AMERICAN PUBLIC EDUCATION INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations In this Quarterly Report on Form 10-Q, or Quarterly Report, “we,” “our,” “us,” “the Company” and similar terms refer to American Public Education, Inc., or APEI, and its subsidiary institutions collectively unless the context indicates otherwise. All quarterly information in this Management’s Discussion and Analysis is unaudited. The following discussion of our historical results of operations and our liquidity and capital resources should be read in conjunction with the Consolidated Financial Statements and related notes that appear elsewhere in this Quarterly Report and the audited financial information and related notes, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations and other disclosures, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, or our Annual Report. Forward-Looking Statements This Quarterly Report contains forward-looking statements intended to be covered by the safe harbor provisions for forward-looking statements in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We may use words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “will,” or “may,” or other words or expressions that convey future events, conditions, circumstances, or outcomes to identify these forward-looking statements. Forward-looking statements in this Quarterly Report include, without limitation, statements regarding: • changes in and our efforts and ability to comply with the extensive regulatory framework applicable to our industry, including the 90/10 Rule and financial responsibility standards, as well as state law and regulations and accrediting agency requirements, and the expected impacts of our efforts to comply and any non-compliance; • actions by the U.S. Department of Education, or ED, institutional and programmatic accreditors, and state authorizing agencies and expectations regarding the effects of those actions; • our ability to manage, grow, and diversify our business and execute our business initiatives and strategy; • the impact, timing, projected benefits, and terms of the planned combination of American Public University System, or APUS, Rasmussen University, or RU, and Hondros College of Nursing, or HCN, into one consolidated institution that will be a system encompassing all APUS, RU, and HCN programs, campuses, and operations, or the Combination; • legislative and regulatory changes, shifts in regulatory priorities, restrictions on the function, operations, and budgets of federal agencies, including ED, as a result of U.S. presidential and administration transitions and presidential directives regarding governmental actions; • our cash needs and expectations regarding cash flow from operations, including the impacts of our debt service; • our ability to undertake initiatives to improve the learning experience, attract students who are likely to persist, and improve student outcomes; • changes to and expectations regarding our student enrollment, net course registrations, and the composition of our student body, including the pace of such changes; • our ability to maintain, develop, and grow our technology infrastructure to support our student body and remain competitive; • our conversion of prospective students to enrolled students and our retention of active students; • our ability to update and expand the content of existing programs and develop new programs to meet emerging student needs and marketplace demands, and our ability to do so in a cost-effective manner or on a timely basis; • the branding and marketing of our institutions; • our ability to leverage our investments in support of our initiatives, students, and institutions; • 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 U.S. Armed Forces, including actions related to the participating in DoD tuition assistance, or TA, programs, our responses to those actions, and expectations regarding the effects of those actions and responses; • federal appropriations and other budgetary matters, including government shutdowns; • changes in enrollment in postsecondary degree-granting institutions and workforce needs; • our ability to recognize the intended benefits of our cost savings and revenue-generating efforts; • the expected impact on our students and our business from campus closures and consolidations; • our financial performance generally; and • 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. There are a number of important 24 factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. Risks and uncertainties involved in forward-looking statements include, among others: • potential changes to the ED’s and other federal government agencies’ structure, policies, priorities, and oversight, including as a result of federal elections and the Trump administration’s stated intention to dismantle ED; • our dependence on the effectiveness of our ability to attract students who persist in our institutions’ programs; • our inability to effectively market our programs or expand into new markets; • the loss of our ability to receive funds under TA programs or the reduction, elimination, or suspension of TA, or continued disruption due to systems used to request TA; • our inability to maintain enrollments from military students; • adverse effects of changes our institutions make to improve the student experience and enhance each institutions ability to identify and enroll students who are likely to succeed; • our failure to successfully adjust to future market demands; • our failure to comply with regulatory and accrediting agency requirements or to maintain institutional accreditation, the consequences thereof, and risks related to any actions we may take to prevent or correct such failure; • our failure to meet applicable National Council Licensure Examination, or NCLEX, pass rates and other NCLEX standards, and the consequences thereof; • our failure to comply with the 90/10 Rule; • our loss of eligibility to participate in student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or Title IV programs, or ability to process Title IV financial aid; • our inability to recognize the benefits of our cost savings efforts; • economic and market conditions in the United States and abroad and changes in interest rates; • risks related to business combinations, acquisitions, divestitures, and other strategic transactions, including, as applicable, integration challenges, business disruption, dilution of stockholder value, financial charges, and diversion of management attention; • risks related to our substantial indebtedness; and • our dependence on and need to continue to invest in our technology infrastructure. Forward-looking statements should be considered in light of these factors and the factors described elsewhere in this Quarterly Report, including in the “Risk Factors” section of our Annual Report, and in our various filings with the Securities and Exchange Commission, or the SEC. It is important that you read these factors and the other cautionary statements made in this Quarterly Report as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report. If any of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance, or achievements may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. You should also read the more detailed description of our business in our Annual Report when considering forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements herein, which speak only as of the date of this Quarterly Report. We undertake no obligation to publicly update any forward-looking statements after the date of this Quarterly Report, whether as a result of new information, future events, or otherwise, except as required by law. Overview Background We are a provider of online and campus-based postsecondary education to approximately 106,800 students and career learning to approximately 17,000 individuals, through four subsidiary institutions, American Public University System, or APUS, Rasmussen University, or RU, Hondros College of Nursing, or HCN, and Graduate School USA, or GSUSA. Our subsidiary institutions offer purpose-built education programs and career learning designed to prepare individuals for productive contributions to their professions and society, and to offer opportunities designed to advance students in their current professions or to help them prepare for their next career. Our subsidiary institutions are licensed or otherwise authorized by state authorities to offer postsecondary education programs to the extent the institutions believe such licenses or authorizations are required, and APUS, RU, and HCN are certified by ED to participate in Title IV programs. Our