022.

The loss from operations before interest and income taxes was $0.3 million and $1.3 million during the three months ended March 31, 2024, and 2023, respectively, an improvement of $1.0 million in the current year period.

For the three months ended June 30, 2024, the $3.5 million, or 4.7%, increase to approximately $77.0 million in revenue in our APUS Segment was primarily attributable to higher net course registrations, tuition and fee increases in the second and third quarters of 2023 and the second quarter of 2024, and the timing of course starts within the respective period, as compared to the prior year period.

Net course registrations increased 1.7% to approximately 89,800 from approximately 88,300 in the prior year period, primarily due to an increase in registrations by military-affiliated students utilizing education benefit programs administered by the VA.

Income from operations before interest and income taxes decreased to $18.3 million, or by 3.4%, during the three months ended June 30, 2024, from $18.9 million in the prior year period, a decrease of $0.7 million, as a result of an increase in expenses as compared to the same period in 2023.

For the six months ended June 30, 2024, the $10.2 million, or 6.9%, increase to approximately $157.7 million in revenue in our APUS Segment was primarily attributable to higher net course registrations, tuition and fee increases in 2023 and 2024, and the timing of course starts within the respective periods, as compared to the prior year period.

Net course registrations increased 2.3% to approximately 188,800 from approximately 184,500 in the prior year period, primarily due to an increase in registrations by military-affiliated students utilizing VA.

Income from operations before interest and income taxes increased to $41.4 million, or by 14.9%, during the six months ended June 30, 2024, from $36.0 million in the prior year period, an increase of $5.4 million, as a result of the increase in revenue, partially offset by an increase in expenses as compared to the

same period in 2023.

For the three months ended June 30, 2024, the $1.1 million, or 2.0%, increase to approximately $53.0 million in revenue in the RU Segment was primarily due to an increase in tuition in the first quarter of 2024, partially offset by 2.2% decrease in total student enrollment which was driven by a 8.8% decrease in on-ground enrollment, partially offset by a 4.2% increase in online enrollment, which has a lower revenue per student, as compared to the prior year period.

We believe this decline on-ground enrollment can be attributed to several factors, including caps on nursing student enrollment and low NCLEX pass rates at certain RU campuses, and the overall environment in which RU operates, including as a result of the effects of regulatory matters and competition.

The loss from operations before interest and income taxes was $8.8 million and $77.3 million for the three months ended June 30, 2024, and 2023, respectively, an improvement of $68.4 million in the current year period primarily due to the $64.0 million goodwill and intangible asset impairment charges recognized during the three months ended June 30, 2023.

For the six months ended June 30, 2024, the $3.3 million, or 3.0%, decrease to approximately $106.2 million in revenue in the RU Segment, as compared to the prior year period, was primarily due to a 3.9% decrease in total student enrollment which was driven by a 10.1% decrease in on-ground enrollment, partially offset by a 2.1% increase in online enrollment, which has a lower revenue per student, and an increase in tuition in the first quarter of 2024, as compared to the prior year period.

The loss from operations before interest and income taxes was $17.8 million and $90.1 million for the six months ended June 30, 2024, and 2023, respectively, an improvement of $72.3 million in the current year period primarily due to the $64.0 million goodwill and intangible asset impairment charges recognized during the three months ended June 30, 2023.

For the three months ended June 30, 2024, the $2.1 million, or 15.0%, increase to approximately $16.4 million in revenue in our HCN Segment was primarily due to a 9.4% increase in total student enrollment, and the 5% tuition increase across all programs implemented in the second quarter of 2023, as compared to the prior year period.

The increase in total student enrollment is primarily due to enrollment growth at the Detroit, Michigan campus.

The loss from operations before interest and income taxes was $0.7 million and $0.2 million during the three months ended June 30, 2024, and 2023, respectively, an increase of $0.5 million, as compared to the prior year period.

For the six months ended June 30, 2024, the $5.5 million, or 19.9% increase to approximately $32.9 million in revenue in our HCN Segment was primarily due the 14.7% year-over-year increase in total student enrollment, and the tuition increase in the second quarter of 2023, as compared to the prior year period.

The increase in total student enrollment is primarily due to enrollment growth at the Detroit, Michigan campus.

The loss from operations before interest and income taxes was $1.0 million and $1.5 million during the six months ended June 30, 2024, and 2023, respectively, an improvement of $0.5 million, as compared to the prior year period.

Liquidity and Capital Resources

Cash and cash equivalents were $153.2 million and $144.3 million at March 31, 2024, and December 31, 2023, respectively, representing an increase of $8.9 million, or 6.2%.