Institutions Our wholly owned operating subsidiary institutions include the following: • American Public University System, Inc., referred to herein as APUS, provides online postsecondary education to approximately 88,500 adult learners, directed primarily at the needs of the military, veterans, extended military 25 families, and other public service and service-minded communities through two brands: American Military University, or AMU, and American Public University, or APU. As of June 30, 2025, approximately 64% 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 14,600 students at 20 campuses in six states and online. As of June 30, 2025, on-ground enrollment was 6,400, of which approximately 5,700 students were pursuing nursing degrees at RU, approximately 90% of whom were enrolled in RU’s pre-licensure nursing degree programs. At June 30, 2025, online enrollment was approximately 8,200 students. • National Education Seminars, Inc., referred to herein as Hondros College of Nursing, or HCN, provides nursing education to approximately 3,700 students at eight campuses in three states. HCN’s students are enrolled in its pre-licensure nursing degree programs or its Medical Assisting Diploma program. • American Public Training LLC, referred to herein as Graduate School USA, or GSUSA, provides career learning and leadership training in-person and online to the federal workforce. GSUSA operational activities are presented within Corporate and Other. In July 2025, APEI entered into a definitive agreement to sell all its membership interest in GSUSA, and the sale was completed on July 25, 2025. The Planned Combination of APUS, RU, and HCN On January 28, 2025, we announced the planned combination of APUS, RU, and HCN, or the Combination, which will result in a combined institution named American Public University System comprised of two divisions tentatively named (i) APUS Global, comprised of AMU and APU, and (ii) Rasmussen, comprised of RU’s campus-based and online nursing programs, RU’s healthcare programs, HCN’s campus-based nursing and healthcare programs, and RU’s non-healthcare programs, with final division names to be determined closer to closing of the Combination. The Combination constitutes a Change of Control, Structure or Organization pursuant to HLC policy and, accordingly, we needed to receive HLC approval prior to effectuating the Combination. APUS and RU jointly submitted an application for Change of Control, Structure or Organization. For HLC purposes, APUS will be the surviving institution, and the application sought approval for the Combination and the expansion of APUS’s HLC accreditation to include the RU and HCN programs and locations. HLC conducted a site visit in March 2025 related to the joint application. At its June 2025 meeting, HLC approved the Combination and continuation of accreditation upon implementation of the related transactions. We continue to engage with ED and HLC as to their preferred implementation process and timing for the Combination. As previously disclosed, we had anticipated completing the Combination in the third quarter of 2025 subject to obtaining required approvals and ED taking related actions. However, as a result of our ongoing dialogue with ED and HLC, we may seek to postpone implementation of the Combination, which could extend into the second quarter of 2026. Legislative and Regulatory Activity The One Big Beautiful Bill Act On July 4, 2025, the One Big Beautiful Bill Act, or the OBBBA, was signed into law. Among other things, the OBBBA amends portions of the Higher Education Act of 1965, as amended, makes changes to the Title IV programs, and restores certain ED regulations related to borrower defense to repayment and closed school discharge. The OBBBA will overhaul the structure of certain student loan programs. Effective July 1, 2026, it will eliminate Federal Direct PLUS loans for graduate and professional students, with limited grandfathering. The law also: fixes annual and aggregate loan limits for graduate students, with different caps depending on whether they are or have been professional students; creates a lifetime maximum aggregate amount for Title IV loans (other than a loan made to the student as a parent on behalf of a dependent); authorizes institutions to limit the amount of loans a student may borrow in an academic year provided such limit is applied consistently to all students enrolled in a program; and requires the amount of loan funds available under a student’s annual loan eligibility to be reduced proportionately to the degree to which that student is not enrolled on a full-time basis. The OBBBA also establishes an accountability framework, effective July 1, 2026, that institutions must satisfy at the program level in order for students in the program to continue to receive Federal Direct Loans, requiring that an undergraduate or graduate or professional program be ineligible for Federal Direct Loans if, in two out of three consecutive years, the median earnings of a cohort of program completers are less than the median earnings of working adults aged 25-34 with only a high school diploma or a bachelor’s degree, respectively, either in the state where the institution is located or, if fewer than 50% of 26 students at the institution reside in the institution’s state, the national average. If a program fails the earnings test for one year, institutions must notify students that the program is at risk of losing Federal Direct Loan eligibility. The OBBBA creates Workforce Pell Grants, effective July 1, 2026, for students enrolled in eligible workforce programs that satisfy certain requirements and limits eligibility for Pell Grants in certain ways. The OBBBA also changes existing U.S. tax laws, including extending or making permanent certain provisions of the Tax Cuts and Jobs Act, repealing certain clean energy initiatives, in addition to other changes. The Company anticipates the changes in tax laws will not have a material impact to deferred tax assets and liabilities, and to income taxes payable in the period of enactment. The Company continues to evaluate the impact the new legislation will have on the Consolidated Financial Statements. In September 2019, ED published modifications to its financial responsibility standards that took effect July 1, 2020, or the 2019 Borrower Defense Regulations. The 2019 Borrower Defense Regulations modified ED’s requirements with respect to the circumstances under which a borrower is eligible for a loan discharge if an institution or location closes. The OBBBA reinstates the 2019 Borrower Defense Regulations, and the closed loan discharge regulations that were in effect on June 30, 2023. On November 1, 2022, ED published final regulations with an effective date of July 1, 2023, to address borrower defense to repayment, closed school loan discharge, pre-dispute arbitration and class-action waivers, among other issues, or the 2022 Borrower Defense Regulations. The OBBBA also resets the effective date of the 2022 Borrower Defense Regulations, including the closed school loan discharge provisions, for July 1, 2035. American Public University System APUS participates in the Department of Defense, or DoD, tuition assistance, or TA, programs, and is required to sign a Memorandum of Understanding, or MOU, outlining certain commitments and agreements between the institution and DoD as a condition to participate in TA. In February 2025, ICP notified APUS that it will conduct a review of APUS compliance with the DoD MOU. On May 14, 2025, DoD issued a report that informed APUS that the review had been completed with no findings. Rasmussen University The Florida legislature passed legislation in May 2025 that would have subjected RU nursing programs to additional regulatory scrutiny by the Florida Board of Nursing and the Florida Department of Health. The legislation was vetoed by the governor on July 2, 2025. In May 2025, ED released RU from the temporary growth restrictions, imposed in connection with RU’s 2019 change in ownership, which preceded our acquisition of RU, that restricted RU from adding new programs and locations. The timing of the Combination could, however, delay our ability to seek approval from the HLC of new locations or programs. RU’s Moorhead, Minnesota Associate of Science Professional Nursing, or ADN program, and Practical Nursing Diploma, or PN program, which together contributed approximately 1% of RU’s quarterly revenue, are currently approved by Minnesota Board of Nursing, or MBN, but first-time NCLEX pass rates for each of these programs have been below the required standard for three consecutive years. In August 2024, MBN placed RU’s Moorhead, Minnesota PN program on conditional approval status and issued a corrective action order. The PN program’s NCLEX pass rate was required to meet the state standard by the end of June 2025, measured using cumulative pass rates from the preceding four quarters (i.e. , July 2024 to June 2025). The program met the standard and is awaiting the Board’s action at its August 2025 meeting. In June 2025, the MBN issued a stipulation and consent order with RU’s Moorhead, Minnesota ADN program to, among other things, meet applicable NCLEX pass rate standards by the end of 2025 for new candidates taking the licensing exam for the first time. If compliance is not achieved by December 31, 2025, the program will be given until June 30, 2026, to meet the required NCLEX pass rates based on the cumulative results from the first and second calendar quarters of 2026 for candidates, and, if not achieved, MBN may withdrawal program approval. Hondros College of Nursing As a requirement for accreditation, ABHES requires institutions to demonstrate at least a 70% retention rate for each program. For institutions not meeting the retention standard, ABHES may provide an opportunity for a program to come into compliance within a specified time period, and may extend such period if a program demonstrates improvement or for other good cause. For the reporting year ended June 30, 2024, HCN’s Cleveland and Dayton PN programs, and the Akron ADN program were below the 70% benchmark for retention. As a result, ABHES placed the Cleveland and Dayton PN programs and Akron ADN program on outcomes reporting status and required HCN to submit reports for each of these programs 27 demonstrating their retention rate met the standard through the first three quarters of the 2024-2025 reporting year by May 2025. These three programs met the 70% benchmark for the reporting period, and, as a result, at its July 2025 meeting, the ABHES Commission voted to remove retention reporting requirements. Graduate School USA GSUSA provides contract training to federal government agency customers and through direct enrollment by federal, state, and municipal government employees, contractors, and non-government employees. On July 10, 2025, APEI entered into a definitive agreement to sell all of its membership interest in GSUSA for $0.5 million, subject to customary adjustments, including for net working capital and cash. The sale was completed on July 25, 2025, and is expected to result in a loss on sale between $7.0 million and $8.5 million, subject to post-close adjustments for working capital and cash. Department of Education On July 7, 2025, ED issued an interpretative rule that revised a prior interpretation and clarified ED’s classification of revenue received by for-profit schools under the 90/10 Rule under which a for-profit institution is prohibited from deriving more than 90% of its revenue (as computed by ED) on a cash accounting basis from federal funds for any fiscal year. The interpretive rule specifies that for-profit schools will be allowed to count non-federal funds generated from programs offered entirely through distance education, if such programs satisfy certain criteria, as non-federal revenue in their 90/10 calculations, and may revise 90/10 Rule calculations for prior fiscal years to include revenue from distance education programs in the “10%” side of the ratio. Tuition Increases Providing affordable degree and certificate programs is an important element of our competitive strategy. In April 2024, APUS implemented a tuition increase to master’s level students across all categories, including military, non-military and veteran students, and in September 2024, APUS returned the military rate for master’s level students to the $250 per credit hour rate in effect prior to the April 2024 tuition increase. We believe that APUS’s tuition and fees remain lower than the average in-state cost at public universities. RU implemented modest tuition increases for all students in select programs in the first quarter of 2024, for new students in select programs in August 2024, and for returning students in select programs in October 2024. RU plans to implement modest tuition increases for new and reentering students in August 2025, for current students in non-prelicensure nursing programs in October 2025, and for prelicensure nursing program students in January 2026. HCN plans to implement a 5% increase in tuition and fees effective in the fourth quarter of 2025, for its ADN and PN programs. The tuition and fee increases at RU and HCN are intended to reflect adjustments to be consistent with the local campus markets. Even with 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 30 students, or less than 1% of RU’s current total enrollment. Reportable Segments Our operations are organized into 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. 28 Summary of Results Consolidated revenue for the three months ended June 30, 2025, increased to $162.8 million from $152.9 million, or by 6.5%, as compared to the prior year period. Our net income for the three months ended June 30, 2025, was $4.5 million, compared to $0.4 million in the prior year period, an increase of $4.1 million. The results for the three months ended June 30, 2025, include $1.7 million in pre-tax professional fees in Corporate and Other relating to the Combination and the sale of GSUSA. The results in the prior year period include a $1.1 million non-cash loss on sale of an equity investment in Corporate and Other, a $0.8 million pre-tax non-cash loss on leases in our RU Segment, $0.5 million in pre-tax 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 pre-tax information technology transition service costs in our APUS and HCN Segments, as well as Corporate and Other. Our operating margin improved to 4.3% for the three months ended June 30, 2025, as compared to 1.5% in the prior year period. Excluding the professional fees relating to the Combination in 2025 and the sale of GSUSA, the loss on leases, severance costs and information technology transition service costs in 2024, our operating margin was 5.4% and 2.4% for the three months ended June 30, 2025, and 2024, respectively. Consolidated revenue for the six months ended June 30, 2024, increased to $327.3 million from $307.3 million, or by 6.5%, as compared to the prior year period. Our net income for the six months ended June 30, 2024, was $13.4 million, compared to $0.9 million in the prior year period, an increase of $12.5 million. The results for the three months ended June 30, 2025, include $2.7 million in professional fees in Corporate and Other relating to the Combination and the sale of GSUSA, and a non-cash $1.5 million loss on assets held for sale in our APUS Segment, both on a pre-tax basis. 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 pre-tax information technology transition service costs in our APUS and HCN Segments as well as Corporate and Other, and $0.5 million in pre-tax 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. Our operating margin improved to 5.9% for the six months ended June 30, 2025, compared to 2.4%, in the prior year period. Excluding the loss on assets held for sale and professional fees relating to the Combination in 2025 and the sale of GSUSA, and the loss on leases, information technology transition service costs and severance costs in 2024, our operating margin was 7.2% for the six months ended June 30, 2025, compared to 4.4% for the six months ended June 30, 2024. APUS net course registrations for the three months ended June 30, 2025, increased to approximately 96,400 from approximately 89,800, an increase of 6,600, or 7.3%, as compared to the prior year period. APUS Segment revenue for the three months ended June 30, 2025, increased to $81.7 million from $77.0 million, or by 6.1%, as compared to the prior year period. The revenue increase for the period was less than the increase in net course registrations due the timing of course starts within the respective periods. APUS net course registrations for the six months ended June 30, 2025, increased to approximately 198,900 from approximately 188,800, an increase of 10,100, or 5.3%, as compared to the prior year period. APUS Segment revenue for the six months ended June 30, 2025, increased to $165.7 million from $157.7 million, or by 5.1%, as compared to the prior year period. APUS Segment operating margin increased to 26.2% for the three months ended June 30, 2025, from 23.7% in the prior year period, and increased to 27.5% for the six months ended June 30, 2025, from 26.2% in the prior year period. RU total enrollment for the three months ended June 30, 2025, increased to approximately 