The increase in cash was primarily due to higher revenue and operating income at APUS, and the receipt of fourth quarter 2023 APUS TA billing in the first quarter of 2024, partially offset by the change in the APUS TA billing policy effective January 1, 2024, higher capital expenditures, and an increase in cash paid for repurchases of common stock.

Cash and cash equivalents were $156.2 million and $144.3 million at June 30, 2024, and December 31, 2023, respectively, representing an increase of $11.8 million, or 8.2%.

The increase in cash was primarily due to higher revenue and operating income at APUS, the receipt of fourth quarter 2023 APUS TA billing in the first quarter of 2024, and a decrease in cash paid for repurchases of common stock, partially offset by the change in the APUS TA billing policy effective January 1, 2024, and higher capital expenditures.

We have historically financed operating activities and capital expenditures with cash provided by operating activities.

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Generally, an institution’s financial ratios must yield a composite score of at least 1.5 for the institution to be deemed financially responsible.

A composite score between 1.0 and 1.4 is considered by ED to be in the “zone.” An institution in the “zone” may still participate in the Title IV programs as a financially responsible institution through the “zone alternative” or the “financial protection alternative” as set forth in ED regulations.

A composite score between 1.0 and 1.4 is considered by ED to be in the “zone.” An institution in the “zone” may still participate in Title IV programs as a financially responsible institution through the “zone alternative” or the “financial protection alternative” as set forth in ED regulations.

On March 4, 2024, ED notified us that in calculating our composite score for the fiscal year-ended December 31, 2022, it excluded our deferred tax assets from its calculation of our assets.

As a result, ED calculated that we had a 2022 consolidated composite score of 1.1 and our institutions were therefore in the “zone.” We disagree with ED’s calculation and conclusion and submitted a rebuttal to ED on March 18, 2024.

On April 10, 2024, ED issued a response to our rebuttal, indicating that ED does not agree with our position and reiterating that our institutions must establish financial responsibility on an alternative basis.

On April 10, 2024, ED indicated that it disagrees with our position and reiterated that our institutions must establish financial responsibility on an alternative basis.

On April 17, 2024, we timely informed ED that although we continue to disagree with its composite score methodology with respect to deferred tax assets, we select the “zone alternative” as the alternative basis on which we establish financial responsibility.

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While RU already complies with HCM1, if HCM1 had applied to APUS and HCN in 2023, we estimate that we would have received approximately $6.2 million from ED at a point in time after we had disbursed the related funds.

Our Credit Agreement and the purchase agreement for the shares of Series A Senior Preferred Stock, or the Purchase Agreement, contain financial covenants that require us to maintain a Total Net Leverage Ratio (as defined in each respective agreement) of no greater than 2.00 to 1.00 and 0.75 to 1.00, respectively, subject to certain exceptions.

Our Credit Agreement with Macquarie Capital Funding LLC, or the Credit Agreement, and the purchase agreement for the shares of Series A Senior Preferred Stock, or the Purchase Agreement, contain financial covenants that require us to maintain a Total Net Leverage Ratio (as defined in each respective agreement) of no greater than 2.00 to 1.00 and 0.75 to 1.00, respectively, subject to certain exceptions.

Changes in TA invoicing in the fourth quarter of 2023 added to our accounts receivable as of December 31, 2023, as compared to prior practice and policy, and resulted in an increase to our leverage ratio as of December 31, 2023, under our Credit Agreement and the Purchase Agreement.

As of March 31, 2024, the ratio decreased due to results, including a decrease in accounts receivable,

primarily related to our APUS Segment, and an increase in our cash balance.

Our Total Net Leverage Ratio, under the Credit Agreement, at March 31, 2024, and December 31, 2023, was 0.33 and 0.51, respectively.

As of June 30, 2024, the ratio decreased due to our improved operating results, a reduction in accounts receivable and the corresponding increase in cash, and the $2.6 million debt principal payment in the second quarter.

As a result, our Total Net Leverage Ratio, under the Credit Agreement, at June 30, 2024, and December 31, 2023, was 0.23 and 0.51, respectively.

Capital expenditures could be higher in the future as a result of, among other things, additional expenditures for technology or other business capabilities, the maintenance of existing campuses at RU and HCN, the opening of new campuses at RU and HCN, the acquisition or lease of existing structures or potential new construction projects, and necessary tenant improvements that arise as a result of our ongoing evaluation of our space needs and opportunities for physical growth.

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On April 1, 2024, as part of our technology transformation program, we transitioned to a managed service provider for certain services including service desk, end user support, and network support and operations.

The second phase of the project will include the insourcing of technology from Collegis for our RU Segment and is expected to be completed this summer.

For the three months ended March 31, 2024, we incurred approximately $1.9 million in information technology transition service costs.