14,600 from approximately 13,600, an increase of 1,000, or 7.4%, as compared to the prior year period. RU Segment revenue for the three months ended June 30, 2025, increased to $59.5 million from $53.0 million, or by 12.2%, as compared to the prior year period. RU total enrollment for the six months ended June 30, 2025, increased approximately 7.4%, as compared to the prior year period. RU Segment revenue for the six months ended June 30, 2025, increased to $118.8 million from $106.2 million, or by 11.9%, as compared to the prior year period. The revenue increases for the three and six month periods were greater than the enrollment increases for the comparable prior year periods due to tuition increases in the second half of 2024. RU Segment operating margin improved to negative 3.3% for the three months ended June 30, 2025, from negative 16.6% in the prior year period, and improved to negative 1.7% for the six months ended June 30, 2025, from negative 16.8% in the prior year period. HCN total enrollment for the three months ended June 30, 2025, increased to approximately 3,700 from approximately 3,300, an increase of 400, or 13.5%, as compared to the prior year period. HCN Segment revenue for the three months ended June 30, 2025, increased to $18.1 million from $16.4 million, or by 10.5%, as compared to the prior year period. HCN total enrollment for the six months ended June 30, 2025, increased approximately 11.5%, as compared to the prior year period. HCN Segment revenue for the six months ended June 30, 2025, increased to $35.8 million from $32.9 million, or by 9.0%, as compared to the prior year period. The revenue increase for the three and six month periods were less than the enrollment increase due to the change in course load mix, and higher student enrollment from community partners which is at a lower revenue per student. HCN Segment operating margin improved to negative 2.2% for the three months ended June 30, 2025, from negative 4.5% in the prior year period, and remained unchanged at negative 3.2% for both the six month periods ended June 30, 2025 and 2024. 29 Critical Accounting Estimates Goodwill and indefinite-lived intangible assets. Goodwill is the excess of the purchase price of an acquired business over the fair value of the assets acquired and liabilities assumed, and the fair value assigned to identifiable intangible assets. Goodwill is not amortized. Goodwill is reported at the reporting unit level that we have defined as our reporting segments. 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. 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. No goodwill is recorded in our APUS Segment. 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 included intangible assets related to trade name, accreditation, licensing, and Title IV, and affiliate agreements. 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. There are no indefinite-lived intangible assets in our APUS Segment. We recorded $35.5 million, $4.4 million, and $1.0 million of identified intangible assets with a definite useful life in connection with the acquisitions of RU, HCN, and GSUSA, respectively. There are no definite-lived intangible assets in our APUS Segment. Goodwill and indefinite-lived intangible assets are tested for impairment at least annually, and more frequently if events or changes in circumstances exist that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The process of evaluating goodwill and indefinite-lived intangible assets for impairment is subjective and requires significant judgment and estimates. Impairment testing consists of an optional qualitative assessment as well as a quantitative test. When performing a qualitative assessment, we consider many factors, including general economic conditions, industry and market conditions, certain cost factors, financial performance and key business drivers (for example, student enrollment), long-term operating plans, and potential changes to significant assumptions and estimates used in the most recent fair value analysis. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions and estimates. Actual results may differ and have a material impact or our results of operations and financial position, and subsequent events are not necessarily indicative of the reasonableness of the original assumptions or estimates. We estimate fair value in our quantitative analysis by weighting the results from two different valuation approaches. They are: (1) discounted cash flow and (2) guideline public company. Under the discounted cash flow method, fair value is determined by discounting the estimated future cash flows of RU and HCN at their estimated weighted-average cost of capital. 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. 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. Values derived under the two valuation methods are then weighted to estimate RU and HCN’s enterprise values. If we determine that the carrying amount of a reporting unit exceeds its fair value, we then calculate the implied fair value of the reporting unit goodwill as compared to its carrying amount to determine the appropriate impairment charge. Although we believe our assumptions are reasonable, actual results may vary significantly and may expose us to material impairment charges in the future. Our methodology for determining fair values remained consistent for the periods presented. During the three months ended June 30, 2025, we completed a qualitative assessment for potential impairment of the 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. 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. Future changes, including minor changes in the significant assumption or other factors including 30 revenue, operating income, valuation multiples, and other inputs to the valuation process may result in future impairment charges, and those charges could be material. For more information regarding our Critical Accounting Policies and Use of Estimates, see the “Critical Accounting Policies and Estimates” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. Results of Operations 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, 2025, compared to the three and six months ended June 30, 2024. 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. Our student population varies as a result of new enrollments, graduations, student attrition, the success of our marketing programs, and other reasons that we cannot always anticipate. 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 June 30, 2025, increased to approximately 96,400 from approximately 89,800, an increase of 6,600, or 7.3%, as compared to the prior year period. APUS net course registrations for the six months ended June 30, 2025, increased to approximately 198,900 from approximately 188,800, an increase of 10,100, or 5.3%, as compared to the prior year period primarily due to an increase in registrations by students utilizing federal student aid and military-affiliated students utilizing education benefit programs administered by the U.S. Department of Veterans Affairs, or VA. APUS Segment operating margin increased to 26.2% for the three months ended June 30, 2025, from 23.7% in the prior year period and increased to 27.5% from 26.2% for the six months ended June 30, 2025, as compared to the prior year period. The increase in operating margin for the three months ended June 30, 2025, was primarily due to the increase in revenue and a decrease in information technology costs, partially offset by an increase in employee compensation costs, as compared to the prior year period. The increase in operating margin for the six months ended June 30, 2025, was primarily due to an increase in revenue and a decrease in professional fees, partially offset by the increase in employee compensation costs and the loss on assets held for sale, as compared to the prior year period. RU total enrollment for the three months ended June 30, 2025, increased to approximately 14,600 from approximately 13,600, an increase of 1,000, or 7.4%, as compared to the prior year period, driven by a 12.2% increase in online enrollment and a 3.2% increase in on-ground enrollment. RU total enrollment for the six months ended June 30, 2025, increased approximately 7.4%, as compared to the prior year period, driven by an 11.6% increase in online enrollment and a 3.2% increase in on-ground enrollment. RU Segment operating margin improved to negative 3.3% for the three months ended June 30, 2025, from negative 16.6%, in the prior year period. The improvement in the operating margin for the three months ended June 30, 2025, was primarily due to the increase in revenue as well as decreases in information technology costs, depreciation and amortization expenses, loss on leases, and occupancy costs, partially offset by an increase in employee compensation costs and classroom and materials costs, as compared to the prior year period. RU Segment operating margin improved to negative 1.7% for the six months ended June 30, 2025, from negative 16.8% in the prior year period. The improvement in the operating margin for the six months ended June 30, 2025, was primarily due to the increase in revenue as well as decreases in loss on leases, information technology costs, depreciation and amortization expenses, occupancy costs, and advertising costs, partially offset by an increase in employee compensation costs, as compared to the prior year period. HCN total enrollment for the three months ended June 30, 2025, increased to approximately 3,700 from approximately 3,300, an increase of 400, or 13.5%, as compared to the prior year period. HCN total enrollment for the six months ended June 30, 2025, increased approximately 11.5%, as compared to the prior year period. HCN Segment operating margin improved to negative 2.2% for the three months ended June 30, 2025, from negative 4.5% in the prior year period, and remained unchanged at negative 3.2% for both the six month periods ended June 30, 2025 and 2024. The improvement in the operating margin for the three months ended June 30, 2025, was primarily due to the increase in revenue as well as a decrease in occupancy costs, partially offset by increases in employee compensation costs, classroom and course materials 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. 31 Analysis of Consolidated Statements of Income The following table sets forth statements of income data as a percentage of revenue for each of the periods indicated: Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 (Unaudited) (Unaudited) Revenue 100.0 % 100.0 % 100.0 % 100.0 % Costs and expenses: Instructional costs and services 48.2 49.8 46.9 48.4 Selling and promotional 21.5 22.1 21.5 21.6 General and administrative 23.4 22.5 22.8 23.0 Depreciation and amortization 2.5 3.4 2.5 3.4 Loss on assets held for sale — — 0.5 — Loss on leases — 0.5 — 1.2 Loss on disposals of long-lived assets — 0.1 — 0.1 Total costs and expenses 95.7 98.5 94.1 97.6 Income from operations before interest and income taxes 4.3 1.5 5.9 2.4 Interest expense, net (0.7) (0.5) (0.6) (0.3) Income from operations before income taxes 3.6 0.9 5.3 2.1 Income tax expense 0.9 — 1.2 0.4 Equity investment loss — (0.7) — (1.4) Net income 2.8 0.2 4.1 0.3 Preferred stock dividend 0.8 1.0 0.8 1.0 Loss on redemption of preferred stock 2.2 — 1.1 — Net (loss) income available to common shareholders (0.2) % (0.8) % 2.2 % (0.7) % Three Months Ended June 30, 2025, Compared to Three Months Ended June 30, 2024 Revenue. Our consolidated revenue for the three months ended June 30, 2025, was $162.8 million, an increase of $9.9 million, or 6.5%, compared to $152.9 million for the three months ended June 30, 2024. The increase in revenue was primarily due to a $6.5 million, or 12.2%, increase in revenue in our RU Segment, a $4.7 million, or 6.1%, increase in revenue in our APUS Segment, and a $1.7 million, or 10.5%, increase in revenue in our HCN Segment, partially offset by a $3.1 million, or 47.5%, decrease in GSUSA revenue included in Corporate and Other. The RU Segment revenue increase was primarily due to a 7.4% increase in total student enrollment and the impact of tuition increases in 2024. The APUS Segment revenue increase was primarily due to a 7.3% increase in net course registrations, as compared to the prior year period. The HCN Segment revenue increase was primarily due to a 13.5% increase in total student enrollment, as compared to the prior year period. Costs and expenses. Costs and expenses for the three months ended June 30, 2025, were $155.7 million, an increase of $5.1 million, or 3.4%, compared to $150.7 million for the three months ended June 30, 2024. Costs and expenses for the three months ended June 30, 2025, included $1.7 million in pre-tax professional fees in Corporate and Other relating to the Combination and the sale of GSUSA. Costs and expenses in the prior year period included a $0.8 million 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, all on a pre-tax basis. Costs and expenses for the three months ended June 30, 2025, as compared to the prior year period, excluding the items noted above, increased $4.8 million, or 3.2%, due primarily to increases in employee compensation costs, professional fees, and classroom and course materials costs, partially offset by decreases in information technology costs, depreciation and amortization expenses, and occupancy costs. Costs and expenses as a percentage of revenue decreased to 95.7% for the three months ended June 30, 2025, from 98.5% for the three months ended June 30, 2024. Instructional costs and services expenses. Our instructional costs and services expenses for the three months ended June 30, 2025, were $78.4 million, an increase of $2.2 million, or 2.9%, compared to $76.2 million for the three months ended June 30, 2024. The increase in instructional costs and services expenses was primarily due to increases in faculty compensation costs in our RU, APUS, and HCN Segments due to an increase in registrations at APUS and enrollments at RU and HCN, and an 32 increase in classroom and course materials costs in our RU and HCN Segments, partially offset by decreases information technology costs in our RU Segment and occupancy costs in our RU and HCN Segments. Instructional costs and services expenses as a percentage of revenue decreased to 48.2% for the three months ended June 30, 2025, from 49.8% for the three months ended June 30, 2024. Selling and promotional expenses. Our selling and promotional expenses for the three months ended June 30, 2025, were $35.0 million, an increase of $1.2 million, or 3.6%, compared to $33.8 million for the three months ended June 30, 2024. The increase in selling and promotional expenses was primarily due to increases in employee compensation costs in all our segments, and an increase in advertising costs in our APUS and HCN Segments, partially offset by a decrease in advertising costs in our RU Segment. Selling and promotional expenses as a percentage of revenue decreased to 21.5% for the three months ended June 30, 2025, from 22.1% for the three months ended June 30, 2024. General and administrative expenses. Our general and administrative expenses for the three months ended June 30, 2025, were $38.1 million, an increase of $3.7 million, or 10.8%, compared to $34.4 million for the three months ended June 30, 2024. For the three months ended June 30, 2025, general and administrative expenses included $1.7 million in pre-tax professional fees relating to the Combination in Corporate and Other and the sale of GSUSA. General and administrative expenses in the prior year period included $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, both on a pre-tax basis. The increase in general and administrative expenses is primarily due to increases in employee compensation costs in Corporate and Other and our APUS Segment, and an increase in professional fees in Corporate and Other, partially offset by decreases in information technology costs in Corporate and Other and our APUS and RU Segments. Consolidated bad debt expense for the three months ended June 30, 2025, was $4.8 million, or 3.0% of revenue, compared to $4.3 million, or 2.8% of revenue in the prior year period. General and administrative expenses as a percentage of revenue increased to 23.4% for the three months ended June 30, 2025, from 22.5% for the three months ended June 30, 2024. As we continue to evaluate enhancements to our business capabilities, we may 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 $4.1 million for three months ended June 30, 2025, compared to $5.2 million in the prior year period, a decrease of $1.1 million, primarily related to the full amortization of all definite lived intangible assets in our RU Segment in 2024. Depreciation and amortization expenses as a percentage of revenue was 2.5% and 3.4% for the three months ended June 30, 2025, and 2024, respectively. Loss on disposals of long-lived assets. The loss on disposal of long-lived assets was $35,000 for the three months ended June 30, 2025, as compared to $184,000 for the three months ended June 30, 2024. Stock-based compensation expenses. Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses were $2.2 million and $1.8 million for the three months ended June 30, 2025, and 2024, respectively. Stock-based compensation costs included accelerated expense for retirement-eligible employees and performance stock unit incentive costs. Interest expense, net. Interest expense, net of interest and other income, was $1.1 million and $0.8 million for the three months ended June 30, 2025, and 2024, respectively. The increase in net interest expense in the three months ended June 30, 2025, as compared to the prior year period, was primarily due to an increase in interest expense due to the expiration of the interest rate cap in December 2024, and a decrease in interest income earned. Income tax expense (benefit). We recognized income tax expense of $1.4 million compared to a tax benefit $16,000 for the three months ended June 30, 2025, and 2024, respectively, or an effective tax rate of 24.0% in 2025, and negative 4.5% 2024. The effective tax rate in 2024 is primarily due to non-deductible stock compensation, partially offset by the $1.1 million equity investment loss not deductible for tax purposes. Equity investment loss. There was no equity investment loss for the three months ended June 30, 2025. The $1.1 million equity investment loss in the three months ended June 30, 2024, was related to the sale of our remaining equity method investment. Net income. Our net income was $4.5 million and $0.4 million for the three months ended June 30, 2025, and 2024, respectively, an increase of $4.1 million. This increase was related to the factors discussed above. Preferred stock dividends. Preferred stock dividends were $1.3 million and $1.5 million for the three months ended June 30, 2025, and 2024, respectively. 33 Loss on redemption of preferred stock. In June 2025, we redeemed all outstanding shares of our Series A Senior Preferred Stock for $43.1 million, excluding unpaid and accrued dividends of $1.4 million, resulting in a loss of $3.5 million related to the redemption premium and fees. Net loss available to common stockholders. The net loss available to common stockholders was $0.3 million for the three months ended June 30, 2025, compared to a net loss available to common stockholders of $1.2 million for the three months ended June 30, 2024, an improvement of $0.8 million. This improvement was related to the factors discussed above. Six Months Ended June 30, 2025, Compared to Six Months Ended June 30, 2024 Revenue. Our consolidated revenue for the six months ended June 30, 2025, was $327.3 million, an increase of $20.0 million, or 6.5%, compared to $307.3 million for the six months ended June 30, 2024. The increase in revenue was primarily due to a $12.6 million, or 11.9%, increase in revenue in our RU Segment, an $8.0 million, or 5.1% increase in revenue in our APUS Segment, and a $3.0 million, or 9.0%, increase in revenue in our HCN Segment, partially offset by a $3.6 million, or 33.6%, decrease in GSUSA revenue included in Corporate and Other. The RU Segment revenue increase, as compared to the prior year period, was primarily due to a 7.4% increase in total student enrollment and the impact of tuition increases in 2024. The APUS Segment revenue increase was primarily due to a 5.3% increase in net course registrations, as compared to the prior year period. The HCN Segment revenue increase was primarily due to an 11.5% increase in total student enrollment. Costs and expenses. Costs and expenses for the six months ended June 30, 2025, were $308.0 million, an increase of $8.1 million, or 2.7%, compared to $299.9 million for the six months ended June 30, 2024. Costs and expenses for the six months ended June 30, 2025, included $2.7 million in professional fees in Corporate and Other relating to the Combination and the sale of GSUSA, and a $1.5 million loss on assets held for sale in our APUS Segment, both on a pre-tax basis. Costs and expenses for the six months ended June 30, 2024, included a $3.7 million 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, all on a pre-tax basis. Costs and expenses for the six months ended June 30, 2025, as compared to the prior year period, excluding the items noted above, increased $10.2 million, due primarily to increases in employee compensation costs, classroom and course materials costs, professional fees and bad debt expense, partially offset by decreases in information technology costs and depreciation and amortization expenses. Costs and expenses as a percentage of revenue decreased to 94.1% for the six months ended June 30, 2025, from 97.6% for the six months ended June 30, 2024. Instructional costs and services expenses. Our instructional costs and services expenses for the six months ended June 30, 2025, were $153.4 million, an increase of $4.7 million, or 3.2%, compared to $148.6 million for the six months ended June 30, 2024. The increase in instructional costs and services expenses were primarily due to increases in faculty compensation costs in our RU, APUS, and HCN Segments due to an increase in registrations at APUS and enrollments at RU and HCN and an increase in classroom and course materials costs in our RU and HCN Segments, partially offset by a decrease in information technology costs in our RU Segment, a decrease in occupancy costs in our RU and HCN Segments, and a decrease in employee compensation costs in Corporate and Other related to the decrease in revenue at GSUSA. Instructional costs and services expenses as a percentage of revenue decreased to 46.9% for the six months ended June 30, 2025, from 48.4% for the three months ended June 30, 2024. Selling and promotional expenses. Our selling and promotional expenses for the six months ended June 30, 2025, were $70.3 million, an increase of $4.0 million, or 6.0%, compared to $66.3 million for the six months ended June 30, 2024. The increase in selling and promotional expenses were primarily due to increases in employee compensation costs in all of our segments, an increase in advertising costs in our APUS and HCN Segments, and marketing support costs in our RU Segment, partially offset by a decrease in advertising costs in our RU Segment. Selling and promotional expenses as a percentage of revenue decreased to 21.5% for the six months ended June 30, 2025, from 21.6% for the six months ended June 30, 2024. General and administrative expenses. Our general and administrative expenses for the six months ended June 30, 2025, were $74.6 million, an increase of $3.9 million, or 5.4%, compared to $70.7 million for the six months ended June 30, 2024. General and administrative expenses for the six months ended June 30, 2025, included $2.7 million in pre-tax professional fees relating to the Combination in Corporate and Other and the sale of GSUSA. General and administrative expenses for the six months ended June 30, 2024, included $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, both on a pre-tax basis. The increase in general and administrative expenses was primarily due to increases in employee compensation costs and professional fees in Corporate and Other, and bad debt expense in all of our segments, partially offset by a decrease in 34 information technology costs and employee compensation costs in our APUS and RU Segments. Consolidated bad debt expense for the six months ended June 30, 2025, was $9.8 million, or 3.0% of revenue, compared to $8.5 million, or 2.8% of revenue in the prior year period. General and administrative expenses as a percentage of revenue decreased to 22.8% for the six months ended June 30, 2025, from 23.0% for the six months ended June 30, 2024. As we continue to evaluate enhancements to our business capabilities, we may 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 $8.1 million for six months ended June 30, 2025, compared to $10.4 million in the prior year period, a decrease of $2.3 million primarily related to the full amortization of all definite lived intangible assets in our RU Segment in 2024. Depreciation and amortization expenses as a percentage of revenue was 2.5% and 3.4% for the six months ended June 30, 2025, and 2024, respectively. Loss on assets held for sale. For the six months ended June 30, 2025, the $1.5 million pre-tax non-cash loss on assets held for sale is for real property located in Charles Town, West Virginia in our APUS Segment. There was no loss on assets held for sale in the prior year. Loss on leases. RU Segment loss on leases was $3.7 million for the six months ended June 30, 2024. There was no loss on leases in the current year period. Loss on disposals of long-lived assets. The loss on disposal of long-lived assets was $0.3 million for the six months ended June 30, 2025, compared to a loss of $0.2 million for the six months ended June 30, 2024. Stock-based compensation expenses. Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses were $4.5 million and $3.7 million for the six months ended June 30, 2025, and 2024, respectively. Stock-based compensation costs included accelerated expense for retirement-eligible employees and performance stock unit incentive costs. Interest expense, net. Interest expense, net of interest and other income, was $2.0 million and $0.9 million for the six months ended June 30, 2025, and 2024, respectively. The increase in net interest expense was primarily due to an increase in interest expense due to the expiration of the interest rate cap in December 2024, and a decrease in interest income earned, as compared to the prior year period. Income tax expense. We recognized income tax expense of $3.9 million and $1.2 million for the six months ended June 30, 2025, and 2024, respectively, or an effective tax rate of 22.5% and 57.4%, respectively. The effective tax rate in 2025 was positively impacted by excess tax benefits related to stock compensation. 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 period. Equity investment loss. There was no equity investment loss for the six months ended June 30, 2025. The equity investment loss of $4.4 million for six months ended June 30, 2024 was related to a $3.3 million non-cash investment loss on an equity investment due to the investee entering into a new convertible debt agreements, 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 sale of our remaining equity method investment. Net income. Our net income was $13.4 million and $0.9 million, for the six months ended June 30, 2025, and 2024, respectively, an increase of $12.5 million. This increase was related to the factors discussed above. Preferred stock dividends. Preferred stock dividends were $2.8 million and $3.1 million, for the six months ended June 30, 2025, and 2024, respectively. Loss on redemption of preferred stock. In June 2025, we redeemed all of our outstanding Series A Senior Preferred Stock for $43.1 million, excluding unpaid and accrued dividends of $1.4 million, resulting in a loss of $3.5 million related to the redemption premium and fees. Net income (loss) available to common stockholders. The net income available to common stockholders was $7.1 million, for the six months ended June 30, 2025, compared to a net loss available to common stockholders of $2.2 million for the six months ended June 30, 2024, an improvement of $9.3 million. This improvement was related to the factors discussed above. 35 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 June 30, Six Months Ended June 30, 2025 2024 2025 2024 (Unaudited) (Unaudited) Revenue: APUS Segment $ 81,731 $ 77,048 $ 165,677 $ 157,704 RU Segment 59,521 53,034 118,772 106,169 HCN Segment 18,134 16,409 35,810 32,856 Corporate and Other 3,380 6,404 7,058 10,598 Total revenue $ 162,766 $ 152,895 $ 327,317 $ 307,327 Income (loss) from operations before interest and income taxes: APUS Segment $ 21,442 $ 18,291 $ 45,568 $ 41,378 RU Segment (1,976) (8,826) (2,048) (17,792) HCN Segment (402) (744) (1,148) (1,048) Corporate and Other (12,039) (6,501) (23,101) (15,136) Total income from operations before interest and income taxes $ 7,025 $ 2,220 $ 19,271 $ 7,402 APUS Segment For the three months ended June 30, 2025, the $4.7 million, or 6.1%, increase to approximately $81.7 million in revenue in our APUS Segment was primarily attributable to higher net course registrations, as compared to the prior year period. Net course registrations increased 7.3% to approximately 96,400 from approximately 89,800 in the prior year period, primarily due to an increase in registrations by students utilizing federal student aid and military-affiliated students utilizing VA. Income from operations before interest and income taxes increased to $21.4 million during the three months ended June 30, 2025, from $18.3 million in the prior year period, an increase of $3.2 million, or 17.2%, and was primarily due to an to the increase in revenue and a decrease in information technology costs, partially offset by an increase in employee compensation costs, as compared to the prior year period. For the six months ended June 30, 2025, the $8.0 million, or 5.1%, increase to approximately $165.7 million in revenue in our APUS Segment was primarily attributable to higher net course registrations, as compared to the prior year period. Net course registrations increased 5.3% to approximately 198,900 from approximately 188,800 in the prior year period, primarily due to an increase in registrations by students utilizing federal student aid military-affiliated students utilizing VA. Income from operations before interest and income taxes increased to $45.6 million during the six months ended June 30, 2025 from $41.4 million in the prior year period, an increase of $4.2 million, or 10.1%, as a result of the increase in revenue and a decrease in professional fees, partially offset by increases in employee compensation costs and the loss on assets held for sale, as compared to the prior year period. RU Segment For the three months ended June 30, 2025, the $6.5 million, or 12.2%, increase to approximately $59.5 million in revenue in the RU Segment was primarily due to a 7.4% increase in total student enrollment which was driven by a 12.2% increase in online enrollment and a 3.2% increase in on-ground enrollment, as compared to the prior year period, and the impact of tuition increases in 2024. The loss from operations before interest and income taxes was $2.0 million and $8.8 million for the three months ended June 30, 2025, and 2024, respectively, an improvement of $6.9 million primarily due to the increase in revenue as well as decreases in information technology costs, depreciation and amortization expenses, and loss on leases, partially offset by an increase in employee compensation costs, as compared to the prior year period. For the six months ended June 30, 2025, the $12.6 million, or 11.9%, increase to approximately $118.8 million in revenue in the RU Segment was primarily due to a 7.4% increase in total student enrollment which was driven by a 11.6% increase in online enrollment and a 3.2% increase in on-ground enrollment, as compared to the prior year period, and the impact of tuition increases in 2024. The loss from operations before interest and income taxes was $2.0 million and $17.8 million for 36 the six months ended June 30, 2025, and 2024, respectively, an improvement of $15.7 million primarily due to the increase in revenue as well as decreases in loss on leases, information technology costs, and depreciation and amortization expenses, partially offset by an increase in employee compensation costs, classroom and course materials costs, and bad debt expense, as compared to the prior year period. HCN Segment For the three months ended June 30, 2025, the $1.7 million, or 10.5%, increase to approximately $18.1 million in revenue in our HCN Segment was primarily due to a 13.5% increase in total student enrollment, as compared to the prior year period. The loss from operations before interest and income taxes was $0.4 million and $0.7 million during the three months ended June 30, 2025, and 2024, respectively, an improvement of $0.3 million, primarily due to the increase in revenue, partially offset by increases in employee compensation costs, classroom and course materials costs, and bad debt expense, as compared to the prior year period. For the six months ended June 30, 2025, the $3.0 million, or 9.0%, increase to approximately $35.8 million in revenue in our HCN Segment was primarily due to a 11.5% increase in total student enrollment, as compared to the prior year period. The loss from operations before interest and income taxes was $1.1 million and $1.0 million during the six months ended June 30, 2025, and 2024, respectively, a decline of $0.1 million, primarily due to an increase in employee compensation costs, bad debt expense, and classroom and course materials costs partially offset by the increase in revenue and decrease in professional fees. Liquidity and Capital Resources Liquidity Cash and cash equivalents were $176.6 million and $158.9 million at June 30, 2025, and December 31, 2024, respectively, representing an increase of $17.6 million, or 11.1%. The increase in cash was primarily due to the collection of TA accounts receivable at APUS, the proceeds from the sale of assets held for sale, and the improved financial performance at RU, partially offset by the redemption of our Series A Senior Preferred Stock. We have historically financed operating activities and capital expenditures with cash provided by operating activities. We expect to continue to fund our costs and expenses through cash generated from operations for the next