The second phase of the project will include the insourcing of technology from Collegis for our RU Segment and is expected to be completed in September 2024.

For the six months ended June 30, 2024, we incurred approximately $2.0 million in information technology transition service costs.

We estimate that the remaining cost of the technology transformation will be approximately $1.0 million for the remainder of 2024.

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In January 2024, we repurchased 251,146 shares of common stock for an aggregate purchase price of $2.8 million.

Effective February 1, 2024, the Company ceased purchases under this purchase authorization.

Effective February 1, 2024, we ceased purchases under this purchase authorization.

Operating Activities

Net cash provided by operating activities was $20.7 million and $12.8 million for the three months ended March 31, 2024, and 2023, respectively.

The increase in cash from operating activities was primarily due to improved financial performance and changes in working capital due to the timing of receipts and payments.

During the three months ended March 31, 2024, due to a change in the approach to invoicing TA in the fourth quarter of 2023, APUS collected approximately $21.4 million from TA related to periods prior to 2024.

Accounts receivable at March 31, 2024, decreased approximately $6.4 million compared to December 31, 2023, primarily related to our APUS Segment.

Accounts payable, accrued liabilities, and accrued compensation and benefits at March 31, 2024, were approximately $2.6 million higher than December 31, 2023, primarily due to the timing of payment processing.

Net cash provided by operating activities was $33.2 million and $28.5 million for the six months ended June 30, 2024, and 2023, respectively.

The increase in cash from operating activities was primarily due to improved financial performance and changes in working capital due to the timing of receipts and payments, including cash collected by APUS from TA related to periods prior to 2024, partially offset by the change in the APUS TA invoicing policy effective January 1, 2024.

Accounts receivable at June 30, 2024, decreased approximately $12.1 million compared to December 31, 2023, primarily related to our APUS Segment.

Accounts payable, accrued liabilities, and accrued compensation and benefits at June 30, 2024, were approximately $4.2 million higher than December 31, 2023, primarily due to the timing of payment processing.

Investing Activities

Net cash used in investing activities was $6.2 million and $3.2 million for the three months ended March 31, 2024, and 2023, respectively.

For the three months ended March 31, 2024, capital expenditures were $6.2 million compared to capital expenditures of $3.2 million for the three months ended March 31, 2023.

The increase in capital expenditures for the three months ended March 31, 2024, was primarily due campus relocations at our HCN and RU Segments and an increase in information technology capital expenditures.

Net cash used in investing activities was $11.4 million and $6.6 million for the six months ended June 30, 2024, and 2023, respectively.

For the six months ended June 30, 2024, capital expenditures were $11.4 million compared to capital expenditures of $6.6 million for the six months ended June 30, 2023.

The increase in capital expenditures for the six months ended June 30, 2024, was primarily due to campus relocations at our HCN and RU Segments and an increase in information technology capital expenditures.

Financing Activities

Net cash used in financing activities was $5.7 million and $2.8 million for the three months ended March 31, 2024, and 2023, respectively.

The increase in cash used in financial activities is due to an increase in cash used to repurchase our common stock.

For the three months ended March 31, 2024, we repurchased 251,146 shares of common stock for an aggregate purchase price of $2.8 million compared to 75,000 shares for an aggregate purchase price of $0.4 million during the three months ended March 31, 2023.

Net cash used in financing activities was $9.9 million and $12.0 million for the six months ended June 30, 2024, and 2023, respectively.

The decrease in cash used in financial activities is primarily due to a decrease in cash used to repurchase our common stock.

For the six months ended June 30, 2024, we repurchased 251,146 shares of common stock for an aggregate purchase price of $2.8 million, compared to 1,335,357 shares for an aggregate purchase price of $8.0 million during the six months ended June 30, 2023.

Financing activities for the six months ended June 30, 2024, include $3.1 million related to the payment of dividends on our preferred stock, $2.6 million in principal payments on our long term debt, and $1.4 million for the deemed repurchase of our common stock to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock.

Financing activities for the six months ended June 30, 2023, include $2.9 million related to the payment of dividends on our preferred stock and $1.0 million for the deemed repurchase of our common stock to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants.

Contractual Commitments

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The total minimum expenses for information technology services through September 30, 2024, is approximately $2.3 million.

In July 2024, RU entered into a contract with a third-party to provide nursing program curriculum upgrades and course materials, and testing services to nursing students, replacing an existing third-party provider.

Total annual expense under this

contract is estimated to be between approximately $6.0 million and $7.0 million annually through December 31, 2027, based on enrollment, such amount approximately equal to the prior third-party provider.

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 2. Management’s Discussion and Analysis