twelve months and beyond. For more on our material cash requirements from known contractual and other obligations, please refer to the section entitled “Contractual Obligations” in Item 7 of Part II of our Annual Report. We derive a significant portion of our revenue from our participation in ED’s Title IV programs, for which disbursements are governed by federal regulations. We have typically received disbursements under Title IV programs within 30 days of the start of the applicable course or term. Another significant source of revenue is derived from TA from DoD and programs from VA. Generally, these funds are received within 60 days of the start of the courses to which they relate. However, in September 2023, APUS changed its approach to invoicing for TA, taking longer to bill TA, which had the effect of delaying payments from 2023 to 2024. Due to this change in the approach to invoicing TA in the fourth quarter of 2023, APUS collected approximately $22.1 million from TA related to periods prior to 2024. In January 2024, APUS separately revised its billing policy for students utilizing TA from two weeks to five weeks after course start date to nine weeks after the course start date. In December 2024, APUS again changed its approach to invoicing for TA, taking longer to bill TA, which had the effect of delaying payments from 2024 to 2025. As a result, during the six months ended June 30, 2025, due to this change in the approach to invoicing TA in the fourth quarter of 2024, APUS collected approximately $32.5 million from TA related to periods prior to 2025. While the change in billing approach positively impacted the “90%” side of the ratio in 2024 under the 90/10 Rule, it reduced operating cash flow in 2024, increased operating cash flow in 2025, may result in increased bad debt expense in 2025, and may cause the “90%” side of the ratio to increase in 2025 or future years, which could have an adverse impact on our cash flow and results of operations, as well as APUS’s ability to comply with the 90/10 Rule in 2025 or future years. In order to comply in 2025 or future years, we may implement similar changes in our billing approach. The change in billing practice added to our accounts receivable as of December 31, 2024, and resulted in an increase to our leverage ratios as of December 31, 2024, under our Credit Agreement and the purchase agreement for the shares of Series A Senior Preferred Stock as further discussed in “Note 8. Long-Term Debt” and “Note 12. Preferred Stock” included in the Consolidated Financial Statements in this Quarterly Report. ED evaluates institutions on an annual basis for compliance with specified financial responsibility standards, including a composite score calculation based on a complex formula using line items from the institution’s audited financial statements. 37 Generally, an institution’s composite score must be at least 1.5 for the institution to be deemed financially responsible. A composite score between 1.0 and 1.5 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” as set forth in ED regulations. On April 9, 2025, ED notified us that according to its calculations, we had a fiscal year end 2023 consolidated composite score of 1.3 and our institutions were therefore in the “zone.” On April 13, 2025, we timely informed ED that we selected the “zone alternative” as the alternative basis on which we establish financial responsibility. As a result, APUS, RU and HCN currently operate under the zone alternative to establish financial responsibility. Under the zone alternative, we are required to: (i) make Title IV disbursements to eligible students and parents under the heightened cash monitoring payment method, or HCM1, pursuant to which we would be required to first make disbursements to eligible students and parents and pay any credit balances before we request or receive funds from ED for the amount of those disbursements; (ii) notify ED of certain oversight and financial events; and (iii) require our auditors to express an opinion on our compliance with the requirements under the zone alternative. Our placement on HCM1 status did not have a significant impact on our financial results for the three and six months ended June 30, 2025, and 2024. As of December 31, 2024, restricted cash included a $25.4 million restricted certificate of deposit 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. In May 2025, the letter of credit was released by ED, and the related cash was thereby no longer restricted. Our Credit Agreement contains 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 Total Net Leverage Ratio, under the Credit Agreement, at June 30, 2025, was negative 0.31 due to the growth in both cash and earnings, and the reduction in restricted cash. The net leverage ratio at December 31, 2024 was 0.20. While we do not anticipate that a higher leverage ratio will have material limitations on our expected operations for 2025, it could result in reduced operational flexibility in 2026 and future years. 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 or the consolidation of existing 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. We also expect to continue to explore opportunities to invest in the education industry, which could include purchasing or investing in other education-related companies or companies developing new technologies. On January 28, 2025, we announced the Combination. For the period ended June 30, 2025, we incurred approximately $2.4 million in professional fees related to the Combination, and we expect to incur between approximately an additional $1.0 million and $2.0 million in professional fees for the remainder of 2025 in connection with the Combination. On June 23, 2025, APEI redeemed all 400 outstanding shares of Series A Senior Preferred Stock for $43.1 million, excluding unpaid and accrued dividends of $1.4 million. Accordingly, no shares of preferred stock were issued or outstanding at June 30, 2025. For additional details regarding the redemption of the Series A Senior Preferred Stock, please refer to “Note 12. Preferred Stock” included in our Consolidated Financial Statements. Operating Activities Net cash provided by operating activities was $51.8 million and $33.2 million for the six months ended June 30, 2025, and 2024, respectively. The increase in cash from operating activities was primarily due to the collection of TA accounts receivable at APUS related to the 2024 change in TA billing approach, the improved financial performance at RU, and other changes in working capital due to the timing of receipts and payments. Accounts receivable at June 30, 2025, decreased approximately $24.9 million compared to December 31, 2024, primarily related to TA collections in our APUS Segment. Accounts payable, accrued liabilities, and accrued compensation and benefits at June 30, 2025, were approximately $2.4 million higher than December 31, 2024. Investing Activities Net cash provided by investing activities was $15.4 million for the six months ended June 30, 2025, compared to $11.4 million of net cash used in investing activities for the six months ended June 30, 2024. For the six months ended June 30, 2025, cash provided by investing activities includes $23.0 million in proceeds from the sale of assets held for sale. Capital expenditures were $7.6 million and $11.4 million for the six months ended June 30, 2025, and 2024, respectively. Prior year period capital expenditures were higher than the current year period primarily due to campus consolidations at RU and relocations at HCN that occurred in the prior year period. 38 Financing Activities Net cash used in financing activities was $49.5 million and $9.9 million for the six months ended June 30, 2025, and 2024, respectively. The increase in cash used in financial activities is due to our redemption of our Series A Senior Preferred Stock in June 2025 for $43.1 million, excluding unpaid and accrued dividends of $1.4 million. Financing activities include preferred stock dividends paid of $2.8 million and $3.1 million for the six months ended June 30, 2025, and 2024, respectively. Financing activities for the six months ended June 30, 2024, include $2.8 million paid for the repurchase of 251,146 shares of common stock, and $2.6 million in principal payments on our long term debt. Contractual Commitments We have various contractual obligations consisting of operating leases and purchase obligations. Purchase obligations include agreements with consultants, contracts with third-party service providers, and other future contracts or agreements. For a summary of our contractual obligations, please refer to Item 7 of Part II of our Annual Report.